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TMI BlogIncome-tax deduction from salaries during the financial year 1995-96 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 ..... Rs. 40,000. 2. Where the total income exceeds 20 per cent. of the amount by which Rs. 40,000 but does not exceed the total income exceeds Rs.40,000. Rs. 60,000. 3. Where the total income exceeds Rs. 4,000 plus 30 per cent. of the Rs. 60,000 but does not exceed amount by which the total income Rs. 1,20,000 exceeds Rs. 60,000. 4. Where the total income exceeds Rs. 22,000 plus 40 per cent. of the Rs. 1,20,000 amount by which the total income exceeds Rs. 1,20,000 It may be noted that the income-tax exemption limit for individuals has been raised from Rs. 35,000 to Rs. 40,000 and that there is no surcharge applicable. 3. Section 192 of the Income-tax Act, 1961: 3.1 Every person who is responsible for paying any income chargeable under the head "Salaries" shall deduct income-tax on the estimated income of the assessees under the head "Salaries" for the financial year 1995-96. The income-tax is required to be calculated at the average of income-tax computed on the basis of the rates given above and shall be deducted at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38/87-IT(B)], dated 8th February, 1988. 3.5 The provisions of sub-section (3) of section 192 are intended for making adjustment for any excess or shortfall in the deduction of tax made during the financial year. 3.6 The trustees of recognised provident funds, or any person authorised by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 of Part A of the Fourth Schedule to the Act applies, at the time when accumulated balance due to an employee is paid, make therefrom the deduction provided in rule 10 of Part A of the Fourth Schedule. 3.7 There any contribution made by an employer, including interest on such contributions, if any, in an approved superannuation fund is paid to the employee, tax on the amount so paid shall be deducted by the trustees of the fund to the extent provided in rule 6 of Part B of the Fourth Schedule to the Act. 3.8 For the purposes of deduction of tax on salary payable in foreign currency, the value in rupees of such salary shall be calculated at the prescribed rate of exchange. 4. Persons responsible for deducting tax and their duties: 4.1 Under clause (i) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted 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 the Board's Notification No. S.O. 148(E), dated 28th February, 1991. A specimen of the certificate is enclosed as annexure "II". 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. 4.7 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 No.(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(B)], dated 9th October, 1987. If a person fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the Central Government through book adjustment, care should be taken to ensure that the correct amount of income-tax is reflected therein. 4.11 In the case of pensioners who receive 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 deduction 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 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 (Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee from his residence to his office or other place of work or from such office or place to his residence shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purpose. (5) Other benefits or amenities provided free of cost or at concessional rates to the employees like supply of gas, electric-energy, water for household consumption, educational facilities, etc., should also be taken into account for the purpose of computing the estimated salary income of the employees during the current financial year (example 3 at annexure "I" illustrates computation of some such perquisites). The valuation has to be done in accordance with rule 3 of the Income-tax Rules. (6) The value of any benefit or amenity granted or provided free of cost or at concessional rate by an employer to an employee (not being a director of the company or a person who has substantial interest in the company) is not 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. 5.2 Incomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f retirement on superannuation, or otherwise, subject to a maximum of eight months' leave. This exemption will be further limited to the maximum amount specified by the Government of India Notification No. S.O. 553(E) (F.No.142/11/88-TPL), dated 8th June, 1988, at Rs.79,920. (5) Under section 10(10B), the retrenchment compensation received by a workman is exempt from income-tax subject to certain limits. The maximum amount of retrenchment compensation exempt is the sum calculated on the basis provided in section 25F(b) of the Industrial Disputes Act, 1947, or any amount not less than Rs.50,000 as the Central Government may, by notification specify in the Official Gazette, whichever is less. 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. (6) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod; or (b) The actual expenditure incurred in payment of rent in excess of one-tenth of the salary due for the relevant period; or (c) Where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50 per cent. of the salary due to the employee for the relevant period; or (d) Where such accommodation is situated in any other place, 40 per cent. of the salary due to the employee for the relevant period, whichever is the least. For this purpose, "salary" includes dearness allowance, i.e., if the terms of employment so provide, but excludes all other allowances and perquisites. It has to be noted that only the expenditure actually incurred on the payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the house rent allowance or any portion thereof from the total income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Retiring