Circular : No.
1/2002, dated 4-2-2002.
960. Instruction for deduction of tax at source
from salaries during the Financial year 2001-2002
under section 192
1. Reference is invited to Circular No. 798, dated 30-10-2000 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 2000-2001, 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 2001-2002 and explain certain related provisions of the Income-tax Act.
Finance Act, 2001
2. According to the Finance Act, 2001, 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 2001-2002 (i.e., assessment year 2002-2003) at the following rates:
Rates of Income-tax
|
1. |
Where the total income does not exceed Rs. 50,000. |
Nil |
|
2. |
Where the total income exceeds Rs. 50,000 but does not exceed Rs. 60,000. |
10 per cent, of the amount by which the total income exceeds Rs. 50,000. |
|
3. |
Where the total income exceeds Rs. 60,000 but does not exceed Rs. 1,50,000. |
Rs. 1,000 plus 20 per cent of the amount by which the total income exceeds Rs. 60,000. |
|
4. |
Where the total income exceeds Rs. 1,50,000. |
Rs. 19,000 plus 30 per cent Rs. 1,50,000. of the amount by which the total income exceeds |
Surcharge on income-tax
The amount of income-tax computed in accordance with the preceding provisions of this paragraph shall be reduced by the amount of rebate of income-tax calculated under Chapter VIIIA and the income tax so reduced shall be increased by a surcharge at the rate of two per cent of such income-tax where the total income exceeds sixty thousand rupees.
However, the total amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax on a total income of Rs. 60,000 by more than the amount of income that exceeds Rs. 60,000.
Surcharge is payable by both resident and non-resident assessees.
Section 192 of the Income-tax Act, 1961 : Broad Scheme of tax deduction at Source from Salaries
etc.
3.1 Every person who is responsible for paying any income chargeable under the head Salaries shall deduct income-tax on the estimated income of the assessee under the head Salaries for the financial year 2001-2002. The income-tax is required to be calculated on the basis of the rates given above and shall be deducted on average at the time of each payment. No tax will, however, be deducted at source in any case unless the estimated salary income including the value of perquisites, for the financial year exceeds Rs. 50,000. (Some typical examples of computation of tax are given at Annexure I).
3.2 Sub-section (2) of section 192 deals with situations where an individual is working under more than one employer or has changed from one employer to another. It provides for deduction of tax at source by such employer (as the tax payer may choose) from the aggregate salary of the employee who is or has been in receipt of salary from more than one employer. The employee is now required to furnish to the present/chosen employer details of the income under the head Salary due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and by the former/other employer. The present employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from the former or other employer).
3.3 Under sub-section (2A) of section 192 where the assessee, being a Government servant or an employee in a Company, Co-operative Society, Local Authority, University, Institution, Association or Body is entitled to the relief under sub-section (1) of section 89, he may furnish to the person responsible for making the payment referred to in Para (3.1), such particulars in Form No. 10E duly verified by him, and thereupon the person responsible as aforesaid shall compute the relief on the basis of such particulars and take into account in making the deduction under Para (3.1) above.
Explanation : For this purpose University means a University established or incorporated by or under a Central, State or Provincial Act, and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be University for the purpose of the Act.
3.4 Sub-section (2B) of section 192 enables a tax payer to furnish particulars of income under any head other than Salaries and of any tax deducted at source thereon, in the prescribed Form (No. 12C) vide Annexure II. Such income should not be a loss under any such head other than the loss under the head Income from house property for the same financial year. The person responsible for making payment (DDO) shall take such other income and tax, if any, deducted at source from such income, and the loss if any, under the head Income from house property into account for the purpose of computing tax deducible under section 192 of the Income-tax Act. It is, however, provided that this sub-section shall not in any case have the effect of reducing the tax deductible except where the loss under the head Income from house property has been taken into account, from income under the head Salaries below the amount that would be so deductible if the other income and the tax deducted thereon had not been taken into account.
In other words, the DDO can take into account the loss from house property only for working out the amount of total tax to be deducted. While taking into the account the loss from house property, the DDO shall ensure that the assessee files declaration in Form No. 12C and encloses therewith a computation of such loss from house property.
Sub-section (2C) lays down that a person responsible for paying any income chargeable under the head Salaries shall furnish to the person to whom such payment is made a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof in such form and manner as may be prescribed.
(i) For the purpose of computing loss under the head Income from house property in respect of a self-occupied residential house, the ceiling of deduction of interest on borrowed capital invested in the acquisition or construction of a self-occupied residential house has been enhanced to Rs. 1,50,000 w.e.f. assessment year 2002-2003. The enhanced limit of Rs. 1,50,000 is also applicable in cases where the house property cannot be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him. However, this deduction on account of interest up to a limit of Rs. 1,50,000, is available only if such loan has been taken for constructing or acquiring the residential unit on or after 1-4-1999 and the construction or acquisition of the residential unit out of such loan has been completed before 1-4-2003.
(ii) The essential conditions necessary for availing higher deduction of interest are that the relevant loan must have been taken after 1-4-1999 and the acquisition or construction of residential unit must be completed before 1-4-2003. There is no stipulation regarding the date of commencement of construction. Consequently, the construction of the residential unit could have commenced before 1-4-1999 but, as long as its construction/acquisition is completed before 1-4-2003, the higher deduction would be available. Also, there is no stipulation regarding the construction/acquisition of the residential unit being entirely financed by loan taken after 1-4-1999. (The loan taken prior to 1-4-1999 will carry deduction of interest up to Rs. 30,000 only).
3.5 The provisions of sub-section (3) of section 192 allow the deductor to make adjustments for any excess or shortfall in the deduction of tax already made during the financial year, in subsequent deductions during that financial year itself.
3.6 The trustees of a Recognised Provident Fund or any person authorised by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 of Part A of the Fourth Schedule to the Act applies, at the time when the accumulated balance due to an employee is paid, make therefrom the deduction specified in rule 10 of Part A of the Fourth Schedule.
3.7 Where any contribution made by an employer, including interest on such contributions, if any, in an approved Superannuation Fund is paid to the employee, tax on the amount so paid shall be deducted by the trustees of the Fund to the extent provided in rule 6 of Part B of the Fourth Schedule to the Act.
3.8 For the purposes of deduction of tax on salary payable in foreign currency, the value in rupees of such salary shall be calculated at the prescribed rate of exchange.
Persons responsible for deducting tax and
their duties
4.1 Under clause (i) of section 204 of the Act the persons responsible for paying for the purpose of section 192 means the employer himself or if the employer is a company, the company itself including the principal officer thereof.
4.2 The tax determined as per para 7 should be deducted from the salary under section 192 of the Act.
4.3 Section 197 enables the tax-payer to make an application in Form No. 13 to his Assessing Officer, and, if the Assessing Officer is satisfied that the total income of the tax-payer justifies the deduction of income-tax at any lower rate or no deduction of income-tax, he may issue an appropriate certificate to that effect which should be taken into account by the Drawing and Disbursing Officer while deducting tax at source. In the absence of such a certificate from the employee, the employer should deduct income-tax on the salary payable at the normal rates : Circular No. 147, dated 28-10-1974.
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 the whole or any part of the tax at source or, after deducting, fails to pay the whole or any part of 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 w.e.f. 1-6-2001 on the amount of such tax from the date on which such tax was deductible to the date on which tax is actually paid. Section 271C lays down that if any person fails to deduct tax at source, he shall be liable to pay, by way of penalty, a sum equal to the amount of tax not deducted by him. Further, section 276B lays down that if a person fails to pay to the credit of the Central Government within the prescribed time the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine.
4.6 According to the provisions of section 203, every person responsible for deducting tax at source is required to furnish a certificate to the payee to the effect that tax has been deducted and to specify therein the amount deducted and certain other particulars. This certificate, usually called the TDS certificate, has to be furnished within a period of one month from the end of the relevant financial year. Even the banks deducting tax at the time of payment of pension are required to issue such certificates. In the case of employees receiving salary income including pension, the certificate has to be issued in Form No. 16 which has been prescribed under Boards Notification No. S.O. 940(E), dated 25-9-2001. It is, however, clarified that there is no obligation to issue the TDS certificate (Form 16) in case tax at source is not deductible/deducted by virtue of claims of exemptions and deductions. As per the amended section 192, the responsibility of providing correct and complete particulars of perquisites or profits in lieu of salary given to an employee is placed on the person responsible for paying such income i.e., the person responsible for deducting tax at source. The form and manner of such particulars are prescribed in rule 26A, Form 12BA and Form 16 of the Income-tax Rules as amended by Notification No. 940(E), dated 25-9-2001. A new form (Form 12BA) stating the nature and value of perquisites is to be provided by the employer in case of salary above Rs. 1,50,000. In other cases, the information would have to be provided by the employer in the amended Form 16. In either case, Form 16 with Form 12BA or Form 16 by itself have to be furnished within a period of one month from the end of relevant financial year.
The newly amended section 192 casting an obligation on the employer for providing a statement showing the value of perquisites provided to the employee is a serious responsibility of the employer which is expected to be discharged in accordance with law and rules of valuation framed thereunder. Any false information, fabricated documentation or suppression of requisite information will entail consequences therefor provided under the law.
A specimen of these certificates is enclosed at Annexure III. These certificates are to be issued on the tax-deductors own stationery within one month from the close of the financial year i.e., by April 30 of every year. If he fails to issue these certificates 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 be Rs. 100 for every day during which the failure continues.
4.7 According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the Tax-deduction Account No. (TAN) in the Challans, TDS-certificates, returns etc. Detailed instructions in this regard are available in this Departments Circular No. 497 (F. No. 275/118/87-IT(B) dated 9-10-1987). If a person fails to comply with the provisions of section 203A, he will be liable to pay, by way of penalty, under section 272BB, a sum of ten thousand rupees. Similarly, as per section 139A(5B), it is obligatory for persons deducting tax at source to quote PAN of the persons from whose income-tax has been deducted in the statement furnished under section 192(2C), certificates furnished under section 203 and all returns prepared and delivered as per the provisions of section 206 of the Income-tax Act, 1961.
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 pubic body or association, every private employer and every other person responsible for deducting tax under section 192, from Salaries shall, after the end of each financial year, prepare and deliver, by 31st May following the financial year, an annual return of deduction of tax to the designated/concerned Assessing Officer. This return has to be furnished in Form No. 24. It may be noted that a copy of each of the TDS certificates issued during the financial year should be enclosed with the annual return. 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 be Rs. 100 for every day during which the failure continues, so, however that this sum shall not exceed the amount of tax which was deductible at source.
4.9 A return filed on a floppy, diskette, magnetic cartridge tape, CD-ROM or any other computer readable media as may be specified by the Board shall be deemed to be a return for the purposes of section 206 and the Rules made thereunder, and shall be admissible in any proceeding thereunder, without further proof of production of the original, as evidence of any contents of the original or of any fact stated therein. While receiving such returns on computer media, necessary checks by scanning the documents filed on computer media will be carried out and the media may be duly authenticated by the Assessing Officer.
4.10 While making the payment of tax deducted at source to the credit of the Central Government, it may be ensured that the correct amount of income-tax is recorded in the relevant challan. It may also be ensured that the right type of challan is used. The relevant challan for making payment of tax deducted at source from salaries is No. 9 with Blue colour Band. Where the amount of tax deducted at source is credited to the Central Government through book adjustment, care should be taken to ensure that the correct amount of income-tax is reflected therein.
4.11 In the case of pensioners who receive their pension from a nationalised bank, the instructions contained in this circular shall apply in the same manner as they apply to salary-income. The 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 : refer Para 6(17)) will be allowed by the concerned bank at the time of deduction of tax at source from the pension, before making payment to the concerned pensioner. As regards the tax rebate under section 88 on account of contribution to Life Insurance, Provident Fund, NSC etc., if the pensioners furnish the relevant details to the banks, the tax rebate at the specified rate may also be allowed. Necessary instructions in this regard were issued by the Reserve Bank of India to the State Bank of India and other nationalised Banks vide RBIs Pension Circular (Central Series) No. 7/C.D.R./1992 (Ref. CO:DGBA:GA(NBS) No. 60/GA.64 (11CVL)-91/92), dated the 27th April, 1992, and, these instructions should be followed by all the branches of the Banks, which have been entrusted with the task of payment of pensions. Further all branches of the banks are bound under section 203 to issue certificate of tax deducted in Form 16 to the pensioners also vide CBDT Circular No. 761, dated 13-1-1998.
4.12 Where Non-Residents are deputed to work in India and taxes are borne by the employer, if any refund becomes due to the employee after he has already left India and has no bank account in India by the time the assessment orders are passed, the refund can be issued to the employer as the tax has been borne by it : Circular No. 707, dated 11-7-1995.
4.13 TDS certificates issued by Central Government Departments which are making payments by book adjustment, should be accepted by the Assessing Officers if they indicate that credit has been effected to the Income-tax Department by book adjustment and the date of such adjustment is given therein. In such cases the Assessing Officers may not insist on details like challan numbers, dates of payment into Government Account etc., but they should in any case satisfy themselves regarding the genuineness of the certificates produced before them : Circular No. 747, dated 27-12-1996.
4.14 There is a specific procedure laid down for refund of payments made by the deductor in excess of taxes deducted at source, vide Circular No. 285, dated 21-10-1980.
4.15 In respect of non-residents, the salary paid for services rendered in India shall be regarded as income earned in India, so as to specifically provide that any salary payable for rest period or leave period which is both preceded or succeeded by service in India and forms part of the service contract of employment will also be regarded as income earned in India.
Estimation of income under the head Salaries
5.1 Income chargeable under the head Salaries.
(1) The following income shall be chargeable to income-tax under the head Salaries:
(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not.
(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him.
(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer if not charged to income-tax for any earlier previous year.
(2) For the removal of doubts it is clarified that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due. Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as Salary.
(3) Salary includes wages, fees, commissions, perquisites, profits in lieu of, or, in addition to salary, advance of salary, annuity or pension, gratuity, payments in respect of encashment of leave etc. It also includes the annual accretion to the employees account in a recognised provident fund to the extent it is chargeable to tax under rule 6 of Part A of the Fourth Schedule of the Income-tax Act. Contributions made by the employer in excess of 12 per cent of the salary of the employee, alongwith interest applicable, shall be included in the income of the assessee for the previous year. Other items included in salary, profits in lieu of salary and perquisites are described in section 17 of the Income-tax Act. The scope of the 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) Section 17 defines the terms salary, perquisite and profits in lieu of salary. Perquisite, includes the value of any benefit or amenity granted or provided free of cost or at concessional rate, in specified cases. Perquisites are charged to tax under the existing provisions for employees who are directors of companies or have substantial interest in a company, or have an income from salaries, excluding the value of all benefits or amenities, exceeding Rs. 24,000. The Finance Act, 2001 amends the provision to raise the monetary limit to Rs. 50,000. The definition of perquisite has also been amended to include the value of any other fringe benefit or amenity as may be prescribed. The details of fringe benefits are to be calculated in the manner prescribed in the Income-tax Rules. It is further provided that profits in lieu of salary shall include amounts received in lump sum or otherwise, prior to employment or after cessation of employment for the purposes of taxation. The new rules for valuation of perquisite have been prescribed in the amended Rule 3:
I. Accommodation - Under the old Rule 3 for purpose of valuation of the perquisite of unfurnished accommodation all employees were divided into three categories; Central and State Government employees, employees of Public Sector Undertaking and Semi-Government Organisation and others including, private sector employees. Under the new rule 3, for purposes of valuation of perquisite of accomodation, employees are divided into two categories insteadGovt. and State Govt. employees; and Others.
For employees of the Central and State Government the value of perquisite shall be equal to the licence fee charged for such accommodation.
For all others, i.e., those salaried taxpayers not in employment of the Central Government and the State Government, the valuation of perquisite in respect of accommodation would be at prescribed rates. The rate is 10 per cent of salary in cities having population exceeding four lakhs as per the 1991 census. For other places, the perquisite value would be 7.5 per cent of salary.
The scope of the word accommodation has been widened by clarifying that
it includes a house, flat, farm house, hotel accommodation, guest house, a
caravan, mobile home, ship etc. However, the value of any accommodation located
in a remote area provided to an employee working at a mining site or an
on-shore oil exploration site or a project execution site or an accommodation
provided in an offshore site will not be treated as a perquisite. A project
site for the purposes of this sub-rule means a site of project upto the stage of its commissioning. A remote area means an
area located at least 40 kilometres away from a town
having a population not exceeding 20,000 as per the latest published all
The definition of salary for calculating perquisite value is the same as per earlier Rules. The only change is that, medical allowances and reimbursement for treatment of serious illnesses as prescribed in proviso below section 17(2)(vi) have now been excluded from the definition of salary for this purpose. For furnished accommodation, the provision of valuation of perquisite of furnishings, fittings and furniture at 10 per cent of original cost per annum or actual hire charges is continued.
If an accommodation is provided by an employer in a hotel the value of the benefit in such a case shall be 24 per cent of the annual salary or the actual charges paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided as reduced by any rent actually paid or payable by the employee. However, where in cases the employee is provided such accommodation for a period not exceeding in aggregate fifteen days on transfer from one place to another, no perquisite value for such accommodation provided in a hotel shall be charged. It may be clarified that while services provided as an integral part of the accommodation, need not be valued separately as perquisite any other services over and above that for which the employer makes payment or reimburses the employee shall be valued as a perquisite as per the residual clause. In other words, composite tariff for accommodation will be valued as per these Rules and any other changes for other facilities provided by the hotel will be separately valued under the residual clause. Also, if on account of an employees transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value as per the table prescribed, for a period upto 90 days. However, after that the value of perquisite shall be charged for both accommodations as prescribed.
