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TMI BlogIncome-tax deduction from salaries during the financial year 1994-95 under section 192 of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... mes above Rs. 1,20,000. The surcharge of 12 per cent. has been abolished by the Finance Act, 1994, in the case of individuals from the financial year 1994-95 onwards. An extract of Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1994, containing the tax rates applicable, is given at annexure I. 3. The substance of the main provisions of law in so far as they relate to income chargeable under the head "Salaries" on which tax is to be deducted at source during the financial year 1994-95 is given hereunder : (i) Sub-section (1) of section 192 provides that the person responsible for paying any income chargeable under the head "Salaries" shall, at the time of making payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year, in which the payment is made, on the estimated income under this head. The provisions of sub-section (3) of the said section are intended for making adjustment for any excess or shortfall in the deduction of tax made during the financial year. The aggregate tax thus calculated on the estimated income, divided by 12 and rounded off to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot regarded as perquisites received by the employee unless the employee's income under the head "Salary" exclusive of the value of any benefit or amenity not provided for by way of monetary payment exceeds Rs. 24,000. (vi) In cases where salary is received from more than one employer, the aggregate salary from these employers will have to be taken into account for the purpose of tax deduction at source. Exemption/deductions in computing total income : 4. The exemptions/deductions which can be taken into account for computing the total income of an employee are discussed hereunder : (i) The value of any travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding (a) on leave to any place in India, or (b) on retirement from service, or, after termination of service to any place in India is exempt under clause (5) of section 10 subject, however, to the conditions prescribed in rule 2B of the Income-tax Rules, 1962. For the purpose of this clause, "family" in relation to an individual means-- (1) The spouse and children of the individual ; and (2) the parents, brothers and si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. These limits shall not apply in the case where the compensation is paid under any scheme which is approved in this behalf by the Central Government, having regard to the need for extending special protection to the workmen in the undertaking to which the scheme applies and other relevant circumstances. (vi) Under section 10(10C), as amended by the Finance Act, 1994, any payment received by an employee of the following bodies at the time of his voluntary retirement is exempted from income-tax to the extent of Rs. 5 lakhs, provided the scheme of voluntary retirement has been framed in accordance with the guidelines prescribed under rule 2BA of the Income-tax Rules, 1962 : (a) a public sector company ; (b) any other company ; (c) an authority established under a Central, State or Provincial Act ; (d) a local authority ; (e) a co-operative society ; (f) a university established or incorporated by or under a Central, State or Provincial Act, or an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 ; (g) an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance or any portion thereof from the total income of the employee. Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance up to Rs. 600 per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent. (viii) Clause (14) of section 10 provides for exemption of the following allowances : (a) Any special allowance or benefit granted to an employee to meet the expenses incurred in the performance of his duties, which the Central Government may specify by notification in the Official Gazette ; (b) any allowance granted to an assessee either to meet his personal expenses at the place of his posting or at the place he ordinarily resides or to compensate him for the increased cost of living, which the Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he performance of the duties of an office or employment of profit. It may be noted that the dearness allowance and city compensatory allowance granted to an employee are not covered by the aforesaid notifications ; these allowances will clearly be part of income and will have to be taken into account in the computation of income for the purpose of deduction of tax at source. The reimbursement of tuition fee is also not exempt from tax. (ix) Under section 10(15)(iv)(i) of the Income-tax Act, interest payable by the Government on deposits made by an employee of the Central Government or a State Government or a public sector company from out of his retirement benefits, in accordance with such scheme framed in this behalf by the Central Government and notified in the Official Gazette is exempt from income-tax. By Notification No. F.2/14/89-NS-II, dated 7-6-1989 (see [1990] 182 ITR (St.) 63), as amended by Notification No. 2/14/89-NS-II, dated 12-10-1989 (see [1994] 209 ITR (St.) 72), the Central Government has notified a scheme called the Deposit Scheme for Retiring Government Employees, 1989, for the purpose of the said clause. (x) (a) Under section 16 of the Income-tax Act, as ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny member of his family, in any hospital maintained by the employer ; (b) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or of any member of his family _ (i) in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees ; (ii) in