Circular : No.
699, dated 30-1-1995.
Section
194-I l Rent
1149.
Whether requirement of deduction of income-tax at
source under section 194-I applies in case of payment by way of rent to
Government, statutory authorities referred to in section 10(20A) and local
authorities whose income under the head Income from house property or Income
from other sources is exempt from income-tax
1. Queries have been raised as to whether the requirement of deduction of income-tax at source under section 194-I of the Income-tax Act applies in case of payments by way of rent to the Government, statutory authorities referred to in section 10(20A) and local authorities whose income under the head Income from house property or Income from other sources, is exempt from income-tax.
2. Under the provisions of section 196 of the Income-tax Act, no tax is required to be deducted at source from any sums payable to the Government.
3. The matter with regard to the statutory authorities and the local authorities referred to above, has been examined in the Board. Section 190 of the Income-tax Act provides for deduction of income-tax at source as one of the modes of collection of income-tax in respect of an income, notwithstanding that the regular assessment in respect of such income is to be made in a later assessment year. The income of an 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, is exempt from income-tax under section 10(20A). Similarly, the income of a local authority which is chargeable under the head Income from house property or Income from other sources, is exempt from income-tax under section 10(20). There is no other condition specified in these two clauses of section 10 which is necessary to be satisfied in order to avail of the income-tax exemption.
4. In view of the aforesaid, there is no requirement to deduct income-tax at source on income by way of rent if the payee is the Government. In the case of the local authorities and the statutory authorities referred to in para 3 of this circular, there will be no requirement to deduct income-tax at source from income by way of rent if the person responsible for paying it is satisfied about their tax-exempt status under clause (20) or (20A) of section 10 on the basis of a certificate to this effect given by the said authorities.
Circular : No. 700,
dated 23-3-1995.
603. Whether
benefit of section 80-O would be available if technical and professional
services, though rendered outside India, are used by Foreign Government or
enterprise in
Section 80-O of the Income-tax Act, 1961, provides for a deduction of 50% from the income of an Indian resident by way of royalty, commission, fees or any similar payment from a Foreign Government or enterprise :
(a) in consideration for
the use outside
(b) in consideration of
technical or professional services rendered or agreed to be rendered outside
In either case, the requirement is that the income should be in convertible foreign exchange.
It has been clarified in the Explanation (iii) to section 80-O that services rendered or agreed to be rendered outside India [i.e., item (b) above] shall include services rendered from India but shall not include services rendered in India.
A question has been raised as to whether the benefit of section 80-O
would be available if the technical and professional services, though rendered
outside
The matter has been considered by the Board. It is clarified that as
long as the technical and professional services are rendered from
Circular : No. 701, dated 23-3-1995.
18.
Taxability of allowances received by persons having income under the head
Salaries
As per sub-clauses (iiia) and (iiib) of section 2(24), read with section 17, of the Income-tax Act, 1961, any allowance, by whatever name called, given by the employer to the employee, is taxable as income in the hands of the employee. All allowances including Dearness Allowance, Additional Dearness Allowance, City Compensatory Allowance, House Rent Allowance, Meal Allowance, Servant Allowance, Telephone Allowance, Education Allowance, Refreshment Allowance, Dinner Allowance, Health Allowance, Holiday Allowance, Special Qualification Allowance, etc., are income in the hands of the employee, unless specifically exempted under the Income-tax Act, 1961 or any other statute.
2. The major exemptions in respect of allowances given by the Income-tax Act, 1961, are as under :
(i) House Rent Allowance :
Under section 10(13A) of the Income-tax Act, any special allowance specifi-cally granted to an assessee by his employer to meet expenditure incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee is exempt from income-tax to the extent, as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations. According to rule 2A of the Income-tax Rules, 1962, the quantum of exemption allowable in respect of special allowance to meet expenditure on payment of rent will be :
(a) the actual amount of such allowance received by an employee in respect of the relevant period; 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
whichever is the least.
For this purpose, Salary includes dearness allowance if the terms of employment so provide, but excludes all other allowances and perquisites.
(ii) Allowances notified for exemption by the Central Government under section 10(14) of the Income-tax Act, 1961.
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 to the extent to which such expenses are actually incurred for that purpose;
(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 Central Government may specify by notification in the Official Gazette.
However, the allowance, referred to in (b) above, should not be in the nature of a personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment, unless such allowance is related to his place of posting or residence.
By Notification Nos. S.O. 143(E) dated 21-2-1989, S.O.
144(E) dated 21-2-1989 [as amended by Notification Nos. S.O. 259(E) dated
27-3-1990, S.O. 487(E) dated 1-7-1992 and S.O. 59(E) dated 27-1-1995], S.O.
606(E) dated 9-6-1989 and S.O. 267(E) dated 29-3-1990 the Central Government
have specified the following allowances as exempt to the extent and subject to
the conditions indicated therein :
(a) any allowance granted to meet cost of travel on tour or on transfer, including any allowance granted to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;
(b) any special compensatory allowance in the nature of border area allowance or remote area allowance or difficult area allowance or disturbed area allowance;
(c) tribal area allowance;
(d) any special compensatory allowance in the nature of Composite Hill Compensatory Allowance or High Altitude Allowance or uncongenial allowance, climate allowance or Snowbound Area Allowance or Avalanche Allowance;
(e) compensatory field area allowance;
(f) compensatory modified field area allowance;
(g) any special allowance in the nature of insurgency allowance granted to the members of armed forces operating in areas away from their permanent location for a period of more than 30 days;
(h) any allowance granted to meet the expenditure incurred on conveyance in the performance of duties of an office or employment of profit;
(i) any allowance granted to meet the expenditure incurred on a helper where such a helper is engaged for the performance of duties of an office or employment of profit;
(j) any allowance granted for encouraging academic research and any other professional pursuit;
(k) any allowance granted to meet the expenses incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit;
(l) children education allowance;
(m) any allowance granted to any employee to meet the hostel expenditure of his child;
(n) allowance granted to an employee working in a transport system to meet his personal expenses during his duty performed in the course of running of such transport from one place to another.
In the notifications issued under section 10(14) of the Act, only the nature of the allowances which are exempt from tax have been mentioned. The nomenclature may vary from institution to institution. It is further clarified that even though the words in the nature of have not been used in the notifications exempting Tribal Area Allowance, Children Education Allowance, Compensatory Field Area Allowance and Compensatory Modified Field Area Allowance, allowances which are in the nature of the aforesaid allowances will be exempt under section 10(14)(ii) of the Act to the extent and subject to the conditions specified in the notification.
(iii) Entertainment Allowance :
A deduction is also allowed under clause (ii) of section 16 in respect of any allowance in the nature of an entertainment allowance specifically granted to the assessee by his employer subject to the certain limits. In the case of a Government employee, a sum equal to one-fifth of his salary (exclusive of any allowance benefit or other perquisite) or five thousand rupees or the actual amount of entertainment allowance, whichever is the least, is allowable as deduction. 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 a date prior to 1st April, 1955.
(iv) Allowances
paid or allowed outside
Section 10(7) provides for exemption of
any allowance or perquisite paid or allowed as such outside
3. It is clarified that consequent to the amendment of section 10(14) by the Direct Tax Laws (Amendment) Act, 1987 (w.e.f. 1-4-1989), all circulars, instructions and clarifications issued by the Board regarding section 10(14) up to 31-3-1989 ceased to have effect from assessment year 1989-90 and onwards.
Circular : No. 702, dated 3-4-1995.
515. Whether, as long
as conditions mentioned in section 80DD are fulfilled and assessee has incurred
any expenditure on medical treatment, etc., of handicapped person, deduction as
envisaged in section 80DD will be allowable in full
1. Under the provisions of section 80DD[`1]1 of the Income-tax Act, 1961, an assessee who is resident in India being an individual or a Hindu undivided family is allowed a deduction of Rs. 15,000 for expenditure incurred in respect of handicapped dependants subject to the following conditions :
(i) the handicapped dependant is a relative of the assessee and is not dependant on any person other than the assessee for his support or maintenance;
(ii) he is suffering from a permanent physical disability (including blindness) or mental retardation and the same is certified by a Physician, Psychiatrist, etc., working in Government hospital;
(iii) the disability has the effect of reducing considerably such persons capacity for normal work or engaging in a gainful employment or occupation;
(iv) the assessee has incurred any expenditure for medical treatment (including nursing), training and rehabilitation of the handicapped dependant.
2. The Board has received several representations seeking clarification regarding the quantum of deduction available in relation to the expenditure incurred on the handicapped dependants.
3. It is hereby clarified that the deduction
under section 80DD of the Income-tax Act, 1961 is statutory in nature.
Therefore, as long as the conditions mentioned in the section are fulfilled, and the assessee has incurred any expenditure
on medical treatment, etc., of the handicapped person, the deduction as
envisaged in the section will be allowable in full.
Circular : No. 703, dated 18-4-1995.
Section
75 l Set-off of Losses of Firms
485. Whether
set-off envisaged under sections 70 and 71 may be allowed
for assessment year 1993-94 in hands of firm in respect of unabsorbed losses
brought back to firm
1. With effect from the assessment year 1993-94, a new procedure for taxation of firms has been introduced according to which the distinction between the registered and unregistered firms has been done away with. Consequently, the requirement of apportionment of losses among the partners for set-off and carry forward has also been given up. In line with this procedure, section 75 provides, with effect from 1-4-1993, that if there are unabsorbed losses in the hands of the partners to whom such losses had been apportioned for the assessment year 1992-93 and earlier years, the same shall be brought back to the firm to be set-off against the income of the firm subject to the condition that the partner continues to be a partner in the said firm and are to be carried forward for set-off under sections 70, 71, 72, 74 and 74A.
2. Doubts have been expressed in some quarters as to whether the unabsorbed business losses so brought back to the firm are available for set-off against the income of the firm under all heads for the assessment year 1993-94. This doubt has arisen because, normally, under section 72, the business losses brought forward are permitted to be set-off only against the income under the head Profits and gains of business or profession and, that too, only if the business in respect of which the losses were incurred continues to be carried on in the year of set-off.
3. A plain reading of section 75 shows that the losses which remain unabsorbed in the hands of the partners shall be allowed to be set-off against the income of the firm subject to the condition that the partner continues in the said firm and to be carried forward for set-off under sections 70, 71, 72, 73, 74 and 74A. The expressions set-off and carried forward and set-off have been used in conjunction with sections 70, 71, 72, etc., thereby implying that both set-off and carry forward and set-off, as envisaged in these sections, are permissible.
4. The Board has, therefore, decided that the set-off envisaged
under sections 70 and 71 may be allowed for the assessment year 1993-94 in the
hands of the firm in respect of the unabsorbed losses brought back to the firm.
Circular: No.
704, dated 28-4-1995.
