CIRCULAR NO. 760, DATED 18-1-1998
FINANCE ACT, 1966 -
SECTION 2(7)(d) l INDUSTRIAL
COMPANY
1486.
Meaning of industrial company under Explanation to section2(7)(d)
1. Under sub-section (7)(d) of section 2
of the Finance Act, 1966, an industrial company means a company which is mainly
engaged in the business of generation or distribution of electricity or any
other form of power or in the construction of ships or in the manufacture or
processing of goods or in mining. According to the Explanation to clause
(d) of sub-section (7) of section 2, a company shall be deemed to be
mainly engaged in the business of generation or distribution of electricity or
any other form of power or in the construction of ships or in the manufacture
or processing of goods or in mining, if the income attributable to any of the
aforesaid activities included in its total income for the previous year is not
less than fifty-one per cent of such total income.
2. The question as to the exact meaning of the Explanation
to sub-section (7)(d) of section 2, came up for the consideration and
the Board are advised that an industrial company would mean
(a) a
company which is mainly engaged in the business of generation or distribution
of electricity or any other form of power or in the construction of ships or in
the manufacture or processing of goods or in mining, even if its income from
such activities is less than 51 per cent of its total income; and
(b) a
company which, even though not mainly so engaged, derives in any year 51 per
cent or more of its total income from such activities.
Circular
: No.
103 [F. No. 166/1/73-IT(A-I)], dated 17-2-1973.
Judicial
Analysis
Explained
in - In
CIT v. N.U.C. (P.) Ltd. [1980] 126 ITR 377 (Bom.), the above
circular was explained with the following observations :
Shri Khatri
then referred to the circular dated February 17, 1973, of the Central Board of
Direct Taxes to contend that although the assessee-company was engaged in the
business of construction of buildings, it was also at the same time manufacturing
or processing window frames, door frames, cement beams and slabs, and the
income derived from such manufacture constituted a larger portion of the total
income derived by it from its overall business of construction. Hence, he
contended, that in terms of the said circular which has sought to interpret the
Explanation to clause (d) of sub-section (7) of section 2 of
Chapter II of the Finance Act, 1966, the assessee-company will be an industrial
company. We fail to understand how this circular helps the assessee-company.
Apart from the fact that there is nothing on record to show separately the
income derived by the assessee from its so-called different activities, one of
constructing buildings and the other of manufacturing frames and beams, we have
already held that the assessee-company was not carrying on the said activity of
manufacturing frames, etc., independently of or otherwise than in the process
of, the construction of the buildings. It is not, therefore, permissible to
divide its activity into the said two segments to compare the income from one
with the other. The assessee-companys only business
is that of construction and repairing of buildings and there are no two
activities carried on by it as contended by Shri Khatri. We are, therefore, not impressd
by the contention advanced by Shri Khatri and taking into consideration the said extended
meaning given in the said circular the assessee-company would fall within the
definition of an industrial company .... (pp. 381-382)
Explained
in - In
S.P. Jaiswal Estates (P.) Ltd. v. CIT [1994]
73 Taxman 320 (Cal.), it was observed that in Boards Circular No. 103, dated
17-2-1973 it was stated that a company which, even though not mainly so
engaged, derived in any year 51 per cent or more of its total income from such
activities like manufacture or processing of goods, it could be held to be an
industrial company.
Explained
in - In
Vishal International Production (P.) Ltd.
v. IAC [1993] 46 ITD 312 (Delhi-Trib.), it was
observed that it is apparent that in Circular No. 103, the provisions of
section 2(7)(d) of Finance Act, 1966 read with Explanation were
being considered and these are not in any way different to the corresponding
provisions of the Finance Act, 1980.
Explained
in - In
Nova Bharat Enterprises (P.) Ltd. v. CIT (1983)
143 ITR 804 (AP), this circular was referred to, and the High Court observed as
follows :
We are of the opinion
that the construction placed by the Central Board of Direct Taxes upon the
definition represents the correct view. Adopting the view contended for by the
Department would result in anomalous and inequitable results. . . (p. 812)
Explained
in - The
above circular was applied in ITO v. Hedavkar
Mechanical Works (P.) Ltd. (1984) Taxation 72(6) - 48 (ITAT - Bom.), and on
the facts of the case, it was held that the respondent-assessee was not an
industrial company, since it was not covered under either of the two
alternatives mentioned in the circular.
Explained
in - The
above circular was explained in ITO v. Kalima
Plastics (P.) Ltd. (1990) 38 TTJ (
The Explanation to
clause (c) of section 2(7) of the Finance Act, 1982, contains a
deeming provision as a result of which a company which, in fact, is not mainly
engaged in the business of generation or distribution of electricity or any
other form of power or in the construction of ships or in the manufacture or
processing of goods or in the mining shall be deemed to be engaged in such
activities if the income attributable to any one or more of such activities
included in its total income is not less than 51% of such total income. It is
precisely for this reason that the Board has clarified in its Circular No. 103
that a company which is mainly engaged in one or more of the activities enumerated
in the Explanation would be an industrial company even if its income
from such activities is less than 51% of its total income. Here, it may be
pointed out that definition of an industrial company in sub-section (7)(d)
of section 2 of the Finance Act, 1966, and the Explanation thereto are
in pari materia
with clause (c) of section 2(7) of the Finance Act, 1982 and the Explanation
to clause (c). The Boards circular further makes it clear that a
company which is even though not mainly so engaged in one of the aforesaid
activities, derives in any year 51% or more of its total income from such
activities, would be an industrial company. It is, therefore, not correct to
say that it is only when income derived by a company from one or more
activities enumerated in clause (c) of section 2(7) of the Finance Act,
1982, is not less than 51% of its total income that it can be treated as an
industrial company for the purpose of applying the concessional
rate of tax at 55%. Explanation to clause (c) applies only to
cases where a company, in fact, is not mainly engaged in one of the activities
enumerated in clause (c) but by legal fiction it is deemed to be mainly
engaged in one or more such activities provided its income from such activities
is not less than 51% of such total income. If an industrial company is mainly
engaged in one or more of the activities enumerated in clause (c) it
would be an industrial company within the meaning of clause (c) of
section 2(7) and in such a case the Explanation is not at all called
into play. The Boards Circular No. 103 makes the position quite clear. (pp.