II. Motor Car - Under the old rules the basis of valuation of perquisite of a motor car provided by the employer was the sum actually expended by the employer, including expenditure on maintenance, running cost and remuneration of chauffeur, in case of exclusively personal use, and apportionment of the same in case of part personal and part official use. However, for simplicity it is also provided that where determination of the above basis is difficult, the valuation would be as per prescribed rates. The criteria for small and large cars have been revised on the basis of their engine capacity only. Where the car is used exclusively for personal purposes of the employee or any member of his household, the perquisite value shall be taken to be the full amount of expenditure incurred by the employer including the remuneration paid to the chauffeur and the normal wear and tear calculated at 10 per cent of the cost of the car. However, the normal wear and tear cost will not be calculated in a hired car as the replacement of the same is not the responsibility of the employer. The rates for part official and part personal use of motor cars have now been revised as follows:
|
|
Small car (upto 1.6 ltrs engine capacity) |
Large car (above
1.6 ltrs engine capacity) |
If Chauffeur provided
by employer to run the motor car, an additional amount as below is also
charged |
|
(i) Car owned/hired by employer and maintained and run
at their cost. |
Rs. 1200 per month |
Rs. 1600 per month |
Rs. 600 per month |
|
(ii) Car owned/hired by employer but run at employees
cost. |
Rs. 400 per month |
Rs. 600 per month |
Rs. 600 per month |
However, where a second and additional cars are provided, such other cars shall be deemed to be for personal use and the value of perquisite shall be computed accordingly. Where fuel and upkeep cost of the employees car is borne or reimbursed by the employer, the amount reasonably attributable to business use is not to be charged as perquisite. For this, user details in the form of log books, odometer reading, etc. should be maintained. Where the car is used partly for purposes of official duties and partly for private or personal use and such details are not available or not properly maintained, the amount paid for or reimbursed less Rs. 1,200 per month for small car or Rs. 1,600 per month for large car would be valued as a perquisite. A higher amount may be deducted on the basis of proper maintenance of details of official use. For claiming higher amount of official use in respect of reimbursement of car expenses or wholly official use of car provided by an employer, the following details and documents need to be maintained:
(i) the employer has maintained complete details of journeys undertaken for official purpose which may include date of journey, destination, mileage and the amount of expenditure incurred thereon;
(ii) the employee gives a certificate that the expenditure was incurred wholly and exclusively for the performance of his official duty;
(iii) the supervising authority of the employee, wherever applicable, gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.
However, these rules of valuation for employee owned cars should not be taken to apply to conveyance allowance regularly paid or payable to the employee under terms of employment or otherwise. The conveyance allowance is a cash disbursement and is to be taxed separately as an allowance subject to the provisions contained in section 10(14). What the present rules provide for is the value of perquisite where the expenses on the running or maintenance of employee owned car is met or reimbursed by the employer.
III. Personal attendants etc. - The old rules provided for valuation of perquisite of free services of a sweeper, a gardener and a watchman at Rs. 120 per month. Under the new rules the value of free service of all personal attendants including a sweeper, gardener, and a watchman is to be at actual cost to the employer. Where the attendant is provided at the residence of the employee, full cost will be taxed as perquisite in the hands of the employee irrespective of the degree of personal service rendered to him. Any amount paid by the employee for such facilities or services shall be reduced from the above amount.
IV. Gas, electricity and water - For free supply of gas, electricity and water for household consumption the old rules already provide that the amount paid by the employer to the agency supplying the amenity shall be the value of perquisite. However, when the supply is made from employers own resources, the value of perquisite was taken as Nil. The separate provision in the old rules of valuation at 6.25% of salary of the taxpayer for part official use is discontinued. Under the new rules even where the supply is made from the employers own resources, the manufacturing cost per unit incurred by the employer would be the value of perquisite. Any amount paid by the employee for such facilities or services shall be reduced from the above amount.
V. Free or concessional education - The old rules already provide that value of free education facility would be the expenditure incurred by the employer. Under the new rules, free or concessional education shall be valued in a manner assuming that such expenses are borne by the employee, and would cover cases where an employer, may be running, maintaining or directly or indirectly financing the educational institution. Any amount paid by the employee for such facilities or services shall be reduced from the above amount. However, where such educational institution itself is maintained and owned by the employer or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, the sub-rule shall not apply if the cost of such education or such benefit per child does not exceed Rs. 1,000 p.m.
VI. Free or concessional journeys - Under the old rules where an employee avails of free or concessional journeys in conveyance owned by the undertaking for the purpose of transport of passengers or goods, the value of perquisite was taken as Nil. However, under the new rules the value at which such benefit or amenity is offered by such undertaking to the public, the value of perquisite shall now be taken as such value as reduced by any amount actually paid by the employee. The conveyance may be owned, leased or made available by any other arrangement by the undertaking. Journey tickets for leave travel, tours and transfers which are already exempt under sections 10(5) and 10(14) would continue to be exempt.
VII. Interest free or concessional loans - It is common practice particularly in financial institutions to provide interest free or concessional loans to employees. The value of such perquisite would be the excess of interest payable at prescribed interest rate over interest if any actually paid by the employee. The prescribed interest rate would now be 10% p.a. for loans for housing and conveyance and 13% p.a. for other loans. Perquisite value would be calculated on the basis of the maximum outstanding monthly balance by the simple interest method. Such housing or conveyance loans must be for acquiring capital assets i.e., house or conveyance, as the case may be, and not for repairs thereof, however extensive they may be. For valuing perquisites under this rule, any other method of calculation and adjustment otherwise adopted by the employer shall not be material for purposes of this rule. However, small loans upto Rs. 20,000 in the aggregate are exempt. Loans for medical treatment specified in Rule 3A are also exempt, provided the amount of loan for medical reimbursement is not reimbursed under any medical insurance scheme. Where any medical insurance reimbursement is received, the perquisite value at normal rates shall be charged from the date of reimbursement on the amount reimbursed, but not repaid against the outstanding loan taken specifically for this purpose. It is further clarified that the above sub-rule shall also apply to loans outstanding as on 1st April, 2001, (if the new rule is applied from that date) or 1st October, 2001 (if the new rule is applied from that date).
VIII. Travelling, touring, accommodation and other holiday expenses - It is increasingly common for employees to be provided with vacation and holiday facilities. The value of such perquisite shall be the expenditure incurred by the employer. This would also apply to official tours extended as a vacation and family members accompanying taxpayers on official tours. However leave travel as per section 10(5) and enjoyment of holiday home facilities available uniformly to all classes of employees would remain exempt.
IX. Free meals - The provision of free meals varies widely from uniform canteen food, coupons etc. to lavish hotel meals. The scheme of free meals as a staff welfare measure had been recognised and was admissible upto Rs. 35 for each meal. The new rule does not treat as perquisite free meals if the cost per meal does not exceed Rs. 50. Where any amount is recovered from the employer, such amount shall be reduced from the value of perquisite. Such free or subsidised meal should, however, be provided at office premises or through non-transferable vouchers meant for only meals during working hours. These vouchers should be provided by employers encashable only at an eatery, a restaurant or a cafe. Tea or similar non-alcoholic beverages and snacks - in the form of light refreshments during working hours are not charged as perquisite. Also, arrangements for meals in remote areas as prescribed in para 5.1 and similar off-shore sites as specified, shall be exempt. However, expenditure on provision of free meals by the employer in excess of Rs. 50 should be treated as perquisite, as reduced by recoveries made from the employee.
X. Gift, voucher or token in lieu of gift - It is customary in India, as it is in other parts of the world, to provide presents directly or indirectly in the form of vouchers or tokens to employees on social and religious occasions like Diwali, Christmas, New Year, the anniversary of the organization etc. Such gifts upto Rs. 5,000 in the aggregate per annum would be exempt, beyond which it would be taxed as a perquisite. However, gifts made in cash or convertible into cash, like gift cheques etc. do not fall in the purview of this sub-rule.
XI. Credit card and Club expenses - Credit card expenses of employees both business and personal, are often borne by employers. Such credit card payments would ordinarily be chargeable to tax as a perquisite. However, these expenses are often incurred to entertain customers and clients for the purposes of business. Therefore where such expenses on entertainment including meals are for purposes of business and proper records for the same are maintained no perquisite would arise.
Club expenses of employees borne by employers are already charged as perquisite by virtue of section 17(2)(iv). To formalize the issue, it has been specified that annual and periodical club fees paid by the employer is chargeable as a perquisite. However to ensure that basic facilities for the health and recreation of employees are not hit, health clubs, sports facilities etc. provided uniformly to all classes of employees by the employer at the employers premises are exempt. The initial one time deposits or fees for corporate or institutional membership, where the benefit does not remain with a particular employee after cessation of employment, are exempt. Where such expenses on entertainment including meals are for purposes of business and proper records for the same are maintained no perquisite would arise.
For credit card and club expenses to be exempt for business purposes, the following documentation needs to be maintained:
(a) complete details in respect of such expenditure maintained
by the employer including the date of expenditure and the nature of
expenditure;
(b) it is certified by the employee that such expenditure was
incurred wholly and exclusively for the performance of official duty;
(c) the supervising authority of the employee, wherever
applicable, gives a certificate for such expenditure to the effect that the
same was incurred wholly and exclusively for the performance of official
duties;
(d) where an employee incurs expenditure on entertainment and
claims the same to have been incurred wholly and exclusively in the performance
of his duties, details of such entertainment expenses including the nature and
purpose of entertainment and persons entertained.
XII. Use of assets - It is common practice for an asset owned by the employer to be used by the assessee. This perquisite is to be charged at the rate of 10% of the original cost of the asset as reduced by any charges paid for such use. However, Computers and laptops are exempt. Further, the value of perquisite for an asset used for income for more than ten years would be taken as Nil.
XIII. Transfer of assets - Often an employee or member of his household benefits from the transfer of movable asset (not being shares or securities) at no cost or at a cost less than its market value from the employer. The difference between the original cost of the movable asset (not being shares or securities) and the sum, if any, paid by the employee, shall be taken as the value of perquisite. In case of a movable asset, which has already been put to use, the original cost shall be reduced by a sum of 10% of such original cost for every completed year of use of the asset. Owing to a higher degree of obsolescence, in case of computers and electronic gadgets, however, the value of perquisite shall be worked out by reducing 50% of the actual cost by the reducing balance method for each completed year of use. Electronic gadgets in this case means data storage and handling devices like computer, digital diaries and printers. They do not include household appliance (i.e. white goods) like washing machines, microwave ovens, mixers, hot plates, ovens etc. In case of cars, similarly, the value of perquisite shall be worked out by reducing 20% of its actual cost by the reducing balance method for each completed year of use.
XIV. Prior to Finance Act, 2000, stock options were taxed at two stages i.e., as perquisite (on the amount representing the difference between the exercise price and the fair market value on the date of exercise), and as capital gains. With effect from 1-4-2001 (relevant to assessment year 2001-2002) onward, stock options issued as per guidelines of the Central Government are to be taxed only once, at the time of sale, as capital gains. In cases, where perquisite has been assessed with reference to exercise of the option by the employee under section 17(2), the fair market value at the time of exercise of the option shall be the cost of acquisition of share for working out the capital gains. The relevant guidelines of the Central Government have been issued vide Notification No. 1021(E), dated 11-10-2001. Stock options not in conformity with the above guidelines (non-qualified stock options) shall continue to be taxed at both the stages.
XV. Residual clause - A benefit or amenity not included in the rules shall be valued at the cost to the employer where the employer pays for the benefit or amenity. Otherwise, it would be valued at the amount the employee could reasonably be expected to pay to acquire such benefit or amenity from the market. However, the benefit of conveyance to and from residence to place of work, periodicals and journals required for discharge of work and expenses on telephones including a mobile phone shall not be included in calculating perquisite value.
While this Rule shall come into force with effect from the 1st day of April, 2001 it has been provided that the employee may, at his option, compute the value of perquisites made available to him or any member of his household for the period beginning on 1st day of April, 2001 and ending on 30th day of September, 2001 in accordance with the Rules, as they stood prior to this amendment. It may, therefore, be desirable for the employer to obtain a declaration from each employee as to the option he wants to follow for purposes of tax deduction at source. However, it should be noted that the option to the taxpayer of using the old or new rules for the period specified above shall be applied uniformly in respect of all perquisites, in case of a particular taxpayer. In other words, one cannot selectively value a particular perquisite by the old rule and another one by the new rule. It is pertinent to mention that benefits specifically exempt under sections 10(13A), 10(5), 10(14), 17 etc. would continue to be exempt. These include benefits like travel on tour and transfer, leave travel, daily allowance to meet tour expenses as prescribed, medical facilities subject to conditions. However, administrative circulars and instructions relating to perquisites falling under the purview of Rule 3 issued before the adoption of the new rules, shall stand superseded or modified, as the case may be.
Income not included in the head Salaries (Exemptions)
5.2 Any income falling within any of the following clauses shall not be included in computing the income from salaries for the purpose of section 192 of the Act :
(1) The value of any travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding (a) on leave to any place in India or (b) on retirement from service, or, after termination of service to any place in India is exempt under clause (5) of section 10 subject, however, to the conditions prescribed in rule 2B of the Income-tax Rules, 1962. For the purpose of this clause, family in relation to an individual means :
(i) The spouse and children of the individual; and
(ii) The parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.
It may also be noted that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.
(2) Death-cum-retirement gratuity or any other gratuity which is exempt to the extent specified from inclusion in computing the total income under clause (10) of section 10.
(3) Any payment in commutation of pension received under the Civil Pension (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union, or holders of civil posts/posts connected with defence, under the Union, or civil posts under a State, or to the members of the all India Services/Defence Services, or to the employees of a local authority or a Corporation established by a Central, State or Provincial Act, is exempt under sub-clause (i) of clause (10A) of section 10. As regards payments in commutation of pension received under any scheme of any other employer, exemption will be governed by the provisions of sub-clause (ii) of clause (10A) of section 10.
(4) Any payment received by an employee of the Central Government or a State Government, as cash-equivalent to 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 ten months leave. This exemption will be further limited to the maximum amount specified by the Government of India Notification No. S.O. 1015(E) dated 27-11-1997 at Rs. 2,40,000.
(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), any payment received by an employee of the following bodies at the time of his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of public sector company, a scheme of voluntary separation, is exempted from income-tax to the extent that such a mount does not exceed five lakh rupees :
(a) A
public sector company;
(b) Any
other company;
(c) An
Authority established under a Central, State or Provincial Act;
(d) A
Local Authority;
(e) A
Cooperative Society;
(f) A
university established or incorporated or under a Central, State or Provincial
Act, 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. The exemption of amount received under VRS is extended to employees of the Central Government w.e.f. assessment year 2002-2003 and State Government employees w.e.f. assessment year 2001-2002.
(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 exempted from income-tax to the extent as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations. According to rule 2A of the Income-tax Rules, 1962, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be :
(a) The actual amount of such allowance received by an employer in respect of the relevant period; or
(b) The
actual expenditure incurred in payment of rent in excess of 1/10 of the salary
due for the relevant period; or
(c) Where
such accommodation is situated in
(d) Where
such accommodation is situated in any other place, 40% of the salary due to the
employee for the relevant period.
whichever is the least.
For this purpose, Salary includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in Rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the house rent allowance or any portion thereof from the total income of the employee.
Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance upto Rs. 3,000 per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.
(10) Clause (14) of section 10 provides for exemption of the following allowances :
(i) Any special allowance or benefit granted to an employee to meet the expenses incurred in the performance of his duties as prescribed under Rule 2BB subject to the extent to which such expenses are actually incurred for that purpose.
(ii) Any allowance granted to an employee 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) which has been amended vide Notification SO No. 403(E), dated 24-4-2000 (F. No. 142/34/99-TPL). These Notifications may be referred to in Annexures IV and V. The transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of duty is exempt to the extent of Rs. 800 per month vide Notification SO No. 395(E), dated 13-5-1998 (Annexure VI).
(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) Clause (18) of section 10 provides for exemption of any income by way of pension received by an individual or family pension received by any member of the family of an individual who has been in the service of the Central Government or State Government and has been awarded Param Vir Chakra or Maha Vir Chakra or Vir Chakra or such other gallantry award as may be specifically notified by the Central Government. Such notification has been made vide Notifications No. SO 1948(E), dated 24-11-2000 and 81(E), dated 29-1-2001 which are enclosed as per Annexure VII.
(13) Under section 17 of the Act, exemption from tax will also be available in respect of :
(a) the value of any medical treatment provided to an employee or any member of his family, in any hospital maintained by the employer;
(b) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or of any member of his family :
(i) in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees;
(ii) in respect of the prescribed diseases or ailments, in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines :
Provided that, in a case falling in sub-clause (ii), the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital.
(c) premium paid by the employer in respect of medical insurance taken for his employees (under any scheme approved by the Central Government) or reimbursement of insurance premium to the employees who take medical insurance for themselves or for their family members (under any scheme approved by the Central Government);
(d) reimbursement, by the employer, of the amount spent by an employee in obtaining medical treatment for himself or any member of his family from any doctor, not exceeding in the aggregate Rs. 15,000 in an year.
(e) As
regards medical treatment abroad, the actual expenditure on stay and treatment
abroad of the employee or any member of his family, or, on stay abroad of one
attendant who accompanies the patient, in connection with such treatment, will
be excluded from perquisites to the extent permitted by the Reserve Bank of
Deductions under section 16 of the Act
5.3 Under section 16 of the Income-tax Act, the standard deduction available is as under :
in the case of an assessee whose income from salary, before allowing a deduction under this clause :
(a) does not exceed one lakh fifty thousand rupees, a deduction of a sum equal to thirty-three and one-third per cent of the salary or thirty thousand rupees, whichever is less :
(b) exceeds one lakh fifty thousand rupees but does not exceed three lakh rupees, a deduction of a sum of twenty five thousand rupees.
(c) exceeds three lakh rupees but does not exceed five lakh rupees, a deduction of a sum of twenty thousand rupees;
No standard deduction is available to an assessee whose income from salary exceeds 5 lakh rupees.
Explanation.For the purposes of this clause, where salary is due from, or paid or allowed by, more than one employer, the deduction under this clause shall be computed with reference to the aggregate salary due, paid or allowed to the assessee and shall in no case exceed the amount specified under this clause.
A deduction is also allowed under clause (ii) of section 16 in respect of any allowance in the nature of an entertainment allowance specifically granted to the assessee by his employer, who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees whichever is less. The deduction hitherto available to non-Government employees has been withdrawn.
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.
Deductions under Chapter VI-A of the Act
5.4 The following deductions under Chapter VI-A of the Act are available :
(1) As per section 80CCC, where an assessee being an individual has in the previous year paid or deposited any amount out of his income chargeable to tax to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from the Fund referred to in clause (23AAB) of section 10, he shall, in accordance with, and subject, 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 shall be in accordance with the scheme framed in this behalf by
(a) the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 and approved by the Central Government in this behalf; or
(b) any other insurer and approved by the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999.
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.
However, the deduction can be allowed for a sum not exceeding Rs. 15,000 per annum where the assessee or his wife or husband, or dependent parents or any member of the family (in case the assessee is a Hindu Undivided Family) is a senior citizen which means an individual resident in India who is of the age of sixty-five years or more at any time during the relevant previous year.
(3) Under section 80DD an assessee, who is a
resident in
(a) incurred any expenditure for the medical treatment (including Nursing), training and rehabilitation of a handicapped dependent; or
(b) paid or deposited any amount under a Scheme framed in this behalf by the Life Insurance Corporation or any other insurer or Unit Trust of India subject to the conditions specified in sub-section (2) and approved by the Board in this behalf for the maintenance of handicapped dependent
shall in accordance with and subject to the provisions of this section be allowed a deduction of a sum of forty thousand rupees in the previous year.