22. Instructions regarding determination of the date of transfer and
holding period for purposes of capital gains qua transactions in securities
1. Under the provisions of clause (42A) of section 2 of the Income-tax Act, 1961, the shares held in a company or any other security listed in a recognised stock exchange in India or units of the Unit Trust of India or units of a mutual fund specified under section 10(23D) shall be regarded as short-term capital assets if they are held by an assessee for not more than 12 months immediately preceding the date of its transfer. Clarifications have been sought as to which date should be regarded as the date of transfer and also about the date from which the holding period of the securities should be reckoned. Clarifications have also been sought as to how the holding periods will be computed for the purposes of capital gains when the securities, purchased in several lots at different points of time and which are taken delivery of in one lot, are subsequently sold in parts and no correlation of the dates of purchase and sale is available.
2. When the securities are transacted through stock exchanges, it is the established procedure that the brokers first enter into contracts for purchase/sale of securities and thereafter, follow it up with delivery of shares, accompanied by transfer deeds duly signed by the registered holders. The seller is entitled to receive the consideration agreed to as on the date of contract. The Board are of the opinion that it is the date of brokers note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the brokers note for purchase on behalf of the investors. In case the transactions take place directly between the parties and not through stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds.
3. As regards the second issue, where securities are acquired in several lots at different points of time, the First-in-first-out (FIFO) method shall be adopted to reckon the period of the holding of the security, in cases where the dates of purchase and sale could not be correlated through specific numbers of the scrips. In other words, the assets acquired last will be taken to be remaining with the assessee while assets acquired first will be treated as sold. Indexation, wherever applicable, for long-term assets will be regulated on the basis of the holding period determined in this manner.
Circular: No.
705, dated 20-6-1995.
613.
Procedure regarding grant of approval under section 80 RRA
1. Section 80RRA of the Income-tax Act, 1961 provides, inter alia, for deduction from the gross total income, in
respect of remuneration received in foreign currency by a technician for
services rendered outside
2. In respect of officers and seamen of the Indian merchant navy employed on ships of the Indian companies, such approval is granted for three years at a time to avoid repetitive applications.
3. On a review of the system of filing applications under section 80RRA, the following features have been noticed :
(i) The applications do not contain the complete postal address of the applicant.
(ii) In many cases, the details relating to the income-tax assessment of the applicant are either not furnished or are incomplete.
(iii) The certificates from the employer confirming
the payment of remuneration in foreign currency for services rendered outside
These infirmities delay the processing of the applications.
4. In order to expedite processing of applications seeking
approval under section 80RRA, the following guidelines are issued
:
(i) The application should be signed by the applicant and filed in duplicate and should state the complete postal address of the applicant. Furnishing the address of any authorised representative is not sufficient.
(ii) The applicant should indicate the income-tax authority in whose jurisdiction he is either assessed to tax or is assessable to tax, and his Permanent Account Number (PAN). If he is not assessed, he should apply for a PAN and indicate the authority before whom he has filed the application.
(iii) In respect of applications from Indian seamen employed on ships of Indian companies, the signed certificate (in original) of the employer indicating the total remuneration as well as the remuneration received in foreign currency should invariably be furnished in the first year for which the application is made. In respect of other applications, the certificate should be for the years for which the application is made.
(iv) If the application is filed through an authorised representative, a letter of authority should be filed along with it.
Circular : No. 706, dated
26-6-1995, as amended by, Circular No. 746, dated 26-7-1996.
Section
80Q l Profits and Gains from Business of
Publication of Books
608. Whether
deduction under section 80Q is to be allowed for five
years commencing from assessment year 1992-93 provided the other conditions
mentioned in section 80Q are satisfied
Section 80Q inserted by the Finance (No. 2) Act, 1991, with effect from 1-4-1992 provides that where in the case of an assessee the gross total income of the previous year relevant to the assessment year commencing on the 1st day of April, 1992 or to any one of the four assessment years next following that assessment year, includes any profits and gains derived from a business carried on in India of printing and publication of books or publication of books, a deduction from such profits and gains of an amount equal to 20 per cent thereof shall be allowed.
(2) The Board has received representations from various publishers and book-sellers associations/federations seeking clarifications as to the number of years the deduction under section 80Q would be available.
(3) Explanatory Notes on Finance (No. 2) Act, 1991, 38.2 read as under :
... Keeping in view of the vital role of the publishing industry in the development of human resources, a new section 80Q has been inserted in the Income-tax Act to revive the aforesaid tax concession for five years commencing with the assessment year 1992-93.
(4) It is hereby clarified that deduction under section 80Q of the Income-tax Act is to be allowed for five years commencing from assessment year 1992-93 provided that the other conditions mentioned in the section are satisfied.
Circular: No.
707, dated 11-7-1995.
957.
Whether, where non-residents are deputed to work in India and taxes are borne
by employers, in certain cases if an employee to whom refunds are due has
already left India and has no bank account here by the time assessment orders
are passed, refund can be issued to employer as tax has been borne by it
1. References have been received by the Board in cases where
non-residents are deputed to work in
2. The Board has considered the matter and it is of the view that insofar as the payment of refund which has already become due in concerned, there may be no objection to giving the refund to the employer if the non-resident assessee duly gives an authorisation in this regard. In such cases, the procedure laid down in Circular No. 285, dated 21-10-1980 issued by the Central Board of Direct Taxes needs to be followed.
3. Under the provisions of section 163 of the Income-tax Act, 1961, inter alia, any person from or through whom the non-resident is in receipt of any income, whether directly or indirectly, can be regarded as an agent in relation to the non-resident. Accordingly, the company itself can file the return and can be assessed in its own name in respect of that income under section 161(1) of the Act, and claim the refund.
Circular : No
708, dated 18-7-1995 as amended by Circular No. 727, dated 27-10-1995.
372.
Instructions regarding extent of expenditure incurred on food or beverages
provided to employees by employers to be treated as
entertainment expenditure under section 37(2)
1. Reference is invited to the Boards Circular No. 644, dated 15-3-1993 (see Sl. No. 371) wherein it was clarified that the expenditure on provision of food or beverages by an employer to the low-paid employees will not be treated as entertainment expenditure within the meaning of the Explanation under section 37(2) of the Income-tax Act, 1961 even if the facility is provided in places other than the place of work provided the same is provided during the working hours and the expenditure is genuine and reasonable. Representations have since been received for extending the benefit of the circular to all the employees irrespective of salary limits, subject to monetary limits on the expenditure.
2. The Board has since considered the matter and has decided that expenditure up to Rs. 35 per day per employee shall not be treated as in the nature of entertainment if the same is incurred on food or beverages even outside the place of work, but during working hours subject to proof of genuineness of the expenditure. In case the expenditure exceeds the above limit, only the excess over Rs. 35 per day per employee shall be treated as entertainment in nature within the meaning of Explanation under section 37(2) of the Act. In the hands of the employee, the amount up to Rs. 35 per day will not be treated as income, provided the amount is paid by the employer directly to the caterer, restaurant, eating place, canteen, etc.
3. This circular shall apply with reference to the expenditure incurred during the financial year 1995-96 relevant to the assessment year 1996-97 and subsequent years.
Circular : No. 709, dated 19-7-1995.
805.
Withdrawal of challan forms with three counterfoils
for payment of advance tax and self-assessment tax
1. Boards Circular No. 697, dated 16-12-1994 states that when the challan forms with three counterfoils are used, the taxpayer may enclose with his return of income a photocopy of the foil No. 3 in compliance with the provisions of section 139(9) of the Income-tax Act, 1961.
2. Having regard to the difficulties faced by the taxpayers, it has been decided to withdraw challan forms with three counterfoils. Henceforth, challan forms will have four counterfoils. However, where the challans with the three counterfoils have been used, Circular No. 697 will continue to be in force.
Circular : No. 710, dated 24-7-1995.
202.
Taxability of the perquisite on shares issued to employees at less than market
price
1. Chief Commissioners and corporate assessees have been seeking clarification regarding taxability of the perquisite on shares issued to the employees at less than market price.
2. The matter has been considered by the Board. The benefit does amount to a perquisite within the meaning of clause (iii) of sub-section (2) of section 17 of the Income-tax Act, 1961. The various situations in this regard have to be dealt with as under :
(i) where the shares held
by the Government have been transferred to the employee, there will be no
perquisite because the employer-employee relationship does not exist between
Government and the employee (transferor and the transferee);
(ii) where the company
offers shares to the employees at the same price as have been offered to the
other shareholders or the general public, there will be no perquisite;
(iii) where the employer has offered the shares to
its employees at a price lower than the one at which the shares have been
offered to the other shareholders/public, the difference between the two prices
will be taxed as perquisite;
(iv) where the shares have been offered only to the employees, the value of perquisite will be the difference between the market price of the shares on the date of acceptance of the offer by the employee and the price at which the shares have been offered.
Circular : No. 711, dated 24-7-1995.
546. Whether, where payments received in the shape of bonds in
lieu of foreign exchange realisation from
project-exports and foreign exchange will eventually be repatriated into India
by EXIM Bank after lifting of UN sanction, RBI/ECGC bonds issued by way of
settlement of claims of projects in Iraq will be treated as convertible foreign
exchange brought into India for purposes of section 80HHB
1. Section 80HHB of the Income-tax Act provides for a deduction of
50 per cent of profits derived from projects abroad, in the computation of
taxable income. The incentive is subject to the condition that 50 per cent of
profits derived from such projects be brought into
2. The Department of Economic Affairs has pointed out the hardship
faced by project exporters who have executed projects in
3. Department of Economic Affairs have clarified that the RBI/ECGC
bonds are in place of unrealized funds of project exporters in
4. The Central Board of Direct Taxes have examined the matter in consultation with the Department of Economic Affairs. Since the payments received in the shape of bonds are in lieu of foreign exchange realisation from the project exports and the foreign exchange will eventually be repatriated into India by EXIM Bank after the lifting of the U.N. sanction, the RBI/ECGC bonds issued by way of settlement of claims of projects in Iraq will be treated as convertible foreign exchange brought into India for the purposes of section 80HHB.
5. The request for extension of period of six months for bringing
in convertible foreign exchange into
Circular : No. 712, dated 25-7-1995.
122. Whether
since section 10(22) does not impose any restriction regarding mode of
investments of funds, such institutions are not required to invest their funds
in modes specified under section 11(5)
1. Under section 10(22) of the Income-tax Act, any income of a University or other educational institution, existing solely for educational purposes and not for purposes of profit, is exempt from tax.
2. The Board have received representations from various institutions which fulfil the conditions laid down under section 10(22) of the Act, but are denied exemption because their funds are not invested in accordance with the provisions of section 11(5) of the Act. It is hereby clarified that since section 10(22) does not impose any restriction regarding mode of investment of funds, such institutions are not required to invest their funds in the modes specified under section 11(5) of the Income-tax Act. This clarification will not apply to the institutions seeking exemption under section 11 of the Act.