538-539)
Explained
in - The
above circular was explained in Khoday
Industries Ltd. v. ITO (1994) 51 ITD 18 (Bang.), in the following
words :
. . .The Supreme Court
has held in its recent decision in the case of Minocha
Brothers (P.) Ltd. [1994] 74 Taxman 466 (SC) that the assessee failed to
discharge the burden that lay upon him to adduce evidence to establish that
income attributable to manufacturing activity undertaken by him was not less
than 51% of the total income. As regards reliance placed by the assessees counsel on the CBDTs
circular dated 17-2-1973 (supra), the Supreme Court simply stated that
construction of buildings is not one of the activities mentioned in the said
circular and, hence, it was unnecessary to express any opinion whether the said
circular runs contrary to the Explanation to the definition of
industrial company, in the Finance Acts and if so, whether it can be acted
upon. Thus, it is clear that the Supreme Court has not exactly passed any
opinion that the circular of the CBDT, as rightly pointed out by the learned
counsel for the assessee, cannot be acted upon to get at the real meaning of an
industrial company. (p. 23)
. . . The circular
issued by the CBDT, if it is favourable to the
assessee, is purely binding on the departmental authorities unless and until
such circular is specifically repealed . . . . (p. 24)
It is clear from above
that in the said circular, the CBDT has recognised
that for being given the benefit of a lower tax rate as an industrial company,
it is not necessary for a company to have its income from manufacturing
activities to be actually 51% or more of its total income in any particular
year provided the company be found to be mainly engaged in manufacturing
business. . . . (p. 25)
Explained
in - The
above circular was explained in CIT v. Beehive Engg.
From the above extract
(of the Circular), two things are clear, viz., (i) that for a
company to be an industrial company within the meaning of the abovesaid provision, it is enough if the company is
carrying on manufacturing of goods, and (ii) that the application of the
Explanation would arise only in a case where the company is not mainly
an industrial company; in such a case if the income of that company from
manufacture of goods exceeds 51 per cent, it would be treated as industrial
company. . . . (pp. 566-567)
Circular : No. 761, dated 13-1-1998.
1184. Clarifications regarding use of Form
No. 16 for pensioners where pensioners are drawing their pensions through banks
1.
The attention of the Board
has been drawn to certain difficulties being faced by pensioners drawing their
pensions through banks where the tax deduction at source certificate in the
prescribed Form No. 16 is some-time denied to them on the ground that no
employee-employer relationship exists between the banks and the pensioner. At
times, objections have also been raised by the banks on the premise that Form
No. 16 relates to deductions from salaries and not from pensions. In other
cases, the certificates have been denied on the ground that the bank was not
aware of any other income which the pensioner may have had.
2.
The matter has been
considered by the Board. It is hereby clarified that :
(a) as per section 17(1)(ii) of the
Income-tax Act, 1961, the term salary includes pension;
(b) once tax has been deducted under section 192
of the Income-tax Act, 1961, the tax-deductor is
bound by section 203 to issue the certificate of tax deducted in Form 16. No
employee-employer relationship is necessary for this purpose;
(c) the certificate in Form No. 16 cannot be
denied on the ground that the tax deductor is unaware
of the payees other income.
3.
These clarifications may be
brought to the notice of all concerned, especially the banks in your region.
FINANCE
(NO. 2) ACT, 1996 - CIRCULAR NO. 762, DATED 18-2-1998
FINANCE
ACT, 1997 - CIRCULAR NO. 763, DATED 18-2-1998
Circular : No. 764, dated 20-2-1998.
85. Clarification regarding taxability of transport allowance
References have been received as
to whether the transport allowance granted to the Central Government employees
on the recommendations of the Fifth Central Pay Commission forms part of
taxable salary for the purposes of deduction of tax at source.
2. The matter has been considered by the Board.
The transport allowance granted to the employees of the Central Government is
to compensate them for the cost incurred on account of commuting between the
place of residence and the place of duty. This allowance cannot be said to have
been granted to meet expenses incurred wholly, necessarily and exclusively in
the performance of the duties of an office or employment of profit. The said
allowance is, therefore, not covered by the provisions of section 10(14)(i)
of the Income-tax Act, 1961, read with rule 2BB(1)(c) of the
Income-tax Rules, 1962. It is further clarified that any allowance, by whatever
name called, granted by an employer, which has the element of compensation of
the expenditure incurred on commuting from residence to office or vice versa,
will also not qualify for the benefit under section 10(14)(i).
3. Accordingly, the persons responsible for
paying any amount of the above nature, should treat the same as part of taxable
income and deduct tax at source at the appropriate rates under the relevant
provisions of the Income-tax Act, 1961.
Note : See rule 2BB, as amended w.e.f.
1-8-1997, which exempts transport allowances (to the extent of Rs. 800 p.m.)
granted to an employee to meet his expenditure for the purpose of commuting
between the place of his residence and the place of his duty.
Circular : No. 765, dated 15-4-1998.
226. Taxation of foreign
telecasting companiesGuidelines for computation of
income-tax, etc.
1. A number of representations have been
received from foreign telecasting companies regarding their taxability and the
extent of income that could be said to accrue or arise to them from their
operations in
2. The matter has been examined in the Board
and the assessment records of some of these companies have also been looked
into. Since this is a new area of commercial activity, no uniform basis is
being adopted by the Assessing Officers at different stations for computing the
income in the absence of country-wise accounts of the foreign telecasting
companies. It has, therefore, been decided by the Board to prescribe guidelines
for the purpose of proper and efficient management work of the assessment of
foreign telecasting companies.
3. It is seen that out of the gross amount of
bills raised by a foreign telecasting company, the advertising agent retains
commission at 15 per cent or so. Similarly, the Indian agent of the foreign
telecasting company retains his service charges at 15 per cent or so of the
gross amount. The balance amount of approximately 70 per cent is remitted
abroad to the foreign company. So far as the income of Indian advertising agent
and the agent of the non-resident telecasting company are concerned, the same
is liable to tax as per the accounts maintained by them. As regards the foreign
telecasting companies which are not having any branch office or permanent
establishment in
4. In the absence of country-wise accounts and
keeping in view the substantial capital cost, installation charges and running
expenses, etc., in the initial years of operation, it would be fair and
reasonable if the taxable income is computed at 10 per cent of the gross
receipts (excluding the amount retained by the advertising agent and the Indian
agent of the non-resident foreign telecasting company as their
commission/charges) meant for remittance abroad. The Assessing Officers shall
accordingly compute the income in the cases of the foreign telecasting
companies which are not having any branch office or permanent establishment in
India or are not maintaining country-wise accounts by adopting a presumptive
profit rate of 10 per cent of the gross receipts meant for remittance abroad or
the income returned by such companies, whichever is higher and subject the same
to tax at the prescribed rate, i.e., 55 per cent at present.