The handicapped dependent means a person who is a relative of the individual or a member of HUF and is not dependent on any person other than such individual or HUF for his support and maintenance and is suffering from permanent physical disability (including blindness or mental retardation, specified in rule 11A of the Income-tax Rules, 1962). The deduction will be available to individuals without any restriction with regard to their total income. The permanent physical disability or mental retardation of the dependent relative has to be certified by a physician, surgeon, occulist or a psychiatrist as the case may be, working in a Government hospital, including a Departmental dispensary or a hospital maintained by a local authority as per Explanation given below section 80DD. It would be sufficient if the employee furnishes a medical certificate from a Government Hospital and a declaration in writing duly signed by the claimant certifying the actual amount of expenditure on account of medical treatment (including nursing) training and rehabilitation of the handicapped dependent and receipt/acknowledgement for the amount paid or deposited in the specified schemes of LIC or UTI. Therefore, DDOs may not insist on production of vouchers/bills by the employees for having incurred expenditure on medical treatment of their handicapped dependents for allowing the deduction under section 80DD for the purpose of computing tax deductible at source. (Ref. CBDT Circular No. 775, dated 26-3-1999).
(4) Under section 80DDB, where an assessee who
is resident in
(a) for himself or a dependent relative, in case the assessee is an individual,
(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 forty thousand rupees in respect of that previous year in which such expenditure was actually incurred. However, if the assessee or his dependent relative or any member of the Hindu Undivided Family of the assessee, is a senior citizen, deduction of a sum of Rs. 60,000 shall be allowed in respect of that previous year in which such expenditure was actually incurred. Such deduction shall be reduced by the amount received, if any, under an insurance from an insurer on the medical treatment of the person referred to above. The listed diseases as per the relevant Rule 11DD are specified neurological diseases, and 40% and above disability caused by cancer, full-blown AIDS, Chronic Renal Failure, Nemophiha and Thalassaemia :
Provided that no such deduction shall be allowed unless the assessee furnishes a certificate in such form and from such authority as may be prescribed. The form is Form 10-1, and the prescribed authority is any doctor registered with the Indian Medical Association and holding Post-graduate qualifications.
For the purposes of this section, dependant means a person who is not dependant for his support or maintenance on any person other than the assessee.
(5) Under section 80E of the Act a deduction will be allowed in respect of repayment of loan taken for higher education, subject to the following conditions :
(i) In computing the total income of an assessee, being an individual, 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 forty thousand rupees.
(ii) The deduction specified above shall be allowed in computing the total income in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the loan referred to above together with interest thereon is paid by the assessee in full, whichever is earlier.
For this purpose
(a) approved charitable institution means an institution established for charitable purposes and notified by the Central Government under clause (2C) of section 10, or, an institution referred to in clause (a) of sub-section (2) of section 80G.
(b) financial institution means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf;
(c) higher education means full-time studies for any graduate or post-graduate course in engineering, medicine, management, or, for post-graduate course in applied sciences or pure sciences, including mathematics and statistics;
(d) initial assessment year means the assessment year relevant to the previous year, in which the assessee starts repaying the loan or interest thereon.
(6) No deduction should be allowed by the D.D.O. from the salary income in respect of any donations made for charitable purposes. The tax relief on such donations as admissible under section 80G of the Act, will have to be claimed by the tax payer in the return of income. However, DDOs, on due verification may allow donations to the following bodies to the extent of 50% of the contribution :
i. Jawaharlal Nehru Memorial Fund.
ii. The Prime Ministers Drought Relief Fund.
iii. The National Childrens Fund.
iv. The Indira Gandhi Memorial Trust.
v. The Rajiv Gandhi Foundation.
and to the following bodies to the extent of 100% of the contribution :
i. National Defence Fund or The Prime Ministers National Relief Fund.
ii. The
Prime Ministers
iii. The
iv. The National Foundation for Communal Harmony.
v. Chief
Ministers Earthquake Relief Fund,
vi. National Blood Transfusion Council.
vii. State Blood Transfusion Council.
viii. Army Central Welfare Fund.
ix. Indian Naval Benevolent Fund.
x. Air Force Central Welfare Fund.
xi. The Andhra Pradesh Chief Ministers Cyclone Relief Fund - 1996.
xii. The National Illness Assistance Fund.
xiii. The Chief Ministers Relief Fund or Lieutenant Governors Relief Fund, in respect of any State or Union Territory as the case may be, subject to certain conditions.
xiv. The university or educational institution of national eminence approved by the prescribed authority.
xv. The National Sports Fund to be set up by Central Government.
xvi. The National Cultural Fund Set up by the Central Government.
xvii. The Fund for Technology Development and Application set by the Central Government.
xviii. The National Trust for Welfare of persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities.
(7) Under section 80GG of the Act, an assessee is entitled to a deduction in respect of house rent paid by him for his own residence. Such deduction is permissible subject to the following conditions :
(a) the assessee has not been in receipt of any house rent allowance specifically granted to him which qualifies for exemption under section 10(13A) of the Act;
(b) the assessee files the declaration in Form No. 10BA. (Annexure VII).
(c) He will be entitled to a deduction in respect of house rent paid by him in excess of 10 per cent of his total income, subject to a ceiling of 25 per cent thereof or Rs. 2,000 per month, whichever is less, the total income for working out these percentages will be computed before making any deduction under section 80GG.
(d) The assessee does not own :
(i) any residential accommodation himself or by his spouse or minor child or where such assessee is a member of a Hindu Undivided Family, by such family, at the place where he ordinarily resides or performs duties of his office or carries on his business or profession; or
(ii) at any other place, any residential accommodation being accommodation in the occupation of the assessee, the value of which is to be determined under sub-clause (i) of clause (a) or as the case may be, clause (b) of sub-section (2) of section 23.
The Drawing and Disbursing Authorities should satisfy themselves that all the conditions mentioned above are satisfied before such deduction is allowed by them to the assessee. They should also satisfy themselves in this regard by insisting on production of evidence of actual payment of rent.
(8) Section 80L of the Income-tax Act allows deduction of interest from certain specified investments including interest on bank deposits and certain securities. The limit of Rs. 12,000 deductible on account of such interest hitherto available has been now reduced to Rs. 9,000. The deduction of Rs. 3,000 for Government Securities separately available shall, however, continue to be available.
(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 certified by a physician, surgeon, occulist or psychiatrist as the case may be, working in a Government hospital and which has the effect of reducing considerably such individuals capacity for normal work or engaging in a gainful employment or occupation. The expression Government hospital will include a departmental dispensary or a hospital maintained by a local authority as specified in section 80DD(4).
Tax Rebate
6. An assessee, being an individual, will be entitled to tax rebates under Chapter VIII of the Act as given below :
(1) Payment of insurance premium to effect or to keep in force an insurance on the life of the individual, the wife or husband or any child of the individual.
(2) Any payment made to effect or to keep in force a contract for a deferred annuity, not being an annuity plan as is referred to in item (8) herein below on the life of the individual, the wife or husband or any child of the individual, provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity;
(3) Any sum deducted from the salary payable by, or, on behalf of the Government to any individual, being a sum deducted in accordance with the conditions of his service for the purpose of securing to him a deferred annuity or making provision for his wife or children, insofar as the sum deducted does not exceed 1/5th of the salary;
(4) Any contribution made :
(a) by an individual to any provident fund to which the Provident Fund Act, 1925 applies;
(b) to any provident fund set up by the Central Government, and notified by it in this behalf in the Official Gazette, where such contribution is to an account standing in the name of an individual, or a minor, or of whom he is a guardian;
(c) by an employee to a recognised provident fund;
(d) by an employee to an approved superannuation fund;
It may be noted that contribution to any fund shall not include any sums in repayment of loan;
(5) Any deposit in a ten year account or a fifteen year account under the Post Office Savings Bank (Cumulative Time Deposit) Rules, 1959, as amended from time to time, where such sums are deposited in an account standing in the name of an individual, or a minor, or of whom he is the guardian.
(6) Any subscription :
(a) to any such security of the Central Government or any such deposit scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf;
(b) to any such saving certificates as defined under section 2(c) of the Government Saving Certificate Act, 1959 as the Government may, by notification in the Official Gazette, specify in this behalf. Interest on NSC (VI Issue) and NSC (VIII Issue) which is deemed investment also qualifies for the rebate.
(7) Any sum paid as contribution in the case of an individual, for himself, spouse or any child,
(a) for participation in the Unit Linked Insurance Plan, 1971 of the Unit Trust of India;
(b) for participation in any unit-linked insurance plan of the LIC Mutual Fund notified by the Central Government under clause (23D) of section 10.
(8) Any subscription made to effect or keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may by notification in the Official Gazette, specify;
(9) Any subscription not exceeding rupees ten thousand, made to any units of any Mutual Fund, notified under clause (23D) of section 10, by the Unit Trust of India established under the Unit Trust of India Act, 1963, under any plan formulated in accordance with any scheme as the Central Government, may, by notification in the Official Gazette, specify in this behalf;
(10) Any contribution made by an individual to any pension fund set up by any Mutual Fund notified under clause (23D) of section 10, or, by the Unit Trust of India established under the Unit Trust of India Act, 1963, as the Central Government may, by notification in the Official Gazette, specify in this behalf;
(11) Any subscription made to any such deposit scheme of, or, any contribution made to any such pension fund set up by, the National Housing Bank, as the Central Government may, by notification in the Official Gazette, specify in this behalf;
(12) Any subscription made to any such deposit scheme (not being a scheme the interest on deposits whereunder qualifies for deduction under section 80L), as the Central Government may, by notification in the Official Gazette, specify of the purpose of being floated by (a) public sector companies engaged in providing long-term finance for construction or purchase of houses in India for residential purposes, or, (b) any authority constituted in India by, or, under any law, enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both.
(13) Any sums paid by an assessee for the
purpose of purchase or construction of a residential house property, the income
from which is chargeable to tax under the head Income from house property (or
which would, if it has not been used for assessees own residence, have been
chargeable to tax under that head) where such payments are made towards or by
way of any instalment or part payment of the amount
due under any self-financing or other scheme of any Development Authority,
Housing Board etc. The deduction will also be allowable in respect of
re-payment of loans borrowed by an assessee from the
Government, or any bank or Life Insurance Corporation, or National Housing
Bank, or certain other categories of institutions engaged in the business of
providing long term finance for construction or purchase of houses in
(14) Subscription to equity shares or debentures forming part of any eligible issue of capital approved by the Board on an application made by a public company or as subscription to any eligible issue of capital by any public finance institution in the prescribed form :
Provided that where a deduction is claimed and allowed under this clause with reference to the cost of any equity shares or debentures, the cost of such shares or debentures shall not be taken into account for the purposes of sections 54EA and 54EB.
Explanation : For the purposes of this clause
(i) eligible issue of capital means an issue made by a public company formed and registered in India or a public financial institution and the entire proceeds of the purposes of developing, maintaining and operating an infrastructure facility or for generating, or for generating and distributing, power or for providing telecommunication services whether basic or cellular ;
(ii) infrastructure facility shall have the meaning assigned to it in the Explanation to sub-section (4) of section 80-IA;
(iii) Public Company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956);
(iv) Public Financial Institution shall have the meaning assigned to it in section 4A of the Companies Act, 1956.
(15) Subscription to any units of any mutual fund referred to in clause (23D) of section 10 and approved by the Board on an application made by such mutual fund in the prescribed form:
Provided that where a deduction is claimed and allowed under this clause with reference to the cost of units the cost of such units shall not be taken into account for the purposes of sections 54EA and 54EB :
Provided further that this clause shall apply if the amount of subscription to such units is subscribed only in the eligible issue of capital of any company.
Explanation: For the purposes of this clause - eligible issue of capital means an issue referred to in clause (i) of Explanation to clause (xvi) in sub-section (2) of section 88.
(16) Subject to the limits mentioned for the various items, the entitlement to tax rebate will be calculated at the rate of 20% 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 artist or musician or actor or sportsman (including an athlete) whose income derived from the exercise of his profession as such author/playwright/artist/musician/actor/sportsman/athlete constitutes twenty-five per cent or more of his total income.
The maximum tax-rebate allowable will be Rs. 16,000 generally, and Rs. 17,500 in the case of authors, playwrights, artists, musicians, actors, sportsmen and athletes. There will, therefore, be an overall limit for savings which will qualify for tax-rebate. In the case of individuals, the limit on investments made as above, excluding that mentioned in paras 14 & 15, will be Rs. 60,000 and in the case of authors, sportsmen etc. Rs. 70,000.
Further, in the case of a taxpayer having a gross salary of upto Rs. 1.00 lakh where atleast 90% of such income is from salary income, the amount of rebate under section 88 in such cases would be thirty per cent. This will, however, be effective from 1st April. 2002 and will, therefore, apply in relation to the assessment year 2002-2003 and onwards.
(17) Under section 88B, and assessee, being an individual resident in India, who is of the age of sixty five years or more at any time during the previous years shall be entitled to a deduction from the amount of income tax (as computed before allowing the deductions under Chapter VIII) on his total income, with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of fifteen thousand rupees, whichever is less.
(18) Under section 88C, as inserted by Finance Act, 2000, an assessee, being a woman resident in India, and below the age of sixty-five years, at any time during the previous year, shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under Chapter VIII) her total income, with which she is chargeable for any assessment year, of an amount equal to hundred per cent, of such income tax or an amount of five thousand rupees, whichever is less.
(19) 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.
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) above.
(c) Allow
deductions mentioned in para 5.4 from the figure arrived at (b) above ensuring that aggregate of
the deductions mentioned in para 5.4 does not exceed the figure of (b) and if it exceeds, it should be
restricted to that amount. This will be the amount of income under the head
Salaries on which income-tax would be required to be deducted. This income
should be rounded off to the nearest multiple of ten rupees.
7.2 Income-tax on the estimated income from salary as shown in para 7.1 shall be calculated at the rates given in para 2.
7.3 The amount of tax rebates computed under para 6 shall be deducted from the income-tax calculated according to para 7.2. However, it is to be ensured that the tax rebates given as per para 6 is limited to the income-tax calculated as per para 7.2. Further, tax payable so arrived at shall be increased by surcharge at the rate of two per cent to arrive at the total tax payable.
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 2001-2002.
7.5 The amount of tax as arrived at para 7.3 should be deducted every month in equal instalments. The net amount of tax deductible should be rounded off to the nearest rupee.
Miscellaneous :
8.1 These instructions are not exhaustive and are issued only with a view to helping the employers to understand the various provisions relating to deduction of tax from salaries. Wherever there is any doubt, reference may be made to the provisions of the Income-tax Act, 1961, the Income-tax Rules, 1962 and the Finance Act, 2001.
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.
8.4 Copies of this Circular are available with the Director of Income-tax (Research, Statistics and Publications and Public Relations), 6th Floor, Mayur Bhavan, Indira Chowk, New Delhi-110 001.
Circular :
No. 15/2001, dated 12-12-2001.
Annexure I
For Assessment year 2002-03
Example - 1
Calculation of Income-tax in the case of an employee having gross salary income.
|
(i) |
up to Rs. 1,00,000. |
|
|
|
|
(ii) |
More than Rs. 1,00,000 but less than Rs. 5,00,000 and |
|
|
|
|
(iii) |
Exceeding Rs. 5,00,000 |
|
|
|
|
|
Particulars |
(Rupees) |
(Rupees) |
(Rupees) |
|
|
|
(i) |
(ii) |
(iii) |
|
|
Gross Salary Income (including allowances) |
1,00,000 |
5,00,000 |
6,00,000 |
|
|
Contribution to G.P.F. |
10,000 |
20,000 |
30,000 |
|
|
Computation
of total income and tax payable thereon |
|||
|
|
|
(Rupees) |
(Rupees) |
(Rupees) |
|
1. |
Gross Salary |
1,00,000 |
5,00,000 |
6,00,000 |
|
2. |
Less Standard deduction u/s 16 (i) |
30,000 |
20,000 |
Nil |
|
|
Taxable Income |
70,000 |
4,80,000 |
6,00,000 |
|
|
Tax thereon |
3,000 |
1,18,000 |
1,54,000 |
|
|
Less tax rebate u/s 88 |
3,000 |
4,000 |
6,000 |
|
|
Income-tax payable |
Nil |
1,14,000 |
1,48,000 |
|
|
Add: Surcharge @ 2% |
|
2,280 |
2,960 |
|
|
Total Tax Payable |
|
1,16,280 |
1,50,960 |
For
Assessment year 2002-03
Example 2
Calculation of Income-tax in the case of assessee having handicapped dependent.