Circular : No. 713, dated 2-8-1995.
1117. Clarification regarding applicability of section 194C in case of
tickets sold by airlines and travel agents to customers
1. The Finance Act, 1995 has amended the provisions regarding tax deduction at source contained in section 194C of the Income-tax Act. As per the amended provisions, deduction of tax at source is to be made, inter alia, from payments made in respect of contracts for carriage of goods and passengers by any mode of transport other than Railways.
2. A number of queries have been received as to whether tax has to be deducted at source from payments to travel agents or the airlines for purchase of tickets for travel by air.
3. The matter has
been examined by the Board. It is clarified
that the provisions of section 194C do not apply to the payments made to the
airlines or the travel agents for purchase of tickets for air travel of
individuals. The provisions shall, however, apply when
payments are made for chartering an aircraft for carriage of passengers of
goods.
4. The clarification in para 3 (above) shall apply mutatis mutandis to the tickets for travel of individual by any other mode of transport also.
Circular : No.
714, dated 3-8-1995.
1118.
Clarification regarding applicability of section 194C/194J in case of
advertising agency
1. Finance Act, 1995 has amended section 194C dealing with tax deduction at source for carrying out any work by introducing Explanation III therein. By this Explanation, the expression work has been defined, inter alia, to also include
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such broadcasting and telecasting.
According to the amended provisions, tax is to be deducted at the rate of 1 per cent in cases of advertising and at the rate of 2 per cent in the other cases, of the sum as income-tax on income comprised therein.
2. The Act has also introduced section 194J and this section deals with deduction of tax at source from fees for professional or technical services. This section prescribes deduction of tax at source at a rate of 5 per cent of the sum as income-tax on income comprised therein. The term Professional Services has been defined in the Explanation to this section to mean services rendered by a person in the course of carrying on legal, medical, engineering or the profession of accountancy or technical consultancy or interior decoration or advertising or such activity as is notified by the Board for the purpose of section 44AA or of this section.
3. Representations have been received regarding the scope and
meaning of the term advertising used in section 194C(1),
where tax deduction at source has to be made at the rate of 1 per cent as
against rate of 2 per cent in the other cases. It is clarified that advertising
may be in print or electronic media, i.e., in newspapers, periodicals, radio,
television, etc. In such cases the tax will be
deducted at the rate of 1 per cent of the payment made for advertising
including production of programmes for such
broadcasting and telecasting to be used in such advertising. In all other cases
of work of broadcasting and telecasting including production of programmes for such broadcasting and telecasting, where
advertising is not involved, tax will be deducted at
the rate of 2 per cent of the sum.
4. It is also clarified that the tax will be deducted at
source under section 194J from payments made for professional services. Thus, when
an advertising agency makes payments for professional services to a film
artiste such as an actor, a cameraman, a director,
etc., tax will be deducted at the rate of 5 per cent.
Circular : No. 715, dated 8-8-1995.
1119. Clarifications on various provisions relating to tax deduction at source regarding changes introduced through Finance Act, 1995
The Finance Act, 1995, has enlarged the scope of income-tax deduction at source by making various amendments. In regard to the changes introduced through the Finance Act, 1995, a number of queries have been received from the various associations and professional bodies on the scope of tax deduction at source. It would be desirable to clarify the doubts by issuing a public circular in the form of question answers as under :
Question 1 : What would be the scope of an advertising contract for the purpose of section 194C of the Act?
Answer : The term advertising has not been defined in the Act. During the course of the consideration of the Finance Bill, 1995, the Finance Minister clarified on the Floor of the House that the amended provisions of tax deduction at source would apply when a client makes payment to an advertising agency and not when advertising agency makes payment to the media, which includes both print and electronic media. The deduction is required to be made at the rate of 1 per cent. It was further clarified that when an advertising agency makes payments to their models, artists, photographers, etc., the tax shall be deducted at the rate of 5 per cent as applicable to fees for professional and technical services under section 194J of the Act.
Question 2 : Whether the advertising agency would deduct tax at source out of payments made to the media ?
Answer : No. The position has been clarified in the answer to question No. 1 above.
Question 3 : At what rate is tax to be deducted if the advertising agencies give a consolidated bill including charges for art work and other related jobs as well as payments made by them to media ?
Answer : The deduction will have to be made under section 194C at the rate of 1 per cent. The advertising agencies shall have to deduct tax at source at the rate of 5 per cent under section 194J while making payments to artists, actors, models, etc. If payments are made for production of programmes for the purpose of broadcasting and telecasting, these payments will be subjected to TDS @ 2 per cent. Even if the production of such programmes is for the purpose of preparing advertisement material, not for immediate advertising, the payment will be subject to TDS at the rate of 2 per cent.
Question 4 : Where the tax is required to be deducted at source on payments made directly to the print media/Doordarshan for release of advertisements ?
Answer : The payments made directly to print and electronic media would be covered under section 194C as these are in the nature of payments for purposes of advertising. Deduction will have to be made at the rate of 1 per cent. It may, however, be clarified that the payments made directly to Doordarshan may not be subjected to TDS as Doordarshan, being a Government agency, is not liable to income-tax.
Question 5 : Whether a contract for putting up a hoarding would be covered under section 194C or 194-I of the Act ?
Answer : The contract for putting up a hoarding is in the nature of advertising contract and provisions of section 194C would be applicable. It may, however, be clarified that if a person has taken a particular space on rent and thereafter sub lets the same fully or in part for putting up a hoarding, he would be liable to TDS under section 194-I and not under section 194C of the Act.
Question 6 : Whether payment under a contract for carriage of goods or passengers by any mode of transport would include payment made to a travel agent for purchase of a ticket or payment made to a clearing and forwarding agent for carriage of goods ?
Answer : The payments made to a travel agent or an airline for purchase of a ticket for travel would not be subjected to tax deduction at source as the privity of the contract is between the individual passenger and the airline/travel agent, notwithstanding the fact that the payment is made by an entity mentioned in section 194C(1). The provision of section 194C shall, however, apply when a plane or a bus or any other mode of transport is chartered by one of the entities mentioned in section 194C of the Act. As regards payments made to clearing and forwarding agent for carriage of goods, the same shall be subjected to tax deduction at source under section 194C of the Act.
Question 7 : Whether a travel agent/clearing and forwarding agent would be required to deduct tax at source from the sum payable by the agent to an airline or other carrier of goods or passengers ?
Answer : The travel agent, issuing tickets on behalf of the airlines for travel of individual passengers, would not be required to deduct tax at source as he acts on behalf of the airlines. The position of clearing and forwarding agents is different. They act as independent contractors. Any payment made to them would, hence, be liable for deduction of tax at source. They would also be liable to deduct tax at source while making payments to a carrier of goods.
Question 8 : Whether section 194C would be attracted in respect of payments made to couriers for carrying documents, letters, etc. ?
Answer : The carriage of documents, letters, etc., is in the nature of carriage of goods and, therefore, provisions of section 194C would be attracted in respect of payments made to the couriers.
Question 9 : In case of payments to transporters, can each GR be said to be a separate contract, even though payments for several GRs are made under one bill ?
Answer : Normally, each GR can be said to be a separate contract, if the goods are transported at one time. But if the goods are transported continuously in pursuance of a contract for a specific period or quantity, each GR will not be a separate contract and all GRs relating to that period or quantity will be aggregated for the purpose of the TDS.
Question 10 : Whether there is any obligation to deduct tax at source out of payment of freight when the goods are received on freight to pay basis ?
Answer: Yes. The provisions of tax deduction at source are applicable irrespective of the actual payment.
Question 11 : Whether a contract for catering would include serving food in a restaurant/sale of eatables?
Answer : TDS is not required to be made when payment is made for serving food in a restaurant in the normal course of running of the restaurant/cafe.
Question 12 : Whether payment to a recruitment agency can be covered by section 194C ?
Answer : Provisions of section 194C apply to a contract for carrying out any work including supply of labour for carrying out any work. Payments to recruitment agencies are in the nature of payments for services rendered. Accordingly, provisions of section 194C shall not apply. The payment will, however, be subject to TDS under section 194J of the Act.
Question 13 : Whether section 194C would cover payments made by a company to a share registrar ?
Answer : In view of answer to the earlier question, such payments will not be liable for tax deduction at source under section 194C. But these will be liable to tax deduction at source under section 194J.
Question 14 : Whether FD commission and brokerage can be covered under section 194C ?
Answer : No
Question 15 : Whether section 194C would apply in respect of supply of printed material as per prescribed specifications ?
Answer : Yes.
Question 16 : Whether tax is required to be deducted at source under section 194C or 194J on payment of commission to external parties for procuring orders for the companys product ?
Answer : Rendering of services for procurement of orders is not covered under the provisions of section 194C. However, rendering of such services may involve payment of fees for professional or technical services, in which case tax may be deductible under the provisions of section 194J.
Question 17 : Whether advertisement contracts are covered under section 194C only to the extent of payment of commission to the person who arranges release of advertisement, etc., or whether deduction is to be made on the gross amount including bill of media ?
Answer : Tax is to be deducted at the rate of 1 per cent of the gross amount of the bill.
Question 18 : Whether deduction of tax is required to be made under section 194C for sponsorship of debates, seminars and other functions held in colleges, schools and associations with a view to earn publicity through display of banners, etc., put up by the organisers ?
Answer : The agreement of sponsorship is, in essence, an agreement for carrying out a work of advertisement. Therefore, provisions of section 194C shall apply.
Question 19 : Whether deduction of tax is required to be made on payments for cost of advertisement issued in the souvenirs brought out by various organisations ?
Answer : Yes.
Question 20 : Whether payments made to a hotel for rooms hired during the year would be of the nature of rent ?
Answer : Payments made by persons, other individuals and HUFs for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I.
Question 21 : Whether the limit of Rs. 1,20,000 per annum would apply separately for each co-owner of a property ?
Answer : Under section 194-I, the tax is deductible from payment by way of rent, if such payment of the payee during the year is likely to be Rs. 1,20,000 or more. If there are a number of payees, each having definite and ascertainable share in the property, the limit of Rs. 1,20,000 will apply to each of the payee/co-owner separately. The payers and payees are, however, advised not to enter into sham agreements to avoid TDS provisions.
Question 22 : Whether the rent paid should be enhanced for notional income in respect of deposit given to the landlord ?
Answer : The tax is to be deducted from actual payment and there is no need of computing notional income in respect of a deposit given to the landlord. If the deposit is adjustable against future rent, the deposit is in the nature of advance rent subject to TDS.
Question 23 : Whether payments made by company taking premises on rent but styling the agreement as a business centre agreement would attract the provisions of section 194-I ?