5. It has also been decided that while
assessing the income in the aforesaid manner, penalty proceedings may not be
initiated in the cases in which taxes due along with the interest are paid
voluntarily within 30 days of the date of issue of this circular.
6. It is clarified that these guidelines would
be applicable to all pending cases irrespective of the assessment year involved
until 31st March, 1998, after which the position with regard to the reasonableness
of the rate of profits of such companies will be reviewed.
Circular : No. 742, dated 2-5-1996.
CLARIFICATION 1
The
Central Board of Direct Taxes, vide Circular No. 742, dated 2nd May,
1996, issued guidelines for taxation and computation of income of foreign
telecasting companies. The guidelines were applicable up to 31st March, 1998.
It has been decided to extend the circular beyond 31st March, 1998, and the
guidelines issued in the abovementioned circular would be applicable to all
pending cases irrespective of the assessment year involved until further
orders.
Clarification 2
1. The Central Board of Direct Taxes vide
Circular No. 742, dated 2-5-1996 had laid down certain guidelines for the
computation of profits of FTCs from advertisement
payments received by them from
2. The total income of FTCs
from advertisements, hitherto computed on a presumptive basis shall now be
determined by the Assessing officers in accordance with the other provisions of
the Income-tax Act, 1961 in relation to the assessment year 2002-2003 and subsequent
assessment years. In case, accounts for Indian operations are not available,
the provisions of rule 10 of the Income-tax Rules, 1962 may be invoked. Where
an FTC is a resident of a country with whom
3.
It may be reiterated that
the guidelines for computation of profits of FTCs in
Circular No. 742 and 765 were applicable only to the income stream from
advertising. Other kinds of income like subscription charges receivable from
cable operators in respect of pay channels and income from the sale or lease of
decoders, etc., shall continue to be taxed in accordance with the paragraph 2
above.
Circular : No. 6/2001, dated 5-3-2001.
Judicial
Analysis
Explained
in - TVM Limited v. CIT [1999] 102 Taxman 578 (AAR-New
Delhi) in following words:
[Guidelines contained in Circular No. 742, dated
2-5-1996 regarding taxation of foreign telecasting companies] are only general
in character and it is open to assessees to accept
them if they are beneficial to them. To the extent these guidelines purport to
extent the applicability of the presumptive rate of profits even to cases where
the foreign telecasting company has no permanent establishment in
Circular : No. 766, dated 24-4-1998.
1154. Discontinuance of requirement of
sending quarterly statements in case of payments by foreign companies and law
firms to residents in
1. Attention is invited to Boards Circular No.
726 dated 18-10-95 (F. No. 133/80/95-TPL) wherein, inter alia,
it was stated that the foreign companies and the foreign law and
accountancy firms that have no presence in India should send a quarterly
statement to the Deputy Secretary, Foreign Tax Division, CBDT regarding the
payments made to the Indian residents for professional service.
2. The Board has since reconsidered the matter. As
the details of payments made to the Indian residents can easily be verified or
collected wherever required, it has been decided to discontinue with
immediate effect the requirement of sending the above quarterly statements.
Circular :
No. 767, dated 22-5-1998.
1166. Submission of No Objection Certificate
in case of remittance to a non-resident
1. Section 195 of the Income-tax Act, 1961
provides that any person responsible for paying to a non-resident any sum
chargeable under the Act 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 cheque or
draft or any other mode, whichever is earlier, deduct income-tax thereon at the
rates in force.
2. The Reserve Bank of
3. The contents of this Circular may be brought
to the notice of all the officers working in your charge.
Undertaking
To
..............................................................................
(Designation
of the Assessing Officer)
..............................................................................
..............................................................................
I/We...........................................................................................................................................................
(name,
address & Permanent Account Number)
propose to make a remittance of................................................................................................
(Amount)
being...........................................................................................................................................................
(nature
of payment)
to..................................................................................................................................................................
(name
and complete address of the person to whom the remittance has been made)
after deducting a sum of
Rs........................ being the tax @.............................., which
is the appropriate rate of tax deductible at source on the said amount of
remittance.
2. A certificate from the accountant as defined
in Explanation below section 288 of the Income-tax Act, certifying the
nature and amount of income, amount of tax payable and the amount actually
paid, is also annexed.
3. In case it is found that the tax actually
payable on the amount of remittance made, has either not been paid or has not
been paid in full, I/we undertake to pay the said amount of tax along with
interest found due in accordance with the provisions of the Income-tax Act.
4. I/We will also be subject to the provisions
of penalty and prosecution for the said default as per the Income-tax Act.
5. I/We also undertake to submit the requisite
documents, etc., for enabling the Income-tax Department to determine the nature
and amount of income and tax, interest, penalty, etc., payable thereon.
(Name and
Signature)
Date...............................
Place..............................
(The Undertaking shall be signed
by the person authorised to sign the return of income of the person making the
payment).
Certificate
I/We have examined the books of
accounts of M/s..........................................................
......................................................................................................................................................................
(Name,
address and Permanent Account Number of person making the remittance)
for ascertaining the nature of
the remittance,
of.................................................................................
(amount
of remittance)
to........................................................................................................................................................
(Name and
complete address of the person to whom the remittance is being made)
and the rate at which the tax is
deductible at source thereon and hereby certify that a sum of
Rs........................... has been deducted as tax at the appropriate rate
and has been paid to the credit of the Government.
.................................................
Accountant
Place......................
Date.......................
Circular : No. 759, dated 18-11-1997.
Clarification 2
1. Circular No. 759 dated 18-11-1997 was issued
by the Board to dispense with the requirement of submission of a No Objection
Certificate from income-tax authorities for remittance to a non-resident as
required by the Reserve Bank of India (RBI). In paragraph 2 of the said
Circular, it was stated that henceforth remittances may be allowed by the RBI without
insisting upon a No Objection certificate from the Income-tax Department
provided the person making the remittance furnished an undertaking in duplicate
addressed to the Assessing Officer which was accompanied by a certificate from
an accountant other than an employee as defined in the Explanation below
section 288 of the Income-tax Act, 1961 in the form annexed to the said
Circular. The person making the remittance had to submit the undertaking along
with the said certificate of the accountant to the RBI, who would, in turn
forward a copy thereof to the Assessing Officer.
2. A number of references have been received by
the Board stating that RBI had delegated powers to authorised dealers to allow
certain types of remittances to non-residents without obtaining approval of
RBI. In such cases, RBI cannot forward the undertaking and certificate of the
accountant to the Assessing Officer as prescribed in Circular No. 759. The RBI
has already issued a Circular - AD (MA series)
Circular No. 48, dated 29th November, 1997 (see Annex) to all authorised
dealers in foreign exchange directing them to forward a copy of the certificate
together with a copy of the undertaking to the office of the Assessing Officer
of the Income-tax Department as indicated in the undertaking. In view of the
foregoing, it is clarified that Circular No. 759 would also be applicable to
remittances made through authorised dealers in Foreign Exchange.