|
|
Particulars |
(Rupees) |
||
|
1. |
Gross Salary |
3,20,000 |
||
|
2. |
Amount spent on treatment of dependent who is handicapped |
7,000 |
||
|
3. |
Amount paid to LIC with regard to annuity for the maintenance of handicapped dependent |
40,000 |
||
|
4. |
G.P.F. contribution |
25,000 |
||
|
5. |
LIP paid |
10,000 |
||
|
|
Computation
of tax |
|
||
|
1. |
Gross Salary |
3,20,000 |
||
|
2. |
Less Standard deduction |
20,000 |
||
|
|
|
3,00,000 |
||
|
|
(Less: Deduction u/s 80DD(1) |
40,000 |
||
|
|
(Restricted to Rs. 40,000 only) |
_______ |
||
|
|
Taxable Income |
2,60,000 |
||
|
|
Income-tax thereon |
52,000 |
||
|
|
Rebate u/s 88 |
|
||
|
|
GPF |
25,000 |
|
|
|
|
LIP |
10,000 |
|
|
|
|
Total |
35,000 |
|
|
|
|
Rebate @ 20% on Rs. 35,000 |
7,000 |
||
|
|
Tax payable |
45,000 |
||
|
|
Add: Surcharge @ 2% |
900 |
||
|
|
Total Tax payable |
45,900 |
||
|
|
|
|
|
|
For
Assessment year 2002-03
Example 3
2. Calculation of Income-tax in the case of an employee where Medical Treatment expenditure was borne by the employer.
|
|
Particulars |
(Rupees) |
||
|
1. |
Gross Salary |
3,00,000 |
||
|
2. |
Medical reimbursement by employer on the treatment of self and dependent family member |
30,000 |
||
|
3. |
Contribution to GPF |
20,000 |
||
|
4. |
LIP |
20,000 |
||
|
5. |
Repayment
of |
25,000 |
||
|
6. |
Investment in infrastructure Bond u/s 88 (xvi) |
20,000 |
||
|
|
Computation
of Tax |
|
||
|
|
Gross Salary |
3,00,000 |
||
|
|
Add : Perquisite in respect of reimbursement of Medical Expenses in excess of Rs. 15,000 in view of Sec. 17(2)(v) |
15,000 |
||
|
|
|
3,15,000 |
||
|
|
Less: Standard deduction |
20,000 |
||
|
|
Taxable Income |
2,95,000 |
||
|
|
Tax thereon |
62,500 |
||
|
|
Rebate u/s 88 |
|
||
|
|
GPF |
20,000 |
|
|
|
|
LIC |
20,000 |
|
|
|
|
Repayment
of |
20,000 |
|
|
|
|
Advance (Maximum) |
|
|
|
|
|
Investment in Infrastructural Bonds u/s 88 (xvi) |
20,000 |
|
|
|
|
Total |
80,000 |
|
|
|
|
Rebate @ 20% on Rs. 80,000 |
16,000 |
||
|
|
Tax payable |
46,500 |
||
|
|
Add: Surcharge @ 2% |
930 |
||
|
|
Total Tax payable |
47,430 |
||
|
|
|
|
|
|
For Assessment year 2002-03
Example - 4
Illustrating calculation of
House Rent Allowance u/s 10 (13A) in respect of residential accommodation
situated in
|
|
Particulars |
(Rupees) |
||
|
1. |
Salary |
49,500 |
||
|
2. |
Dearness Allowance |
43,680 |
||
|
3. |
House Rent allowance |
9,600 |
||
|
4. |
C.C.A. |
1,200 |
||
|
5. |
House rent paid |
18,000 |
||
|
6. |
General Provident Fund |
24,000 |
||
|
7. |
Life Insurance Premium |
2,500 |
||
|
8. |
Cumulative Time Deposit |
2,400 |
||
|
9. |
Contribution to Mutual Fund |
12,000 |
||
|
|
Computation of
total income and tax payable thereon |
|
||
|
1. |
Salary + D.A. + C.C.A. |
94,380 |
||
|
|
House rent allowance |
9,600 |
||
|
2. |
Total Salary Income |
1,03,980 |
||
|
3. |
Less: House Rent allowance exempt u/s 10(13A) : Least of |
|
||
|
|
(a) Actual amount of HRA received = 9,600 |
|
||
|
|
(b) Expenditure of rent in excess of 10% of salary (including D.A. as presumed that D.A. is taken for retirement benefit (18,0009,318 = 8,682) |
8,682 |
||
|
|
(c) 50% of Salary (+Basic) - Rs. 46,590 |
95,298 |
||
|
|
Less : Standard deduction u/s 16(i) @ 33.33% or 30,000 whichever is less |
30,000 |
||
|
|
Total Income (rounded off) |
65,300 |
||
|
|
Tax on Total Income |
2,060 |
||
|
|
Rebate u/s 88 |
|
||
|
|
GPF |
24,000 |
|
|
|
|
LIP |
2,500 |
|
|
|
|
CTD |
2,400 |
|
|
|
|
Contribution to Mutual Fund |
10,000 |
|
|
|
|
U/s 88(xiiib) 38,900 @ 20% |
7,780 |
|
|
|
|
Tax on Total Income |
2,060 |
||
|
|
Less Tax rebate restricted to Rs. |
2,060 |
||
|
|
Tax payable |
Nil
|
||
|
|
|
|
|
|
For
Assessment year 2002-03
Example - 5
Illustrating valuation of perquisite and calculation of tax in the case of an employee of a private company in Mumbai who was provided accommodation in a flat at concessional rate for ten months and in a hotel for two months. Employee owns a car (cubic capacity of engine exceeds 1.61) used partly for personal and partly for official work and actual running and maintenance charges including chauffeurs salary are reimbursed by employer, but no documents are maintained regarding details of journeys.
|
|
Particulars |
(Rupees) |
|||
|
1. |
Salary |
1,08,000 |
|||
|
2. |
Bonus |
12,000 |
|||
|
3. |
Free gas, electricity, water etc. (actual bills paid by Company) |
6,000 |
|||
|
4. |
(a) Furnished flat provided to the employee for which actual rent paid by the Company per annum |
78,000 |
|||
|
|
(b) Hotel rent paid by employer (for two months) |
30,000 |
|||
|
|
(c) Rent recovered from the employee |
5,000 |
|||
|
5. |
Car expenses reimbursed |
40,200 |
|||
|
6. |
Furniture at cost |
50,000 |
|||
|
7. |
Subscription of Mutual Fund u/s 88 (xvii) |
12,000 |
|||
|
8. |
Life Insurance Premium |
3,000 |
|||
|
9. |
Subscription to NSC VIII Issue |
18,000 |
|||
|
10. |
Contribution to Recognised PF |
24,000 |
|||
|
11. |
Contribution to infrastructure bonds u/s 88 (xvi) |
15,000 |
|||
|
|
Computation of total income and tax payable thereon |
||||
|
1. |
Salary |
1,08,000 |
|||
|
2. |
Bonus |
12,000 |
|||
|
3. |
Total Salary for valuation of perquisite @ 10,000 p.m. |
1,20,000 |
|||
|
4. |
Valuation of perquisites: |
|
|||
|
|
(a) Perquisite for flat |
|
|||
|
|
Less of (10% of salary for ten months) = Rs. 10,000 actual rent paid = Rs. 65,000) |
10,000 |
|||
|
|
(b) Perquisite for hotel |
|
|||
|
|
Less of (24% of salary of 2 months = Rs. 4,800, actual payment = Rs. 30,000) |
4,800 |
|||
|
|
(c) Perquisite for furniture @ 10% |
5,000 |
|||
|
|
Less: Rent recovered from employee |
5,000 |
|||
|
|
(d) Add perquisite of free gas, electricity, water |
6,000 |
|||
|
|
(e) Add perquisite for car expenses reimbursement [40,200 12(1600 + 600] |
13,800 |
|||
|
|
Gross total Income |
1,54,600 |
|||
|
|
Less tandard deduction u/s 16(i) |
25,000 |
|||
|
|
Total income |
1,29,600 |
|||
|
|
Tax on Total Income |
14,920 |
|||
|
|
Tax Rebate u/s 88 |
|
|||
|
|
Provident Fund |
24,000 |
|
||
|
|
Subscription to NSC VIII Issue |
18,000 |
|
||
|
|
LIP |
3,000 |
|
||
|
|
Subscription to Mutual Fund approved by the Board |
12,000 |
|
||
|
|
Contribution to Infrastructural Bond |
15,000 |
|
||
|
|
|
72,000 |
|
||
|
|
Tax Rebate @ 20% |
14,400 |
|
||
|
|
Tax on Total Income |
14,920 |
|
||
|
|
Tax rebate (restricted) |
14,400 |
|||
|
|
Tax Payable |
520 |
|||
|
|
Surcharge @ 2% |
10 |
|||
|
|
Tax Payable |
530 |
|||
|
|
|
|
|
|
|
For
Assessment year 2002-03
Example 6
Illustrating valuation of
perquisite and calculation of tax in the case of an employee of a private
company posted at
|
|
Particulars |
(Rupees) |
||||
|
1. |
Salary |
1,18,000 |
||||
|
2. |
Dearness allowance |
36,000 |
||||
|
3. |
House Rent Allowance |
12,000 |
||||
|
4. |
Special Duties allowance |
2,400 |
||||
|
5. |
Provident Fund |
20,000 |
||||
|
6. |
L.I.P |
10,000 |
||||
|
7. |
Deposit in NSC VIII Issue |
20,000 |
||||
|
8. |
Rent paid by the employee for house hired by him |
24,000 |
||||
|
9. |
Repayment of House Building Loan taken by the employee from LIC |
12,000 |
||||
|
10. |
Subscription
to eligible issue of capital of a |
5,000 |
||||
|
11. |
Subscription to units of mutual fund u/s 88(xvii) |
15,000 |
||||
|
|
Computation of total income and tax payable thereon |
|||||
|
1. |
Gross Salary |
1,68,400 |
||||
|
|
Less House rent allowance exempt u/s 10(13A) |
|
||||
|
|
(a) Actual amount of HRA received |
12,000 |
|
|||
|
|
(b) Expenditure on rent in excess of 10% of salary (including D.A.) as personal D.A. is included for retirement benefits) |
8,600 |
|
|||
|
|
(c) 50% of salary (including D.A.) |
77,000 |
(-) 8,600 |
|||
|
|
Total Salary Income |
1,59,800 |
||||
|
|
Less: Standard deduction |
25,000 |
||||
|
|
Total Taxable Income |
1,34,800 |
||||
|
|
Tax on total income |
15,960 |
||||
|
|
Tax rebate u/s 88 |
|
||||
|
|
(i) Provident Fund |
20,000 |
|
|
||
|
|
(ii) LIP |
10,000 |
|
|
||
|
|
(iii) NSC VIII Issue |
20,000 |
|
|
||
|
|
(iv) Repayment of HBA |
12,000 |
|
|
||
|
|
(v) Subscription to eligible issue
of capital of a |
5,000 |
|
|
||
|
|
(vi) Subscription of units of mutual fund (u/s 88(xvii) |
15,000 |
|
|
||
|
|
82,000 limited to |
80,000 |
@20% |
15,960 |
||
|
|
|
(restricted) |
||||
|
|
Net Tax Payable |
Nil |
||||
|
|
|
|
|
|
|
|
For
Assessment year 2002-03
Example 7
Income-tax calculation in the case of an employee who claims loss under the head Income from house property.
|
|
Particulars
|
|
(Rupees) |
|||
|
1. |
Gross Salary |
|
4,00,000 |
|||
|
2. |
Housing Loan repaid (principal) |
|
30,000 |
|||
|
3. |
Interest payable on housing loan (Loan taken after 1-4-1999) |
|
2,00,000 |
|||
|
4. |
Donation paid to National Childrens Fund |
|
5,000 |
|||
|
5. |
N.S.C. purchased |
|
10,000 |
|||
|
6. |
G.P.F. |
|
20,000 |
|||
|
|
Computation of Taxable Income and Tax thereon |
|||||
|
1. |
Salary Income |
|
|
|||
|
|
Gross Salary |
|
4,00,000 |
|||
|
|
Less : Standard deduction |
|
20,000 |
|||
|
|
Taxable Salary |
|
3,80,000 |
|||
|
2. |
Income from House Property |
|
|
|||
|
|
Annual value |
Nil |
|
|||
|
|
Interest payable on loan under section 24 |
2,00,000 |
|
|||
|
|
Loss from House Property (maximum allowable) |
|
1,50,000 |
|||
|
|
Gross Total Income |
|
2,30,000 |
|||
|
|
Less : Deduction under section 80G 50% of Rs. 5,000 |
|
2,500 |
|||
|
|
Net Taxable Income |
|
2,27,500 |
|||
|
|
Tax thereon |
|
42,250 |
|||
|
|
Less : Rebate under section 88 |
|
|
|||
|
|
G.P.F. |
20,000 |
|
|||
|
|
N.S.C. |
10,000 |
|
|||
|
|
Housing Loan repaid |
20,000 |
|
|||
|
|
Total |
50,000 |
|
|||
|
|
Rebate @ 20% of Rs. 50,000 |
|
10,000 |
|||
|
|
Tax payable |
|
32,250 |
|||
|
|
Add : Surcharge @ 2% |
|
645 |
|||
|
|
Total Tax payable |
|
32,895 |
|||
|
|
|
|
|
|
|
|
For
assessment year 2002-03
Example
- 8
Income-tax Calculation in the
case of an employee who claims
loss under the head Income from house property loan
taken before 1-4-1999
|
|
Particulars
|
|
(Rupees) |
||
|
1. |
Gross Salary |
|
4,00,000 |
||
|
2. |
Housing Loan repaid (principal) |
|
30,000 |
||
|
3. |
Interest payable on housing loan (Loan taken after 1-4-1999) |
|
2,00,000 |
||
|
4. |
Donation paid to National Childrens Fund |
|
5,000 |
||
|
5. |
N.S.C. purchased |
|
10,000 |
||
|
6. |
G.P.F. |
|
20,000 |
||
|
|
Computation of Taxable Income and Tax thereon |
||||
|
1. |
Salary Income |
|
|
||
|
|
Gross Salary |
|
4,00,000 |
||
|
|
Less : Standard deduction |
|
20,000 |
||
|
|
Taxable Salary |
|
3,80,000 |
||
|
2. |
Income from House Property |
|
|
||
|
|
Annual value |
Nil |
|
||
|
|
Interest payable on loan under section 24 |
2,00,000 |
|
||
|
|
Loss from House Property (maximum allowable for loans taken before 1-4-1999) |
|
30,000 |
||
|
|
Gross Total Income |
|
3,50,000 |
||
|
|
Less : Deduction under section 80G 50% of Rs. 5,000 |
|
2,500 |
||
|
|
Net Taxable Income |
|
3,47,500 |
||
|
|
Tax thereon |
|
78,250 |
||
|
|
Less : Rebate under section 88 |
|
|
||
|
|
G.P.F. |
20,000 |
|
||
|
|
N.S.C. |
10,000 |
|
||
|
|
Housing Loan repaid (maximum) |
20,000 |
|
||
|
|
Total |
50,000 |
|
||
|
|
Rebate @ 20% of Rs. 50,000 |
|
10,000 |
||
|
|
Tax payable |
|
68,250 |
||
|
|
Add : Surcharge @ 2% |
|
1,365 |
||
|
|
Total Tax payable |
|
69,615 |
||
|
|
|
|
|
|
|
For
assessment year 2002-03
Example - 9
Income-tax calculation in the
case of a women assessee who is less than age of 65
years.
|
Particulars |
(Rupees) |
||
|
Gross Salary |
1,20,000 |
||
|
G.P.F. |
10,000 |
||
|
N.S.C. purchased |
10,000 |
||
|
Computation of Taxable Income and Tax thereon |
|||
|
Gross Salary |
1,20,000 |
||
|
Less : Standard deduction under section 16(i) |
30,000 |
||
|
Taxable income |
90,000 |
||
|
Tax thereon |
7,000 |
||
|
Less : Rebate under section 88C (Being women) |
5,000 |
||
|
Less : Rebate under section 88 : |
|
||
|
G.P.F. |
10,000 |
|
|
|
N.S.C. |
10,000 |
|
|
|
Total |
20,000 |
|
|
|
Rebate under section 88 @ 20% of Rs. 20,000 = |
|
||
|
Rs. 4,000 restricted to Rs. 2,000 |
2,000 |
||
|
Tax
payable |
Nil
|
||
|
|
|
|
|
Note : In the case of a women assessee who is of 65 years age or more, she will be entitled to rebate only u/s 88B of the Act meant for Senior citizens and not u/s 88C of the Act.
Annexure II
Form for sending particulars of income u/s 192(2B) for
the year ending 31st March, 2001
1. Name and address of the employee
2. Permanent Account Number
3. Residential status
4. Particulars of income under any head of income other than salaries (not being a loss under any such head other than the loss under the head Income from house property) received in the financial year
(i) Income from house property ..................................
(in case of loss, enclose computation thereof)
(ii) Profits and gains of business or profession ..................................
(iii) Capital gains ..................................
(iv) Income from other sources ..................................
(a) Dividends
(b) Interest
(c) Other incomes (specify)
Total ..................................
5. Aggregate of sub-items (i) to (iv) of item 4
6. Tax deducted at source (enclose certificates) issued under section 203
Place : ..................................
Date : .................................. ..........................................................
Signature of the employee
Verification
I, ..................................., do hereby declare that what is stated above is true to the best of my knowledge and belief.
Verified today, the...................day of..............2002.
Place : ..................................
Date : .................................. ..........................................................
Signature of the employee
Annexure III-A
Form No. 12BA : Statement showing particulars of perquisites, other fringe benefits or amenities and profits in lieu of salary with value thereof - See [2001] 118 Taxman 257 (St.)
Annexure III-B
Form No. 16 : Certificate under section 203 of the Income-tax Act, 1961 for tax deducted as source from income chargeable under the head Salaries - See [1991] 55 Taxman 21 (St.)
Annexure IV
Rule 2BB : Amendment in rule 2BB - Income-tax (Eighth Amendment) Rules, 1995 - See [1995] 81 Taxman 18 (St.)
Annexure V
Table of sub-rule (2) of Rule 2BB : Income-tax (Third Amendment) Rules, 2000 - See [2000] 109 Taxman 421 (St.)
Annexure VI
Rule 2BB : Amendment in rule 2BB - Income-tax (Seventh Amendment) Rules, 1998 - See [1998] 98 Taxman 31 (St.)
Annexure VII-A
Notification SO 1048(E), dated 24-11-2000 : See [2000] 113 Taxman 52 (St.)
Annexure VII-B
Notification SO 81(E), dated 29-1-2001 : See [2001] 115 Taxman 183 (St.)
Annexure VIII
Form No. 10BA : Declaration to be filed by the assessee claiming deduction under section 80GG - Income-tax (Nineteenth Amendment) Rules, 1998 - See [1998] 100 Taxman 110 (St.).
Clarifications regarding income-tax
deduction from salaries during the financial year 2001-02 under section 192
1. It has been brought to the notice of the Central Board of Direct Taxes that the changes in rule 3 of the Income-tax Rules, 1962, read with sub-section (2) of section 17 of the Income-tax Act, 1961 regarding the valuation of perquisites brought about by Notification No. S.O. 940(E), dated 25-9-2001 have caused hardship to certain classes of salaried assessees.
2. In view of the same, it has been decided that no tax deduction at source be made under section 192 of the Income-tax Act, for the financial year 2001-02 in respect of the value of perquisites,
(a) received in
non-monetary form for assessees having income under the head Salaries
(exclusive of such perquisites) not exceeding Rs. 1 lakh, or;
(b) received in the form
of free or concessional tickets received by employees
of airlines or railways.
The above clarifications are in supersession of CBDT Circular No. 15 [F. No. 275/192/2001-IT(B)], dated 12-12-2001, regarding deduction of tax at source from salaries under section 192 of the Income-tax Act, 1961, and are applicable for the financial year 2001-02 only.
Circular : No. 2/2002,
dated 15-2-2002.
246. Clarifications
regarding tax treatment of deep discount bonds and STRIPS (Separate Trading of
Registered Interest and Principal of Securities)
1. A review of the tax treatment of income
arising from Deep Discount Bonds has been under consideration in the Board for
some time. The Board had earlier clarified by way of certain letters issued to
the Reserve Bank of
2. Such tax treatment of Deep Discount Bonds,
however, has posed the following problems :
(i) Taxing the
entire income received from such a bond in the year of redemption as interest
income gives rise to a sudden and huge tax liability in one year whereas the
value of the bond has been progressively increasing over the period of holding.
(ii) Where the bond is redeemed by a person other
than the original subscriber, such person becomes taxable on the entire
difference between the bid price and the redemption price as interest income,
since he is not able to deduct his cost of acquisition from such income.