Answer : The tax is to be deducted from rent paid, by whatever name called, for hire of a property. The incidence of deduction of tax at source does not depend upon the nomenclature, but on the content of the agreement as mentioned in clause (i) of Explanation to section 194-I.
Question 24 : Whether in a case of a composite arrangement for user of premises and provision of manpower for which consideration is paid as a specified percentage of turnover, section 194-I of the Act would be attracted ?
Answer : If the composite arrangement is in essence the agreement for taking premises on rent, the tax will be deducted under section 194-I from payments thereof.
Question 25 : Whether the receipts prior to 1-7-1995 are to be aggregated to determine limit of Rs. 20,000 for each financial year ?
Answer : Clause (B) of proviso to section 194J(1) makes it clear that tax shall be deducted at source if the aggregate sums credited or paid or likely to be credited or paid during the financial year are likely to exceed Rs. 20,000. Therefore, in regard to financial year 1995-96, the limit of Rs. 20,000 will have to be worked out taking into account all the payments from 1-4-1995 to 31-3-1996. But the deduction of tax at source would be made at the specified rate only from the payment made on or after 1-7-1995.
Question 26 : Whether payments made to a hospital for rendering medical services will attract deduction of tax at source under section 194J ?
Answer : Yes.
Question 27 : Whether commission received by the advertising agency from the media would require deduction of tax at source under section 194J of the Act ?
Answer : Yes.
Question 28 : Whether the services of a regular electrician on contract basis will fall in the ambit of technical services to attract the provisions of section 194J of the Act? In case the services of the electrician are provided by a contractor, whether the provisions of section 194C or 194J would be applicable ?
Answer : The payments made to an electrician or to a contractor who provides the service of an electrician will be in the nature of payment made in pursuance of a contract for carrying out any work. Accordingly, provisions of section 194C will apply in such cases.
Question 29 : Whether a maintenance contract including supply of spares would be covered under section 194C or 194J of the Act ?
Answer : Routine, normal maintenance contracts which includes supply of spares will be covered under section 194C. However, where technical services are rendered, the provision of section 194J will apply in regard to tax deduction at source.
Question 30 : Whether the deduction of tax at source under sections 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses ?
Answer : Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.
Question 31 : Whether TDS from income in respect of units is applicable to dividend or is it applicable to capital appreciation distributed at the time of repurchase/redemption of the units ?
Answer : The provisions of section 194K regarding deduction of tax at source from income in respect of units are applicable to periodical distribution of income, which is in the nature of dividend. These provisions do not apply to capital gains arising at the time of repurchase or redemption of the units.
Question 32 : Whether TDS on reinvestment term deposit should be made on accrual basis, which is quarterly, or once in a financial year ?
Answer : Tax has to be deducted at source at the time of credit of interest to the account of the payee or at the time of payment thereof, whichever is earlier. If credit is given to the account of the payee or payment is made to him annually, the tax may be deducted annually. It may be clarified that a credit to interest payable account or suspense account, etc., is also taken as credit to the account of the payee, even though this credit is not reflected separately in the payees account.
Question 33 : Whether variable deposit schemes are liable to deduction of tax at source from interest ?
Answer : Under section 194A, tax is to be deducted from interest from banks on time deposits. As variable deposits are in the nature of time deposits, tax is deductible at source from interest on such deposits.
Question 34 : Whether tax has to be deducted from principal on renewal of deposits made after 1-7-1995 but which matured on or before 30-6-1995 when the renewal is made retrospectively?
Answer : Tax has to be deducted from interest credited or paid, whichever is earlier, on time deposits with a bank made on or after 1-7-1995. When a time deposit is renewed retrospectively, the relevant date for deciding the applicability of section 194A would be that date of renewal. Thus, if the time deposit is renewed after 1-7-1995, the tax deduction at source will have to be made from interest paid or credited in respect of such a time deposit.
Circular : No. 716, dated
9-8-1995.
Section 194A l
Interest other than Interest on securities
1054. Clarifications regarding sections 194A, 194C, 194J and 194K, as amended/inserted by the Finance Act, 1995
The Finance Act, 1995, has enlarged the ambit of deduction of tax [`2][`1]at source by amending sections 194A and 194C of the Income-tax Act, 1961, and by inserting sections 194J and 194K in the Act. As a result of these changes, deduction of tax at source is also required to be made from :
(i) payments of Rs. 20,000 and above made by way of fees for professional and technical services;
(ii) payments in pursuance of contracts of Rs. 20,000 and above for advertising, broadcasting, telecasting, transport of goods and passengers and catering;
(iii) payments of interest of Rs. 10,000 and above on Time Deposits with a bank branch; and
(iv) income of Rs. 10,000 and above from units of Mutual Funds or of the Unit Trust of India.
The changes are likely to affect a large number of persons some of whom may not have taxable income. Persons having income below taxable limit may apply to the Assessing Officers for issue of certificates for non-deduction of tax. There may also be cases where assessees may apply for deduction of tax at a lower rate. Provision has also been made for making suo motu declarations to the payers for non-deduction of tax from interest on time deposits and income in respect of units.
2. In pursuance of the aforesaid new provisions, necessary amendments in the Rules and Statutory Forms have been carried out. These rules/forms primarily pertain to deduction of tax at lower rate, non-deduction of tax, filing of declaration by a person to the payer, payment of tax to the Government by the deductors, and filing of annual returns, etc. The details of forms amended or inserted in the Income-tax Rules, in this behalf, are indicated below :
|
Sl. No. |
Form No. |
Subject |
Remarks |
|
1. |
13 |
Application by a person for a certificate under section 197(1) for no deduction of tax or deduction at lower rates. |
Amended to include income in respect of units. |
|
2. |
15AA |
Certificate by the Assessing Officer under section 197(1) |
- do |
|
3. |
15H |
Declaration under section 197A- (1A) for claiming receipt of interest other than interest on securities and income in respect of units. |
Amended to include income in respect of units. |
|
4. |
16A |
Certificate of deduction of tax at source under section 203 |
Amended to include fees for professional or technical services and income in respect of units. |
|
5. |
26 |
Annual return of deduction of tax from dividends/income in respect of units under section 206. |
Amended to include income in respect of units. |
|
6. |
26K |
Annual return of deduction of tax from fees for professional or technical services under section 206. |
Inserted in view of section 194J. |
3. Instructions have been issued to the Assessing Officers that the amended provisions relating to tax deduction at source are implemented in such a manner that they do not cause any hardships or inconvenience to the members of public. The taxpayers and others are advised to approach the tax authorities for issue of certificates of non-deduction or deduction of tax at a lower rate, as the case may be, who in turn, have been directed that :
(i) an application received for non-deduction of tax or deduction of tax at a lower rate should be disposed off at the earliest;
(ii) the requisite forms of declaration to the payer or for issue of certificate of non-deduction of tax or deduction of tax at lower rate, etc., should be made available in the income-tax offices, bank counters, post offices, UTI counters, etc.; and
(iii) the grievances, if any, relating to the implementation of provisions of tax deduction at source should be redressed promptly.
4. If a person has any difficulty in the matter, he may approach the Chief Commissioner of Income-tax concerned for redressal of the grievance. If necessary, he may also approach Director (Hqrs.), Central Board of Direct Taxes, North Block, New Delhi-110001.
FINANCE ACT, 1995 - CIRCULAR NO. 717,
DATED 14-8-1995
Circular : No. 718, dated
22-8-1995
1150. Clarification regarding deduction of tax at source from payment of rent
1. The Finance Act, 1994 introduced section 194-I in the Income-tax Act, 1961, which provides for deduction of tax at source from payment of income by way of rent. This section as amended by Finance Act, 1995 reads as follows :
194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to any person any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of
(a) fifteen per cent if the payee is an individual or a Hindu undivided family; and
(b) twenty per cent in other cases :
Provided that no deduction shall be made under this section where the amount of such income, or as the case may be, the aggregate of the amount of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or, to the payee, does not exceed one hundred and twenty thousand rupees.
Explanation : For the purposes of this section
(i) rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee,
(ii) where any income is credited to any account, whether called Suspense Account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
The Board has received a number of queries from various persons regarding the application of the aforesaid provision. These queries have been carefully considered by the Board and the following clarifications are issued for information and guidance of all concerned :
Query No. 1 : Whether tax is required to be deducted at source where rent has been paid in advance before 1-6-1994?
Answer : Where an advance of rent has been paid before 1-6-1994, there is no requirement for deduction of tax at source.
Query No. 2 : Whether tax is required to be deducted at source where a non-refundable deposit has been made by the tenant?
Answer : In cases where the tenant makes a non-refundable deposit tax would have to be deducted at source as such deposit represents the consideration for the use of the land or the building, etc., and, therefore, partakes of the nature of rent as defined in section 194-I. If, however, the deposit is refundable, no tax would be deductible at source. It is further clarified that if the deposit carries interest, the tax to be deducted on the amount of interest will be governed by section 194A of the Income-tax Act.
Query No. 3 : Whether the tax is to be deducted at source from warehousing charges?
Answer : The term rent as defined in Explanation (i) below section 194-I means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any building or land. Therefore, the warehousing charges will be subject to deduction of tax under section 194-I.
Query No. 4 : On what amount the tax is to be deducted at source if the rentals include municipal tax, ground rent, etc. ?
Answer : The basis of tax deduction at source under section 194-I is income by way of rent. Rent has been defined, in the Explanation (i) of section 194-I, to mean any payment under any lease, tenancy, agreement, etc., for the use of any land or building. Thus, if the municipal taxes, ground rent, etc., are borne by the tenant, no tax will be deducted on such sum.
Query No. 5 : Whether section 194-I is applicable to rent paid for the use of only a part or a portion of any land or building ?
Answer : Yes, the definition of the term any land or any building would include a part or a portion of such land or building.
Circular: No. 719, dated 22-8-1995.
1187.
Clarification regarding filing of returns in respect of tax deducted at source
from salary of employees of company working at its headquarters or in other
branches
Clarification
1
1. Under section 204(1) of the Income-tax Act, 1961, where salary is paid by a company, the person responsible for deducting tax at source under section 192 is the company itself, including the principal officer thereof. The principal officer is defined under section 2(35) of the Act.
2. In some cases, tax in respect of all the employees of the company is being deducted at source at the Head Office and the return under section 206 is filed at the place where the HO is situated. In some other cases, the companies are discharging this responsibility partly through their branch offices requiring the company to file the return with them even where this is being filed with the Assessing Officer where branch or Head Office is situated.
3. It is clarified that where the Head Office or the branch office is already filing the return under section 206, no other Assessing Officer shall require the assessee to file such return with him. Where, however, the return is not being filed, the Assessing Officer having jurisdiction in terms of Rule 36A of Income-tax Rules may proceed so as to enforce compliance to the provisions relating to deduction of tax at source from Salary.
