Circular : No. 733, dated 3-1-1996.
565-567. Whether
Build-Own-Lease-Transfer (BOLT) Scheme of Indian Railways shall be eligible for
benefit under section 80-IA, since it is not legally possible for any
enterprise other than Indian Railways to maintain and operate Railway System
1. The Finance Act, 1995 has
introduced sub-section (4A) in section 80-IA of the Income-tax Act, 1961
providing for a five-year tax holiday and a deduction of 30 per cent in the
subsequent five years within a period of twelve assessment years beginning with
the assessment year in which an enterprise (which may be owned by a company or
a Consortium of companies) begins operating and maintaining an infrastructure
facility on Build-Operate-Transfer (BOT) or on Build-Own-Operate-Transfer
(BOOT) basis, subject to certain conditions specified in that sub-section.
One of the
conditions to be fulfilled by the enterprise is that it should develop,
maintain and operate a new infrastructure facility which
shall be transferred to the Central Government, etc., within the period
stipulated in the agreement. The definition of infrastructure as per
sub-section (12) of section 80-IA includes a rail system also.
2. The Indian Railways have formulated a Build-Own-Lease-Transfer
(BOLT) Scheme, whereunder a private enterprise will
provide the necessary and crucial components of a Railway system, own them for
a stipulated period but will not maintain or operate the same. Instead, the
enterprise will lease the asset (only necessary and crucial components of a
Railway System) back to Indian Railways for maintenance and operation, and
shall ultimately transfer it to Indian Railways.
3. This is to clarify that,
the said (BOLT) Scheme of the Indian Railways shall be eligible for the benefit
of section 80-IA of the Income-tax Act, 1961, since it is not legally possible
for any enterprise other than the Indian Railways to maintain and operate a
Railway System. However, this concession shall be applicable only to an
infrastructure facility meant for development of Rail System and not to any
other infrastructure facility including Rolling Stocks.
Circular : No.
734, dated 24-1-1996.
1635. Applicable rates of taxes under the Double
Taxation Avoidance Agreement between
1. It has been
represented by some Non-Resident Indians in the United Arab Emirates
(UAE) that the banks and the U.T.I. have been deducting tax at source on
interest and dividend incomes at rates higher than those provided in the Double
Taxation Avoidance Agreement between
2. The
Board in its Circular No. 728 dated 30th October, 1995 (see Annex) have already clarified that in case of a remittance
to a country with which a Double Taxation Avoidance Agreement is in force, tax
should be deducted at the rates provided in the Finance Act of the relevant
year or at the rates provided in the DTAA, whichever is more beneficial to the
assessee.
3. Once again it is clarified
that in respect of payments to be made to the Non-Resident Indians at the UAE,
tax at source must be deducted at the following rates :
(i) Dividends :
(a) 5%
of the gross amount of the dividends if the beneficial owner is a company which owns at least 10% of the shares of the company
paying the dividends.
(b) 15% of the gross amount of the dividends in
all other cases.
(ii) Interest :
(a) 5%
of the gross amount of the interest if such interest is paid
on a loan granted by a bank carrying on a bona fide banking business or by a similar financial
institution.
(b) 12% of the gross amount of the interest in all
other cases.
(iii) Royalties :
10% of the gross amount.
4. It is essential that the above
rates which are enshrined in the DTAA between
Annex
1. It has been represented to the Board that when making
remittances of the nature of royalties and technical fees, tax is being
deducted at source at the rates specified in the Finance Act of the relevant
year, without taking into account the special rates for taxation of such income
provided for under the Double Taxation Avoidance Agreement with the country
concerned.
2. The expression rates in force has been defined in
section 2(37A) of the
Income-tax Act. Under sub-clause (iii) of section 2(37A),
for the purposes of deduction of tax under section 195, the expression is to
mean the rate or rates of income-tax specified in this behalf in the Finance
Act in the relevant year or the rates of tax specified in the Double Taxation
Avoidance Agreement entered into by the Central Government whichever is
applicable by virtue of the provisions of section 90 of the Income-tax Act,
1961.
3. It is hereby clarified that in view of the provisions
of sub-section (2) of section 90 of the Act, in the case of a remittance to a
country with which a Double Taxation Avoidance Agreement is in force, the tax
should be deducted at the rate provided in the Finance Act of the relevant year
or at the rate provided in the DTAA, whichever is more beneficial to the
assessee.
Circular :
No. 728, dated 30-10-1995.
Circular : No. 735, dated 30-1-1996.
1008. Clarification regarding payment of income by way
of interest on securities and rent made to Regimental Funds or Non-public Fund
established by Armed Forces of Union for welfare of past and present members of
such forces or their dependants, whose income is exempt under section 10(23AA)
1. The issue
of deduction of income-tax at source under section 193 and section 194-I of the
Income-tax Act from any income received by any person on behalf of any
Regimental Fund or Non-public Fund established by the Armed Forces of Union for
the welfare of past and present members of such forces or their dependants, has
been brought to the notice of the Board. Representations have also been received on
behalf of Regimental Funds and Non-public Fund established by the Armed Forces.
2. The matter with regard to
regimental fund or non-public fund established by Armed Forces has been examined in the Board. Since the income of these organisations is
exempt under section 10 (23AA)
of the Income-tax Act, it has been decided that no tax may be deducted at
source under sections 193 and 194-I from the income of such Funds.
Circular : No. 736, dated 13-2-1996.
1152. Clarification regarding applicability of
provisions of section 194-I to film distributors and exhibitors
Representations have
been received from the various quarters regarding applicability of the
provisions of section 194-I of the Income-tax Act to the sharing of the
proceedings of film between film distributor and a film exhibitor owning a
cinema theatre. The matter has been examined by the Board and the Board are of
the view that the provisions of
section 194-I are not attracted to such payment because :
(i) The
exhibitor does not let out the cinema hall to the distributor;
(ii) Generally,
the share of the exhibitor is on account of composite services; and
(iii) The
distributor does not take cinema building on lease or
sub-lease or tenancy or under any agreement of similar nature.
You are requested
to bring these instructions to the notice of the Assessing Officer under your
charge.
Circular : No. 737, dated 23-2-1996.
Sections 44AD and 44AE l civil
construction
business/transport business
413. Whether deduction(s) on account of
salary/interest to partners of firm shall be admissible from income estimated
in accordance with sections 44AD and 44AE[`1]1
1. Sections 44AD and 44AE were inserted in the Income-tax
Act, 1961, by the Finance Act, 1994, w.e.f. 1st April,
1994. Section 44AD provides for a method of estimating income from the business
of civil construction or supply of labour for civil
construction work, where the gross receipts from the business do not exceed Rs.
40 lakhs. Section 44AE provides for a method of estimating income from the
business of plying, hiring or leasing trucks owned by a taxpayer owning not
more than 10 trucks. Both the schemes are optional.
2. Sub-section (1) of sections 44AD and 44AE clearly
provide that the income shall be estimated at the
prescribed percentage/basis without regard to the provisions contained in
sections 28 to 43C of the Act. In other words, the income estimated in
accordance with sections 44AD and 44AE takes care of various deductions, etc.,
admissible under the aforesaid sections.
3. A doubt has been raised as to whether deduction(s) on account of salary/interest to the partners of a firm shall
be admissible from the income estimated in accordance with sections 44AD and
44AE of the Act. The law is clear on this issue and no separate deduction is to
be allowed under section 40(b) in such cases. The doubt has primarily arisen because of the
erroneous clarification given in paras 31.3 and 32.2
of Explanatory Notes on provisions of the Finance Act, 1994 (Circular No. 684,
dated 10-6-1994) (see Volume 4). The relevant portion of
the Explanatory Note reads as under :
In the case of firms, the normal
deductions to the extent allowed under clause (b) of section 40 will be allowed.