3. In accordance with Circular No. 759, the
undertaking to be submitted by the person making the remittance to a
non-resident is required to be signed by the person authorised to sign the
return of income of the person making the payment. The person authorised to
sign a return of income in the case of a company, in accordance with section
140 of the Income-tax Act, 1961 is the Managing Director and each undertaking
for each remittance has, therefore, to be signed by the Managing Director.
Representations pointing out administrative difficulties experienced by
companies have been received. It has, therefore, been decided that the
undertaking to be submitted at the time of making a remittance to a
non-resident shall be signed by the person authorised to sign a return or a
person so authorised by him in writing.
4. It is also clarified that Circular No. 759
will cover those remittances for which RBI had prescribed the production of a
No Objection Certificate from the income-tax authorities under its Exchange
Control Manual. Further, if an order under section 195(2) has been obtained by
a person responsible for deducting tax, the new procedure of filing an
undertaking along with a certificate prescribed in Circular No. 759 would not
be applicable.
5. The contents of this Circular may be brought
to the notice of all the officers working in your charge.
Annex
A.D.
(M.A. Series) Circular No. 48, dated 29-11-1997, issued by the Reserve Bank of
1. Presently, authorised dealers have been
delegated powers to allow certain types of remittances, subject to, among other
things, production of NOC/Tax Clearance Certificate from income-tax
authorities. Similarly, Reserve Bank also, while approving remittances for
certain purposes, has been insisting on NOC/Tax Clearance Certificate from
income-tax authorities. This procedure has been revised as notified by the
Central Board of Direct Taxes, in their Circular No. 759 [F. No.
500/152/96-FTD] dated 18th November, 1997. In terms of the new procedure, a
person making remittance of foreign exchange would not be required to produce
NOC/Tax Clearance Certificate from income-tax authorities instead, the
applicants have to submit an undertaking, in duplicate, addressed to the
Assessing Officer, which should be signed by the person authorised to sign the
income-tax returns of the applicant, together with a certificate (in duplicate)
from the Accountant (other than the employee of the applicant) as defined in
the Explanation below section 288 of the Income-tax Act, 1961 in forms
prescribed in the Government Notification. Authorised dealers should,
therefore, before allowing the remittance obtain the aforesaid Undertaking
accompanied by a certificate from the Accountant for compliance with the
income-tax provisions, where necessary.
2.
Authorised dealers should,
after making the remittance, immediately forward a copy of the certificate
together with a copy of Undertaking to the office of Assessing Officer of the
Income-tax Department as indicated in the Undertaking. The other copy each of
the Undertaking and Certificate should be kept on record for verification by
the Internal Auditors of the authorised dealer/Inspecting Officers of the
Reserve Bank.
3. Amendments to the Exchange Control Manual
will be advised separately. Meanwhile, authorised dealers may bring the
contents of this circular to the notice of their concerned constituents.
4. The directions contained in this circular
have been issued under section 73(3) of the Foreign Exchange Regulation Act,
1973 (46 of 1973) and any contravention or non-observance thereof is subject to
the penalties prescribed under the Act.
Circular : No. 768, dated 24-6-1998.
420. Determination of date of transfer and
the period of holding of securities held in dematerialised
form under section 45(2A) qua transactions in securities
1. At present trading in securities is done
through the physical movement of the scrips.
Transactions are settled through the endorsement and delivery of the
certificates which are also the proof of ownership of the security mentioned
therein. This system is fought with many difficulties caused due to bad
deliveries and loss of share certificates. In order to remove these
difficulties faced by the investors, a system of holding securities in the
electronic mode at the option of an investor has now been introduced in
2. Under the new system, the movement of the scrips physically from one person to another is totally
done away with by introducing certain intermediaries, chief among them being a
Depository and a Participant. In order to implement the system of holding and
transferring securities through the electronic media, firstly the Depositories
Act, 1996, has been enacted. The object of this Act is to regulate the working
of the depositories in securities and matters incidental thereto. A depository
is an organisation where the securities of a
shareholder are held in the electronic form on the request of the shareholder,
through the medium of a Depository Participant. The depository is comparable to
a bank where an investor who desires to utilise its
services can open an account with it through a Depository Participant. However,
a Depository is not merely a custodian but is in fact the registered owner of
the security and it is the Depository whose name is entered as such in the
register of the issuer. The person actually entitled to the security becomes
the beneficial owner, whose name is recorded as such in the books of the
Depository.
3. The salient feature of this new system is
that it is optional and would operate in inconjunction
with the existing system of holding securities in physical form. Where an
investor opts to hold a security with a Depository, i.e., not in
physical possession of a certificate, the Depository shall be intimated of the
details of allotment of securities and, accordingly, the depository shall enter
in its records the name of the allottee as the
beneficial owner of that security. Under this system, physical share
certificates are surrendered to the issuing agency and the account maintained
with the depository is the only evidence of the ownership of the securities.
This conversion of physical certificates into the electronic holdings at the
request is called dematerialisation. Whenever
purchase/sale, i.e., any transfer of such securities held in dematerialised form is effected, delivery is given or taken
by making adjustments in the accounts maintained with the Depository by the two
parties. The significant feature of the dematerialised
securities is that they are fungible, i.e., all the holdings of a
particular security will be identical and inter-changeable and they will have
no unique characteristic such as distinctive number, certificate number, folio
number, etc. As the holdings of any securities in dematerialised
form is represented only by the account with the depository and all transfers
are effected through book entries in the accounts maintained by the depository,
under this system it is not possible to link the purchase of a security with
its sale by means of its distinctive number, etc. It is for this reason that
sub-section (2A) has been inserted in section 45 to provide for the computation
of capital gains in respect of securities held in dematerialised
form. This sub-section provides that for the purposes of calculating the date
of transfer and period of holding in respect of shares held in dematerialised form, the FIFO method would apply.
Clarifications have been sought on the manner of application of the FIFO system
for the determination of the date of transfer and the period of holding.
4. The primary issue under the Income-tax Act
in the case of securities whether held in physical form or in the dematerialised form remains the determination of cost of
acquisition and the period of holding. The Board had earlier issued Circular
No. 704, dated 28-4-1995, which explains the manner in which the date of
transfer and period of holding may be determined. This primary position as
regards the date of transfer and period of holding does not change even when
the securities are held in the dematerialised form.