respect of the prescribed diseases or ailments, in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines : Provided that, in a case falling in sub-clause (ii), the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital. It may be noted that the benefit in respect of the perquisite mentioned in (b) above is allowable retrospectively with effect from the 1st day of April, 1993. (c) premium paid by the employer in respect of medical insurance taken for his employees (under any scheme approved by the Central Government) or reimbursement of insurance premium to the employees who take medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture on the medical treatment (including nursing), training and rehabilitation of a handicapped dependent relative, suffering from permanent physical disability (including blindness) or mental retardation, specified in rule 11A of the Income-tax Rules, 1962. The deduction will be available to all assessees without any restriction with regard to their total income. The permanent physical disability or mental retardation of the dependent relative has to be certified by a physician, surgeon, oculist or a psychiatrist, as the case may be, working in a Government hospital, including a departmental dispensary or a hospital maintained by a local authority as per Explanation given below section 80DD. The drawing and disbursing officers should, therefore, call for such particulars/certificates/information from the employees as they deem necessary to verify the genuineness of the claim before they allow this deduction. (xiv) Under section 80E which has been introduced into the Income-tax Act, 1961, by the Finance Act, 1994, with effect from 1-4-1995 (i.e., applicable in respect of assessment year 1995-96 and subsequent years), a deduction will be allowed in respect of repayment of loan ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orial Trust or the Rajiv Gandhi Foundation, 50 per cent. of such contributions may be deducted in computing the total income of the employee. Similarly, the donations to the Prime Minister's National Relief Fund, the Prime Minister's Armenia Earthquake Relief Fund, the Africa (Public Contributions_India) Fund, the National Foundation for Communal Harmony, and the Chief Minister's Earthquake Relief Fund, Maharashtra, will be eligible for 100 per cent. deduction. The existing restriction in section 80G that deduction will be allowed only if the aggregate of donations made in a year is Rs. 250 or more, has been removed by the Finance Act, 1994. Now, all eligible donations, without any lower limit, will be deductible under the provisions of section 80G with effect from 1-4-1994 (i.e., for the assessment year 1994-95 and subsequent years). (xvi) Under section 80GG of the Act, an assessee is entitled to a deduction in respect of house rent paid by him for his own residence at the places specified under rule 11B of the Income-tax Rules, 1962. Such deduction is permissible subject to the following conditions : (a) the assessee has not been in receipt of any house rent allowance specifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India, an amount equal to the following shall be allowed as deduction in computing the total income of the individual : (i) fifty per cent. of the remuneration, or (ii) seventy-five per cent. of such remuneration as is brought into India, by, or, on behalf of, the assessee in accordance with the Foreign Exchange Regulation Act, 1973, and any rules made thereunder, whichever is higher. In the case of an employee of the Central Government or any State Government, or, a person who was, immediately before taking up the service outside India, in the employment of the Central Government or any State Government, the deduction will be allowed only if the service of the employee is sponsored by the Central Government. In the case of any other individual, the deduction will be allowed only if he is a "technician" and the terms and conditions of his service outside India are approved for the purpose of the said section by the Central Government or the prescribed authority. It is pertinent to note that the deduction is to be allowed with reference to the remuneration received by the individual in foreign currency for services rendered outside India. Thus, if the remuneration is paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , during the previous year, out of his income chargeable to tax, from the income-tax payable by him on his total income :_ (i) Payment of insurance premium to effect or to keep in force an insurance on the life of the individual, the wife or husband or any child of the individual. (It may be noted that any premium or other payment made on a policy as is not in excess of 10 per cent. of the sum assured, will alone qualify for deduction) ; (ii) any payment made to effect or to keep in force a contract for a deferred annuity, not being an annuity plan as is referred to in item (viii) hereinbelow on the life of the individual, the wife or husband or any child of the individual, provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity ; (iii) any sum deducted from the salary payable by, or, on behalf of the Government to any individual, being a sum deducted in accordance with the conditions of his service for the purpose of securing to him a deferred annuity or making provision for his wife or children, in so far as the sum deducted does not exceed one-fifth of the salary ; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India established under the Unit Trust of India Act, 1963, as the Central Government may, by notification in the Official Gazette, specify in this behalf ; (xi) any subscription made to any such deposit scheme of, or, any contribution made to any such pension