4. Clause (b)
of section 40 lays down restriction on the deduction allowable on account of salary and interest to the partners and is not
an enabling section for claiming deduction. The admissible deductions are specifically mentioned under sections 30 to 38 of the
Income-tax Act. Hence, sections 44AD(2) and 44AE(3)
only state this obvious position by way of clarification. However, in view of the non obstante clause in sub-section (1) of sections 44AD
and 44AE, there is no ambiguity about the intention of the legislation in this
matter and the provisions of the Act are quite clear. As already said above,
the doubt has primarily arisen because of the error in the Explanatory Notes to
Finance Act, 1994. Therefore, for the sake of clarity and removal of doubts in
this regard, the following lines are deleted from paras
31.3 and 32.2 of Circular No. 684 dated 10th June, 1994 :
In the case of firms, the normal deductions to the extent allowed under clause
(b) of section 40 will be allowed.
Judicial
Analysis
Explained in - Ranjan
Constructions v. CBDT [1998]
232 ITR 76 (Ori.) with the observation that a
combined reading of the newly added provisos to sections 44AD(2) and 44AE(3)
makes it clear that the effect of Circular No. 737 is lost and consequently
assessments made on the basis of the circular cannot stand and they are liable
to be vacated.
Explained in - In Narinder Jain v.
CBDT [1998] 96 Taxman 566 (Punj. & Har.) the
assessee-firm was engaged in the business of civil construction supply of labour for construction, whose income was to be computed as per section 44AD. It claimed under section
40(b) deduction of salary and
interest paid to partners in the computation of its total inocme
by relying on the Boards Circular No. 684, dated 10-6-1994. The Assessing
Officer however, relying on the Boards Circular No. 737, dated 23-2-1996,
disallowed the assessees claim. the
assessee had filed an appeal against the assessment order.
On writ challenging legality of the Boards Circular No. 737, dated
23-2-1996, it was held that the assessee brought to the notice of the court
that by the Finance Act, 1997 a proviso to section 44AD had been added with
retrospective effect from 1-4-1994 clarifying that salary and interest paid by
a firm to its partners shall be deducted from income computed under section
44AD(1) subject to conditions and limits specified in section 40(b), thereby restoring the position of
law stated by Circular No. 684, dated 10-6-1994 and rendering Circular No. 737,
dated 23-2-1996 as infructuous. Prima facie,
the Court found force in the assessees
submission but refrained to express any opinion on that and relegated the
assessee to raise this point before the concerned authority (whether appellate
or Assessing Officer) who would take that into consideration
while deciding the case.
Again in Goswami & Bros. v. Union of India [1998] 96 Taxman 219 (Raj.), the facts of the care were fact in Circular No. 684
dated 10-6-1994, the Board had clarified, inter alia, that in computing profits
and gains of business of civil constrution, etc.,
under section 44AD in the case of firms, the normal deduction to the extent
allowed under clause (b) of
section 40 will be allowed.
Subsequently, by Circular No. 737 dated 23-2-1996, the aforesaid
words were deleted from the aforesaid Circular. In pursuance of Circular dated
23-2-1996, the income-tax authorities reopened the assessments of the
petitioner and in some of the matters issued fresh assessment orders.
On writ
praying for quashing Circular No. 737 dated 23-2-1996 :
The Court held that by the Finance Act, 1997, a proviso to sub-section
(2) of section 44AD had been added giving it retrospective operating with
effect from
1-4-1994, that is, with effect from assessment year 1994-95, providing that
where the assessee is a firm, the salary and interest paid to its partners
shall be deducted from the income computed under sub-section (1) subject to the
conditions and limits specified in section 40(b). In view of this, the said circular was clearly erroneous and could not be permitted to stand.
Accordingly, the petition was allowed of said circular was quashed.
Explained in - Venugopala
Constructions v. ITO [1997] 227 ITR 164 (AP) with the following observation :
The later circular of the Central Board of
Direct Taxes in not extending the benefit of the earlier circular, had neither tried to deprive the assessee of any right nor
had created any liability which was not already existing. If a wrong circular had been issued giving the impression that the assessee was
entitled to the benefit of section 40(b)
as well as section 44AD, it is the inherent right of the authorities to cure
their own error. The later circular of the Central Board of Direct Taxes had
only attempted to do that and hence no exception could be
taken to it. Circular No. 737, dated February 23, 1996, was valid.
Explained in - In Ambika
Construction v. ITO [1998]
99 Taxman 561 (Pat.) the assessees
case was selected for scrutiny under section 44AD. The assessee, therefore,
submitted the return as per Circular No. 684 issued by the CBDT but the
Assessing Officer while making final assessment on 18-11-1996 applied the
procedures provided in the Boards Circular No. 737 which
came into effect from 23-2-1996. According to the assessee, applicability of
any circular has to be made effective with reference
to the year of assessment and not at the time of final assessment.
The Court
held that there was a doubt that effect of any circular could not be applied
retrospectively so as to deprive the assessee of the
benefit of the earlier circular which was applicable at the time of assessment.
But in the instant case at the time of the assessment
by the Assessing Officer, the Circular No. 737 had already occupied the field,
as the final order of the assessment was passed on 18-11-1996 whereas Circular
No. 737 was brought into effect on 23-2-1996. Hence, no grievance could be made that such a circular had been applied
retrospectively.
FINANCE ACTS, 1964 & 1965 - PART IV/PART III OF
FIRST
SCHEDULE l REBATE OF TAX FOR MANUFACTURE/
PRODUCTION OF SPECIFIED INDUSTRIES
1484.
Industrial furnaces/industrial oil burning equipment - Whether covered by Part
IV of First Schedule to Finance Act, 1964
The industrial furnaces
and industrial oil burning equipment are not covered by Part IV of the First Schedule to the Finance Act,
1964.
Letter : F. No.
1(193)/65/TPL, dated 24-9-1965.
1485.
Production of semis whether covered by Part IV of First Schedule to Finance
Act, 1964/Part III of First Schedule to Finance Act, 1965
The production
of semis is not covered under item (2) aluminium, copper, lead and zinc (Metals) in Part IV of the
First Schedule to the Finance Act, 1964 and Part III of the First Schedule to
the Finance Act, 1965.
Letter : F. No.
1(205)/65/TPL, dated 23-9-1965.
Circular : No. 739, dated 25-3-1996.
377. Whether for assessment years subsequent to
assessment year 1996-97, no deduction under section 40(b)(v)
will be admissible unless partnership deed either specifies amount of
remuneration payable to each individual working partner or lays down manner of
quantifying such remuneration
1. The Board have received representations seeking clarification
regarding disallowance of remuneration paid to the working partners as provided
under section 40(b)(v) of the
Income-tax Act. In particular, the representations have referred to two types
of clauses which are generally incorporated in the
partnership deeds. These are :
(i) The partners have agreed that the remuneration
to a working partner will be the amount of remuneration allowable under the
provisions of section 40(b)(v) of the
Income-tax Act; and
(ii) The amount of remuneration to working partner
will be as may be mutually agreed upon between partners at the end of the year.
It has been represented that the Assessing
Officers are not allowing deduction on the basis of these and similar clauses
in the course of scrutiny assessments for the reason that they neither specify
the amount of remuneration to each individual nor lay down the manner of
quantifying such remuneration.
2. The Board have considered the
representations. Since the amended provisions of section 40(b) have been introduced
only with effect from the assessment year 1993-94 and these may not have been
understood correctly the Board are of the view that liberal approach may be taken for the initial years. It has been
decided that for the assessment years 1993-94 to 1996-97 deduction for
remuneration to a working partner may be allowed on the basis
of the clauses of the type mentioned at 1(i) above.
3. In cases where neither the amount has been
quantified nor even the limit of total remuneration has been specified
but the same has been left to be determined by the partners at the end of the
accounting period, in such cases payment of remuneration to partners cannot be
allowed as deduction in the computation of the firms income.
4. It is clarified that for the
assessment years subsequent to the assessment year 1996-97, no deduction under
section 40(b)(v) will be admissible unless the
partnership deed either specifies the amount of remuneration payable to each
individual working partner or lays down the manner of quantifying such
remuneration.
Circular : No. 740, dated 17-4-1996.