The only problem when securities are held in dematerialised
form is that the distinct trail linking every share to a certificate and its
unique distinctive number linking it with its subsequent sale is not available.
5. Section 45(2A) stipulates that in the case
of securities held in dematerialised form, for
determining date of transfer and period of holding, the FIFO method would be
applicable. FIFO method is generally used to determine the value of any item
moving out of a stock account and those remaining in stock at any point of
time. When applied to an account holding dematerialised
stock, it implies that, out of the existing holdings, the item that first
entered into the account is deemed to be the first to be sold out. However,
once a sale is linked with an earlier purchase, for determination of their date
of transfer and period of holdings, Boards Circular No. 704 would be
applicable. That is to say that the relevant contract notes as explained in
Circular No. 704 will have to be referred to, for ascertaining the cost of the
security sold and the date of transfer.
When actually operating an
account of dematerialised stock by applying FIFO
system, certain other issues can arise. For instance, an investor can hold part
of his holdings of a security in physical form and the remaining in dematerialised form. Further, he may hold his dematerialised holdings in more than one account with one
or more depositories. In such a situation, there can be doubts whether the FIFO
system is to be applied globally on the entire holdings of physical and dematerialised holdings or not. In this connection, it is
clarified that :
(a) FIFO
method will be applied only in respect of the dematerialised
holdings because in case of sale of dematerialised
securities, the securities held in physical form cannot be construed to have
been sold as they continue to remain in possession of the investor and are
identified separately.
(b) In
the depository system, the investor can open and hold multiple accounts. In
such a case, where an investor has more than one security account, FIFO method
will be applied accountwise. This is because in case
where a particular account of an investor is debited for sale of securities,
the securities lying in his other account cannot be construed to have been sold
as they continue to remain in that account.
(c) If
in an existing account of dematerialised stock, old
physical stock is dematerialised and entered at a
later date, under the FIFO method, the basis for determining the movement out
of the account is the date of entry into the account. This is illustrated by
the following examples :
|
Date of Credit |
Particulars |
Quantity
|
|
1-6-1997 |
Purchased directly in |
2000 |
|
|
Dematerialised form on 25-5-1997 |
|
|
5-6-1997 |
Dematerialised Shares |
5000 |
|
|
originally purchased in Nov.
1985 |
|
|
10-6-1997 |
Purchased directly in |
4000 |
|
|
Dematerialised form on 10-6-1997 |
|
|
15-6-1997 |
Dematerialised Shares |
3000 |
|
|
originally purchased in May
1962 |
|
If say, 2500 shares were
sold from out of this account, then the period of holding and the cost of acquisition
of the first 2000 shares should be as from 25-5-1997 and the cost thereof,
whereas the balance 500 shares will be treated as having been acquired in
November 1985, at the relevant cost. This is the effect of the FIFO method.
Circular : No. 769, dated 6-8-1998.
1167. Procedure for refund of
tax deducted at source under section 195
1. The Board has received a number of
representations for granting approval for refund of excess deduction or erroneous
deduction of tax at source under section 195 of the Income-tax Act. The cases
referred to the Board mainly relate to circumstances where :
(i) after the deposit of tax deducted at source
under section 195,
(a) the contract is cancelled and no remittance is
required to be made to the foreign collaborator;
(b) the remittance is duly made to the foreign
collaborator, but the contract is cancelled and the foreign collaborator
returns the remitted amount to the person responsible for deducting tax at
source;
(c) the tax deducted at source is found to be in
excess of tax deductible for any other reason;
(ii) the tax is deducted at source under section
195 and paid in one assessment year and remittance to the foreign collaborator
is made and/or returned to the Indian company following cancellation of the
contract in another assessment year.
In
all the cases mentioned above, where either the income does not accrue to the
non-resident or excess tax has been deducted thereby resulting in a refund
being due to the Indian enterprise which deposited the tax, at present a refund
can be issued only if valid claim is made by filing a return.
2. In the absence of any statutory provision
empowering the Assessing Officers to refund the tax deducted at source to the
person who has deducted tax at source, the Assessing Officers insist on filing
of the return by the person in whose case deduction was made at source. Even
adjustments of the excess tax or the tax erroneously deducted under section 195
is not allowed. This has led to a lot of hardship as the non-resident in whose
case, the deduction has been made is either not present in the country or has
no further dealings with the Indian enterprise, thus, making it difficult for a
return to be filed by the non-resident.
3. The matter has been considered by the Board.
It has been decided that in the type of cases referred to above, a refund may
be made independent of the provisions of the Income-tax Act, 1961 to the person
responsible for deducting the tax at source from payments to the non-resident,
after taking the prior approval of the Chief Commissioner concerned.
4. The excess tax deducted would be the
difference between the actual payment made by the deductor
and the tax deducted at source or that deductible. This amount should be
adjusted against the existing tax liability under any of the Direct Tax Acts.
After meeting such liability, the balance amount, if any, should be refunded to
the person responsible for deduction of tax at source.
5. Where the tax is deducted at source and paid
by the branch office of the person responsible for deduction of tax at source
and the quarterly statement/annual return of tax deduction at source is filed
by the branch, each branch office would be treated as a separate unit independent
of the head office. After meeting any existing tax liability of such a branch,
which would normally be in relation to the deduction of tax at source, the
balance amount may be refunded to the said branch office.
6. The adjustment of refund against the existing
tax liability should be made in accordance with the present procedure on the
subject. A separate refund voucher to the extent of such liability under each
of the direct taxes should be prepared by the Income-tax Officer in favour of
the Income-tax Department and sent to the bank along with the challan of the appropriate type. The amount adjusted and
the balance, if any, refunded would be debitable
under the sub-head Other refunds below the minor head Income-tax on companies
major head 020 - Corporation Tax or below the minor head Income-tax
other than Union Emoluments major head 021 - Taxes on Incomes other than
Corporation Tax, depending upon whether the payment was originally credited to
the major head 020 - Corporation Tax or to the major head 021-Taxes on Income
other than Corporation Tax.
7. Since the adjustment/refund of the amount
paid in excess would arise in relation to the deduction of tax at source, the
recording of the particulars of adjustment/refund should be done in the
quarterly statement of TDS/annual return under the signature of the ITO at the
end of the statement, i.e., below the signature of the person furnishing
the statement.
Circular : No. 770,
1572.