(iii) A company issuing such bonds and following the
mercantile system of accounting may evolve a system for accounting of annual
accrual of the liability in respect of such a bond and claim a deduction in its
assessment for each year even though the corresponding income in the hands of
the investor would be taxed only at the time of maturity.
(iv) Taxing the
entire income only at the time of maturity amounts to a tax deferral.
3. The matter has now been examined in
consultation with the Reserve Bank of
General treatment
4. Every person holding a Deep Discount Bond
will make a market valuation of the bond as on the 31st March of each Financial
Year (hereafter referred to as the valuation date) and mark such bond to such
market value in accordance with the guidelines issued by the Reserve Bank of
India for valuation of investments. For this purpose, market values of
different instruments declared by the Reserve Bank of
4.1 The difference between the market valuations
as on two successive valuation dates will represent the accretion to the value
of the bond during the relevant financial year and will be taxable as interest
income (where the bonds are held as investments) or business income (where the
bonds are held as trading assets).
4.2 In a case where the bond is acquired during
the year by an intermediate purchaser (a person who has acquired the bond by
purchase during the term of the bond and not as original subscription) the
difference between the market value as on the valuation date and the cost for
which he acquired the bond, will be taxed as interest income or business
income, as the case may be, and no capital gains will arise as there would be
no transfer of the bond on the valuation date.
Transfer before maturity
5. Where the bond is transferred at any time
before the maturity date, the difference between the sale price and the cost of
the bond will be taxable as capital gains in the hands of an investor or as
business income in the hands of a trader. For computing such gains, the cost of
the bond will be taken to be the aggregate of the cost for which the bond was
acquired by the transferor and the income, if any, already offered to tax by
such transferor (in accordance with para 4 above) upto
the date of transfer.
5.1 Since the income chargeable in this case is
only the accretion to the value of the bond over a specific period, for the
purposes of computing capital gains, the period of holding in such cases will
be reckoned from the date of purchase/subscription, or the last valuation date
in respect of which the transferor has offered income to tax, whichever is
later. Since such period would always be less than one year, the capital gains
will be chargeable to tax as short-term capital gains.
Redemption
6. Where the bond is redeemed by the original
subscriber, the difference between the redemption price and the value as on the
last valuation date immediately preceding the maturity date will be taxed as
interest income in the case of investors, or business income in the case of
traders.
6.1 Where the bond is redeemed by an intermediate
purchaser, the difference between the redemption price and the cost of the bond
to such purchaser will be taxable as interest or business income, as the case
may be. For this purpose, again, the cost of the bond will mean the aggregate
of the cost at which the bonds were acquired and the income arising from the
bond which has already been offered to tax by the person redeeming the bond.
Strips
7. Apart from original issue of Deep Discount
Bonds, such bonds can also be created by stripping, i.e., the process of detaching the interest coupons from a normal
coupon bearing bond and treating the different coupons and the stripped bond as
separate instruments or securities (strips) capable of being traded in
independently. Such a mechanism, referred to as STRIPS (Separate Trading of
Registered Interest and Principal of Securities) creates instruments which are
in the nature of Deep Discount or Zero Coupon Bonds from out of the normal
interest bearing bonds. Accordingly, the tax treatment of the different
components of principal and interest created by such stripping will be on the
same lines as clarified in the preceding paragraphs in respect of Deep Discount
Bonds.
7.1 The process of stripping of a normal
interest-bearing bond into its various components will not amount to a transfer
within the meaning of the Income-tax Act as it merely involves the conversion
of the unstripped bond into the corresponding series
of STRIPS. Similarly, the reconstitution of STRIPS to form a coupon bearing
bond will not amount to a transfer.
Tax deduction at source
8. The difference between the bid price of a
deep discount bond and its redemption price, which is actually paid at the time
of maturity, will continue to be subject to tax deduction at source under
section 193 of the Income-tax Act. Under the existing provisions of that
section, no tax is deductible at source on interest payable on Government
securities. Further, the Central Government is empowered to specify any such
bonds issued by an institution, authority, public sector company or
co-operative society by way of notification, exempting them from the
requirement of tax deduction at source.
Option to investors
9. Considering the difficulties which might be
faced by small non-corporate investors in determining market values under the
RBI guidelines and computing income taxable in each year of holding, it has
further been decided that such investors holding Deep Discount Bonds upto an aggregate face value of rupees one lakh may, at their option, continue to offer income for tax
in accordance with the earlier clarifications issued by the Board referred to
in para 1 above.
Clarification one
There have been certain reports in
the press recently, suggesting that the tax treatment of Deep Discount Bonds as
specified in Circular No.2/2002, dated February 15, 2002 [See [2002] 120 Taxman 127 (St.)]
issued by the Central Board of Direct Taxes is anomalous, as it provides for
taxation of income from such bonds on an annual basis, even though no income is
received by the bond-holder before maturity. It has been opined that a heavy tax
burden is being placed on persons who have been holding such bonds for a while,
and a cumbersome obligation of valuing the bonds every year on the basis of RBI
Guidelines is being cast on small investors. The reports are mis-conceived and based on an incorrect understanding and
inadequate knowledge of facts and law. The modified tax treatment now specified
in fact corrects the anomalies in the existing system by providing a mechanism
for taxing income accruing from year to year on deep discount bonds, on the
same lines as income from normal coupon bearing bonds is taxed. Transfer of the
bonds before maturity will attract capital gains tax, as in the existing
system.
The earlier system of taxing the
entire income received from such bonds in the year of redemption as interest
income was anomalous in that it gave rise to a sudden and huge tax liability in
one year whereas the value of the bond had been progressively increasing over
the period of holding. Further, where the bond was redeemed by a person other
than the original subscriber, such person was taxed on the entire difference
between the bid price and the redemption price as interest income. Such a
system also created tax-induced distortions in the debt market, and was an
impediment to the development of a market in STRIPS, which are essentially zero
coupon instruments derived from normal coupon bearing bonds.
Taxation of income on accrual
basis is an established principle of law, and always results in taxing income
that has not yet been received. Income from deep discount bonds accrues
continuously over the period of holding and can be realized at any time by
selling the bond. Taxing income from such bonds on accrual basis annually is,
in fact, a practice followed world-wide.
It is also an established principle
that a circular issued by CBDT cannot have a retrospective tax effect. The
present circular on deep discount bonds, therefore, specifies the tax treatment
in respect of bonds which are issued after the issue of the circular, and does
not seek to impose the modified treatment on existing bond-holders. Further,
non-corporate persons who invest small amounts in new issues (face value upto Rs.1 lakh) can still opt for
the old system.
Valuing the bonds every year on
the basis of RBI Guidelines will not pose any problem as such values can be
obtained from the issuers themselves, who will invariably be the RBI or a
public financial institution.
The amount received on redemption
would always be liable to tax deduction at source as per normal provisions of the
Income-tax Act. However, no TDS is required on interest payable on Government
securities, and bonds issued by an institution, authority, public
sector company or co-operative society can also be exempted from the
requirement by notification.
Press Note : Dated 20-3-2002.
Circular :
No. 3/2002, dated 28-6-2002.
1011. Exemption
from requirement of deduction of income-tax at source on payment of income 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 sections 193, 194A and 194K of the Income-tax Act on the payment
of incomes to Ramakrishna Math and Ramakrishna Mission whose income is exempt
under sub-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 sub-clause (iv) of section 10(23C) of the Income-tax Act, the
incomes by way of (i)
interest on securities of the Central and State Governments, (ii) interest other than income by way
of interest on securities, and (iii)
income in respect of units of a Mutual Fund specified under section 10(23D) or of the Unit Trust of India
may be paid to the Ramakrishna Math and Ramakrishna Mission without deduction
of income-tax at source. The provisions of this Circular shall be applicable
from the current financial year.
Circular : No. 4/2002, dated 16-7-2002.
1183. Whether prescribed self-declaration under
section 197A can be submitted by entities whose income is exempt under section
10
1. Subsequent to the amendment to section
197A made by the Finance Act, 2002 whereby a new sub-section (1B) has been
inserted with effect from 1st June, 2002, representations have been received
seeking clarification whether the prescribed self-declaration under the said
section can be submitted by entities exempt from tax under section 10 even if
the payments referred to in sub-section (1A) to be made to them exceed the
threshold limit not subject to tax.
2. This matter has been examined by
the Board. It has been decided that in case of those funds or authorities or
Boards or bodies, by whatever name called, whose income is unconditionally
exempt under section 10 of the Income-tax Act and who are statutorily not
required to file return of income as per section 139 of the Income-tax Act, there
would be no requirement for tax deduction at source since their income is
anyway exempt under the Income-tax Act. The institutions whose income is unconditionally exempt under section 10 and who
are statutorily not required to file return of income as per the provisions of
section 139 are :
(i) local authority, as referred to in the Explanation to clause (20);
(ii) Regimental Fund or Non-public Fund established
by the armed forces of the
(iii) Fund, by whatever name called, set up by the
Life Insurance Corporation of
(iv) Authority
(whether known as the Khadi and Village Industries
Board or by any other name) referred to in clause (23BB);
(v) Body or authority referred to in clause (23BBA);
(vi) SAARC Fund for Regional Projects set up by
Colombo Declaration referred to in clause (23BBC);
(vii) Secretariat of the Asian Organisation
of the Supreme Audit Institutions referred to in clause (23BBD) till assessment year
2003-2004;
(viii) Insurance Regulatory and Development
Authority referred to in clause (23BBE);
(ix) Prime Ministers National Relief Fund referred
to in sub-clause (i),
Prime Ministers Fund (Promotion of Folk Art) referred to in sub-clause (ii), Prime Ministers Aid to Students
Fund referred to in sub-clause (iii),
National Foundation for Communal Harmony referred to in sub-clause (iiia), any
university or other educational institution referred to in sub-clause (iiiab) and
any hospital or other institution for the reception and treatment of persons as
referred to in sub-clause (iiiac) of clause (23C);
(x) Credit
Guarantee Fund Trust for Small Scale Industries referred to in clause (23EB) till assessment year 2006-2007;
(xi) Provident
fund to which the Provident Funds Act, 1925 (19 of 1925) referred to in
sub-clause (i),
recognised provident fund referred to in sub-clause (ii), approved superannuation funds
referred to in sub-clause (iii),
approved gratuity fund referred to in sub-clause (iv) and funds referred to in sub-clause (v) of clause (25);
(xii)
(xiii) Corporations
referred to in clause (26BB);
(xiv) Boards
referred to in clause (29A).
Circular : No. 5/2002, dated 30-7-2002.
1126.
Clarifications on various provisions relating to tax deduction at source
regarding changes introduced through Finance Act, 1995
The Finance Act, 1995, has enlarged the scope
of income-tax deduction at source by making various amendments. In regard to
the changes introduced through the Finance Act, 1995, a number of queries have
been received from the various associations and professional bodies on the
scope of tax deduction at source. It would be desirable to clarify the doubts
by issuing a public circular in the form of question answers as under
Question 1 : What would be
the scope of an advertising contract for the purpose of section 194C of the
Act?
Answer : The term advertising has not been
defined in the Act. During the course of the consideration of the Finance Bill,
1995, the Finance Minister clarified on the Floor of the House that the amended
provisions of tax deduction at source would apply when a client makes payment
to an advertising agency and not when advertising agency makes payment to the
media, which includes both print and electronic media. The deduction is
required to be made at the rate of 1 per cent. It was further clarified that
when an advertising agency makes payments to their models, artists,
photographers, etc., the tax shall be deducted at the rate of 5 per cent as
applicable to fees for professional and technical services under section 194J
of the Act.
Question 2 : Whether the
advertising agency would deduct tax at source out of payments made to the media
?
Answer : No. The position has been clarified in
the answer to question No. 1 above.
Question 3 : At what rate is
tax to be deducted if the advertising agencies give a consolidated bill
including charges for art work and other related jobs as well as payments made
by them to media ?
Answer : The deduction will have to be made
under section 194C at the rate of 1 per cent. The advertising agencies shall
have to deduct tax at source at the rate of 5 per cent under section 194J while
making payments to artists, actors, models, etc. If payments are made for
production of programmes for the purpose of
broadcasting and telecasting, these payments will be subjected to TDS @ 2 per
cent. Even if the production of such programmes is
for the purpose of preparing advertisement material, not for immediate
advertising, the payment will be subject to TDS at the rate of 2 per cent.
Question 4 : Where the tax is
required to be deducted at source on payments made directly to the print media/Doordarshan for release of advertisements ?
Answer :
The payments made directly to print and electronic media would be covered under
section 194C as these are in the nature of payments for purposes of
advertising. Deduction will have to be made at the rate of 1 per cent. It may,
however, be clarified that the payments made directly to Doordarshan
may not be subjected to TDS as Doordarshan, being a
Government agency, is not liable to income-tax.
Question 5 : Whether a
contract for putting up a hoarding would be covered under section 194C or 194-I
of the Act ?
Answer :
The contract for putting up a hoarding is in the nature of advertising contract
and provisions of section 194C would be applicable. It may, however, be
clarified that if a person has taken a particular space on rent and thereafter
sub lets the same fully or in part for putting up a hoarding, he would be
liable to TDS under section 194-I and not under section 194C of the Act.
Question 6 : Whether payment
under a contract for carriage of goods or passengers by any mode of transport
would include payment made to a travel agent for purchase of a ticket or
payment made to a clearing and forwarding agent for carriage of goods ?
Answer : The payments made
to a travel agent or an airline for purchase of a ticket for travel would not
be subjected to tax deduction at source as the privity
of the contract is between the individual passenger and the airline/travel
agent, notwithstanding the fact that the payment is made by an entity mentioned
in section 194C(1). The provision of section 194C shall, however, apply when a
plane or a bus or any other mode of transport is chartered by one of the
entities mentioned in section 194C of the Act. As regards payments made to
clearing and forwarding agent for carriage of goods, the same shall be
subjected to tax deduction at source under section 194C of the Act.
Question 7 : Whether a travel
agent/clearing and forwarding agent would be required to deduct tax at source
from the sum payable by the agent to an airline or other carrier of goods or
passengers ?
Answer :
The travel agent, issuing tickets on behalf of the airlines for travel of
individual passengers, would not be required to deduct tax at source as he acts
on behalf of the airlines. The position of clearing and forwarding agents is
different. They act as independent contractors. Any payment made to them would,
hence, be liable for deduction of tax at source. They would also be liable to
deduct tax at source while making payments to a carrier of goods.
Question 8 : Whether section
194C would be attracted in respect of payments made to couriers for carrying
documents, letters, etc. ?
Answer : The carriage of documents, letters,
etc., is in the nature of carriage of goods and, therefore, provisions of
section 194C would be attracted in respect of payments made to the couriers.
Question 9 : In case of
payments to transporters, can each GR be said to be a separate contract, even
though payments for several GRs are made under one
bill ?
Answer : Normally, each GR can be said to be a
separate contract, if the goods are transported at one time. But if the goods
are transported continuously in pursuance of a contract for a specific period
or quantity, each GR will not be a separate contract and all GRs relating to that period or quantity will be aggregated
for the purpose of the TDS.
Question 10 : Whether there is
any obligation to deduct tax at source out of payment of freight when the goods
are received on freight to pay basis ?
Answer: Yes. The provisions of
tax deduction at source are applicable irrespective of the actual payment.
Question 11 : Whether a
contract for catering would include serving food in a restaurant/sale of
eatables?
Answer :
TDS is not required to be made when payment is made for serving food in a
restaurant in the normal course of running of the restaurant/cafe.
Question 12 : Whether payment
to a recruitment agency can be covered by section 194C ?
Answer : Provisions of section 194C apply to a contract
for carrying out any work including supply of labour
for carrying out any work. Payments to recruitment agencies are in the nature
of payments for services rendered. Accordingly, provisions of section 194C
shall not apply. The payment will, however, be subject to TDS under section
194J of the Act.
Question 13 : Whether section
194C would cover payments made by a company to a share registrar ?
Answer :
In view of answer to the earlier question, such payments will not be liable for
tax deduction at source under section 194C. But these will be liable to tax
deduction at source under section 194J.
Question 14 : Whether FD
commission and brokerage can be covered under section 194C ?
Answer :
No
1Question
15 :
Whether section 194C would apply in respect of supply of printed material
as per prescribed specifications ?
Answer :
Yes.
Question 16 : Whether tax is
required to be deducted at source under section 194C or 194J on payment of
commission to external parties for procuring orders for the companys
product ?
Answer :
Rendering of services for procurement of orders is not covered under the
provisions of section 194C. However, rendering of such services may involve
payment of fees for professional or technical services, in which case tax may
be deductible under the provisions of section 194J.
Question 17 : Whether
advertisement contracts are covered under section 194C only to the extent of payment
of commission to the person who arranges release of advertisement, etc., or
whether deduction is to be made on the gross amount including bill of media ?
Answer :
Tax is to be deducted at the rate of 1 per cent of the gross amount of the
bill.
Question 18 : Whether deduction
of tax is required to be made under section 194C for sponsorship of debates,
seminars and other functions held in colleges, schools and associations with a
view to earn publicity through display of banners, etc., put up by the organisers ?
Answer : The agreement of sponsorship is, in
essence, an agreement for carrying out a work of advertisement. Therefore,
provisions of section 194C shall apply.
Question 19 : Whether deduction
of tax is required to be made on payments for cost of advertisement issued in
the souvenirs brought out by various organisations ?
Answer : Yes.
Question 20 : Whether payments
made to a hotel for rooms hired during the year would be of the nature of rent
?
Answer : Payments made by
persons, other individuals and HUFs for hotel
accommodation taken on regular basis will be in the nature of rent subject to
TDS under section 194-I.
Question 21 : Whether the limit
of Rs. 1,20,000 per annum would apply separately for
each co-owner of a property ?
Answer :
Under section 194-I, the tax is deductible from payment by way of rent, if such
payment of the payee during the year is likely to be Rs.
1,20,000 or more. If there are a number of payees, each having definite and
ascertainable share in the property, the limit of Rs.
1,20,000 will apply to each of the payee/co-owner
separately. The payers and payees are, however, advised not to enter into sham
agreements to avoid TDS provisions.
Question 22 : Whether the rent
paid should be enhanced for notional income in respect of deposit given to the
landlord ?
Answer :
The tax is to be deducted from actual payment and there is no need of computing
notional income in respect of a deposit given to the landlord. If the deposit
is adjustable against future rent, the deposit is in the nature of advance rent
subject to TDS.
Question 23 : Whether
payments made by company taking premises on rent but styling the agreement as a
business centre agreement would attract the provisions of section 194-I ?
Answer : The tax is to be deducted from rent
paid, by whatever name called, for hire of a property. The incidence of
deduction of tax at source does not depend upon the nomenclature, but on the
content of the agreement as mentioned in clause (i) of Explanation to section 194-I.