733.
Taxability of interest remitted by branches of banks to the head office
situated abroad, under the Foreign Currency Packing Credit Scheme of Reserve
Bank of
1. The Reserve Bank of
2. References have been received seeking clarification
as to whether interest remitted by a branch in India to its head office or a
branch abroad on the lines of credit arranged under this scheme would be
chargeable to tax in India and whether tax would have to be deducted at source
in terms of section 195 of the Income-tax Act, 1961.
3. It is
clarified that the branch of a foreign company/concern in
Circular : No. 741, dated 18-4-1996.
1009. Whether in case of a provident fund, whose
income is exempt under section 10(25)(ii), established under scheme under Employees
Provident Funds and Miscellaneous Provisions Act, 1952, income by way of
interest on securities of Central and State Governments may be paid to such
provident funds without deduction of income-tax at source
1.
Representations have been received for grant of exemption from the requirement
of deduction of income-tax at source under section 193 of the Income-tax Act on
the payment of income by way of interest on securities in case of provident
funds established under a scheme framed under the Employees Provident Funds and
Miscellaneous Provisions Act, 1952 whose income is exempt under section 10(25)(ii) of the Income-tax Act, 1961.
2. The
matter has been examined by the Board and it has been decided that in the case of a provident fund, whose
income is exempt under section 10(25)(ii), established under a scheme under the Employees Provident Funds and
Miscellaneous Provisions Act, 1952, the income by way of interest on securities
of Central and State Governments may be paid to such provident funds without
deduction of income-tax at source. The provisions of this circular will be
applicable from current financial year 1995-96 onwards.
Circular
: No.
742, dated 2-5-1996.
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.
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.
Circular : No. 765, dated 15-4-1998.
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. 743, dated 6-5-1996.
432. Taxability of unutilised
deposit under the Capital Gains Accounts Scheme, 1988 in the hands of the legal
heirs of the assessee
1. Under sections 54, 54B, 54D, 54F and 54G of the Income-tax Act, 1961,
capital gain is not chargeable to tax if the amount of capital gain or net consideration
has been utilised for specified purposes by the
assessee within the stipulated period laid down in the relevant section. These
provisions also provide for the deposit in specified Banks, etc., of the amount
of capital gain which is not utilised
by the assessee for the acquisition of new assets before the date of furnishing
the return of income under section 139(1). The amount of capital gain already utilised for the acquisition/construction of new asset
together with amount deposited is deemed to be the
cost of new asset and, consequently, this amount is not chargeable to capital
gain in the year of transfer of asset. The provisions of
sections 54, 54B, 54D, 54F and 54G further provide that if the amount deposited
is not utilised wholly or partly for the prescribed
purposes, within the period specified, the amount not so utilised
shall be charged under section 45 as the income of the financial year in which
the period of two/three years (as prescribed in the relevant section) from the
date of transfer of the original asset expires.
2. A question has
been raised regarding the taxability of the unutilised
deposit amount in the case of an individual who dies before the expiry of the
stipulated period.
3. The matter has been considered by the Board and it is clarified that in such cases the said amount cannot be taxed in the hands of the
deceased. This amount is not taxable in the hands of legal heirs also as the unutilised portion of the deposit does not partake the
character of income in their hands but is only a part of the estate devolving
upon them.
Circular : No. 744, dated
6-5-1996.
1187. Clarification regarding filing of returns in
respect of tax deducted at source from salary of employees of company working
at its headquarters or in other branches
Clarification 1
1. Under section 204(1) of the Income-tax Act, 1961,
where salary is paid by a company, the person
responsible for deducting tax at source under section 192 is the company
itself, including the principal officer thereof. The principal officer is
defined under section 2(35) of the Act.
2. In some cases, tax in respect of all the employees of
the company is being deducted at source at the Head
Office and the return under section 206 is filed at the place where the HO is
situated. In some other cases, the companies are discharging this
responsibility partly through their branch offices requiring the company to
file the return with them even where this is being filed
with the Assessing Officer where branch or Head Office is situated.
3. It is clarified that where
the Head Office or the branch office is already filing the return under section
206, no other Assessing Officer shall require the assessee to file such return
with him. Where, however, the return is not being filed, the Assessing Officer
having jurisdiction in terms of Rule 36A of Income-tax Rules may proceed so as to enforce compliance to the provisions relating to
deduction of tax at source from Salary.
Circular: No. 719,
dated 22-8-1995.
Clarification 2
1. Boards Circular No. 719 [F. No. 275/206/95-IT(B)],
dated 22-8-1995 states that where the head office or the branch office is
already filing the returns under section 206, no other Assessing Officer shall
require the assessee to file such return with him. Where, however, the return
is not being filed, the Assessing Officer having jurisdiction in terms of rule
36A of Income-tax Rules may proceed so as to enforce
compliance to the provisions relating to deduction of tax at source from
Salary.
2. It has been decided to
extend this procedure to all other TDS returns filed under rule 37, as required
under section 206 of the Income-tax Act, 1961.
Circular : No. 745, dated 19-7-1996.
135. Payment of income by way of interest on
securities to Ramakrishna Math and Ramakrishna Mission whose income is exempt
under section 10(23C)(iv)
1. Representations have been received for grant of
exemption from the requirement of deduction of income-tax at source under
section 193 of the Income-tax Act, on the payment of income by way of interest
on securities to Ramakrishna Math and Ramakrishna Mission whose income is
exempt under clause (iv) of
section 10(23C) of the
Income-tax Act, 1961.
2. The matter has been examined by the Board and it has been decided that
in the case of Ramakrishna Math and Ramakrishna Mission whose income is exempt
under clause (iv) of section 10(23C) of the Income-tax Act, the income by way
of interest on securities of Central and State Governments may be paid to the
Ramakrishna Math and Ramakrishna Mission without deduction of income-tax at
source. The provisions of this circular will be applicable from current
financial year.
Circular
No. 746, dated 26-7-1996.
Section 80Q l
Profits and Gains from Business of Publication of Books
608. Whether deduction under section 80Q is to be allowed for five years commencing from assessment year
1992-93 provided the other conditions mentioned in section 80Q are satisfied
Section 80Q inserted by
the Finance (No. 2) Act, 1991, with effect from 1-4-1992 provides that where in
the case of an assessee the gross total income of the previous year relevant to
the assessment year commencing on the 1st day of April, 1992 or to any one of
the four assessment years next following that assessment year, includes any
profits and gains derived from a business carried on in India of printing and
publication of books or publication of books, a deduction from such profits and
gains of an amount equal to 20 per cent thereof shall be allowed.
(2) The Board has received representations
from various publishers and book-sellers
associations/federations seeking clarifications as to the number of years the
deduction under section 80Q would be available.
(3) Explanatory Notes on Finance (No. 2)
Act, 1991, 38.2 read as under :
... Keeping in view of the vital role of the
publishing industry in the development of human resources, a new section 80Q
has been inserted in the Income-tax Act to revive the aforesaid
tax concession for five years commencing with the assessment year 1992-93.
(4) It is hereby clarified that deduction under section 80Q of the
Income-tax Act is to be allowed for five years commencing from assessment year
1992-93 provided that the other conditions mentioned
in the section are satisfied.
Circular : No. 706, dated 26-6-1995, as amended by, Circular No. 746, dated
26-7-1996.
Circular : No. 747, dated 2-12-1996.
Financial
year 1996-97
1671. Instructions for deduction of tax at source from
salary - Rate of tax for the financial year 1996-97
1. Reference is invited to Circular No. 724, dated 29th
September, 1995 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 1995-96, 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
1996-97 and explains certain related provisions of the Income-tax Act.