Additional Emoluments (Compulsory Deposit) (Amendment) Bill, 1977, passed by Lok Sabha on 18-6-1977, allowed
to lapse - Repayment of instalments of additional
dearness allowance deposit continue to be made in cash
Shri H.M. Patel, Finance
Minister, made the following statement in the Lok Sabha :
A
Bill to further amend the Additional Emoluments (Compulsory Deposit) Act, 1974
was introduced in the Lok Sabha
on June 11, 1977 and was passed by the Lok Sabha on June 18, 1977. The Bill sought to replace the
Ordinance issued by the Vice President acting as President on May 9, 1977. It
provided that (i) compulsory deposit of additional dearness allowance
would cease from May 6, 1977 ; (ii) repayment of the second instalment of additional dearness allowance deposits due
from July 6, 1977 would not be in cash but would be, by credit to provident
fund accounts of employees. During the course of the debate in the Lok Sabha, it was suggested that
the rate of interest on the proposed accretions to the provident fund should be
the same as payable on the deposits impounded under the Compulsory Deposit
Scheme. In order to protect the interest of employees, I readily accepted this
suggestion. It will thus be seen that in bringing forward this Bill,
Governments intention was to meet all genuine demands of employees, consistent
with the need to prevent resurgence of inflationary pressures.
A large number of
representations have been received by Government from employees, employees
associations, trade unions, etc., welcoming the decision of Government to
discontinue the impounding additional dearness allowance from May 6, 1977 but
requesting Government to reconsider the decision to credit repayments due from
July 6, 1977 to provident fund accounts of employees. These representations
have been sympathetically considered by Government. Informal consultations have
been held with representatives of trade unions to see if a way could be found
to meet the demands of workers consistent with the continued need to curb undue
expansion in money supply. In the course of these consultations, we also
considered a suggestion that instead of accretion to provident funds,
repayments under the Compulsory Deposit Scheme could be made in the form of
bonds carrying an attractive rate of interest. However, as no consensus emerged
on any alternative scheme, Government have concluded that the most practical
course of action would be not to go ahead with the amending Bill.
Accordingly, as a further gesture of goodwill
towards the organised working classes, it has now
been decided by Government that repayment of the second instalment
of additional dearness allowance deposits due from July 6, 1977 will be made in
cash, and not credited to provident fund accounts of employees. In view of
this decision, it has been decided not to press ahead with the Bill to amend
the Additional Emoluments (Compulsory Deposit) Act, 1974 now before the Rajya Sabha for consideration.
This Bill will be allowed to lapse in the ordinary course. Consequently, the
Ordinance issued on May 9, 1977 will also lapse on July 23, 1977.
I must point out that the abolition of the
Compulsory Deposit Scheme and the decision to honour
past commitments of repayment in cash will add significantly to the money
supply during the current year. Governments decision to go ahead with the new
proposed course of action, notwithstanding the expansionary effects on money
supply, is due to their ardent desire to seek active co-operation of the organised working classes in solving the many difficult
problems currently facing the economy. The price situation continues to remain
a cause of serious concern. To contain inflationary pressures, we need to maximise production, promote savings and also restrain
unproductive expenditure to the maximum extent possible. In this endeavour, Government hopes that full co-operation will be
forthcoming from all sections of the people, including the workers.
Press
Note : Dated
22-7-1977, issued by Press Information Bureau.
Circular : No. 771, dated 3-11-1998.
Financial
Year 1998-99
1669. Instruction for deduction
of tax at source from salaries - Rate of tax during the financial year 1998-99
Reference is invited to Circular
No. 757, dated 20th October, 1997, 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 1997-98, 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 1998-99
and explains certain related provisions of the Income-tax Act.
2.
Finance (No. 2) Act, 1998 :
According
to the Finance (No. 2) Act, 1998, 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 1998-99 (i.e. assessment year 1999-2000)
at the following rates :
Rates of
income-tax
|
1. |
Where the total income does not |
Nil. |
|
|
exceed Rs. 50,000 |
|
|
2. |
Where the total income exceeds
Rs. 50,000 but does not exceed Rs. 60,000 |
10 per cent of the amount by which the
total income exceeds Rs. 50,000 |
|
3. |
Where the total income exceeds
Rs. 60,000 but does not exceed Rs. 1,50,000 |
Rs. 1,000 plus 20 per cent of the
amount by which the total income exceeds Rs. 60,000 |
|
4. |
Where the total income exceeds
Rs. 1,50,000 |
Rs. 19,000 plus 30 per cent of the
amount by which the total income exceeds Rs. 1,50,000 |
Section 192 of the Income-tax
Act, 1961 : Broad Scheme of tax deduction at source from Salaries etc.
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
1998-99. The income-tax is required to be calculated on the basis of the rates
given above and shall be deducted on average at the time of each 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. 50,000. (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
Under sub-section (2A) of
section 192 where the assessee, being a Government servant or an employee in a
company, co-operative society, local authority, university, institution,
association or body is entitled to the relief under sub-section (1) of section
89, he may furnish to the person responsible for making the payment referred to
in Para (3.1), such particulars in Form No. 10E duly verified by him, and
thereupon the person responsible as aforesaid shall compute the relief on the
basis of such particulars and take into account in making the deduction under
Para (3.1) above.
Explanation.For this purpose University means a University established or incorporated
by or under a Central, State or Provincial Act, and includes an institution
declared under section 3 of the University Grants Commission Act, 1956 (3 of
1956), to be University for the purpose of the Act.
3.4 Sub-section (2B) of section 192 enables a
taxpayer 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) vide
Annexure V. Such income should not be a loss under any such head other than the
loss under the head Income from house property for the same financial year. The
person responsible for making payment (DDO) shall take such other income and
tax, if any, deducted at source from such income, and the loss, if any, under the
head Income from house property into account for the purpose of computing tax
deductible under section 192 of the Income-tax Act. It is, however, provided
that this sub-section shall not in any case have the effect of reducing the tax
deductible except where the loss under the head Income from house property has
been taken into account, from income under the head Salaries below the amount
that would be so deductible if the other income and the tax deducted thereon
had not been taken into account.
In
other words, the DDO can take into account the loss from house property only
for working out the amount of total tax to be deducted. While taking into the
account the loss from house property, the DDO shall ensure that the assessee
files declaration in Form No. 12C and encloses therewith a computation of such
loss from house property.
3.5
The provisions of
sub-section (3) of section 192 allow the deductor to
make adjustments for any excess or shortfall in the deduction of tax already
made during the financial year, in the subsequent deductions during that
financial year itself.
3.6
The trustees of a Recognised Provident Fund, 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 the accumulated balance due to an employee
is paid, make therefrom the deduction specified 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.
4.
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 taxpayer 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 taxpayer 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. In
the absence of such a certificate from the employee, the employer should deduct
income-tax on the salary payable at the normal rates : Circular No. 147
dated 28-10-19741.