Clarification
2
1. Boards Circular No. 719 [F. No. 275/206/95-IT(B)], dated 22-8-1995 states that where the head office or the branch office is already filing the returns under section 206, no other Assessing Officer shall require the assessee to file such return with him. Where, however, the return is not being filed, the Assessing Officer having jurisdiction in terms of rule 36A of Income-tax Rules may proceed so as to enforce compliance to the provisions relating to deduction of tax at source from Salary.
2. It has been decided to extend this procedure to all other TDS returns filed under rule 37, as required under section 206 of the Income-tax Act, 1961.
Circular : No. 744, dated
6-5-1996.
Circular : No. 720, dated 30-8-1995.
1120.
Payment of any sum shall be liable for deduction of tax only under one section
It has been brought to the notice of the Board that in some cases persons responsible for deducting tax at source are deducting such tax by applying more than one provision for the same payment. In particular, it has been pointed out that the sums paid for carrying out work of advertising are being subjected to deduction of tax at source under section 194C as payment for work contract as also under section 194J as payments of fees for professional services.
2. It is hereby clarified that each section, regarding TDS under Chapter XVII, deals with a particular kind of payment to the exclusion of all other sections is this Chapter. Thus, payment of any sum shall be liable for deduction of tax only under one section. Therefore, a payment is liable for tax deduction only under one section.
Circular : No. 721, dated 13-9-1995.
Sections 112, 115A, 115AC, 115AD,
115B and 115BBA
Determination of Tax in
certain Special Cases
Section 112 l
Tax on long-term Capital gains
731. Clarification regarding computation of tax in
respect of long-term capital gains under section 112
1. Section 112 was inserted in the Income-tax Act by the Finance Act, 1992 with effect from 1-4-1993. It provides that where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head Capital gains, the tax payable by the assessee on the total income shall be the aggregate of,
(i) the amount of income-tax payable on the total income as
reduced by the amount of such long-term capital gains; and
(ii) the amount of income-tax calculated on such long-term
capital gains at appropriate rates.
2. Doubts have been expressed in some quarters about interpretation of the provisions of section 112. Some people are interpreting the provisions of section 112 in such a manner that the tax payable on long-term capital gains is to be computed on the entire amount of long-term capital gains without applying the provisions of set-off of loss contained in section 71(2) where there is loss under any other head. As a result, it has been interpreted that the provisions of section 112 will override those of section 71, effectively denying the benefit of set-off of loss from a source other than capital gains with income from long-term capital gains. It is also interpreted that even if the facility of set-off of loss under any other head is allowed with the long-term capital gains, the flat rate of tax will be applicable to the whole of the long-term capital gains. That means while the whole of long-term capital gains will be subject to tax, the amount of loss which has been set-off in terms of section 71(2) will not be allowed to be carried forward.
3. The confusion in interpreting the provisions of section 112 is arising mainly from the interpretation of the initial part of section 112 :
Where
the total income of an assessee includes any income arising from the transfer
of a long-term capital asset, which is chargeable under the head Capital
gains...
The above phraseology contains two significant expressions, total income and includes any income. The total income is to be computed in the manner prescribed in the Income-tax Act. Set-off of loss as per the provisions of sections 70 to 80 is a stage which is part of this procedure. When this procedure is adopted for computing gross total income or total income, only the amount of income after set-off remains under a head as part of gross total income or total income. Only that amount of long-term capital gains which is included in the total income would be subject to tax at a prescribed flat rate. Thus, if there was a loss of Rs. 10,000 from business and there is long-term capital gains of Rs. 30,000, then after setting off of loss of Rs. 10,000 with long-term capital gains, only Rs. 20,000 would remain under the head Capital gains to be included in the gross total income or total income. The flat rate of tax will be applicable in respect of Rs. 20,000 and not Rs. 30,000, since the amount of long-term capital gains included in that total income is Rs. 20,000. (Here it is assumed that the total income ignoring, long-term capital gains, is above the exemption limit).
4. The following illustrations will clearly show the correct interpretation of the provisions of section 112 :
|
Illustration - 1 (for individuals) |
|
|
|
|
|
Case 1
|
Case 2
|
Case 3
|
|
Income from business |
(-)5,00,000 |
(-)5,00,000 |
(-)5,00,000 |
|
Long-term capital gains |
5,00,000 |
10,00,000 |
3,00,000 |
|
Computation of tax on |
|
|
|
|
long -term capital gains |
Nil |
1,00,000 |
Nil |
|
(The amount of long-term |
(Nil) |
(5,00,000) |
(Nil) |
|
capital gains included |
|
|
|
|
in total income given in brackets) |
|
|
|
|
Illustration - 2 (for an individual) |
|
|
|
|
Profits and gains of business |
(-)1,00,000 |
|
|
|
Long-term capital gains |
90,000 |
|
|
|
Total income |
Nil |
|
|
|
Business loss c/f |
10,000 |
|
|
Computation of tax on long-term capital gains :
There would be no income under the head Capital gains after business loss has been set-off with long-term capital gains. Hence, there would be no tax in this case.
Circular : No. 722, dated 19-9-1995.
607.
Clarification regarding criteria required to be satisfied by any co-operative
society engaged in cottage industry for availing benefits under section
80P(2)(a)(ii)
1. Under section 80P(a)(ii), a co-operative society engaged in a cottage industry is eligible for deduction of the whole of the amount of profits and gains of business attributable to cottage industry.
2. The Board has received representations from a large number of weavers co-operative societies that deduction under section 80P(2)(a)(ii) has been denied to them merely because some payments have been made by them to outside agencies for dyeing, bleaching and transport arrangements.
3. What constitutes a Cottage Industry has been the subject-matter of discussion in a number of cases decided by various courts. Based on the ratio of these decisions, a co-operative society engaged in cottage industry is required to satisfy the following criteria for availing of the benefits under section 80P(2)(a)(ii) of the Income-tax Act, 1961 :
(a) a cottage industry is one which is carried on on a small scale with a small amount of capital and a small number of workers and has a turnover which is correspondingly limited;
(b) it should not be required to be registered under the Factories Act;
(c) it should be owned and managed by the co-operative society;
(d) the activities should be carried on by the membership of the society and their families. For this purpose, a family would include self, spouse, parents, children, spouses of the children and any other relative who customarily lives with such a member. Outsiders (i.e., persons other than members and their families) should not work for the society. In other words, the co-operative society should not engage outside hired labour;
(e) a member of co-operative society means a shareholder of the society;
(f) the place of work could be an artisan shareholders residence or it could be a common place provided by the co-operative society;
(g) the cottage industry must carry on activity of manufacture, production or processing; it should not be engaged merely in trade, i.e., purchase and sale of the same commodity.
4. It is further clarified that in the case of a weavers society, so long as weaving is done by the members of the society at their residences or at a common place provided by the society, without any outside labour, such a society will be eligible for deduction under section 80P(2)(a)(ii) even if certain payments have been made to outside agency for dyeing, bleaching, transport arrangements, etc., provided it satisfied all other conditions necessary for availing deduction under section 80P(2)(a)(ii) of the Income-tax Act, 1961.
Circular: No. 723, dated 19-9-1995.
Section
172 l Shipping Business of Non-Residents
913. Tax
deduction at source from payment made to foreign shipping companies
1. Representations have been received regarding the scope of sections 172, 194C and 195 of the Income-tax Act, 1961, in connection with tax deduction at source from payments made to the foreign shipping companies or their agents.
2. Section 172 deals with shipping business of non-residents.
Section 172(1) provides the mode of the levy and recovery of tax in the case of
any ship, belonging to or chartered by a non-resident, which carries
passengers, livestock, mail or goods shipped at a port in
3. The provisions of section 172 are to apply, notwithstanding
anything contained in other provisions of the Act. Therefore, in such cases,
the provisions of sections 194C and 195 relating to tax deduction at source are
not applicable. The recovery of tax is to be regulated,
for a voyage undertaken from any port in
4. Section 194C deals with work contracts including carriage of goods and passengers by any mode of transport other than railways. This section applies to payments made by a person referred to in clauses (a) to (j) of sub-section (1) to any resident (termed as contractor). It is clear from the section that the area of operation of TDS is confined to payments made to any resident. On the other hand, section 172 operates in the area of computation of profits from shipping business of non-residents. Thus, there is no overlapping in the areas of operation of these sections.
5. There would, however, be cases where
payments are made to shipping agents of non-resident ship-owners or charterers for carriage of passengers etc., shipped at a
port in
Circular : No. 724, dated 29-9-1995.
ANNEXURE III
[See IT (Eighth Amendment) Rules, 1995,
See [1995] 81 Taxman 18 (St.)]
1672. Instructions for deduction of tax at source from salary - Rate of tax for the financial year 1995-96
Reference is invited to Circular No. 690, dated 1st September, 1994 wherein the rates of deduction of income-tax from the payment of income under the head Salaries under section 192 of the Income-tax Act, 1961, during the financial year 1994-95, were intimated. The present Circular contains the rates of deduction of income-tax from the payment of income chargeable under the head Salaries during the financial year 1995-96 and explains certain related provisions of the Income-tax Act.
Finance Act, 1995
2. According to the Finance Act, 1995, income-tax is required to be deducted under section 192 of the Income-tax Act, 1961 from income chargeable under the head Salaries for the financial year 1995-96 (i.e., assessment year 1996-97) at the following rates :
Rates of Income-tax
|
1. |
Where the total income does not |
Nil |
|
|
exceed Rs. 40,000. |
|
|
2. |
Where the total income exceeds |
20 per cent of the amount by which the |
|
|
Rs. 40,000 but does not exceed |
total income exceeds Rs. 40,000. |
|
|
Rs. 60,000 |
|
|
3. |
Where the total income exceeds |
Rs. 4,000 plus 30 per cent of the amount by |
|
|
Rs. 60,000 but does not exceed |
which the total income exceeds Rs. 60,000. |
|
|
Rs. 1,20,000 |
|
|
4. |
Where the total income exceeds |
Rs. 22,000 plus 40 per cent of the amount by |
|
|
Rs. 1,20,000 |
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.
Section 192 of 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 assessee 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 payment. No tax will, however, be deducted at source in any case unless the estimated salary income including the value of perquisites, for the financial year exceeds Rs. 40,000. (Some typical examples of computation of tax are given at Annexure-I).
3.2 Sub-section (2) of section 192 deals with situations where an individual is working under more than one employer or has changed from one employer to another. It provides for deduction of tax at source by such employer (as the tax payer may choose) from the aggregate salary of the employee who is or has been in receipt of salary from more than one employer. The employee is now required to furnish to the present/chosen employer details of the income under the head Salary due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and by the former/other employer. The present employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from the former or other employer).