fund set up by, the National Housing Bank, as the Central Government may, by notification in the Official Gazette, specify in this behalf ; (xii) any subscription made to any such deposit scheme (not being a scheme the interest on deposits whereunder qualifies for deduction under section 80-L), as the Central Government may, by notification in the Official Gazette, specify for the purpose of being floated by (a) public sector companies engaged in providing long-term finance for construction or purchase of houses in India for residential purposes, or, (b) any authority constituted in India by, or, under any law, enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both ; (xiii) any sums paid by an assessee for the purpose of purchase or construction of a residential house property, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... geable for such assessment year. It may be noted that the amount which will qualify for tax rebate in respect of this item will not exceed Rs. 10,000. In respect of repayment of loans taken for the purchase or construction of a new residential house property the construction of which does not get completed by the end of the financial year 1994-95, no tax rebate in respect of these items shall be admissible to the employees. 5.1 Subject to the limits mentioned for the various items, the entitlement to tax rebate will be calculated at the rate of 20 per cent. of the total amount of the aforesaid savings, etc., in the case of individuals, and, at the rate of 25 per cent. in the case of an author or playwright or artist or musician or actor or sportsman (including an athlete) whose income derived from the exercise of his profession as such author/playwright/artist/musician/actor/sportsman/athlete constitutes twenty-five per cent. or more of his total income. The maximum tax rebate allowable will be Rs. 12,000 generally, and Rs. 17,500 in the case of authors, playwrights, artists, musicians, actors, sportsmen and athletes. There will, therefore, be an overall limit for savings which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of income-tax on the total income of the assessee with which he is chargeable. (b) Rounding off. _ It may also be noted that the total income computed in accordance with the provisions of the Act should be rounded off to the nearest multiple of ten rupees by ignoring the fraction less than five rupees and increasing the fraction which is five rupees or more, to ten rupees. Similarly, the net amount of tax deductible should be rounded off to the nearest rupee by ignoring the fraction less than 50 paise and increasing the fraction which is fifty paise or more, to one rupee. Miscellaneous provisions for information/guidance of DDOs : 7. As stated in para 3 above, sub-section (1) of section 192 makes the person responsible for paying salary, also responsible for deducting income-tax at source from the payment of salary. The scope of deduction of tax at source from "Salaries" was further modified by the Finance Act, 1987, by the insertion of sub-sections (2), (2A) and (2B) in section 192. The salient features of these provisions are given below :_ (a) Sub-section (2) of section 192 deals with situations where an individual is working under more than one employer or has changed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct which should be taken into account by the Drawing and Disbursing Officer while deducting tax at source. 7.2 In the case of pensioners who receive their pension from a nationalised bank, the instructions contained in this circular shall apply in the same manner as they apply to salary income. The deductions from the amount of pension on account of standard deduction under section 16 and the tax rebate under section 88B (in the case of pensioners, resident in India, who are 65 years of age or more, and whose gross total income does not exceed Rs. 1,00,000) will be allowed by the concerned bank at the time of deduction of tax at source from the pension, before making payment to the concerned pensioner. As regards the tax rebate under section 88 on account of contribution to the Life Insurance, Provident Fund, NSC, etc., if the pensioners furnish the relevant details to the banks, the tax rebate at the specified rate may also be allowed. Necessary instructions in this regard were issued by the Reserve Bank of India to the State Bank of India and other nationalised banks, vide RBI's Pension Circular (Central Series) No. 7/C.D.R./1992 (Ref.CO:DGBA:GA(NBS) No. 60/GA.64(11CVL)-91/92), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy therein the amount deducted and certain other particulars. This certificate, usually called the TDS certificate, has to be furnished within a period of one month from the end of the relevant financial year, in the case of employees receiving salary income. The certificate has to be issued in Form No. 16 which has been prescribed under Board's Notification No. S.O. 148(E), dated 28-2-1991 (see [1991] 188 ITR (St.) 89). A specimen of the certificate is enclosed as annexure-III. This certificate is to be issued on the tax deductor's own stationery. If he fails to issue the TDS certificate to the person concerned as required by section 203, he will be liable to pay, by way of penalty, under section 272A, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200, for every day during which the failure continues. 8.3 According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the Tax-deduction Account Number (TAN) in the challans, TDS certificates, returns, etc. Detailed instructions in this regard are available in this Department's Circular No. 497 (F.No.275/118/87-IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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