Finance (No. 2) Act, 1996
2. According to the Finance (No. 2) Act, 1996, 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 1996-97 (i.e. assessment year 1997-98) at the
following rates :
Rate of Income-tax
|
1. |
Where the total income does not |
Nil |
|
|
exceed Rs. 40,000 |
|
|
2. |
Where the total income exceeds |
15 per cent of the amount by which the |
|
|
Rs. 40,000 but does not exceed |
total income exceeds Rs. 40,000 |
|
|
Rs. 60,000 |
|
|
3. |
Where the total income exceeds |
Rs. 3,000 plus 30 per cent of the amount by |
|
|
Rs. 60,000 but does not exceed |
which the total income exceeds Rs. 60,000. |
|
|
Rs. 1,20,000. |
|
|
4. |
Where the total income exceeds |
Rs. 21,000 plus 40 per cent of the amount by |
|
|
Rs. 1,20,000 |
which the total income exceeds Rs. 1,20,000. |
It may be
noted that the income-tax exemption limit for individuals has been maintained
at Rs. 40,000 and that there is no surcharge applicable.
3. Section 192 of Income-tax Act, 1961
3.1 Every person who is responsible for paying any income chargeable under
the head Salaries shall deduct income-tax on the
estimated income of the assessee under the head Salaries for the financial year
1996-97. The income-tax is required to be calculated
at the average of income-tax computed on the basis of the rates given above and
shall be deducted at the time of payment. No tax will, however, be deducted at
source in any case unless the estimated salary income including the value of
perquisites, for the financial year exceedsRs.
40,000. (Some typical examples of computation of tax are given at Annexure-I).
3.2 Sub-section (2) of section 192 deals with situations
where an individual is working under more than one employer or has changed from
one employer to another. It
provides for deduction of tax at source by such employer (as the taxpayer may
choose) from the aggregate salary of the employee who is or has been in receipt
of salary from more than one employer. The employee is now required to furnish
to the present/chosen employer details of the income under the head Salary due
or received from the former/other employer and also
tax deducted at source therefrom, in writing and duly
verified by him and by the former/other employer. The present employer will be
required to deduct tax at source on the aggregate amount of salary (including
salary received from the former or other employer).
3.3 Sub-section (2A) of section 192 provides that in respect of salary
payment of employees of Government, Company, Cooperative Society, Local
Authority, University, Institution, Association or Body, deduction of tax at
source may be made after allowing relief under section 89(1), whenever salary,
etc., is paid in arrears or in advance.
3.4 Sub-section (2B) enables a 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). Such income under any other head should not be a
loss. The employer shall take such other income and tax, if any, deducted at
source from such income, into account for the purpose of
computing tax deductible under section 192 of the Income-tax Act. However, if
such aggregation results in tax deductible which is less than in the case where
income under the head Salaries alone is taken into account for computing tax
deductible, then such aggregation under sub-section (2B) is not permissible. In
other words, a loss from any another source cannot be adjusted by the DDO
against salary income. To meet the requirements of these provisions the Central
Government have enacted Rule 265B in the Income-tax
Rules. Detailed instructions in this regard were issued by the Department vide Circular No. 504 [F.No. 275/138/87-IT(B)] dated
8-2-1988.
3.5 The provisions of sub-section (3) of section 192 are
intended for making adjustment for any excess or shortfall in the
deduction of tax made during the financial year.
3.6 The trustees of recognised
provident funds, or any person authorised by the regulations of the fund to
make payment of accumulated balances due to employees, shall, in cases where
sub-rule (1) of rule 9 of Part A of the Fourth Schedule to the Act applies, at
the time when accumulated balance due to an employee is paid, make therefrom deduction provided in rule 10 of Part A of the
Fourth Schedule.
3.7 Where any contribution made by an employer, including interest on such
contributions, if any, in an approved superannuation fund is paid to the
employee, tax on the amount so paid shall be deducted by the trustees of the
fund to the extent provided in rule 6 of Part B of the Fourth Schedule to the
Act.
3.8 For the purposes of deduction of tax on salary payable in foreign currency,
the value in rupees of such salary shall be calculated
at the prescribed rate of exchange.
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 of officer thereof.
4.2 The tax determined as per para 7 should be deducted from the salary under section 192 of
the Act.
4.3 Section 197 enables the tax-payer to make an
application in Form No. 13 to his Assessing Officer, and, if the Assessing
Officer is satisfied that the total income of the tax-payer justifies the
deduction of income-tax at any lower rate or no deduction of income-tax, he may
issue an appropriate certificate to that effect which should be taken into
account by the Drawing and Disbursing Officer while deducting tax at source.
4.4 According to the provisions of section 200, any person deducting any
sum in accordance with the provisions of section 192 shall pay, within the
prescribed time, the sum so deducted to the credit of the Central Government in
prescribed manner (vide rule 30
of the Income-tax Rules, 1962). In the case of deductions made by, or, on
behalf of the Government, the payment has to be made on the day of the
tax-deduction itself. In other cases, the payment has to be
normally made within one week of the deduction.
4.5 If a person fails to deduct tax at source, or, after deducting, fails
to pay the tax to the credit of the Central Government within the prescribed
time, he shall be liable to action in accordance with the provisions of section
201. Sub-section (1A) of section 201 lays down that such person shall be liable
to pay simple interest at fifteen per cent per annum on the amount of such tax
from the date on which such tax was deductible to the date on which tax is
actually paid. Section 271C lays down that if any person fails to the deduct at
source, he shall be liable to pay, by way of penalty, a sum equal to the amount
of tax not deducted by him. Further, section 276B lays
down that if a person fails to pay to the credit of the Central Government
within the prescribed time the tax deducted at source by him, he shall be
punishable with rigorous imprisonment for a term which shall be between 3
months and 7 years and with fine.
4.6 According to the provisions of section 203, every person responsible
for deducting tax at source is required to furnish a certificate to the payee
to the effect that tax has been deducted and to
specify therein the amount deducted and certain other particulars. This
certificate, usually called the TDS certificate, has to be
furnished within a period of one month from the end of the relevant
financial year. In the case of employees receiving salary income, the
certificate has to be issued in Form No. 16 which has
been prescribed under Boards Notification No. SO 148(E),
dated 28-2-1991. A specimen of the certificate is
enclosed as Annexure II. This certificate is to be issued on the tax-deductors own stationery. If he fails to issue the TDS
certificate to the person concerned as required by section 203, he will be
liable to pay, by way of penalty, under section 272A, a sum which shall not be
less than Rs. 100 but which may extend to Rs. 200, for every day during which
the failure continues.
4.7 According to the provisions of section 203A of the Income-tax Act, it
is obligatory for all persons responsible for deducting tax at source to obtain
and quote the Tax-deduction Account No. (TAN) in the Challans,
TDS certificates, returns, etc. Detailed instructions in this regard are
available in this Departments Circular No. 497 [F.No.
275/118/87-IT(B)], dated 9-10-1987. If a person fails
to comply with the provisions of section 203A, he will be liable to pay, by way
of penalty, under section 272BB, a sum up to Rs. 5,000.
4.8 According to the provisions of section 206 of the
Income-tax Act, read with rules 36A and 37 of the Income-tax Rules, the
prescribed person in the case of every office of Government, the principal
officer in the case of every company, the prescribed person in the case of
every local authority or other public body or association, every private employer
are every other person responsible for deducting tax under section 192, from
Salaries shall, after the end of each financial year, prepare and deliver, by
31st May following the financial year, an annual return of deduction of tax to
the designated/concerned Assessing Officer. This return has to be furnished
in Form No. 24. If a person fails to furnish in due time the
annual return, he shall be liable to pay by way of penalty under section 272A,
a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for
every day during which the failure continues, so, however, that this sum shall
not exceed the amount of tax which was deductible at source.
4.9 The Drawing and Disbursing Officers should satisfy themselves about
the actual deposits/subscriptions/payments made by the employees, by calling
for such particulars/information as they deem necessary before allowing the aforesaid rebate. In case the DDO is not
satisfied about the genuineness of the employees claim regarding any
deposit/subscription/payment made by the employee, he should not allow the
same, and the employee would be free to claim the rebate on such amount by
filing his return of income and furnishing the necessary proof, etc.,
therewith, to the satisfaction of the Assessing Officer. It may also be
mentioned here that the deposits/subscriptions/payments towards the items
qualifying for the tax rebate should be made out of the employees
income chargeable to tax.