Question 24 : Whether in a case
of a composite arrangement for user of premises and provision of manpower for
which consideration is paid as a specified percentage of turnover, section
194-I of the Act would be attracted ?
Answer :
If the composite arrangement is in essence the agreement for taking premises on
rent, the tax will be deducted under section 194-I from payments thereof.
Question 25 : Whether the
receipts prior to 1-7-1995 are to be aggregated to determine limit of Rs. 20,000 for each financial year ?
Answer : Clause (B) of proviso to section 194J(1)
makes it clear that tax shall be deducted at source if the aggregate sums
credited or paid or likely to be credited or paid during the financial year are
likely to exceed Rs. 20,000. Therefore, in regard to
financial year 1995-96, the limit of Rs. 20,000 will
have to be worked out taking into account all the payments from 1-4-1995 to
31-3-1996. But the deduction of tax at source would be made at the specified
rate only from the payment made on or after 1-7-1995.
Question 26 : Whether payments
made to a hospital for rendering medical services will attract deduction of tax
at source under section 194J ?
Answer : Yes.
Question 27 : Whether
commission received by the advertising agency from the media would require deduction
of tax at source under section 194J of the Act ?
Answer : Yes.
Question 28 : Whether the
services of a regular electrician on contract basis will fall in the ambit of
technical services to attract the provisions of section 194J of the Act? In case
the services of the electrician are provided by a contractor, whether the
provisions of section 194C or 194J would be applicable ?
Answer : The payments made to an electrician or
to a contractor who provides the service of an electrician will be in the
nature of payment made in pursuance of a contract for carrying out any work.
Accordingly, provisions of section 194C will apply in such cases.
Question 29 : Whether a
maintenance contract including supply of spares would be covered under section
194C or 194J of the Act ?
Answer :
Routine, normal maintenance contracts which includes supply of spares will be
covered under section 194C. However, where technical services are rendered, the
provision of section 194J will apply in regard to tax deduction at source.
Question 30 : Whether the
deduction of tax at source under sections 194C and 194J has to be made out of
the gross amount of the bill including reimbursements or excluding
reimbursement for actual expenses ?
Answer :
Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot
be deducted out of the bill amount for the purpose of tax deduction at source.
Question 31 : Whether TDS from
income in respect of units is applicable to dividend or is it applicable to
capital appreciation distributed at the time of repurchase/redemption of the
units ?
Answer : The provisions of
section 194K regarding deduction of tax at source from income in respect of
units are applicable to periodical distribution of income, which is in the
nature of dividend. These provisions do not apply to capital gains arising at
the time of repurchase or redemption of the units.
Question 32 : Whether TDS on
reinvestment term deposit should be made on accrual basis, which is quarterly,
or once in a financial year ?
Answer : Tax has to be deducted at source at
the time of credit of interest to the account of the payee or at the time of
payment thereof, whichever is earlier. If credit is given to the account of the
payee or payment is made to him annually, the tax may be deducted annually. It
may be clarified that a credit to interest payable account or suspense account,
etc., is also taken as credit to the account of the payee, even though this
credit is not reflected separately in the payees account.
Question 33 : Whether variable
deposit schemes are liable to deduction of tax at source from interest ?
Answer : Under section 194A, tax is to be
deducted from interest from banks on time deposits. As variable deposits are in
the nature of time deposits, tax is deductible at source from interest on such
deposits.
Question 34 : Whether tax has to be deducted from
principal on renewal of deposits made after 1-7-1995 but which matured on or
before 30-6-1995 when the renewal is made retrospectively?
Answer : Tax has to
be deducted from interest credited or paid, whichever is earlier, on time
deposits with a bank made on or after 1-7-1995. When a time deposit is renewed
retrospectively, the relevant date for deciding the applicability of section
194A would be that date of renewal. Thus, if the time deposit is renewed after
1-7-1995, the tax deduction at source will have to be made from interest paid
or credited in respect of such a time deposit.
Circular :
No. 715, dated 8-8-1995.
Clarification regarding question No. 20
1. Circular No. 715 dated 8-8-1995 has been issued by the Central
Board of Direct Taxes to clarify various provisions relating to tax deduction
at source under various provisions of the Income-tax Act. Question No. 20 of
the aforesaid Circular related to applicability of the provisions of section
194-I of the Income-tax Act in respect of payments made to a hotel for rooms.
The relevant question and answer is reproduced below :
. . . Q. No. 20 :
Whether payments made to a hotel for rooms hired during the year would be of
the nature of rent?
Ans. : Payments made by persons other
than individuals and HUF for hotel
accommodation taken on regular basis will be in the nature of rent
subject to TDS under section 194-I. [Emphasis supplied]
In this context, doubts have been raised as to what constitutes hotel
accommodation taken on regular basis for the purpose.
2. The Board have considered the matter.
First, it needs to be emphasised that the provisions
of section 194-I do not normally cover any payment for rent made by an
individual or HUF except in cases where the total sales, gross receipts or
turnover from business and profession carried on by the individual or HUF
exceed the monetary limits specified under clause (a) or clause (b)
of section 44AB. Where an employee or an
individual representing a company (like a consultant, auditor, etc.)
makes a payment for hotel accommodation directly to the hotel as and when he
stays there, the question of tax deduction at source would not normally arise (except where he is covered under
section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the
company merely reimburses the expenditure.
Furthermore, for purposes of section 194-I, the meaning of rent has also
been considered. Rent means any
payment, by whatever name called, under any lease . . . or any other agreement or arrangement
for the use of any land. . . . [Emphasis supplied]. The meaning of rent in
section 194-I is wide in its ambit and scope. For this reason, payment made to
hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such
accommodation has been taken on regular basis. Where earmarked rooms are let
out for a specified rate and specified period, they would be construed to be
accommodation made available on regular basis. Similar would be the case, where
a room or set of rooms are not earmarked, but the hotel has a legal obligation
to provide such types of rooms during the currency of the agreement.
3. However, often, there are instances, where corporate employers, tour operators and travel agents enter into agreements
with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers.
Such agreements, usually entered into for lower tariff rates, are in the nature
of rate-contract agreements. A rate-contract, therefore, may be said to be a
contract for providing specified types of hotel rooms at pre-determined rates
during an agreed period. Where an agreement is merely in the nature of a rate
contract, it cannot be said to be accommodation taken on regular basis, as
there is no obligation on the part of the hotel to provide a room or specified
set of rooms. The occupancy in such cases would be occasional or casual. In
other words, a rate-contract is different for this reason from other
agreements, where rooms are taken on regular basis. Consequently, the
provisions of section 194-I while applying to hotel accommodation taken on
regular basis would not apply to rate contract agreements.
Circular : No. 6/2002, dated 2-8-2002.
1058. Finance
Act, 2002 - Threshold limits for deduction of tax at source from income by way
of dividends and income from units
1. The Finance Minister in his Speech
in the Lok Sabha on
31-7-2002, made the following announcement :
Dividend Income
from shares of Indian companies and income from units of Mutual Funds have been
made taxable in the hands of share/unitholders by the
Finance Act, 2002. For small investors investing in equity, a threshold limit
of Rs. 1,000 was provided for the purpose of TDS. Let
us for senior citizens and for investors raise the threshold limit to Rs. 2,500. Thus, no tax will be deductible in respect of
dividend up to Rs. 2,500, received from each company,
or a mutual fund. With the computerisation of the
Income-tax Department, data on TDS will be synchronised
with the income returned by the assessee for better
tax administration and compliance.
2. With a view to give effect to the
announcement made by the Finance Minister in his Speech in the Lok Sabha, it is clarified that
the threshold limit for the purpose of tax deduction at source from income by
way of dividends under section 194 and income in respect of units under section
194K of the Income-tax Act shall be Rs. 2,500 (Rupees
two thousand five hundred) with immediate effect. In other words, no tax would
be deductible from dividend received from a company or income from units of a
Mutual Fund, by a shareholder or unitholder, if the
dividend or income from units, as the case may be, does not exceed Rs. 2,500.
Circular : No. 7/2002, dated 26-8-2002.
Section 80-IA l Profits and gains from
industrial
undertakings, etc., engaged in infrastructure
development, etc.
566. Availability of
benefit under section 80-IA in respect of infrastructure facilities notified by
CBDT prior to 31-3-2001
1. Infrastructure facility as defined in Explanation to sub-clause (c) of clause (i) of sub-section (4) of
section 80-IA of the Income-tax Act, 1961, as it stood prior to its
substitution by the Finance Act, 2001, meant :
(i) a road, bridge, airport, inland waterways and
inland ports, rail system or any other
public facility of a similar nature as may be notified by the Board in this behalf
in the Official Gazette;
(ii) a highway project including housing or other activities
being an integral part of the highway project; and
(iii) a water supply, water management system, irrigation project,
sanitation and sewerage system or solid waste management system.
2. The Finance Act, 2001 has further rationalised the above definition. The definition of
Infrastructure facility, as given in the Explanation
introduced with effect from 1-4-2002 excludes any other public facility of a
similar nature as may be notified by the Board in this behalf in the Official
Gazette. Under the earlier provisions, several public facilities have already
been notified by the Board as infrastructure facilities. In this connection, a
need has been felt to clarify doubts as to whether such notified infrastructure
facilities would continue to be eligible for such benefit on or after 1-4-2002.
It is, hereby clarified that :
Such projects, for which agreements have been
entered into on or after 1-4-1995 but on or before 31-3-2001 and which have
been notified by the Board on or before 31-3-2001, would continue to be exempt,
subject to the fulfilment of the conditions
prescribed in section 80-IA(4)(i)(b), as it existed prior to its substitution by the Finance Act,
2001.
Circular : No.
9/2002, dated 11-9-2002.
1072.
Applicability of the provisions in respect of income paid or credited to a
member of co-operative bank
1. Under section 194A of the Income-tax
Act, 1961 tax is deductible at source from any payment of income by way of
interest other than income by way of interest on securities. Clause (v) of sub-section (3) of section 194A
exempts such income credited or paid by a co-operative society to a member
thereof from the requirement of TDS. On the other hand, clause (viia) of
sub-section (3) of section 194A exempts from the requirement of TDS such income
credited or paid in respect of deposits (other than time deposits made on or
after 1-7-1995) with a co-operative society engaged in carrying on the business
of banking.
2. Representations have been received
in the Board seeking clarification as to whether a member of a co-operative
bank may receive without TDS interest on time deposit made with the
co-operative bank on or after 1-7-1995. The Board has considered the matter and
it is clarified that a member of a co-operative bank shall receive interest on
both time deposits and deposits other than time deposits with such co-operative
bank without TDS under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of
clause (viia)
of the said sub-section are applicable only in case of a non-member
depositor of the co-operative bank, who shall receive interest only on deposits
other than time deposits made on or after 1-7-1995 without TDS under section
194A.
3. A question has also been raised as to
whether nominal members, associate members and sympathizer members are also
covered by the exemption under section 194A(3)(v). It is hereby clarified that the
exemption is available only to such members who have joined in application for
the registration of the co-operative society and those who are admitted to
membership after registration in accordance with the bye-laws and rules. A
member eligible for exemption under section 194A(3)(v) must have subscribed to and fully
paid for at least one share of the co-operative bank, must be entitled to
participate and vote in the General Body Meetings and/or Special General Body
Meetings of the co-operative bank and must be entitled to receive share from
the profits of the co-operative bank.
Circular : No. 10/2002,
dated 9-10-2002.
1174. Submission of No
Objection Certificate in case of remittance to a non-resident
1. Section 195 of the Income-tax Act, 1961 provides that any
person responsible for paying to a non-resident any sum chargeable under the
Act shall, at the time of credit of such income to the account of the payee or
at the time of payment thereof in cash or by cheque
or draft or any other mode, whichever is earlier, deduct income-tax thereon at
the rates in force.
2. The Reserve Bank of
3. The contents of this Circular may be brought to the notice of
all the officers working in your charge.
Undertaking
To
..............................................................................
(Designation of the Assessing Officer)
..............................................................................
..............................................................................
I/We........................................................................................................................................................... (Name,
address & Permanent Account Number)
propose to make a remittance of..................................................................................................
(Amount)
being...........................................................................................................................................................
(nature of
payment)
to...................................................................................................................................................................
(name and complete address of the person to whom the
remittance has been made)
after deducting a sum of Rs........................
being the tax @.............................., which
is the appropriate rate of tax deductible at source on the said amount of
remittance.
2. A certificate from the accountant as defined in Explanation below section 288 of the
Income-tax Act, certifying the nature and amount of income, amount of tax
payable and the amount actually paid, is also annexed.
3. In case it is found that the tax actually payable on the amount
of remittance made, has either not been paid or has not been paid in full, I/we
undertake to pay the said amount of tax along with interest found due in
accordance with the provisions of the Income-tax Act.
4. I/We will also be subject to the provisions of penalty and
prosecution for the said default as per the Income-tax Act.
5. I/We also undertake to submit the requisite documents, etc.,
for enabling the Income-tax Department to determine the nature and amount of
income and tax, interest, penalty, etc., payable thereon.
(Name and Signature)
Date...............................
Place..............................
(The Undertaking shall be signed by the person authorised
to sign the return of income of the person making the payment).
Certificate
I/We have examined the books of accounts of M/s............................................................
.......................................................................................................................................................................
(Name,
address and Permanent Account Number of person making the remittance)
for ascertaining the nature of the remittance,
of..................................................................................................................................................................
(amount of remittance)
to...................................................................................................................................................................
(Name and complete
address of the person to whom the remittance is being made)
and the rate at which the tax is deductible at
source thereon and hereby certify that a sum of Rs...........................
has been deducted as tax at the appropriate rate and
has been paid to the credit of the Government.
.................................................
Accountant
Place......................
Date.......................
Circular :
No. 759, dated 18-11-1997.
Clarification 1
1. Circular No. 759 dated 18-11-1997 was issued by the Board to
dispense with the requirement of submission of a No Objection Certificate from
income-tax authorities for remittance to a non-resident as required by the
Reserve Bank of India (RBI). In paragraph 2 of the said Circular, it was stated
that henceforth remittances may be allowed by the RBI without insisting upon a
No Objection Certificate from the Income-tax Department provided the person
making the remittance furnished an undertaking in duplicate addressed to the
Assessing Officer which was accompanied by a certificate from an accountant
other than an employee as defined in the Explanation
below section 288 of the Income-tax Act, 1961 in the form annexed to the said Circular.
The person making the remittance had to submit the undertaking along with the
said certificate of the accountant to the RBI, who would, in turn forward a
copy thereof to the Assessing Officer.
2. A number of references have been received by the Board stating
that RBI had delegated powers to authorised dealers
to allow certain types of remittances to non-residents without obtaining
approval of RBI. In such cases, RBI cannot forward the undertaking and
certificate of the accountant to the Assessing Officer as prescribed in
Circular No. 759. The RBI has already issued a Circular - AD (MA series) Circular No. 48, dated 29th
November, 1997 (see Annex) to
all authorised dealers in foreign exchange directing
them to forward a copy of the certificate together with a copy of the
undertaking to the office of the Assessing Officer of the Income-tax Department
as indicated in the undertaking. In view of the foregoing, it is clarified that
Circular No. 759 would also be applicable to remittances made through authorised dealers in Foreign Exchange.
3. In accordance with Circular No. 759, the undertaking to be
submitted by the person making the remittance to a non-resident is required to
be signed by the person authorised to sign the return
of income of the person making the payment. The person authorised
to sign a return of income in the case of a company, in accordance with section
140 of the Income-tax Act, 1961 is the Managing Director and each undertaking
for each remittance has, therefore, to be signed by the Managing Director.
Representations pointing out administrative difficulties experienced by
companies have been received. It has, therefore, been decided that the
undertaking to be submitted at the time of making a remittance to a
non-resident shall be signed by the person authorised
to sign a return or a person so authorised by him in
writing.
4. It is also clarified that Circular
No. 759 will cover those remittances for which RBI had prescribed the
production of a No Objection Certificate from the income-tax authorities under
its Exchange Control Manual. Further, if an order under section 195(2) has been
obtained by a person responsible for deducting tax, the new procedure of filing
an undertaking along with a certificate prescribed in Circular No. 759 would
not be applicable.
5. The contents of this Circular may
be brought to the notice of all the officers working in your charge.
Circular :
No. 767, dated 22-5-1998.
Annex
A.D.
(M.A. Series) Circular No. 48, dated 29-11-1997, issued
by the Reserve Bank of
1. Presently, authorised
dealers have been delegated powers to allow certain types of remittances,
subject to, among other things, production of NOC/Tax Clearance Certificate
from income-tax authorities. Similarly, Reserve Bank also, while approving
remittances for certain purposes, has been insisting on NOC/Tax Clearance
Certificate from income-tax authorities. This procedure has been revised as
notified by the Central Board of Direct Taxes, in their Circular No. 759 [F.
No. 500/152/96-FTD] dated 18th November, 1997. In terms of the new procedure, a
person making remittance of foreign exchange would not be required to produce
NOC/Tax Clearance Certificate from income-tax authorities instead, the
applicants have to submit an undertaking, in duplicate, addressed to the
Assessing Officer, which should be signed by the person authorised
to sign the income-tax returns of the applicant, together with a certificate
(in duplicate) from the Accountant (other than the employee of the applicant)
as defined in the Explanation below
section 288 of the Income-tax Act, 1961 in forms prescribed in the Government
Notification. Authorised dealers should, therefore,
before allowing the remittance obtain the aforesaid Undertaking accompanied by a certificate from the Accountant for
compliance with the income-tax provisions, where necessary.
2. Authorised
dealers should, after making the remittance, immediately forward a copy of the
certificate together with a copy of Undertaking to the office of Assessing
Officer of the Income-tax Department as indicated in the Undertaking. The other
copy each of the Undertaking and Certificate should be kept on record for
verification by the Internal Auditors of the authorised
dealer/Inspecting Officers of the Reserve Bank.
3. Amendments to the Exchange Control
Manual will be advised separately. Meanwhile, authorised
dealers may bring the contents of this circular to the notice of their
concerned constituents.
4. The directions contained in this circular
have been issued under section 73(3) of the Foreign Exchange Regulation Act,
1973 (46 of 1973) and any contravention or non-observance thereof is subject to
the penalties prescribed under the Act.