3.3 Sub-section (2A) of section 192 provides that in respect of salary payment of employees of Government, Company, Cooperative Society, Local Authority, University, Institution, Association or Body, deduction of tax at source may be made after allowing relief under section 89(1), whenever salary, etc., is paid in arrears or in advance.
3.4 Sub-section (2B) enables a tax payer to furnish particulars of income under any head other than Salaries and of any tax deducted at source thereon in the prescribed form (No. 12C). Such income under any other head should not be a loss. The employer shall take such other income and tax, if any, deducted at source from such income, into account for the purpose of computing tax deductible under section 192 of the Income-tax Act. However, if such aggregation results in tax deductible which is less than in the case where income under the head Salaries alone is taken into account for computing tax deductible, then such aggregation under sub-section (2B) is not permissible. In other words, a loss from any other source cannot be adjusted by the DDO against salary income. To meet the requirements of these provisions, the Central Government have enacted rule 26B in the Income-tax Rules. Detailed instructions in this regard were issued by the Department vide Circular No. 504 [F. No. 275/138/87-IT(B)], dated 8-2-1988.
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 Where 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.
Persons responsible for deducting tax and their duties
4.1 Under clause (i) of section 204 of the Act the persons responsible for paying for the purpose of section 192 means the employer himself or if the employer is a company, the company itself including the principal officer thereof.
4.2 The tax determined as per para 7 should be deducted from the salary under section 192 of the Act.
4.3 Section 197 enables the tax-payer to make an application in Form No. 13 to his Assessing Officer, and, if the Assessing Officer is satisfied that the total income of the tax-payer justifies the deduction of income-tax at any lower rate or no deduction of income-tax, he may issue an appropriate certificate to that effect which should be taken into account by the Drawing and Disbursing Officer while deducting tax at source.
4.4 According to the provisions of section 200, any person deducting any sum in accordance with the provisions of section 192 shall pay, within the prescribed time, the sum so deducted to the credit of the Central Government in prescribed manner (vide rule 30 of the Income-tax Rules, 1962). In the case of deductions made by, or, on behalf of the Government, the payment has to be made on the day of the tax-deduction itself. In other cases, the payment has to be normally made within one week of the deduction.
4.5 If a person fails to deduct tax at source, or, after deducting, fails to pay the tax to the credit of the Central Government within the prescribed time, he shall be liable to action in accordance with the provisions of section 201. Sub-section (1A) of section 201 lays down that such person shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which tax is actually paid. Section 271C lays down that if any person fails to deduct tax at source, he shall be liable to pay, by way of penalty, a sum equal to the amount of tax not deducted by him. Further, section 276B lays down that if a person fails to pay to the credit of the Central Government within the prescribed time the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine.
4.6 According to the provisions of section 203, every person responsible for deducting tax at source is required to furnish a certificate to the payee to the effect that tax has been deducted and to specify 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 Boards Notification No. S.O. 148(E), dated 28-2-1991. A specimen of the certificate is enclosed as Annexure II. This certificate is to be issued on the tax-deductors 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 Departments Circular No. 497 [F. No. 275/118/87-IT(B)], dated 9-10-1987. If a person fails to comply with the provisions of section 203A, he will be liable to pay, by way of penalty, under section 272BB, a sum up to Rs. 5,000.
4.8 According to the provisions of section 206 of the Income-tax Act, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under section 192, from Salaries shall, after the end of each financial year, prepare and deliver, by 31st May following the financial year, an annual return of deduction of tax to the designated/concerned Assessing Officer. This return has to be furnished in Form No. 24. If a person fails to furnish in due time the annual return, he shall 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, so, however, that this sum shall not exceed the amount of tax which was deductible at source.
4.9 The Drawing and Disbursing Officers should satisfy themselves about the actual deposits/subscriptions/payments made by the employees, by calling for such particulars/information as they deem necessary before allowing the aforesaid rebate. In case the DDO is not satisfied about the genuineness of the employees claim regarding any deposit/subscription/payment made by the employee, he should not allow the same, and the employee would be free to claim the rebate on such amount by filing his return of income and furnishing the necessary proof, etc., therewith, to the satisfaction of the Assessing Officer. It may also be mentioned here that the deposits/subscriptions/payments towards the items qualifying for the tax rebate should be made out of the employees income chargeable to tax.
4.10 While making the payment of tax deducted at source to the credit of the Central Government, it may kindly be ensured that the correct amount of income-tax is recorded in the relevant challan. It may also be ensured that the right type of challan is used. The relevant challan for making payment of tax deducted at source from salaries is No. 9 with Blue colour Band. Where the amount of tax deducted at source is credited 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 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 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 RBIs Pension Circular (Central Series) No. 7/C.D.R./1992 (Ref. CO : DGBA : GA (NBS) No. 60/GA.64 (11 CVL)-91/92), dated the 27th April, 1992, and, these instructions should be followed by all the branches of the Banks, which have been entrusted with the task of payment of pensions.
Estimation of income under the head Salaries
5.1 Income chargeable under the head Salaries - (1) The following income shall be chargeable to income-tax under the head Salaries:
(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;
(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;
(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.
(2) For the removal of doubts, it is clarified that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due. Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as Salary.
(3) Salary includes wages, fees, commissions, perquisites, profits in lieu of, or, in addition to salary, advance of salary, annuity or pension, gratuity, payments in respect of encashment of leave, etc. It also includes the annual accretion to the employees account in a recognised provident fund to the extent it is chargeable to tax under rule 6 of Part A of the Fourth Schedule of the Income-tax Act. Other items included in salary, profits in lieu of salary and perquisites are described in section 17 of the Income-tax Act. It may be noted that, since salary includes pensions, tax at source would have to be deducted from pension also, if otherwise called for. However, no tax is required to be deducted from the commuted portion of pension as explained in clause (3) of para 5.2 of this Circular.
(4) The value of perquisites by way of free or concessional residential accommodation, or motor car provided by employers to their employees shall be determined under rule 3 of the Income-tax Rules, 1962. It is, however, clarified that the use of any vehicle provided by a company or an employer for journey by 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 employees 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 not included in the Salaries (Exemptions) - Any income falling within any of the following clauses shall not be included in computing the income from salaries for the purpose of section 192 of the Act :
(1) 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 :
(i) the spouse and children of the individual; and
(ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual. It may also be noted that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.
(2) Death-cum-retirement gratuity or any other gratuity is exempt to the extent specified from inclusion in computing the total income under clause (10) of section 10.
(3) Any payment in commutation of pension received under the Civil Pension (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the Civil Services of the Union, or holders of civil posts/posts connected with defence, under the Union, or civil posts under a State, or to the members of the All India Services/Defence Services, or, to the employees of a local authority or a corporation established by a Central, State or Provincial Act, is exempt under sub-clause (i) of clause (10A) of section 10. As regards payments in commutation of pension received under any scheme of any other employer, exemption will be governed by the provisions of sub-clause (ii) of clause (10A) of section 10.
(4) Any payment received by an employee of the Central Government or a State Government, as cash-equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement on superannuation or otherwise, is exempt under sub-clause (i) of clause (10AA) of section 10. In the case of other employees, this exemption will be determined with reference to the leave to their credit at the time of 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 8-6-1988, 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 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 cooperative society;
(f) a university established or incorporated or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956;
(g) any Indian Institute
of Technology within the meaning of clause (g) of section 3 of the
(h) such
It may also be noted that where this exemption has been allowed to any employee for any assessment year, it shall not be allowed to him for any other assessment year. It may be further noted that any such scheme in relation to a company referred to at (b) above, and, a co-operative society referred to at (e) above, has to be approved by the Chief Commissioner, or, as the case may be, Director General of Income-tax.
(7) Any sum received under a life insurance policy, including the sum allotted by way of bonus on such policy other than any sum received under sub-section (3) of section 80DDA.
(8) Any payment from a provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies (or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette).
(9) Under section 10(13A) of the Income-tax Act, 1961, any special allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee is exempt from income-tax to the extent as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations. According to rule 2A of the Income-tax Rules, 1962, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be :
(a) The actual amount of such allowance received by an employer in respect of the relevant period; or
(b) The actual expenditure incurred in payment of rent in excess of 1/10th of the salary due for the relevant period; or
(c) Where such accommodation is situated in
(d) Where such accommodation is situated in any other place, 40% 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 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 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.
(10) 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 as prescribed under rule 2BB subject to the extent to which such expenses are actually incurred for that purpose.
(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 may be prescribed and to the extent as may be prescribed.
However, the allowance referred to in (ii) above should not be in the nature of a personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to his place of posting or residence.
The CBDT has prescribed guidelines for the purpose of clauses (i) and (ii) of section 10(14) vide notification No. SO 617(E), dated 7th July, 1995 (F. No. 142/9/95-TPL). These guidelines are effective from 1st July, 1995. This is enclosed as Annexure III.
(11) 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, as amended by Notification No. F. 2/14/89-NS-II, dated 12-10-1989, the Central Government has notified a scheme called Deposit Scheme for Retiring Government 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 employees (under any scheme approved by the Central Government) or reimbursement of insurance premium to the employees who take medical insurance for themselves or for their family members (under any scheme approved by the Central Government);
(d) reimbursement, by the employer, of the amount spent by an employee in obtaining medical treatment for himself or any member of his family from any director, not exceeding in the aggregate Rs. 10,000 in an year;
(e) as regards medical
treatment abroad, the actual expenditure on stay and treatment abroad of the
employee or any member of his family, or, on stay abroad of one attendant who
accompanies the patient, in connection with such treatment, will be excluded
from perquisites to the extent permitted by the Reserve Bank of
5.3 Deduction under section 16 of the Act - (i) Under section 16 of the Income-tax Act, the taxable salary is to be computed after making a standard deduction equal to 33 1/3% of the salary, subject to the following limits :
(a) Rs. 18,000 in the case of women whose total income, before making the standard deduction, does not exceed Rs. 75,000 in the financial year.
(b) Rs. 15,000 in any other case, not covered by (a).
This deduction will be available also to all persons drawing pension during the current financial year at the same rate and subject to the same ceilings.
It may be noted that the standard deduction in full will be admissible even to those employees who are entitled to conveyance facilities.
Where, in the case of an assessee, salary is due from, or paid or allowed by, more than one employer, the deduction under this clause shall be computed with reference to the aggregate salary due, paid or allowed to the assessee and shall in no case exceed the amount specified under this clause.