4.10 While making the payment of tax deducted at source to the credit of
the Central Government, it may kindly be ensured that the correct amount of income-tax is recorded in the relevant challan.
It may also be ensured that the right type of challan is used. The relevant challan
for making payment of tax deducted at source from salaries is No. 9 with Blue colour Band. Where the amount of tax deducted at source is
credited to the Central Government through book adjustment, care should be
taken to ensure that the correct amount of income-tax
is reflected therein.
4.11 In the case of pensioners who receive their pension from a nationalised bank, the instructions contained in this
circular shall apply in the same manner as they apply to salary-income. The deductions from the amount of pension on account of standard
deduction under section 16 and the tax rebate under section 88B (in the case of
pensioners, resident in India, who are 65 years of age or more, and whose gross
total income does not exceed Rs. 1,20,000) will be allowed by the concerned
bank at the time of deduction of tax at source from the pension, before making
payment to the concerned pensioner. As regards the tax rebate under
section 88 on account of contribution of Life
Insurance, Provident Fund, NSC, etc., of the pensioners furnish the relevant
details to the banks, the tax rebate at the specified rate may also be allowed.
Necessary instructions in this regard were issued by the
Reserve Bank of India to the State Bank of India and other nationalised
Banks vide RBIs Pension
Circular (Central Series) No. 7/C.D.R./1992 [Ref. CO : DGBA : GA(NBS) No.
60/GA. 64 (11 CVL)-91/92] dated the 27th April, 1992, and, these instructions
should be followed by all the branches of the Banks, which have been entrusted
with the task of payment of pensions.
Estimation of income under the head
Salaries
5.1 Income changeable 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. 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 perquisite by way of free or concessional
residential accommodation, or motor car provided by employers
to their employees shall be determined under rule 3 of the Income-tax Rules,
1962. It is, however, clarified that the use of any vehicle
provided by a company or an employer for journey by the assessee from his
residence to his office or other place of work or from such office or place to
his residence shall not be regarded as a benefit or amenity granted or provided
to him free of cost or at concessional rate for the
purpose.
(5) Other benefits or amenities provided free of cost or at concessional rates to the employees like supply of gas,
electric-energy, water for household consumption, educational facilities, etc.,
should also be taken into account for the purpose of computing the estimated
salary income of the employees during the current financial year (Example 3 at
Annexure-I illustrates computation of some such perquisites). The
valuation has to be done in accordance with rule 3 of
the Income-tax Rules.
(6) The value of any benefit or amenity granted or provided free of
cost or at concessional rate by an employer to an
employee (not being a Director of the company or a person who has substantial
interest in the company) is not regarded as perquisites received by the
employee unless the employees income under the head Salary exclusive of the
value of any benefit or amenity not provided for by way of monetary payment
exceeds Rs. 24,000.
5.2 Incomes not included in the
Salaries (Exemptions) :
Any income falling within any of the
following clauses shall not be included in computing the income from salaries
for the purpose of section 192 of the Act :
(1) The value of any travel concession or assistance received by or due
to an employee from his employer or former employer for himself and his family,
in connection with his proceeding (a)
on leave to any place in India or (b)
on retirement from service or, after termination of service to any place in
India is exempt under clause (5)
of section 10 subject, however, to the conditions prescribed in rule 2B of the
Income-tax Rules, 1962. For the purpose of this clause, family in
relation to an individual means :
(i) the spouse and
children of the individual ; and
(ii) the parents, brothers
and sisters of the individual or any of them, wholly or mainly dependent on the
individual.
It may also be noted
that the amount exempt under this clause shall in no case exceed the amount of
expenses actually incurred for the purpose of such travel.
(2) Death-cum-retirement gratuity or any other
gratuity is exempt to the extent specified from inclusion in computing the
total income under clause (10)
of section 10.
(3) Any payment in commutation of pension received under the Civil
Pension (Commutation) Rules of the Central Government or under any similar
scheme applicable to the members of the civil services of the Union, or holders
of civil posts/posts connected with Defence, under
the Union, or civil posts under a State, or to the members of the All India
Services/Defence Services, or, to employees of a
local authority or a corporation established by a Central, State or Provincial
Act, is exempt under sub-clause (i)
of clause (10A) of section 10.
As regards payments in commutation of pension received under any scheme of any
other employer, exemption will be governed by the
provisions of sub-clause (ii) of
clause (10A) of section 10.
(4) Any payment received by an employee of the Central Government or a
State Government, as cash equivalent of the leave salary in respect of the
period of earned leave at his credit at the time of his retirement on superannuation
or otherwise, is exempt under sub-clause (i) of clause (10AA)
of section 10. In the case of other employees, this exemption will be
determined with reference to the leave to their credit at the time of
retirement on superannuation, or otherwise, subject to a maximum of eight
months leave. This exemption will be further limited to the maximum amount
specified by the Government of India Notification No. SO 553(E)[F.No. 142/11/88-TPL], dated
8-6-1988, at Rs. 79,920.
(5) Under
section 10(10B), the retrenchment
compensation received by a workman is exempt from
income-tax subject to certain limits. The maximum amount of retrenchment
compensation exempt is the sum calculated on the basis provided in section 25F(b) of the Industrial Disputes Act,
1947 or any amount not less than Rs. 50,000 as the Central Government may by
notification specify in the Official Gazette, whichever is less. These limits
shall not apply in the case where the compensation is paid under any scheme
which is approved in this behalf by the Central Government, having regard to
the need for extending special protection to the workmen in the undertaking to
which the scheme applies and other relevant circumstances.
(6) Under section 10(10C),
as amended by the Finance Act, 1994, any payment received by an employee of the
following bodies at the time of his voluntary retirement is exempted from
income-tax to the extent of Rs. 5 lakhs, provided the scheme of voluntary
retirement has been framed in accordance with the guidelines prescribed under rule
2BA of the Income-tax Rules, 1962 :
(a) A public sector company ;
(b) Any other company ;
(c) An authority established under a Central,
State or Provincial Act ;
(d) A local authority ;
(e) A Cooperative Society ;
(f) A University established or incorporated by or
under a Central, State or Provincial Act, or, an institution declared to be a
University under section 3 of the University Grants Commission Act, 1956 ;
(g) Any Indian Institute of Technology within the
meaning of clause (g) of
section 3 of the
(h) Such Institute of Management as the Central
Government may by notification in the Official Gazette, specify in this behalf.
It may also be noted
that where this exemption has been allowed to any employee for any assessment
year, it shall not be allowed to him for any other assessment year. It may be
further noted that any such scheme in relation to a company referred to at (b) above, and a co-operative society
referred to at (e) above, has
to be approved by the Chief Commissioner, or, as the case may be, Director
General of Income-tax.
(7) Any
sum received under a life insurance policy, including the sum allotted by way
of bonus on such policy other than any sum received under sub-section (3) of
section 80DDA.
(8) Any
payment from a provident fund to which the Provident Funds Act, 1925 (19 of
1925) applies (or from any other provident fund set up by the Central
Government and notified by it in this behalf in the Official Gazette).
(9) Under section 10(13A)
of the Income-tax Act, 1961, any special allowance specifically granted to an
assessee by his employer to meet expenditure incurred on payment of rent (by
whatever name called) in respect of residential accommodation occupied by the
assessee is exempt from income-tax to the extent as may be prescribed, having
regard to the area or place in which such accommodation is situated and other
relevant considerations. According to rule 2A of the Income-tax Rules,
1962, the quantum of exemption allowable on account of grant of special
allowance to meet expenditure on payment of rent shall be :
(a) the actual amount of
such allowance received by an employer in respect of the relevant period ; or
(b) the actual expenditure incurred on payment of
rent in excess of 1/10th of the salary due for the relevant period ; or
(c) where such
accommodation is situated in
(d) where such
accommodation is situated in any other place, 40 per cent of the salary due to
the employee for the relevant period, whichever is the least.