Clarification
2
1. Circular No. 759 dated 18-11-1997
was issued by the Central Board of Direct Taxes to dispense with the
requirement of a No Objection Certificate from income-tax authorities for
remittance to a non-resident as required by the Reserve Bank of
2. However, it has recently been
observed that often the certificates have been issued prescribing nil deduction of tax at source in
certain cases where tax was liable to be deducted or prescribing deduction of
tax at a lower rate than was payable on the basis of the provisions of the Act
and the applicable DTAC. The certificate does not provide for necessary details
or the reasons for adopting a certain rate for deduction of tax. This results
in unnecessary calling of information from the assessees at a later stage and
thus gives rise to an avoidable perception of grievance on the part of the tax
payer. Therefore, in order to streamline the procedure as well as to ensure the
correct deduction of tax at source, the proforma of
the undertaking to be given by the remitter and the certificate to be issued by
a chartered accountant have been re-considered and new formats are being
prescribed which are enclosed as Annexures A and B to
this circular. The revised proforma for undertaking
as well as the certificate shall to apply in terms of Circular No. 759, dated
18-11-1997 of CBDT. Other requirements of the Circular remain unchanged. It is
reiterated that the persons making the remittances shall submit the undertaking
and certificate as per Annexures A and B to the
Reserve Bank of
3. The Reserve Bank of
4. This circular comes into effect
with immediate effect.
Annexure
A
Form & Application for remittance under section
195
of the Income-tax Act
|
1. |
Name
and Address of the Applicant and principal place of business |
: |
|
2. |
Name and Address of the Assessing Officer having jurisdiction over the remitters |
: |
|
3. |
Applicants PAN Number |
: |
|
4. |
Name and address of the beneficiary of the remittance and the country towhich remittance is made |
: |
|
5. |
Amount and nature of remittance |
: |
|
6. |
Rate of deduction of tax at source |
: |
|
7. |
Reference to provision of Act/DTAA under which the rate has been determined |
: |
|
8. |
Certificate |
|
(i) I/We propose to make the above remittance as
per deduction of tax at source indicated above. We have obtained a certificate
from M/s. ..... who is an
accountant as defined in section 288 of the Income-tax Act, certifying the
amount, nature and correctness of deduction of tax at source.
(ii) In
case the income-tax authority at any time finds that tax actually deductible on
the amount of remittance has either not been paid or not paid in full, I/we
undertake to pay the said amount of tax along with interest due.
(iii) I/We
shall also be subjected to the provisions of penalty for the said default as
per the provisions of Income-tax Act.
(iv) I/We undertake to submit the requisite
documents, etc., for enabling the income-tax authorities to determine the
nature and amount of income of the beneficiary of the above remittance as well
as documents required for determining our liabilities under the Income-tax Act
as a person responsible for deduction of tax at source.
(v) The
information given above is true to the best of my/our knowledge and belief and
no relevant information has been concealed.
..............................................
Name and Signature
[To be signed by a person responsible for signing the return of income
(as to provisions of section 139(A) of the Income-tax Act) of the person making
the remittance].
Annexure
B
Certificate
I/We
have examined the agreement (wherever applicable) between M/s.
............................
..................................................................... and M/s. ........................................................ requiring the
remitters beneficiary
above remittance as well as the relevant
documents and books of account required for ascertaining the nature of
remittance and for determining the rate of deduction of tax at source as per
provisions of section 195. We hereby certify the following :
|
1. |
Name and address of the beneficiary of the remittance and the name of the foreign country to which remittance is being made. |
: |
|
|
|
2. |
Amount of remittance is foreign currency indicating the proposed date/month and bank through which remittance is being made. |
: |
|
|
|
3. |
Details of tax deducted at source, rate at which tax has been deducted and date of deduction. |
: |
Foreign Currency |
Indian
Currency |
|
|
Amount to be remitted |
|
..... |
..... |
|
|
Tax deducted at source |
|
..... |
...... |
|
|
Actual Amount remitted |
|
..... |
..... |
|
|
Rate at which deducted |
|
..... |
..... |
|
|
Date of Deduction |
|
...... |
..... |
|
4. |
In case the remittance as indicated in (2) above is net of taxes, whether tax payable has been grossed up? If so, computation thereof may be indicated. |
: |
|
|
|
5. |
If the remittance is for royalties, fee for technical services, interest, dividend, etc., the clause of the relevant DTAA under which the remittance is covered along with reasons and the rate at which tax is required to be deducted in terms of such clause of the applicable DTAA. |
: |
|
|
|
6. |
In case that tax has been deducted at a rate lower than the rate prescribed under the applicable DTAA, the reasons thereof. |
: |
|
|
|
7. |
In case remittance is for supply of articles or things (e.g., plant, machinery, equipment, etc.) or computer software, please indicate : |
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i. Whether there is any permanent
establishment in |
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ii. Whether such remittance is
attributable to or connected with such permanent establishment? |
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iii .If so, the amount of income comprised
in such remittance which is liable to tax. |
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iv. If not, the reasons in brief therefor. |
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8. |
In
case remittance is on account of business income |
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please indicate : |
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i. Whether such income is liable to
tax in |
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ii. If so, the basis for arriving
at the rate of deduction of tax. |
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iii. If not, the reasons thereof. |
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9. |
In case tax is not deducted at source for any other reason, details thereof. |
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(Attach separate sheet duly authenticated wherever
necessary)
.........................................................................................
Name, Address and registration numbers
(To be signed and verified by an Accountant as defined in section 288 of
the Income-tax Act).
Circular :
No. 11/2002, dated 22-11-2002.
1012. Exemption from
requirement of deduction of income-tax at source on payment to Ramakrishna Math
and Ramakrishna Mission, Kolkata, whose income is exempt under section
10(23C)(iv) of the Income-tax Act, 1961
1. Vide Circular No. 3/2002, CBDT had allowed Ramakrishna Math and
Ramakrishna Mission, Kolkata, to receive incomes without tax deduction at
source under sections 193, 194A and 194K. In para 2 of the said Circular it has
been stated that the incomes by way of interest on securities of the Central
and State Governments may be paid to the said assessees without tax deduction
at source.
2. It is further clarified that
interest on all securities covered under section 193 may be paid to Ramakrishna
Math and Ramakrishna Mission without tax deduction at source. These securities
shall also include securities of Central and State Governments already
specified vide Circular No.
3/2002.
Circular : No.
12/2002, dated 22-11-2002.
1073.
Exemption from requirement of deduction of income-tax at source on payment to
Sri Sathya Sai Central
Trust, Sri Sathya Sai
Medical Trust and Sri Sathya Sai
Institute of Higher Learning, Bangalore, whose incomes are exempt under section
10(23C) of the Income-tax Act, 1961
1. The matter regarding grant of
exemption from deduction of income-tax at source under sections 194A, 194-I and
194K of the Income-tax Act on the payment of incomes to Shri
Sathya Sai Central Trust,
Sri Sathya Sai Medical
Trust and Shri Sathya Sai Institute of Higher Learning, Bangalore, whose incomes
are exempt for assessment years 2002-03 to 2004-05
under section 10(23C)(iv), 10(23C)(via) and
10(23C)(vi) of the Income-tax Act, 1961 respectively has been examined
by the Board.
2. It has been decided by the Board
that in the cases of Sri Sathya Sai
Central Trust, Shri Sathya Sai Medical Trust and Shri Sathya Sai Institute of Higher
Learning,
(i) interest other than income by way of interest on securities
(ii) rent, and
(iii) income in respect of
units of a Mutual Fund specified under section 10(23D) or of the Unit Trust of India
may be paid to
these Institutions without deduction of income-tax at source. The provisions of
this Circular shall be applicable for the financial years 2002-03 and 2003-04
(assessment years 2003-04 and 2004-05).
Circular : No. 13/2002, dated 23-12-2002, as
corrected by Notification No. [F. No. 275/192/2002-IT(B)-Vol.
II, dated 28-1-2003
Instructions for Deduction of
Tax at
Source From Salary
Financial year 2002-2003
959.
Instructions for deduction of tax at source from salaries during the financial
year 2002-2003 under section 192.
Reference is invited to Circular No. 15/2001, dated 12-12-2001 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 2001-2002, 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 2002-2003 and explains certain related provisions of the Income-tax Act.
Finance Act, 2002
2. According to the Finance Act, 2002, 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 2002-2003 (i.e., assessment year 2003-04) at the following rates :
Rates of Income-tax
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1. |
Where the total income does not exceed Rs. 50,000. |
Nil |
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2. |
Where the total income exceeds Rs. 50,000 but does not exceed Rs. 60,000. |
10 per cent, of the amount by which the total income exceeds Rs. 50,000. |
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3. |
Where the total income exceeds Rs. 60,000 but does not exceed Rs. 1,50,000. |
Rs. 1,000 plus 20 per cent of the amount by which the total income exceeds Rs. 60,000. |
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4. |
Where the total income exceeds Rs. 1,50,000. |
Rs. 19,000 plus 30 per cent of the amount by which the total income exceeds Rs. 1,50,000. |
Surcharge on income-tax
The amount of income-tax computed in accordance with the preceding provisions of this paragraph shall be reduced by the amount of rebate of income-tax calculated under Chapter VIII and the income-tax so reduced shall be increased by a surcharge at the rate of five per cent of such income-tax where the total income exceeds sixty thousand rupees.
However, the total amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax on a total income of Rs. 60,000 by more than the amount of income-tax that exceeds Rs. 60,000.
Surcharge is payable by both resident and non-resident assessees.
Section 192 of the Income-tax Act, 1961 : Broad scheme of tax
deduction at source from Salaries etc.
3.1 Method of tax calculation - 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 2002-2003. The income-tax is required to be calculated on the basis of the rates given above and shall be deducted on average at the time of each payment. No tax will, however, be deducted at source in any case unless the estimated salary income including the value of perquisites, for the financial year exceeds Rs. 50,000. (Some typical examples of computation of tax are given at Annexure-I).
3.2 Payment of tax on non-monetary perquisites by employer - Finance Act, 2002 has given the employer the option to pay the tax on non-monetary perquisites given to an employee. With effect from 1-6-2002, the employer may, at his option, make payment of the tax on such perquisites himself without making any TDS from the salary of the employee. The employer will have to pay such tax at the time when such tax was otherwise deductible i.e. at the time of payment of income chargeable under the head salaries to the employee.
3.3 Computation of average income-tax - For the purpose of making the payment of tax mentioned in para 3.2 above, tax is to be determined at the average of income-tax computed on the basis of rate in force for the financial year, on the income chargeable under the head salaries, including the value of perquisites for which tax has been paid by the employer himself.
Illustration : Suppose that the income chargeable under the head salary of an employee for the year inclusive of all perquisites is Rs. 2,40,000, out of which, Rs. 40,000 is on account of non-monetary perquisites and the employer opts to pay the tax on such perquisites as per the provisions discussed in para 3.2 above.
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Steps: |
Rs. |
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Income Chargeable under the head Salary |
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inclusive of all perquisites: |
2,40,000 |
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Tax on Total Salaries (including surcharge): |
48,300 |
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Average Rate of Tax [(48,300/2,40,000) 100]: |
20.12% |
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Tax payable on Rs. 40,000 : (20.12% of 40,000) |
8,050 |
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Amount required to be deposited each month: (8,050/12) |
671 |
The tax so paid by the employer shall be deemed to be TDS made from
the salary of the employee
3.4 Salary from more than one employer - 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).
3.5 Relief when salary paid in arrear or advance - Under sub-section (2A) of section 192 where the assessee, being a Government servant or an employee in a company, co-operative society, local authority, university, institution, association or body is entitled to the relief under sub-section (1) of section 89, he may furnish to the person responsible for making the payment referred to in Para (3.1), such particulars in Form No. 10E duly verified by him, and thereupon the person responsible as aforesaid shall compute the relief on the basis of such particulars and take the same into account in making the deduction under Para (3.1) above.
Explanation - For this purpose University means a University established or incorporated by or under a Central, State or Provincial Act, and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be University for the purposes of the Act.
3.6 Furnishing of declaration by taxpayer in Form 12C - Sub-section (2B) of section 192 enables a taxpayer to furnish particulars of income under any head other than Salaries and of any tax deducted at source thereon in the prescribed Form (No. 12C) vide Annexure II. Such income should not be a loss under any such head other than the loss under the head Income from house property for the same financial year. The person responsible for making payment (DDO) shall take such other income and tax, if any, deducted at source from such income, and the loss, if any, under the head Income from house property into account for the purpose of computing tax deductible under section 192 of the Income-tax Act. It is, however, provided that this sub-section shall not in any case have the effect of reducing the tax deductible, except where the loss under the head Income from house property has been taken into account, from income under the head Salaries below the amount that would be so deductible if the other income and the tax deducted thereon had not been taken into account.
In other words, the DDO can take into account only the loss from House Property for working out the amount of total tax to be deducted. While taking into the account the loss from House Property, the DDO shall ensure that the assessee files declaration in Form No. 12C and encloses therewith a computation of such loss from House Property.
Sub-section (2C) lays down that a person responsible for paying any income chargeable under the head Salaries shall furnish to the person to whom such payment is made a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof in such form and manner as may be prescribed. (Annexures-IIIA & IIIB). These Forms are required to be filed by the employee along with the Return of Income for the relevant year.
3.7 Conditions for claim of deduction of interest on borrowed capital for computation of income from house property - (i) For the purpose of computing income/loss under the head income from house property in respect of a self-occupied residential house, a normal deduction of Rs. 30,000 is allowable in respect of interest on borrowed capital. However, a deduction on account of interest up to a maximum limit of Rs. 1,50,000 is available if such loan has been taken on or after 1-4-1999 for constructing or acquiring the residential house and the construction or acquisition of the residential unit out of such loan has been completed within three years from the end of the financial year in which capital was borrowed. Such higher deduction is not allowable in respect of interest on capital borrowed for the purposes of repairs or renovation of an existing residential house. To claim the higher deduction in respect of interest upto Rs. 1,50,000, a further condition has been added by the Finance Act, 2002. It is now required that the employee should furnish a certificate from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by such employee for the purpose of construction or acquisition of the residential house or for conversion of a part or whole of the capital borrowed which remains to be repaid as a new loan.
(ii) The essential conditions necessary for availing higher deduction of interest of Rs. 1,50,000 are that the amount of capital must have been borrowed on or after 1-4-1999 and the acquisition or construction of residential house must have been completed within three years from the end of the financial year in which capital was borrowed. There is no stipulation regarding the date of commencement of construction. Consequently, the construction of the residential house could have commenced before 1-4-1999 but, as long as its construction/acquisition is completed within three years, from the end of the financial year in which capital was borrowed the higher deduction would be available in respect of the capital borrowed after 1-4-1999. It may also be noted that there is no stipulation regarding the construction/acquisition of the residential unit being entirely financed by capital borrowed on or after 1-4-1999. The loan taken prior to 1-4-1999 will carry deduction of interest upto Rs. 30,000 only. However, in any case the total amount of deduction of interest on borrowed capital will not exceed Rs. 1,50,000 in a year.
3.8 Adjustment for excess or shortfall of deduction - The provisions of sub-section (3) of section 192 allow the deductor to make adjustments for any excess or shortfall in the deduction of tax already made during the financial year, in subsequent deductions for that employee within that financial year itself.
3.9 TDS on payment of balance under provident fund and superannuation fund - The trustees of a Recognized Provident Fund, or any person authorized by the regulations of the Fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 of Part A of the Fourth Schedule to the Act applies, at the time when the accumulated balance due to an employee is paid, make therefrom the deduction specified in rule 10 of Part A of the Fourth Schedule.
3.10 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.
3.11 Salary paid in foreign currency - For the purposes of deduction of tax on salary payable in foreign currency, the value in rupees of such salary shall be calculated at the prescribed rate of exchange.
Persons responsible for deducting tax and their duties
4.1 Under clause (i) of section 204 of the Act the persons responsible for paying for the purpose of section 192 means the employer himself or if the employer is a Company, the Company itself including the Principal Officer thereof.
4.2 The tax determined as per para 7 should be deducted from the
salary under section 192 of the Act.
4.3 Deduction of tax at lower rate - Section 197 enables the taxpayer to make an application in Form No. 13 to his Assessing Officer, and, if the Assessing Officer is satisfied that the total income of the taxpayer justifies the deduction of income-tax at any lower rate or no deduction of income-tax, he may issue an appropriate certificate to that effect which should be taken into account by the Drawing and Disbursing Officer while deducting tax at source. In the absence of such a certificate furnished by the employee, the employer should deduct income-tax on the salary payable at the normal rates: (Circular No. 147, dated 28-10-1974.)
Deposit of tax deducted
4.4 According to the provisions of section 200, any person deducting any sum in accordance with the provisions of section 192 or paying tax on non-monetary perquisites on behalf of the employee under section 192(1A), shall pay the sum so deducted or tax so calculated on the said non-monetary perquisites, as the case may be, 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.
Penalty for failure to deposit tax deducted
4.5 If a person fails to deduct the whole or any part of the tax at source, or, after deducting, fails to pay the whole or any part of 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 w.e.f. 1-6-2001 on the amount of such tax from the date on which such tax was deductible to the date on which the tax is actually paid. Section 271C lays down that if any person fails to deduct tax at source, he shall be liable to pay, by way of penalty, a sum equal to the amount of tax not deducted by him. Further, section 276B lays down that if a person fails to pay to the credit of the Central Government within the prescribed time the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years, and with fine.
Furnishing of certificate for tax deducted
4.6 According to the provisions of section 203, every person responsible for deducting tax at source is required to furnish a certificate to the payee to the effect that tax has been deducted and to specify therein the amount deducted and certain other particulars. This certificate, usually called the TDS certificate, has to be furnished within a period of one month from the end of the relevant financial year. Even the banks deducting tax at the time of payment of pension are required to issue such certificates. In the case of employees receiving salary income including pension, the certificate has to be issued in Form No. 16 which has been prescribed under Boards notification No. S.O. No. 1062(E), dated 4-10-2002. It is, however, clarified that there is no obligation to issue the TDS certificate (Form 16) in case tax at source is not deductible/deducted by virtue of claims of exemptions and deductions. As per the amended section 192, the responsibility of providing correct and complete particulars of perquisites or profits in lieu of salary given to an employee is placed on the person responsible for paying such income i.e., the person responsible for deducting tax at source. The form and manner of such particulars are prescribed in Rule 26A, Form 12BA and Form 16 of the Income-tax Rules as amended by notification No. S.O. No. 1062(E), dated 4-10-2002 (copy enclosed as Annexures IIIA and IIIB).
A new form (Form 12BA) stating the nature and value of perquisites is to be provided by the employer in case of salary above Rs. 1,50,000. In other cases, the information would have to be provided by the employer in the amended Form 16 itself. In either case, Form 16 with Form 12BA or Form 16 by itself will have to be furnished within a period of one month from the end of relevant financial year.
An employer, who has paid the tax on perquisites on behalf of the employee as per the provisions discussed in paras 3.2 and 3.3, shall furnish to the employee concerned a certificate to the effect that tax has been paid to the Central Government and specify the amount so paid, the rate at which tax has been paid and certain other particulars in the amended Form 16.