(ii) A deduction is also allowed under clause (ii) of section 16 in respect of any allowance in the nature of an entertainment allowance specifically granted to the assessee by his employer subject to certain limits. In the case of a Government employee, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees whichever is less is allowable as deduction. 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 a date prior to 1st April, 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 an individual, any sum paid to effect or to keep in force an insurance on the health of the assessee or on the health of the wife or husband, dependent parents or dependent children of the assessee;
(b) where the assessee is a Hindu undivided family, any sum paid to effect or to keep in force an insurance on the health of any member of the family; and
(c) where the assessee is an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and the Union Territories of Dadra and Nagar Haveli and Daman and Diu, any sum paid to effect or to keep in force an insurance on the health of any member of such association or body or on the health of the dependent children of the members of such an association or body.
(2) Under section 80DD, deduction of Rs. 15,000 is allowed in the case of resident individuals who incur expenditure 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.
(3) Under section 80E of the Act, a deduction will be allowed in respect of repayment of loan taken for higher education, subject to the following conditions :
(i) In computing the total income of an assessee, being an individual, these shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of repayment of loan, taken by him from any financial institution or any approved charitable 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 that 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-graduate course in engineering, medicine, management, or, for postgraduate course in applied sciences or pure sciences, including mathematics and statistics;
(d) initial assessment year means the assessment year relevant to the previous year, in which the assessee starts repaying the loan or interest thereon.
(4) No deduction should be
allowed by the D.D.O. from the salary income in respect of any donations
made for charitable purposes. The tax relief on such donations as admissible
under section 80G of the Act, will have to be claimed
by the taxpayer in the return of income. However, in cases where contributions are made to the National Defence
Fund, the Jawaharlal Nehru Memorial Fund, the Prime Ministers Drought Relief
Fund, the National Childrens Fund, the Indira Gandhi Memorial Trust or the Rajiv
Gandhi Foundation, fifty per cent of such contributions may be deducted in
computing the total income of the employee. Similarly, the donations to the
Prime Ministers National Relief Fund, the Prime Ministers Armenia Earthquake
Relief Fund, the Africa (Public Contributions-India) Fund, the
National Foundation for Communal Harmony and the Chief Ministers Earthquake Relief
Fund,
(5) 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 specifically granted to him which qualifies for exemption under section 10(13A) of the Act;
(b) he will be entitled to a deduction in respect of house rent paid by him in excess of 10 per cent of his total income, subject to a ceiling of 25 per cent thereof or Rs. 1,000 per month, whichever is less. The total income for working out these percentages will be computed before making any deduction under section 80GG;
(c) the assessee does not own :
(i) any residential accommodation himself or by his spouse or minor child or where such assessee is a member of a Hindu Undivided Family, by such family, at the place where he ordinarily resides or performs duties of his office 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, Jabalpur, Jaipur, Kanpur, Lucknow, Ludhiana City, Madurai, Nagpur, Patna, Pune, Srinagar, Surat, Vadodara (Baroda) or Varanasi (Banaras) or the Urban agglomeration of each of such places; or
(ii)
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 employees under the orders issued by it from time to time in this regard.
The disbursing authorities should satisfy themselves that all the conditions mentioned above are satisfied before such deduction is allowed by them to the assessees. They should also satisfy themselves in this regard by insisting on production of evidence of actual payment of rent.
(6) Section 80RRA provides that where the gross total income of an individual who is a citizen of India, includes any remuneration received by him in foreign currency from any employer (i.e., a foreign employer or an Indian concern) for any services rendered by him outside India, fifty per cent of the remuneration only shall be allowed as deduction in computing the total income of the individual. The assessee would have to file the return of income and claim higher rate of deduction at 75 per cent under section 80RRA(i)(ii) if he is entitled for it.
In the
case of an employee of Central Government or any State Government, or, a person
who was, immediately before taking up the service outside
Thus,
if the remuneration is paid to the Indian technician,
etc., partly in Indian currency and partly in foreign currency, the amount paid
in Indian currency will not be taken into account for the purposes of deduction
under section 80RRA. Likewise, if a part of the remuneration, although paid in
foreign currency relates to service rendered in
(a) In the case of an individual who 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
(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
(7) Section 80U allows deduction of forty thousand rupees in computing the total income of a 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, oculist or psychiatrist, as the case may be, working in a Government hospital and which has the effect of reducing considerably such individuals capacity for normal work or engaging in a gainful employment or occupation. The expression Government hospital will include a departmental dispensary or a hospital maintained by a local authority as specified in the Explanation given below section 80DD.
Tax Rebate
6. An assessee will be entitled to tax rebates under Chapter VIII of the Act as given below :
(1) 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% of the sum assured, will alone qualify for deduction).
(2) 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 (8) 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.
(3) 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, insofar as the sum deducted does not exceed 1/5th of the salary.
(4) Any contribution made :
(a) by an individual to any provident fund to which the Provident Fund Act, 1925 applies;
(b) to any provident fund set up by the Central Government, and notified by it in this behalf in the Official Gazette, where such contribution is to an account standing in the name of an individual, or a minor, or whom he is a guardian;
(c) by an employee to a recognised provident fund;
(d) by an employee to an approved superannuation fund;
It may be noted that contribution to any fund shall not include any sums in repayment of loan.
(5) Any deposit in a ten year account or a fifteen year account under the Post Office Savings Bank (Cumulative Time Deposit) Rules, 1959, as amended from time to time, where such sums are deposited in an account standing in the name of an individual, or a minor, for whom he is the guardian.
(6) Any subscription :
(a) to any such security of the Central Government or any such deposit scheme as the Central Government 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) Any 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 Official Gazette, specify in this behalf.
(10) Any contribution made by an individual to any pension fund set up by any Mutual Fund notified under clause (23D) of section 10, or, by the Unit Trust 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.
(11) 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.
(12) Any subscription made to any such deposit scheme (not being a scheme the interest on deposits whereunder qualifies for deduction under section 80L), 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.
(13) Any sums paid by
an assessee for the purpose of purchase or construction of a residential house
property, the income from which is chargeable to tax under the head Income from
house property (or which would, if it has not been used for assessees
own residence, have been chargeable to tax under that head) where such payments
are made towards or by way of any instalment or part
payment of the amount due under any self-financing or other scheme of any
development authority, housing board, etc. The deduction will also be
allowable in respect of re-payment of loans borrowed by an assessee from the
Government, or any bank or Life Insurance Corporation, or the National Housing
Bank, or certain other categories of institutions engaged in the business of
providing long-term finance for construction or purchase of houses in
(14) Subject to the limits mentioned for the various items, the entitlement to tax-rebate will be calculated at the rate of 20% of the total amount of the aforesaid savings, etc., in the case of individuals, and at the rate of 25% in the case of an author or playwright or artiste or musician or actor or sportsman (including an athlete) whose income derived from the exercise of his profession as such author/playwright/artiste/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, artistes, musicians, actors, sportsmen and athletes. There will, therefore, be an overall limit for savings which will qualify for tax-rebate. In the case of individuals, the limit will be Rs. 60,000 and in the case of authors, sportsmen, etc., Rs. 70,000.
(15) Section 88B provides for special relief to senior citizens (individuals of the age of 65 years and above). The tax-rebate in their cases is 40% and the gross total income qualifying limit for this purpose is Rs. 1,00,000. Thus, all individuals of, and above, the age of 65 years will be allowed a rebate of 40% of the amount of income-tax payable by them (as computed before allowing the deduction under Chapter VIII of the Income-tax Act, 1961), subject to the condition that their gross total income does not exceed Rs. 1,00,000.
Calculation of income-tax to be deducted
7.1 Salary income for the purpose of section 192 shall be estimated as follows :
(a) First compute the gross salary as mentioned in para 5.1 excluding all the incomes mentioned in para 5.2;
(b) allow deductions 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 aggregate of the deductions mentioned in para 5.4 does not exceed the 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 VIA 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 deducted every month in equal instalments. The net amount of tax deductible should be rounded off to the nearest rupee.
Miscellaneous
8.1 These instructions are not exhaustive and are issued only with a view to helping the employers to understand the various provisions relating to deduction of tax from salaries. Wherever there is any doubt, reference may be made to the provisions of the Income-tax Act, 1961, the Income-tax Rules, 1962 and the Finance Act, 1995.
8.2 In case any assistance is required, the Assessing Officer/the local Public Relations Officer of the Income-tax Department may be contacted.
8.3 These instructions may please be brought to the notice of all disbursing officers and undertaking including those under the control of the Central/State Government, etc.
Circular : No.
725, dated 16-10-1995.
136.
Issue/approval of notifications under section 10(23C)(iv)
or section 35(1)(ii)/(iii) after completion of assessment, rectification of
mistake consequent thereto
1. Section 10(23C)(iv) of the Income-tax Act, 1961, provides that any income received by a person on behalf of any fund or institution established for charitable purposes is not includible in the total income if the said fund or institution is notified by the Central Government in the Official Gazette, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States.
2. Section 35(1)(ii) provides for deduction out of profits computed under the head Profits and gains of business or profession, in respect of any sum paid to the scientific research association which has as its object the undertaking of scientific research or to a university, college or other institutions to be used for scientific research. Similarly, clause (iii) of sub-section (1) of section 35 provides for deduction in respect of any sum paid to a university, college or other institution to be used for research in social science or statistical research. The deductions under section 35(1)(ii) or sub-section 35(1)(iii) are admissible only if such association, university, college or institution is for the time being approved for the purposes of these clauses, by the prescribed authority, by notification in the Official Gazette.
3. The Board have received representations that quite often the notifications are issued much after the completion of assessments of the relevant persons for the relevant assessment years. The Assessing Officers have rejected applications under section 154 on the ground that the notification was issued subsequent to the passing of the assessment order and thus there was no mistake apparent from the record.
4. The matter has been examined. The Board are of the view that in view of the notification issued at a subsequent date but which is applicable to the assessment year/s involved in the application, there is a mistake apparent from the record which can be rectified under section 154 of the Income-tax Act. However, while disposing of the rectification applications, the Assessing Officer must ensure that the conditions subject to which the approval was granted are satisfied.
Circular : No.
726, dated 18-10-1995.
Section
194J l Fees for professional
or technical services
1153.
Clarification regarding payments to persons resident in
1. Representations have been received from some
law and accountancy firms that are receiving fees for professional services
from foreign companies or foreign law and accountancy firms saying that the
latter find it very difficult to comply with the requirement of tax deduction
at source under section 194J of the Income-tax Act and its payment to Central
Government in the prescribed manner and within the prescribed time in the
absence of any agent or business connection or permanent establishment in
India. They have, therefore, requested that the
provisions of section 194J of the Act may not be made applicable to the fees
for professional services paid by foreign companies or foreign law and
accountancy firms to persons resident in
2. After carefully considering the practical difficulties involved, it is felt that, any fees paid through regular banking channels to any chartered accountant, lawyer, advocate or solicitor who is resident in India by the non-residents who do not have any agent or business connection or permanent establishment in India may not be subject to the provisions of tax deduction at source under section 194J of the Income-tax Act.