For this purpose, Salary includes
dearness allowance, i.e., if
the terms of employment so provide, but excludes all other allowances and
perquisites.
It has to be noted that only the
expenditure actually incurred on 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 prerequisite for claiming deduction under section 10(13A), it has been decided as an
administrative measure that salaried employees drawing house rent allowance up
to Rs. 600 per month will be exempted from production of rent receipt. It may,
however, be noted that this concession is only for the purpose of tax-deduction
at source, and, in the regular assessment of the employee, the Assessing
Officer will be free to make such enquiry as he deems fit for the purpose of
satisfying himself that the employee has incurred actual expenditure on payment
of rent.
(10) Clause
(14) of section 10 provides for
exemption of the following allowances :
(a) Any special allowance or benefit granted to an
employee to meet the expenses incurred in the performance of his duties as
prescribed under rule 2BB subject to the extent to which such expenses are actually incurred for that purpose.
(b) Any allowance granted to an assessee either to
meet his personal expenses at the place of his posting or at the place he
ordinarily resides or to compensate him for the increased cost of living, which
may be prescribed and to the extent as may be prescribed.
However, the allowance referred to in (ii) above should not be in the nature
of a personal allowance granted to the assessee to remunerate or compensate him
for performing duties of a special nature relating to his office or employment
unless such allowance is related to his place of posting or residence.
The CBDT has prescribed guidelines for
the purpose of clauses (i) and
(ii) of section 10(14) vide Notification No. SO 617(E), dated
7th July, 1995 [F.No. 142/9/95-TPL]. These guidelines
are effective from 1st July, 1995. This is enclosed as Annexure-III.
(11) Under section 10(15)(iv)(i) of the Income-tax Act, interest payable by the Government on
deposits made by an employee of the Central Government or a State Government or
a public sector company from out of his retirement benefits, in accordance with
such scheme framed in this behalf by the Central Government and notified in the
Official Gazette is exempt from income-tax. By
Notification No.F. 2/14/89-NS-II, dated
7-6-1989, as amended by Notification No. F. 2/14/89-NS-II, dated 12-10-1989,
the Central Government has notified a scheme called Deposit Scheme for Retiring
Government Employees, 1989 for the purpose of the said clause.
(12) Under
section 17 of the Act, exemption from tax will also be available in respect of :
(a) the value of any
medical treatment provided to an employee or any member of his family, in any
hospital maintained by the employer ;
(b) any sum paid by the
employer in respect of any expenditure actually incurred by the employee on his
medical treatment or of any member of his family
(i) in any hospital
maintained by the Government or any local authority or any other hospital
approved by the Government for the purposes of medical treatment of its
employees ;
(ii) in respect of the prescribed diseases or
ailments, in any hospital approved by the Chief Commissioner having regard to
the prescribed guidelines :
Provided that, in a case falling in
sub-clause (ii), the employee
shall attach with his return of income a certificate from the hospital
specifying the disease or ailment for which medical treatment was required and
the receipt for the amount paid to the hospital ;
(c) premium paid by the employer in respect of
medical insruance 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 agreement Rs. 10,000 in an
year ;
(e) as regards medical
treatment abroad, the actual expenditure on stay and treatment abroad of the
employee or any member of his family, or, on stay abroad of one attendant who
accompanies the patient, in connection with such treatment, will be excluded
from perquisites to the extent permitted by the Reserve Bank of
5.3 Deductions under section 16
of the Act :
Under section 16 of the Income-tax Act the
standard deduction available is as below :
(i) in the case of an assessee whose income from
salary, before allowing a deduction under this clause, does not exceed sixty
thousand rupees, a deduction of a sum equal to thirty-three and one-third per
cent of the salary or eighteen thousand rupees, whichever is less ;
(ia) in any other
case, a deduction of a sum equal to thirty-three and one-third per cent of the
salary or fifteen thousand rupees, whichever is less :
Provided that in the case of an
assessee, being a woman, whose total income before making any deduction under
this clause, does not exceed seventy-five thousand rupees, the provisions of
this clause shall have effect as if for the words fifteen thousand rupees, the
words eighteen thousand rupees had been substituted.
Explanation : For the removal of
doubts, it is hereby declared that where, in the case of an assessee, salary is
due from, or paid or allowed by, more than one employer, the deduction under
this clause shall be computed with reference to the aggregate salary due, paid
or allowed to the assessee and shall in no case exceed the amount specified
under clause (i) or clause (ia), as the
case may be;
(ii) a deduction is also
allowed under clause (ii) of
section 16 in respect of any allowance in the nature of an entertainment
allowance specifically granted to the assessee by his employer subject to
certain limits. In the case of a Government employee, a sum equal to one-fifth
of his salary (exclusive of any allowance, benefit or other perquisite) or five
thousand rupees, whichever is less, is allowable as deduction. In the case of a
non-Government employee, deduction for entertainment allowance to the extent
specified in sub-clause (b) of
clause (ii) of section 16 will
be given only if the allowance is regularly received by him from his present
employer from a date prior to 1st April, 1955;
(iii) the tax on employment
within the meaning of clause (2) of Article 276 of the Constitution of India
leviable by, or, under any law, shall also be allowed as a deduction in
computing the income under the head Salaries.
5.4 Deductions under Chapter VI-A
of the Act :
(1) A
new section 80CCC has been introduced in Finance (No. 2) Act, 1996 which reads
as under :
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;
(c) where the assessee is
an association of persons or a body of individuals consisting in either case,
only of husband and wife governed by the system of community of property in
force in the State of Goa and the Union territories
of Dadra and Nagar Haveli and Daman and Diu, any sum
paid to effect or to keep in force an insurance on the health of any member of
such association or body or on the health of the dependent children of the
members of such an association or body.
(3) Under
section 80DD, deduction of Rs. 15,000 is allowed in the case of resident
individuals who incur expenditure on the medical treatment (including nursing),
training and rehabilitation of a handicapped, dependent relative suffering from
permanent physical disability (including blindness) or mental retardation,
specified in the rule 11A of the Income-tax Rules, 1962. The deduction will be
available to all assessees without any restriction
with regard to their total income. The permanent physical disability or mental
retardation of the dependent relative has to be certified
by a physician, surgeon, ocultist 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 Draing 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 80DDA, an individual is entitled to a deduction, for an amount not
exceeding Rs. 20,000, which is paid and deposited in the previous year, out of
this income chargeable to tax, in specific schemes of LIC and UTI. The scheme
provides 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.
(5) 80DDB. Deduction in
respect of medical treatment, etc., : Where an assessee who is resident
in India has, during the previous year, incurred any expenditure of the medical
treatment of such disease or ailment as may be specified in the rules made in
this behalf by the Board:
(a) for himself or a
dependent relative, in case of assessee is an individual; or
(b) for any member of a
Hindu undivided family, in case the assessee is a Hindu undivided family,
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 :
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.
Explanation : For the purposes
of this section, dependent means a person who is not dependent for his support
of maintenance on any person other than the assessee.
(6) 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 the assessee, being an individual, there shall be deducted, in
accordance with and subject to the provisions of this section, any amount paid
by him in the previous year, out of his income chargeable to tax, by way of
repayment of loan taken by him from any financial institution or any approved
charitable institution for the purpose of pursuing his higher education, or
interest on such loan :
Provided that
the amount which may be so deducted shall not exceed twenty-five thousand
rupees.
(ii) The deduction specified above shall be allowed
in computing the total income in respect of the initial assessment year and
seven assessment years immediately succeeding the initial assessment year or
until the loan referred to above together with interest thereon is paid by the
assessee in full, whichever is earlier.
For this purpose
(a) approved charitable institution means an
institution established for charitable purposes and notified by the Central
Government under clause (23C)
of section 10, or an institution referred to in clause (a) of sub-section (2) of section 80G.
(b) financial institution means a banking company
to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any
bank or banking institution referred to in section 51 of that Act); or any
other financial institution which the Central Government may, by notification in
the Official Gazette, specify in this behalf;
(c) higher education means full-time studies for
any graduate or post-graduate course in engineering, medicine, management, or,
for 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.