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. Even the banks
deducting tax at the time of payment of pension are required to issue such
certificates. In the case of employees receiving salary income including
pension, the certificate has to be issued in Form No. 16 which has been prescribed
under the Boards Notification No. S.O. 148(E) dated 28-2-1991. A specimen of
the certificate is enclosed at 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 of upto 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 the 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 A return filed on a floppy, diskette,
magnetic cartridge tape, CD-ROM or any other computer readable media as may be
specified by the Board shall be deemed to be a return for the purposes of
section 206 and the Rules made thereunder, and shall
be admissible in any proceeding thereunder, without
further proof of production of the original, as evidence of any contents of the
original or of any fact stated therein. While receiving such returns on
computer media, necessary checks by scanning the documents filed on computer
media will be carried out and the media may be duly authenticated by the
Assessing Officer.
4.10 While making the payment of tax deducted at
source to the credit of the Central Government, it may 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 deduction from the amount of pension on account of standard
deduction under section 16 and the tax rebate under section 88B (in the case of
pensioners, resident in India, who are 65 years of age or more : refer para 6) 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 (11CVL)-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. Further
all branches of the banks are bound under section 203 to issue certificate of
tax deducted in Form 16 to the pensioners also vide CBDT Circular No.
761, dated 13-1-1998.
4.12 Where Non-Residents are deputed to work in
India and taxes are borne by the employer, if any refund becomes due to the
employee after he has already left India and has no bank account in India by
the time the assessment orders are passed, the refund can be issued to the
employer as the tax has been borne by it : Circular No. 707, dated
11-7-1995.
4.13 TDS certificates issued by Central
Government departments which are making payments by book adjustment, should be
accepted by the Assessing Officers if they indicate that credit has been
effected to the Income-tax Department by book adjustment and the date of such
adjustment is given therein. In such cases, the Assessing Officers may not
insist on details like Challan numbers, dates of payment into Government
Account etc., but, they should in any case satisfy themselves regarding the
genuineness of the certificates produced before them : Circular No. 747 dated
27-12-1996.
4.14 There is a specific procedure laid down for
refund of payments made by the deductor in excess of
taxes deducted at source, vide Circular No. 285, dated 21-10-1980.
5.
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 to the Income-tax Act. Contributions made by the employer
in excess of 12% of the salary of the employee, alongwith
interest applicable, shall be included in the income of the assessee for the
previous year. Other items included in salary, profits in lieu of salary and
perquisites are described in section 17 of the Income-tax Act. The scope of
term profit in lieu of salary has been amended so as not to include interest on
contributions or any sum received under a Keyman
insurance policy including the sum allocated by way of bonus on such policy.
For the purposes of this sub-clause, the expression Keyman
insurance policy shall have the meaning assigned to it in clause (10D)
of section 10. 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 of this rule.
(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 7 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 perquisite 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 head
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 which 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 to 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. 249(E) dated 26-3-1996, at Rs.
1,35,360.
(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 Co-operative Society;
(f) A university established or incorporated or
under a Central, State or Provincial Act, or, an Institution declared to be a
University under section 3 of the University Grants Commission Act, 1956;
(g) 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 allowed 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 1/10 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. 3,000 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 :
(i) 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.
(ii) 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 sub-clauses (i) and (ii)
of section 10(14) vide Notification No. SO 617(E) dated 7th July,
1995 (F.No. 142/9/95-TPL) and SO No. 395(E) dated
13-5-1998 - These guidelines may be referred to in Annexures
III and IV enclosed with this circular.
(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 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 doctor, not exceeding in the aggregate Rs. 15,000 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 Deductions under section 16 of the Act
- Under section 16 of the Income-tax Act, the standard deduction
available is as under :
in the case of an assessee whose income from
salary, before allowing a deduction under this clause :
(a) does
not exceed one lakh rupees, a deduction of a sum equal to thirty-three and
one-third per cent of the salary or twenty-five thousand rupees, whichever is
less;
(b) exceeds
one lakh rupees but does not exceed five lakh rupees, a deduction of a sum of
twenty thousand rupees.
No standard deduction is available to an
assessee whose income from salary exceeds 5 lakh rupees.
ExplanationFor the purposes of this clause, where 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..
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.
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 VIA of the
Act - The following deductions under Chapter VIA of the Act are
available :
(1) As per section 80CCC, where
an assessee being an individual has in the previous year paid or deposited any
amount out of his income chargeable to tax to effect or keep in force a
contract for any annuity plan of Life Insurance Corporation of India for
receiving pension from the Fund referred to in clause (23AAB) of section
10, he shall, in accordance with, and subject to the provisions of this
section, be allowed a deduction in the computation of his total income, of the
whole of the amount paid or deposited (excluding interest or bonus accrued or
credited to the assessees account, if any) as does
not exceed the amount of ten thousand rupees in the previous year.
Where any amount paid or
deposited by the assessee has been taken into account for the purposes of this
section, a rebate with reference to such amount shall not be allowed under
section 88.
(2) Under section 80D, in the
case of the following categories of persons, a deduction can be allowed for a
sum not exceeding Rs. 10,000 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 General 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.
(3) Under section 80DD an
individual or a HUF who is resident in
(a) of
expenditure incurred by way of medical treatment (including Nursing), training
and rehabilitation of a handicapped dependent; or
(b) paid
or deposited under specific schemes framed in this behalf by the Life Insurance
Corporation or Unit Trust of India for the maintenance of handicapped
dependent. The scheme should provide for payment of annuity or lump sum amount
for the benefit of a handicapped dependent in event of the death of the
individual. The scheme would have approval of the Board.
Out of the income chargeable to
tax, the deduction under clause (a) or (b) or both shall not
exceed forty thousand rupees.
The handicapped dependent means a
person who is a relative of individual or a member of HUF and is not dependent
on any person other than such individual or HUF for his support and maintenance
and is suffering from permanent physical disability (including blindness or
mental retardation, specified in rule 11A of the Income-tax Rules, 1962). The
decision will be available to individuals 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 occulist 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.
(4) Under section 80DDB, where an
assessee who is resident in India has, during the previous year, incurred any
expenditure on the medical treatment of such disease or ailment as may be
specified in the rules made in this behalf by the Board, for himself or a
dependent relative, the assessee shall be allowed a deduction of a sum of
fifteen thousand rupees in respect of that previous year in which such
expenditure was incurred. The listed diseases as per the relevant rule 11DD are
specified neurological diseases, and 40 per cent and above disability caused by
cancer, full-blown AIDS, Chronic Renal Failure, Nemophilia
and Thalassaemia :
Provided that no such deduction shall be allowed
unless the assessee furnishes a certificate in such form and from such
authority as may be prescribed. The form is Form 10-I, and the prescribed
authority is any doctor registered with the Indian Medical Association and
holding Post-graduate qualifications.