Employees, 1989, for the purpose of the said clause. (12) Under section 17 of the Act, exemption from tax will also be available in respect of :- (a) the value of any medical treatment provided to an employee or any 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. (c) premium paid by the employer in respect of medical insurance taken for his employes (under any scheme approved by the Central Government) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction. In the case of a non-Government employee, deduction for entertainment allowance to the extent specified in sub-clause (b) of clause (ii) of section 16 will be given only if the allowance is regularly received by him from his present employer from the date prior to April 1, 1955. (iii) The tax on employment within the meaning of clause (2) of article 276 of the Constitution of India, leviable by, or, under any law, shall also be allowed as a deduction in computing the income under the head "Salaries". 5.4 Deductions under Chapter VI-A of the Act: The following deductions under Chapter VI-A of the Act are available: (1) Under section 80D, in the case of the following categories of persons, a deduction can be allowed for a sum not exceeding Rs.6,000 per annum to the extent payment is made by cheque out of their income chargeable to tax to keep in force an insurance on the health of the categories of persons mentioned below provided that such insurance is in accordance with the scheme framed by the Central Insurance Corporation of India as approved by the Central Government, popularly known as "Mediclaim". The categories of persons are: (a) where the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table institution for the purpose of pursuing his higher education, or interest on such loan; Provided that the amount which may be so deducted shall not exceed twenty-five thousand rupees. (ii) The deduction specified above shall be allowed in computing the total income in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the loan referred to above together with interest thereon is paid by the assessee in full, whichever is earlier. For this purpose - (a) "approved charitable institution" means an institution established for charitable purposes and notified by the Central Government under clause 23C of section 10 or, an institution referred to in clause (a) of sub-section (2) of section 80G. (b) "financial institution" means a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of the Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf; (c) "higher education" means full-time studies for any graduate or post-gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fice or carries on his business or profession; or (ii) at any other place, any residential accommodation being accommodation in the occupation of the assessee, the value of which is to be determined under sub-clause (i) of clause (a), or as the case may be, clause (b) of sub-section (2) of section 23; (d) The accommodation occupied by him for the purpose of his own residence is situated in any of the following places, namely:- (i) Agra, Ahmedabad, Allahabad, Amritsar, Bangalore, Bhopal, Calcutta, Coimbatore, Delhi, Faridabad, Gwalior (Lashkar), Hyderabad, Indore, Jabalpore, Jaipur, Kanpur, Lucknow, Ludhiana City, Madurai, Nagpur, Patna, Srinagar, Surat, Vadodra (Baroda) or Varanasi (Banaras) or the urban agglomeration of each of such places; or (ii) Bombay, Calicut, Cochin, Ghaziabad, Hubli-Dharwar, Madras, Solapur, Trivandrum or Vishakhapatnam. Explanation.- "Urban agglomeration" in relation to a place means the area for the time being included in the urban agglomeration of such place for the purpose of grant of house rent allowance by the Central Government to its employes under the orders issued by it from time to time in this regard. The disbursing authorities sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o is in the employment of the Central Government or any State Government, the fact of his service having been sponsored by the Central Government; (b) In the case of any other individual being a technician, the fact of the terms and conditions of his service outside India having been approved in this behalf by the Central Government (Ministry of Finance, Department of Revenue, Foreign Tax Division, New Delhi). (It should also be ensured that the deduction is allowed with reference to the remuneration received in foreign currency in respect of the period of service outside India). (7) Section 80U allows deduction of forty thousand rupees in computing the total income of resident individual, who, at the end of the previous year, is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent physical disability, or mental retardation, specified in rule 11D of the Income-tax Rules, 1962, which is certified by a physician, surgeon, occulist or psychiatrist as the case may be, working in a Government hospital and which has the effect of reducing considerably such individual's capacity for normal work or engaging in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may, by notification in the Official Gazette, specify in this behalf; (b) to any such saving certificates as defined under section 2(c) of the Government Saving Certificate Act, 1959, as the Government may, by notification in the Official Gazette, specify in this behalf. Interest on NSC (VI Issue) and NSC (VIII Issue) which is deemed investment also qualifies for deduction. (7) Anu sum paid as contribution:- (a) for participation in the Unit Linked Insurance Plan, 1971, of the Unit Trust of India; (b) for participation in any unit-linked insurance plan of the LIC mutual fund notified by the Central Government under clause (23D) of section 10. (8) Any subscription made to effect or keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may, by notification in the Official Gazette, specify. (9) Any subscription not exceeding rupees ten thousand, made to