(7) No
deduction should be allowed by the D.D.O. from the
salary income in respect of any donations made for charitable purposes. The tax
relief on such donations as admissible under section 80G of the Act, will have
to be claimed by the taxpayer in the return of income.
However, in cases where contributions are made to the
National Defence Fund, the Jawaharlal Nehru Memorial
Fund, the Prime Ministers Drought Relief Fund, the National Childrens
Fund, the Indira Gandhi Memorial Trust or the Rajiv Gandhi Foundation, fifty per cent of such
contributions may be deducted in computing the total income of the employee. Similarly, the donations to the Prime Ministers National Relief
Fund, the Prime Ministers Armenia Earthquake Relief Fund, the Africa (Public
Contributions-India) Fund, the National Foundation for Communal Harmony and the
Chief Ministers Earthquake Relief Fund, Maharashtra,
National Blood Transfusion Council, State Blood Transfusion Council, Army
Central Welfare Fund, Indian Naval Benevolent Fund or Air force Central Welfare
Fund will be eligible for hundred per cent deduction. It is to be noted that all eligible donations, without any limit,
will be deductible under the provisions of section 80G.
(8) Under
section 80GG of the Act, an assessee is entitled to a deduction in respect of
house rent paid by him for his own residence at the places specified under rule
11B of the Income-tax Rules, 1962. Such deduction is permissible subject to the
following conditions :
(a) the assessee has not
been in receipt of any house rent allowance specifically granted to him which
qualifies for exemption under section 10(13A)
of the Act;
(b) he will be entitled
to a deduction in respect of house rent paid by him in excess of 10 per cent of
his total income, subject to a ceiling of 25 per cent thereof or Rs. 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.
(c) The assessee does not own :
(i) any residential accommodation himself or by
his spouse or minor child or where such assessee is a member of a Hindu
undivided family, by such family, at the place where he ordinarily resides or
performs duties of his office or carries on his business or profession; or
(ii) at any other place, any residential
accommodation being accommodation in the occupation of the assessee, the value
of which is to be determined under sub-clause (i) of clause (a),
or as the case may be, clause (b)
of sub-section (2) of section 23;
(d) The accommodation occupied by him for the
purpose of his own residence is situated in any of the following places, namely :
(i) Agra, Ahmedabad,
Allahabad, Amritsar, Bangalore, Bhopal, Calcutta, Coimbatore, Delhi, Faridabad, Gwalior (Lashkar), Hyderabad, Indore, Jabalpore, Jaipur, Kanpur, Lucknow, Ludhiana City, Madurai, Nagpur, Patna, Pune, Srinagar,
Surat, Vadodara (Baroda) or
Varanasi (Banaras) or the
urban agglomeration of each of such places; or
(ii)
Explanation: Urban Agglomeration in relation to a place means the
area for the time being included in the urban
agglomeration of such place for the purpose of grant of house rent allowance by
the Central Government to its employees under the orders issued by it from time
to time in this regard.
The disbursing authorities should satisfy
themselves that all the conditions mentioned above are satisfied before such deduction is allowed by them to the assessees.
They should also satisfy themselves in this regard by insisting on production
of evidence of actual payment of rent.
(9) 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 certifited
by a physician, surgeon, oculist or psychiatrist as the case may be, working in
a Government hospital and which has the effect of reducing considerably such
individuals capacity for normal work or engaging in a gainful employment or
occupation. The expression
Government hospital will include a departmental dispensary or a hospital
maintained by a local authority as specified in the Explanation given below section 80DD.
Tax rebate
6. An assessee will be entitled to tax rebates under Chapter VIII of the
Act as given below :
(1) Payment of insurance premium to effect or to
keep in force an insurance on the life of the
individual, the wife or husband or any child of the individual. (It may be
noted that any premium or other payment made on a policy as is not in excess of
10% of the sum assured, will alone qualify for deduction);
(2) Any payment made to
effect or to keep in force a contract for a deferred annuity, not being an
annuity plan as is referred to in item (8) hereinbelow
on the life of the individual, the wife or husband or any child of the
individual, provided that such contract does not contain a provision for the
exercise by the insured of an option to receive a cash payment in lieu of the
payment of the annuity;
(3) Any sum deducted from
the salary payable by, or, on behalf of the Government to any individual, being
a sum deducted in accordance with the conditions of his service for the purpose
of securing to him a deferred annuity or making provision for his wife or
children, in so far as the sum deducted does not exceed 1/5th of the salary;
(4) Any contribution made :
(a) by an individual or
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, for whom he is a guardian;
(c) by an employee to a recognised provident fund;
(d) by an employee to an
approved superannuation fund;
It may be noted
that contribution to any fund shall not include any sums in repayment of loan;
(5) Any deposit in a ten-year account or a
fifteen-year account under the Post Office Savings Bank (Cumulative Time
Deposit) Rules, 1959, as amended from time to time, where such sums are
deposited in an account standing in the name of an individual, or a minor, for
whom he is the guardian.
(6) Any subscription
(a) to any such security
of the Central Government or any such deposit scheme as the Central Government
may, by notification in the Official Gazette, specify in this behalf;
(b) to any such saving
certificates as defined under section 2(c)
of the Government Savings Certificate Act, 1959 as the Government may, by
notification in the Official Gazette, specify in this behalf. Interest on NSC(VI Issue) and NSC(VIII Issue) which is deemed investment
also qualifies for deduction.
(7) Any sum paid as contribution
:
(a) for participation in
the Unit Linked Insurance Plan, 1971 of the Unit Trust of India;
(b) for participation in any unit-linked insurance
plan of the LIC Mutual Fund notified by the Central Government under clause (23D) of section 10.
(8) Any subscription made to effect or keep in
force a contract for such annuity plan of the Life Insurance Corporation as the
Central Government may by notification in the Official Gazette, specify;
(9) Any subscription not
exceeding rupees ten thousand, made to any units of any Mutual Fund, notified
under clause (23D) of section
10, by the Unit Trust of India established under the Unit Trust of India Act,
1963, under any plan formulated in accordance with any scheme as the Central
Government, may, by notification in the Official Gazette, specify in this
behalf ;
(10) Any contribution made by an individual to any
pension fund set up by any Mutual Fund notified under clause (23D) of section 10, or, by the Unit
Trust of India established under the Unit Trust of India Act, 1963, as the
Central Government may, by notification in the Official Gazette, specify in
this behalf;
(11) Any subscription made to any such deposit
scheme of, or, any contribution made to any such pension fund set up by, the
National Housing Bank, as the Central Government may, by notification in the
Official Gazette, specify in this behalf;
(12) Any subscription made
to any such deposit scheme (not being a scheme the interest on deposits whereunder qualifies for deduction under section 80L), as
the Central Government may, by notification in the Official Gazette, specify
for the purpose of being floated by (a)
public sector companies engaged in providing long-term finance for construction
or purchase of houses in India for residential purposes, or, (b) any authority constituted in India
by, or, under any law, enacted either for the purpose of dealing with and satisfying
the need for housing accommodation or for the purpose of planning, development
or improvement of cities, towns and villages, or for both.
(13) Any sums paid by an
assessee for the purpose of purchase or construction of a residential house
property, the income from which is chargeable to tax under the head Income from
house property (or which would, if it has not been used for assessees
own residence have been chargeable to tax under that head) where such payments
are made towards or by way of any instalment or part
payment of the amount due under any self-financing or other scheme of any
development authority, housing board etc. The deduction will also be
allowable in respect of repayment 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 and the issue is wholly and
exclusively for the purposes of developing, maintaining and operating an
infrastructure facility for generating, or for generating and distributing
power;
(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);
(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% of the total amount of the aforesaid savings
etc., in the case of individuals, and at the rate of 25% in the case of an
author or playwright or artiste or musician or actor or sportsman (including an
athlete) whose income derived from the exercise of his profession as such
author/playwright/artiste/musician/actor/sportsman/athlete constitutes
twenty-five per cent or more of his total income.