3. However, foreign companies or foreign law and accountancy firms
are required to send a quarterly statement, indicating the name and address of
the person to whom the payments are made, to the
Deputy Secretary, Foreign Tax Division, CBDT, Department of Revenue, Ministry
of Finance,
Circular: No.
728, dated 30-10-1995.
1164.
Correct rates of tax applicable in case of remittance to a country with which Double
Taxation Avoidance Agreement is in force
1. It has been represented to the Board that when making remittances of the nature of royalties and technical fees, tax is being deducted at source at the rates specified in the Finance Act of the relevant year, without taking into account the special rates for taxation of such income provided for under the Double Taxation Avoidance Agreement with the country concerned.
2. The expression rates in force has been defined in section 2(37A) of the Income-tax Act. Under sub-clause (iii) of section 2(37A), for purposes of deduction of tax under section 195, the expression is to mean the rate or rates of income-tax specified in this behalf in the Finance Act in the relevant year, or the rates of tax specified in a Double Taxation Avoidance Agreement entered into by the Central Government, whichever is applicable by virtue of the provisions of section 90 of the Income-tax Act, 1961.
3. It is hereby clarified that in view of the provisions of sub-section (2) of section 90 of the Act, in case of a remittance to a country with which a Double Taxation Avoidance Agreement is in force, the tax should be deducted at the rate provided in the Finance Act of the relevant year or at the rate provided in the DTAA, whichever is more beneficial to the assessee.
Circular : No. 729, dated 1-11-1995.
557. Whether
profits derived from export of cut and polished dimensional blocks, granite or
other rocks is eligible for deduction under section 80HHC
1. The deduction under section 80HHC is available, as at present, in respect of cut and polished minerals and rocks including cut and polished granites with effect from 1-4-1991 by virtue of insertion of item (x) in the Twelfth Schedule to the Income-tax Act, 1961. The export of dimensional blocks of granite is presently ineligible for the benefit of section 80HHC in view of CBDT Circular No. 693, dated 17-11-1994. (Sl. No. 556)
2. On the representation made by Granite Association and CAPEXIL, the issue has been reconsidered. The representation basically brings to light that rough granite is cut to dimensional blocks in uniform colour and dimension and export proceeds are realised on volume and dimensional basis. Thus, the dimensional blocks of granite are exported only after going through a mechanical process, involving substantial value addition to rough granite.
3. The Board is, therefore, of the view that while granite can alone be considered as mineral, any process applied to granite would deprive the quality of rough mineral from the dimensional blocks of granite, which is a value added marketable commodity. When rough granite is cut to dimensional blocks of uniform colour and size, it not only undergoes mechanical process of cutting, but also certain amount of dressing and polishing is involved to remove various natural flaws such as colour variations, grain variations, joints, fissures, moles, patches, hair line cracks, etc. The profits derived from the export of such granite dimensional blocks would, accordingly, be eligible for deduction under section 80HHC of the Act.
Circular : No.
730, dated 14-12-1995.
914. Whether
non-resident assessees engaged in business of
carriage by shipping of passengers and goods, etc., shall neither be liable to
pay interest under sections 234B and 234C nor entitled to interest under
section 244A in respect of their income attributable only to business of such
carriage of passengers and goods, etc.
1. Section 172 of the Income-tax Act, 1961, deals with shipping business of non-residents. The scheme of section 172 is that every time a ship belonging to or chartered by a non-resident makes a voyage from a port in India, carrying passengers, live stock, mail or goods, shipped at the airport, 7 per cent of the amount paid or payable on account of the carriage of the passengers, etc., is taken as the income and tax levied on such income at the rate applicable to a foreign company. The rate, at present, is 55 per cent.
2. The assessment and the payment is to be made before the ship is granted the port clearance. The exception is that insuitable cases the ship may be allowed to leave, provided satisfactory arrangements are made to ensure that the return is filed within 30 days of the departure of the ship and for payment of taxes.
3. Under section 172(7), the non-resident owner or charterer is allowed to claim before the end of the relevant assessment year that he be assessed on his total income of the previous year and the tax payable on the basis thereof be determined in accordance with other provisions of the Act. When such a claim is made and an assessment is made thereupon, the tax paid under section 172(4) by the non-resident owner or charterer would be treated as a payment in advance of the tax leviable for that assessment year before determining the amount of tax finally due. It may be noted that under section 172(7), the choice is entirely that of the non-resident tax-payer to be assessed under the other provisions of the Act.
4. The payments made under section 172(4) by a non-resident ship owner is a payment of tax on actual assessments under that section and it is not a payment of advance tax within the meaning of the Income-tax Act there being no advance tax liability within the scheme of section 172.
5. The question that arises for consideration in such a regular assessment made under section 143(3), read with the provisions of section 172(7), is whether such an assessee is liable to levy of interest under sections 234B and 234C or not. As the payment of any tax under section 172(4) is not considered to be payment of advance-tax within the meaning of the Income-tax Act, the Board is of the view that the assessee who exercises his option under section 172(7) to get his total income assessed in the normal course, is not liable to pay advance tax under section 208 in respect of income of the nature referred to in sub-section (2) of section 172 of the Income-tax Act.
6. Hence the Board is of the opinion that non-resident assessees engaged in the business of carriage by shipping of passengers and goods, etc., shall neither be liable to pay interest under sections 234B and 234C nor entitled to interest under section 244A of the Income-tax Act, 1961 in respect of their income attributable only to the business of such carriage of passengers and goods, etc.
Circular : No
731, dated 20-12-1995.
604. Eligibility for deduction under section 80-O in case of receipt of brokerage by reinsurance agent, operating in India on behalf of principals abroad, from gross premia before remittance to his foreign principals
1. Under the provisions of section 80-O of the
Income-tax Act, 1961 an Indian company or a non-corporate assessee, who is resident
in India, is entitled to a deduction of fifty per cent of the income received
by way of royalty, commission, fees, etc., from a foreign Government or foreign
enterprise for the use outside India of any patent, invention, model, design,
secret formula or process, etc., or in consideration of technical or
professional services rendered by the resident. The deduction is
available if such income is received in
2. Reinsurance brokers, operating in
3. The Reserve Bank of
4. The matter has been examined. The
condition for deduction under section 80-O is that the receipt should be in
convertible foreign exchange. When the commission is remitted
abroad, it should be in a currency that is regarded as convertible foreign
exchange according to FERA. The Board are of the view that in such cases the
receipt of brokerage by a reinsurance agent in India from the gross premia before remittance to his foreign principals will
also be entitled to the deduction under section 80-O of the Act.
Judicial analysis
In J.B. Boda &
Circular: No. 732, dated 20-12-1995.
915. Whether in cases where no tax is payable in India, the
Assessing Officer shall be competent to issue an annual No Objection
Certificate, valid for a year, in respect of taxation of shipping profits under
section 172, after carefully verifying applicability of relevant provisions
concerning taxation of shipping profits in double taxation agreement with
country of which owner or charterer is resident
1. Under the provisions of section 172 of the Income-tax Act, 1961 seven and a half per cent of the amount paid or payable to the owner or charterer of a ship on account of carriage of passengers, livestock, mail or goods shipped at a port in India, is deemed to be income accruing in India to the owner or the charterer. The port clearance is granted only after the return of the full amount to be paid is filed, evidence of payment of tax on such income is produced before the Customs authorities, or satisfactory arrangements are made to file the return and pay the tax within thirty days of departure of the ship.
2. In cases where such ships are owned by an enterprise belonging to a country with which India has entered into an agreement on avoidance of double taxation, which provides for taxation of shipping profits only in the country of which the enterprise is a resident, no tax is payable by such ships at the Indian ports. Under such circumstances, a No Objection Certificate is to be obtained by the master of the ship from the concerned income-tax authority.
3. It has been represented to the Board
that in cases where no tax is payable in
4. The Board have considered the matter. It has been decided that in such cases, the Assessing Officer shall be competent to issue an annual NOC, valid for a year, in respect of taxation of shipping profits under section 172 of the Income-tax Act, 1961 after carefully verifying the applicability of the relevant provisions concerning taxation of shipping profits in the DTAA with the country of which the owner or the charterer is a resident.
5. While examining the relevant Articles of the DTAA, the Assessing Officer should ensure that the non-resident shipping company is engaged in international traffic, a term which is invariably defined in the DTAA itself. An undertaking from the non-resident company that during the period of the currency of the NOC, no ship belonging to it will be in any traffic other than international traffic, shall be obtained before the issue of the NOC.
Circular : No.
728, dated 30-10-1995.
1635.
Applicable rates of taxes under the Double Taxation Avoidance Agreement between
1. It has been represented by some
Non-Resident Indians in the United Arab Emirates (UAE) that the banks and the
U.T.I. have been deducting tax at source on interest and dividend incomes at
rates higher than those provided in the Double Taxation Avoidance Agreement
between
2. The Board in its Circular No. 728 dated 30th October, 1995 (see Annex) have already clarified that in case of a remittance to a country with which a Double Taxation Avoidance Agreement is in force, tax should be deducted at the rates provided in the Finance Act of the relevant year or at the rates provided in the DTAA, whichever is more beneficial to the assessee.
3. Once again it is clarified that in respect of payments to be made to the Non-Resident Indians at the UAE, tax at source must be deducted at the following rates :
(i) Dividends :
(a) 5% of the gross amount of the dividends if the beneficial owner is a company which owns at least 10% of the shares of the company paying the dividends.
(b) 15% of the gross amount of the dividends in all other cases.
(ii) Interest :
(a) 5% of the gross amount of the interest if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution.
(b) 12% of the gross amount of the interest in all other cases.
(iii) Royalties :
10% of the gross amount.
4. It is essential that the above
rates which are enshrined in the DTAA between
Circular : No. 734, dated 24-1-1996.
Annex
1. It has been represented to the Board that when making remittances of the nature of royalties and technical fees, tax is being deducted at source at the rates specified in the Finance Act of the relevant year, without taking into account the special rates for taxation of such income provided for under the Double Taxation Avoidance Agreement with the country concerned.
2. The expression rates in force has been defined in section 2(37A) of the Income-tax Act. Under sub-clause (iii) of section 2(37A), for the purposes of deduction of tax under section 195, the expression is to mean the rate or rates of income-tax specified in this behalf in the Finance Act in the relevant year or the rates of tax specified in the Double Taxation Avoidance Agreement entered into by the Central Government whichever is applicable by virtue of the provisions of section 90 of the Income-tax Act, 1961.
3. It is hereby clarified that in view of the provisions of sub-section (2) of section 90 of the Act, in the case of a remittance to a country with which a Double Taxation Avoidance Agreement is in force, the tax should be deducted at the rate provided in the Finance Act of the relevant year or at the rate provided in the DTAA, whichever is more beneficial to the assessee.