For the purposes of this section,
dependent means a person who is not dependent for his support or maintenance on
any person other than the assessee.
(5) 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 (2C) 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 post-graduate 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.
(6) 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, DDOs, on due verification may
allow donations to the following bodies to the extent of 50% of the
contribution :
(i) National
Defence Fund,
(ii) Jawaharlal
Nehru Memorial Fund,
(iii) The
Prime Ministers Drought Relief Fund,
(iv) The
National Childrens Fund,
(v) The
Indira Gandhi Memorial Trust,
(vi) The
Rajiv Gandhi Foundation,
and to the following bodies to
the extent of 100% of the contribution :
(i) The
Prime Ministers National Relief Fund,
(ii) The
Prime Ministers Armenia Earthquake Relief Fund,
(iii) The
Africa (Public Contributions -
(iv) The
National Foundation for Communal Harmony,
(v) Chief
Ministers Earthquake Relief Fund -
(vi) National
Blood Transfusion Council,
(vii) State
Blood Transfusion Council,
(viii) Army
Central Welfare Fund,
(ix) Indian
Naval Benevolent Fund,
(x) Air
Force Central Welfare Fund,
(xi) The
Andhra Pradesh Chief Ministers Cyclone Relief Fund, 1996,
(xii) The
National Illness Assistance Fund,
(xiii) The
Chief Ministers Relief Fund or Lieutenant Governors Relief Fund, in respect of
any State or Union Territory as the case may be, subject to certain conditions,
(xiv) The
University or Educational Institution of national eminence approved by the
prescribed authority,
(xv) The
National Sports Fund to be set up by Central Government,
(xvi) The
National Cultural Fund set up by the Central Government,
(7) 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. 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) the
assessee files the declaration in Form No. 10BA [Annexure VII];
(c) 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. 2,000 per month, whichever is less. The total income for working out
these percentages will be computed before making any deduction under section
80GG.
(d) 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.
The Drawing and Disbursing
Authorities should satisfy themselves that all the conditions mentioned above
are satisfied before such deduction is allowed by them to the assessee. They
should also satisfy themselves in this regard by insisting on production of
evidence of actual payment of rent.
(8) 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, occulist 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(4).
Tax rebate
6. An assessee, being an individual, 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;
(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) herein below 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 of 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, or
of 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 the rebate.
(7) Any sum paid as contribution
in the case of an individual, for himself, spouse or any child,
(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 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) Subscription to equity
shares or debentures forming part of any eligible issue of capital approved by
the Board on an application made by a public company in the prescribed form:
Provided that where a deduction is claimed and allowed
under this clause with reference to the cost of any equity shares or debentures,
the cost of such shares or debentures shall not be taken into account for the
purposes of sections 54EA and 54EB.
Explanation : For the purposes of this clause
(i) eligible
issue of capital means an issue made by a public-company formed and registered
in India or a public financial institution and the entire proceeds of the issue
is utilised wholly and exclusively either for the
purposes of developing, maintaining and operating an infrastructure facility or
for generating, or for generating and distributing, power or for providing
telecommunication services whether basic or cellular;
(ii) infrastructure
facility shall have the meaning assigned to it in clause (ca) of
sub-section (12) of section 80-IA;
(iii) public
company shall have the meaning assigned to it in section 3 of the Companies
Act, 1956 (1 of 1956);
(iv) public
financial institution shall have the meaning assigned to it in section 4A of
the Companies Act, 1956.
(15) Subscription to any units of
any mutual fund referred to in clause (23D) of section 10 and approved
by the Board on an application made by such mutual fund in the prescribed form:
Provided that where a deduction is claimed and allowed
under this clause with reference to the cost of units, the cost of such units
shall not be taken into account for the purposes of sections 54EA and 54EB:
Provided further that this clause shall apply if the amount of
subscription to such units is subscribed only in the eligible issue of capital
of any company.
Explanation : For the purposes of this clause eligible
issue of capital means an issue referred to in clause (i) of Explanation
to clause (xvi) in sub-section (2) of section 88;
(16) Subject to the limits
mentioned for the various items, the entitlement to tax-rebate will be
calculated at the rate of 20 per cent of the total amount of the aforesaid
savings, etc., in the case of individuals, and at the rate of 25 per cent in
the case of an author or playwright or artist or musician or actor or sportsman
(including an athlete) whose income derived from the exercise of his profession
as such author/playwright/artist/musician/actor/sportsman/athlete constitutes
twenty-five per cent or more of his total income.
The maximum tax-rebate allowable
will be Rs. 14,000 generally, and Rs. 17,500 in the case of authors,
playwrights, artists, musicians, actors, sportsmen and athletes. There will,
therefore, be an overall limit for savings which will qualify for tax-rebate.
In the case of individuals, the limit on investments made as above, excluding
that mentioned in paras 14 and 15, will be Rs. 60,000
and in the case of authors, sportsmen etc., Rs. 70,000.
(17) An assessee, being an
individual resident in India, who is of the age of sixty-five years or more at
any time during the previous year shall be entitled to a deduction from the
amount of income-tax (as computed before allowing the deductions under this
Chapter) on his total income, with which he is chargeable for any assessment
year, of an amount equal to one hundred per cent of such income-tax or an
amount of ten thousand rupees, whichever is less.
(18) 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.
7. 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 1998-99.
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.
8. 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, 1998.
8.2 In case any assistance is required, the
Assessing Officer/the local Public Relation 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 undertakings including those under
the control of the Central/State Government.
8.4 Copies of this circular are available with
the Director of Income-tax (Research, Statistics and Publications and Public
Relations) 6th Floor, Mayur Bhavan,
Indira Chowk (Connaught Circus), New Delhi-110 001.
FINANCE (NO. 2) ACT, 1998 - CIRCULAR NO.
772, DATED 23-12-1998
CIRCULAR
NO.516,dated 15-06-1988
DIRECT TAX (AMENDMENT) ACT, 1987 [AS AMENDED BY DIRECT TAX LAWS (AMENDMENT) ACT, 1989] - CIRCULAR NO. 516, DATED 15-6-1988; CIRCULAR NO. 545, DATED 24-9-1989 ; CIRCULAR NO. 549, DATED 31-10-1989 AND CIRCULAR NO. 551, DATED 23-1-1990
PART I
PART II
PART III
PART IV