The maximum tax rebate allowable will be
Rs. 12,000 generally, and Rs. 17,500 in the case of authors, playwrights,
artistes, musicians, actors, sportsmen and athletes. There will, therefore, be
an overall limit for savings which will qualify for
tax rebate. In the case of individuals, the limit will be Rs. 60,000 and in the
case of authors, sportsmen etc. Rs. 70,000. An
additional rebate of Rs. 2000 will be available for investment upto Rs. 10,000 made as per paras
14 and 15 on pre-pages. Hence the maximum rebate under
this section would be Rs. 12,000 plus
Rs. 2,000.
(17) Section 88B provides for special relief to
senior citizens (individuals of the age of 65 years and above). The tax rebate
in their cases is 40% and the gross total income qualifying limit for this
purpose of Rs. 1,20,000. Thus, all individuals of, and
above, the age of 65 years will be allowed a rebate of 40% of the amount of
income-tax payable by them [as computed before allowing the deduction under
Chapter VIII (enlisted at para 6 on pre-page) of the
Income-tax Act, 1961], subject to the condition that their gross total income
does not exceed Rs. 1,20,000.
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
deduction 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 1996-97.
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 (No. 2) Act
1996.
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 Governments, etc.
Circular : No.
748, dated 19-12-1996.
Sections 54EA and 54EB l Exemption of Capital Gains on transfer of long-term capital assets
in case of investment in specified securities, etc.,
443. Guidelines for companies and mutual funds in
respect of approved investments for purposes of sections 54EA and 54EB
clarification 1
1. Sections 54EA and 54EB of the Income-tax Act, 1961 have
been introduced by the Finance (No. 2) Act, 1996 with effect from
1-10-1996 will consequently apply in relation to transfer of long-term capital
assets on or after this date. Capital gains tax will be exempted in cases where
net consideration (section 54EA) or the capital gains
(section 54EB) is invested in certain approved instruments. The approved
instruments under both the aforesaid sections have
been notified separately. The Board have framed the following guidelines for
approving investment instruments for the purposes of the above sections :
1. (a)
Applications to be sent by public companies and public financial institutions
to the CBDT for notifying investment instruments.
(b)
Mutual Funds referred to in section 10(23D)
of the Income-tax Act including Unit Trust of India, need not make applications
for this purpose.
2. Sixty per cent of Capital (hereinafter called investible capital) raised through bonds or debentures to
be invested in infrastructure facilities as defined in sub-section (12) of
section 80-IA of the Income-tax Act, 1961, or in companies generating power or
generating and distributing power or in companies engaged in basic telephone
services or in the exploration/extraction of oil and natural gas.
3. 25 per cent or more of the investible
capital shall be invested in the infrastructure
facility specified in sub-section (12) of section 80-IA, etc., as mentioned in para (2) above, before the end of one year from the date of
approval by the Board.
4. The balance of investible
capital shall be invested within a period of three years from the date of
approval by the Board.
5. Every public company or public financial institution shall submit a
certificate from an Accountant, as defined in the Explanation to sub-section (2) of section 288, specifying the
amount invested in each year, from the date of approval by the Board.
6. The Board shall have the
power to withdraw the approval granted in the following circumstances, namely :
(a) if such public
company or public financial institution fails to make investments as per
conditions mentioned in sub-item (3), or (4) above; or
(b) if such public
company or public financial institutions fails to file the certificate referred
to in sub-item (5) above.
Clarification
2
With a view to channelising investment into
priority sectors of the economy and to give impetus to the
capital markets, sections 54EA and 54EB of the Income-tax Act, 1961,
were introduced by the Finance (No. 2) Act, 1996. Under the provisions of these
sections capital gains arising from the transfer of a long-term capital asset
on or after 1st October, 1996, are exempted from capital gains tax if the
amount of net consideration (section 54EA) or the amount of capital gain
(section 54EB) is invested in certain specified assets.
The Central Board of Direct Taxes have notified the following
instruments for the purposes of section 54EA and section 54EB
:
A. For the purposes of section 54EA :
1. all
bonds, redeemable after a period of three years, issued or to be issued by the Housing
and Urban Development Corporation Limited,
2. all
units, repurchasable after a period of three years,
issued or to be issued by any mutual fund (including the Unit Trust of India)
referred to in clause (23D) of
section 10 of the Income-tax Act, 1961.
B. For the purposes of section 54EB :
1. deposits for a period of not less than seven years
with the State Bank of India established under the State Bank of India Act,
1955 (23 of 1955), or any subsidiary bank as defined in the State Bank of India
(Subsidiary Banks) Act, 1959 (38 of 1959), or any nationalised
bank, that is to say, any corresponding new bank, constituted under section 3
of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
(5 of 1970), or any co-operative society engaged in carrying on the business of
banking (including a co-operative land mortgage bank or co-operative land
development bank);
2. all
bonds, redeemable after a period of seven years, issued or to be issued by the
Housing and Urban Development Corporation Limited,
3. all
units, repurchasable after a period of seven years,
issued or to be issued by any mutual fund (including the Unit Trust of India)
referred to in clause (23D) of
section 10 of the Income-tax Act, 1961.
No restriction has been placed on the investment of capital raised by
mutual funds, companies and financial institutions which raise capital through
bonds or debentures have to invest in infrastructure facilities as defined in
section 80-IA or in power or basic telephone services or in the
exploration/extraction of oil and natural gas.
Press Note : Issued by the Ministry of
Finance, Department of Revenue,
clarification 3
1. Circular No. 748, dated 19th December, 1996 (Clarification 1) laid down guidelines
in respect of approved investments for purposes of section 54EA and section
54EB of the Income-tax Act. Subsequent to the issue of those guidelines, the Income-tax (Second Amendment) Ordinance, 1996 has been
promulgated on 31-12-1996. By virtue of section 2 of the Ordinance, shares
issued by a public company have been included in the investment instruments which would qualify for exemption from capital
gains tax under section 54EA and section 54EB.
2. The guidelines laid down for
bonds and debentures in Circular No. 748 will also
apply to the shares issued by public companies with regard to the procedure for
application to the Board as well as with regard to the manner in which the investible capital is to be utilized.
3. For the purposes of sections 54EA and 54EB shares of a public company shall mean primary issue
of share capital and public company shall have the same meaning as defined in
section 3 of the Companies Act, 1956.
Circular : No. 750, dated 13-1-1997.
Circular: No. 749, dated 27-12-1996.
1183. Clarification regarding certificate for
deduction of tax made by Central Government Departments who are making payments
by book adjustments
Under the
provisions of section 203, the Drawing and Disbursing Officers (DDOs) of various Central Government Departments are
deducting tax from payments made to its employees, contractors, etc. The taxes
so deducted are being paid into Government account by
book adjustment. Consequently, the TDS certificates issued by such DDOs do not carry details like challan
numbers, dates of payments into Government account, etc. For these reasons, the
same are being rejected by the Assessing Officers and
this is creating hardship for the assessees.
The Board has
considered the issue and decided that the TDS certificates
issued by Central Government Departments should be accepted by Assessing
Officers if it indicates that credit has been afforded to the Income-tax
Department by book adjustment and the date of such book adjustment is indicated
therein. The certificate, in any case, should be genuine.
In case of
doubt about genuineness of such TDS certificates, the Assessing Officers are
free to correspond with the DDOs of such Central
Government Departments and the latter are bound to offer facility for examination
of their payments made to Central Government account by book adjustment.
Further, all
such DDOs issuing certificates where credit is shown
by book adjustment, must obtain a TAN (Tax Account Number) from the
jurisdictional I.T. authority/Officer in-charge of TDS matters; and must also
file their Annual Return of TDS to the jurisdictional officer in charge of TDS.
The TAN must be quoted on the TDS certificates issued,
showing payment by book adjustment.
[`1] 1. See amendments to sections 44AD and 44AE made by Finance
Act, 1997. See also Judicial Analysis.