any units of any mutual fund, notified under clause (23D) of section 10, by the Unit Trust of India established under the Unit Trust of India Act, 1963, under any plan formulated in accordance with any scheme as the Central Government, may, by notification in the Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such university, or a local authority or a co-operative society. The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. Payment towards the cost of house property, however, will not include admission fee or cost of share or initial deposit or the cost of any addition or alteration to, or renovation or repair of the house property which is carried out after the issue of the completion certificate by a competent authority, or after occupation of the house by the assessee or after it has been let out. Payments towards any expenditure in respect of which the deduction is allowable under the provision of section 24 of the Income-tax Act will also not be included in payments towards the cost of purchase or construction of a house property. Where the house property in respect of which deduction has been allowed under these provisions is transferred by the taxpayer at any time before the expiry of five years from the end of the financial year in which possession of such property is obtained by him or he received back, by way of refund or otherwise, any sum specified in section 88(2)(xv), no deduction under these provisions shall be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eductions mentioned in para 5.3 from the figure arrived at (a); (c) allow deductions mentioned in para 5.4 from the figure arrived at (b) ensuring that the aggregate of the deductions mentioned in para 5.4 does not exceed figure of (b) and if it exceeds, it should be restricted to that amount. This will be the amount of income under the head "Salaries" on which income-tax would be required to be deducted. This income should be rounded off to the nearest multiple of ten rupees. 7.2 Income-tax on the estimated income from salary as shown in para 7.1 shall be calculated at the rates given in para 2. 7.3 The amount of tax rebates computed under para 6 shall be deducted from the income-tax calculated according to para 7.2. However, it is to be ensured that the tax rebates given as per para 6 is limited to the income-tax calculated as per para 7.2. 7.4 It is also to be noted that deductions under Chapter VI-A of the Act as mentioned in para 5.4 and the tax rebates as mentioned in para 6 are allowed only if the investments or the payments have been made out of the income chargeable to tax during the financial year 1995-96. 7.5 The amount of tax as arrived at para 7.3 should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal salary income1,03,980 3. Less: House rent allowance exempt under section 10(13A) (a) Actual amount of HRA received = 9,600 (b) Expenditure on rent in excess of 10 per cent. of salary (including D.A. as presumed that D.A. is taken for retirement benefit) (18,000-9,318 = 8,682) (-) 8,682 -------------- 95,298 Less: Standard deduction under section 16(i) at 33-1/3%subject to a maximum rounded off (-) 15,00080,298 ------------- Total Income 80,000 -------------- Tax on total income 10,090 Rebate under section 88 on Rs.38,900@20% 7,780 Rebate under section 88 is admissible in r/o mutual funds up to Rs.10,000) ------------- Net tax payable 2,310 ======== EXAMPLE 3 (Illustrating valuation of perquisites and calculation of tax in the case of an employer of a private company, posted at Delhi) (Rs.) (Rs.) 1. Salary1,08,000 2. Bonus 12,000 3. Free gas, electricity, water etc. (actual bills paid by the company) 6,000 4. Furnished flat provided to the employee for which actual rent paid by the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of 10% of salary (including D.A.) as personal D.A. is included for retirement benefits (18,000 - 10% of 84,000 = 9,600) or, (c) 50% of salary (including D.A.) 42,000 (-) 9,600 ------------ Total salary income 88,800 Less: Standard deduction 15,000 ------------- Net taxable total income73,800 ====== Tax on total income 8,140 Tax rebate under section 88 (i) Unit mutual fund 6,000 (ii) Provident fund 12,000 (iii) LIP 2,000 (iv) NSS 6,000 (v) Repayment of HRA 10,000 ----------- 36,000 Tax rebate at 20% 7,200 ----------- Net tax payable 940 ======== EXAMPLE 5 (Illustrating calculation of income-tax in the case if a handicapped employee) Name of the assessee:X.Y.Z. Assessment year :1996-97 Status:Individual INCOME FROM SALARY : Salary 83,890 INCOME FROM HOUSE PROPERTY: ARV/Rent received @ 3,000 p.m. 36,000 Less: Municipal taxes 6,000 ---------- 30,000 (i) One-fifth for repairs 6,000 (ii) Ground rent 500 (iii) Insurance 550 (iv) Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut maximum to Rs.2,380 2,380 Net tax payableNil EXAMPLE 7 (Illustration of calculation of HRA under section 10(13A) in respect of an employee situated in Delhi) Assessment year 1996-97 Rs. Rs. 1. Salary (basic) 60,000 2. Dearness allowance 50,000 3. HRA 18,000 4. CCA 1,500 5. Actual rent paid 24,000 6. Contribution to GPF, PPF 30,000 7. Purchase of tax saving mutual fund 15,000 8. Purchase of NSC 10,000 A. Total income of salary (1+2+4+1,11,500 B. HRA 18,000 C. Total salary income1,29,500 D. Less: HRA exempt under section 10(13A) Least of following (i) Actual HRA received 18,000 (ii) Expenditure on rent in excess of 10% of salary (24,000 - 11,000) 13,000 (iii)50% of salary 55,000 13,000 1,16,500 E. Less: Standard deduction under section 16(i) at 33-1/3% subject to a maximum of Rs.15,000 15,000 1,01,500 ---------------- F. Tax on it up to 40,000Nil 40,000 - 60,000 at 20% 4,000 60,000 - 1,01,500 at 30%12,450 6,450 Tax on income of Rs.1,01,500 = Rs. 16,450 ----------- G. Rebate under section 88 (i) GPF, PPF 30,000 (ii) Mutual fund ..... X X X X Extracts X X X X X X X X Extracts X X X X
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