The obligation cast on the employer under section 192(2C) for furnishing a statement showing the value of perquisites provided to the employee is a serious responsibility of the employer, which is expected to be discharged in accordance with law and rules of valuation framed thereunder. Any false information, fabricated documentation or suppression of requisite information will entail consequences therefore provided under the law. A specimen of these certificates is enclosed at Annexure III. These certificates are to be issued on the tax deductors own stationery within one month from the close of the financial year i.e., by April 30 of every year. If he fails to issue these certificates 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 be Rs. 100 for every day during which the failure continues.
Mandatory quoting of PAN and TAN
4.7 According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the Tax deduction Account No. (TAN) in the Challans, TDS-certificates, returns etc. Detailed instructions in this regard are available in this Departments Circular No. 497 [F.No. 275/118/87-IT(B), dated 9-10-1987]. If a person fails to comply with the provisions of section 203A, he will be liable to pay, by way of penalty, under section 272BB, a sum of ten thousand rupees. Similarly, as per section 139A(5B), it is obligatory for persons deducting tax at source to quote PAN of the persons from whose income-tax has been deducted in the statement furnished under section 192(2C), certificates furnished under section 203 and all returns prepared and delivered as per the provisions of section 206 of the Income-tax Act, 1961.
Annual return of TDS
4.8 According to the provisions of section 206 of the Income-tax Act, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under section 192, from Salaries shall, after the end of each financial year, prepare and deliver, by 31st May following the financial year, an annual return of deduction of tax to the designated/concerned Assessing Officer. This return has to be furnished in Form No. 24. It may be noted that a copy of each of the TDS certificates issued during the financial year should be enclosed with the annual return. 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 be Rs. 100 for every day during which the failure continues, so, however, that this sum shall not exceed the amount of tax which was deductible at source.
4.9 A return filed on a floppy, diskette, magnetic cartridge tape, CD-ROM or any other computer readable media as may be specified by the Board shall be deemed to be a return for the purposes of section 206 and the Rules made thereunder, and shall be admissible in any proceeding thereunder, without further proof of production of the original, as evidence of any contents of the original or of any fact stated therein. While receiving such returns on computer media, necessary checks by scanning the documents filed on computer media will be carried out and the media may be duly authenticated by the Assessing Officer.
Challans for deposit of TDS
4.10 While making the payment of tax deducted at source to the credit of the Central Government, it may be ensured that the correct amount of income-tax is recorded in the relevant challan. It may also be ensured that the right type of challan is used. The relevant challan for making payment of tax deducted at source from salaries is No. 9 with Blue colour Band. Where the amount of tax deducted at source is credited to the Central Government through book adjustment, care should be taken to ensure that the correct amount of income-tax is reflected therein.
TDS on income from pension
4.11 In the case of pensioners who receive their pension from a nationalized 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 : refer Para 6(18)] will be allowed by the concerned bank at the time of deduction of tax at source from the pension, before making payment to the concerned pensioner. As regards the tax rebate under section 88 on account of contribution to Life Insurance, Provident Fund, NSC etc., if the pensioners furnish the relevant details to the banks, the tax rebate at the specified rate may also be allowed. Necessary instructions in this regard were issued by the Reserve Bank of India to the State Bank of India and other nationalized Banks vide RBIs Pension Circular (Central Series) No. 7/C.D.R./1992 (Ref. CO:DGBA:GA(NBS) No. 60/GA.64 (11CVL)-91/92), dated the 27th April, 1992, and, these instructions should be followed by all the branches of the Banks, which have been entrusted with the task of payment of pensions. Further all branches of the banks are bound under section 203 to issue certificate of tax deducted in Form 16 to the pensioners also vide. CBDT Circular No. 761, dated 13-1-1998.
Important circulars
4.12 Where Non-Residents are deputed to work in India and taxes are borne by the employer, if any refund becomes due to the employee after he has already left India and has no bank account in India by the time the assessment orders are passed, the refund can be issued to the employer as the tax has been borne by it : Circular No. 707, dated 11-7-1995.
4.13 TDS certificates issued by Central Government departments which are making payments by book adjustment, should be accepted by the Assessing Officers if they indicate that credit has been effected to the Income-tax Department by book adjustment and the date of such adjustment is given therein. In such cases, the Assessing Officers may not insist on details like challan numbers, dates of payment into Government Account etc., but they should in any case satisfy themselves regarding the genuineness of the certificates produced before them : Circular No. 747, dated 27-12-1996.
4.14 There is a specific procedure laid down for refund of payments made by the deductor in excess of taxes deducted at source, vide Circular No. 285, dated 21-10-1980.
4.15 In respect of non-residents, the salary paid for services rendered in India shall be regarded as income earned in India. It has been specifically provided in the Act that any salary payable for rest period or leave period which is both preceded or succeeded by service in India and forms part of the service contract of employment will also be regarded as income earned in India.
Estimation of income under the head salaries
5.1 Income chargeable under the head Salaries - (1) The following income shall be chargeable to income-tax under the head Salaries:
(a) any
salary due from an employer or a former employer to an assessee
in the previous year, whether paid or not;
(b) any
salary paid or allowed to him in the previous year by or on behalf of an
employer or a former employer though not due or before it became due to him;
(c) any
arrears of salary paid or allowed to him in the previous year by or on behalf
of an employer or a former employer, if not charged to income-tax for any
earlier previous year.
(2) For the removal of doubts, it is clarified that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due. Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as Salary.
Definition of 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 recognized provident fund to the extent it is chargeable to tax under rule 6 of Part A of the Fourth Schedule of the Income-tax Act. Contributions made by the employer to the account of the employee in a recognized provident fund in excess of 12% of the salary of the employee, along with interest applicable, shall be included in the income of the assessee for the previous year. Other items included in salary, profits in lieu of salary and perquisites are described in section 17 of the Income-tax Act. The scope of the 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) Section 17 defines the terms salary, perquisite and profits in lieu of salary.
Perquisite includes:
(a) the
value of rent free accommodation provided to the employee by his employer;
(b) the
value of any concession in the matter of rent in respect of any accommodation
provided to the employee by his employer;
(c) the
value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:
(i) By a company to an employee who is a director
of such company;
(ii) By
a company to an employee who has a substantial interest in the company;
(iii) By
an employer (including a company) to an employee, who is not covered by (i) or (ii) above and whose income under the
head Salaries (whether due from or paid or allowed by one or more employers),
exclusive of the value of all benefits and amenities not provided by way of
monetary payment, exceeds Rs. 50,000.
The rules relating to valuation of such benefits and amenities have been prescribed in Rule 3. It is further provided that profits in lieu of salary shall include amounts received in lump sum or otherwise, prior to employment or after cessation of employment for the purposes of taxation. The rules for valuation of perquisite are as under:
I. Accommodation - Under the old Rule 3, for purpose of valuation of the perquisite of unfurnished accommodation all employees were divided into three categories: (i) Central & State Government employees, (ii) employees of public sector undertaking and semi-government organization and (iii) others including, private sector employees. Under the said Rule for purposes of valuation of perquisites of accommodation, employees are divided into two categories: (i) Govt. & State Govt. employees; and (ii) Others.
For employees of the Central and State Government the value of perquisite shall be equal to the licence fee charged for such accommodation.
For all others, i.e., those salaried taxpayers not in employment of the Central Government and the State Government, the valuation of perquisite in respect of accommodation would be at prescribed rates. The rate is 10% of salary in cities having population exceeding four lakhs as per the 1991 census. For other places, the perquisite value would be 7.5% of salary.
The scope of the word accommodation has been widened by clarifying that it includes a house, flat, farm house, hotel accommodation, motel, service apartment guest house, a caravan, mobile home, ship etc. However, the value of any accommodation located in a remote area provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site or an accommodation provided in an off-shore site will not be treated as a perquisite. A project site for the purposes of this sub-rule means a site of project upto the stage of its commissioning. A remote area means an area located at least 40 kilometres away from a town having a population not exceeding 20,000 as per the latest published all India census. Off-shore sites of similar nature do not have to meet any requirement of distance.
The definition of salary for calculating perquisite value is the same as per earlier Rules. The only change is that medical allowances and reimbursement for treatment of serious illness as prescribed in the proviso below section 17(2)(vi) have now been excluded from the definition of salary for this purpose. For furnished accommodation, the provision of valuation of perquisite of furnishings, fittings and furniture at 10% of original cost per annum or actual hire charges is continued.
In case of employer other than Central and State Govt., where accommodation is taken on lease or rent by employer, actual amount of lease rental paid or payable by the employer or 10% of salary whichever is lower, as reduced by the rent, if any, actually paid by the employee, is taken as perquisite.
If an accommodation is provided by an employer in a hotel the value of the benefit in such a case shall be 24% of the annual salary or the actual charges paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided is reduced by any rent actually paid or payable by the employee. However, where in cases the employee is provided such accommodation for a period not exceeding in aggregate fifteen days on transfer from one place to another, no perquisite value for such accommodation provided in a hotel shall be charged. It may be clarified that while services provided as an integral part of the accommodation, need not be valued separately as perquisite, any other services over and above that for which the employer makes payment or reimburses the employee shall be valued as a perquisite as per the residual clause. In other words, composite tariff for accommodation will be valued as per these Rules and any other charges for other facilities provided by the hotel will be separately valued under the residual clause. Also, if on account of an employees transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value as per the table prescribed in Rule 3 of the Income-tax Rules, for a period upto 90 days. However, after that the value of perquisite shall be charged for both accommodations as prescribed.
II. Motor Car :
(a) Where
the motor car is owned or hired by the employer and is used wholly and
exclusively in the performance of his official duties, no perquisite arises in
the hands of the employee, subject to maintenance of documents as prescribed in
sub-para (f) below. No
perquisite arises even if the motor car is owned by the employee himself but
the actual running and maintenance charges (including remuneration of the
chauffeur, if any) are reimbursed to him by the employer, provided that the
motor car is used wholly and exclusively for official purposes and the
documents as prescribed in sub-para (f)
below are maintained.
(b) Where
the motor car is owned or hired by the employer and is used exclusively for the
private or personal purpose of the employee, the value of perquisite would be
equal to the actual amount of expenditure incurred by the employer on the
running and maintenance of the motor car (including remuneration of the
chauffeur, if any), as increased by the amount representing 10% of the actual
cost of the motor car on account of normal wear and tear and as reduced by any
amount charged from the employee for such use.
(c) Where
the motor car is owned by the employee but the actual running and maintenance
charges (including remuneration of the chauffeur, if any) are reimbursed to him
by the employer and such reimbursement is for the use of the vehicle partly for
official and partly for personal or private purposes, the value of perquisite
shall be the actual amount of expenditure incurred by the employer as redued by the amounts specified in column (I) of the Table
below.
(d) Where
the motor car is owned or hired by the employer and is used partly in the
performance of his duties and partly for personal or private purposes, the
value of perquisite shall be determined as per the Table below:
|
|
Small car (upto
1.6 ltrs engine capacity) |
|
Large car (above 1.6 ltrs
engine capacity) |
|
If Chauffeur provided by employer to run
the motor car, an additional amount as below is also charged |
|
(i)
Car owned/hired by employer and expenses on maintenance and running are met
or reimbursed by the employer. |
Rs. 1200 per month |
|
Rs. 1600 per month |
|
Rs. 600 per month |
|
(ii) Car owned/hired by
employer but the expenses on running and maintenance for such private or
personal use are fully met by the employee. |
Rs. 400 per month |
|
Rs. 600 per month |
|
Rs. 600 per month |
(e) However,
where a second or additional cars are provided, such other cars shall be deemed
to be for exclusively personal use and the value of perquisite shall be
computed accordingly.
(f) In
a situation described in para (c)
above, if it is claimed that the expenses on running and maintenance of the
motor car for official purposes are higher than the amount mentioned in Column
I of the Table above, such higher amount can be claimed as a deduction from the
actual amount of expenditure incurred by the employer, subject to the fulfilment of the following conditions:
(i) the employer has maintained complete details
of journeys undertaken for official purpose which may include date of journey,
destination, mileage and the amount of expenditure incurred thereon; and
(ii) the
employer gives a certificate that the expenditure was incurred wholly and
exclusively for the performance of his official duties.
III. Personal attendants etc. - The old rules provided for valuation of perquisite of free services of a sweeper, a gardener and a watchman at Rs. 120 per month. Under the new rules, the value of free service of all personal attendants including a sweeper, gardener, and a watchman is to be at actual cost to the employer. Where the attendant is provided at the residence of the employee, full cost will be taxed as perquisite in the hands of the employee irrespective of the degree of personal service rendered to him. Any amount paid by the employee for such facilities or services shall be reduced from the above amount.
IV. Gas, electricity & water - For free supply of gas, electricity and water for household consumption, the rules provide that the amount paid by the employer to the agency supplying the amenity shall be the value of perquisite. However, when the supply is made from employers own resources, under the old rules the value of perquisite was taken as Nil. There was also a separate provision in the old rules for valuation at 6.25% of salary of the taxpayer for part official use. This has been discontinued. Under the new rules even where the supply is made from the employers own resources, the manufacturing cost per unit incurred by the employer would be the value of perquisite. Any amount paid by the employee for such facilities or services shall be reduced from the above amount.
V. Free or concessional education - The old rules already provide that value of free education facility would be the expenditure incurred by the employer. Under the new rules free or concessional education shall be valued in a manner assuming that such expenses are borne by the employee, and would cover cases where an employer may be running, maintaining or directly or indirectly financing the educational institution. Any amount paid by the employee for such facilities or services shall be reduced from the above amount. However, where such educational institution itself is maintained and owned by the employer or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality if the cost of such education or such benefit per child exceeds Rs. 1,000 p.m.
VI. Free or concessional journeys - The perquisite value of free or concessional journeys provided by an employer engaged in carriage of passengers or goods shall be taken as the value at which such benefit or amenity is offered by such undertaking to the public, as reduced by any amount actually paid by the employee. The conveyance may be owned, leased or made available by any other arrangement by the employer. However, no perquisite on account of free or concessional journeys arises in the case of the employees of the Railways. Journey tickets for leave travel, tours and transfers which are already exempt under section 10(5) and 10(14) would continue to be exempt.
VII. Interest free or concessional loans - It is common practice particularly in financial institutions to provide interest free or concessional loans to employees. The value of such perquisite would be the excess of interest payable at prescribed interest rate over interest if any actually paid by the employee. The prescribed interest rate would now be 10% p.a. for loans for housing and conveyance and 13% p.a. for other loans. Perquisite value would be calculated on the basis of the maximum outstanding monthly balance by the simple interest method. For valuing perquisites under this rule, any other method of calculation and adjustment otherwise adopted by the employer shall not be relevant. The concessional rate of interest of 10% is applicable only in respect of such housing or conveyance loans which have been used for acquiring capital assets i.e., house or conveyance, as the case may be, and not for repairs thereof. In case of loans taken for repairs, renovations etc., the higher interest rate of 13% would be applicable for calculation of perquisite.
Small loans upto Rs. 20,000 in the aggregate are exempt. Loans for medical treatment specified in Rule 3A are also exempt, provided the amount of loan for medical reimbursement is not reimbursed under any medical insurance scheme. Where any medical insurance reimbursement is received, the perquisite value at the rate of 13% shall be charged from the date of reimbursement on the amount reimbursed, but not repaid against the outstanding loan taken specifically for this purpose.
VIII. Travelling, touring, accommodation and other holiday expenses - It is increasingly common for employees to be provided with vacation and holiday facilities. The value of such perquisite shall be the expenditure incurred by the employer. This would also apply to official tours extended as a vacation and family members accompanying taxpayers on official tours. However, leave travel as per section 10(5) and enjoyment of holiday home facilities available uniformly to all classes of employees would remain exempt.
IX. Free meals - The provision of free meals varies widely from uniform canteen food, coupons etc. to lavish hotel meals. The scheme of free meals as a staff welfare measure had been recognized and was admissible upto Rs. 35 for each meal. The new rule does not treat as perquisite free meals if the cost per meal does not exceed Rs. 50. Where any amount is recovered from the employee, such amount shall be reduced from the value of perquisite. Such free or subsidized meal should however be provided at office premises or through non-transferable vouchers meant for only meals during working hours. These vouchers should be provided by employers encashable only at an eatery, a restaurant or a cafe. Tea or similar non-alcoholic beverages and snacks in the form of light refreshments during working hours are not charged as perquisite. Also, arrangements for meals in remote areas as prescribed in para 5.1(1) and similar off-shore sites as specified, shall be exempt. However, expenditure on provision of free meals by the employer in excess of Rs. 50 should be treated as perquisite, as reduced by recoveries made from the employee.
X. Gift, voucher or token in lieu of gift - The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise shall be determined as the sum equal to the amount of such gift. However, where the value of such gift, voucher or token, as the case may be, is below Rs. 5,000 in the aggregate during the previous year, the value of perquisite shall be taken as nil.
XI. Credit card & Club expenses - Credit card expenses of employees both business and personal, are often borne by employers. Such credit card payments would ordinarily be chargeable to tax as a perquisite. However, these expenses are often incurred to entertain customers and clients for the purposes of business. Therefore where such expenses on entertainment including meals are for purposes of business and proper records for the same are maintained no perquisite would arise. Club expenses of employees borne by employers are charged as perquisite in terms of section 17(2)(iv). It has been specifically provided in the rules that annual and periodical club fees paid by the employer will be chargeable as perquisite. However, to ensure that basic facilities for the health and recreation of employees are not hit, health clubs, sports facilities etc. provided uniformly to all classes of employees by the employer at the employers premises are exempt. The initial one time deposit or fees for corporate or institutional membership, where the benefit does not remain with the employee after cessation of employment, are exempt. Where such expenses on entertainment including meals are for purposes of business and proper records for the same are maintained no perquisite would arise.
For credit card and club expenses to be exempt for business purposes, the following documentation needs to be maintained by the employer:
(a) complete
details in respect of such expenditure including the date of expenditure and
the nature of expenditure;
(b) a
certificate by employer to the employee to the effect that the same was
incurred wholly and exclusively for the performance of official duties.
XII. Use of assets - It is common practice for an asset owned by the employer to be used by the employee. This perquisite is to be charged at the rate of 10 per cent of the original cost of the asset as reduced by any charges recovered from the employee for such use. However, the user of Computers and Laptops would not give rise to any perquisite.
XIII. Transfer of assets - Often an employee or member of his household benefits from the transfer of movable asset (not being shares or securities) at no cost or at a cost less than its market value from the employer. The difference between the original cost of the movable asset (not being shares or securities) and the sum, if any, paid by the employee, shall be taken as the value of perquisite. In case of a movable asset, which has already been put to use, the original cost shall be reduced by a sum of 10 per cent of such original cost for every completed year of use of the asset. Owing to a higher degree of obsolescence, in case of computers and electronic gadgets, however, the value of perquisite shall be worked out by reducing 50 per cent of the actual cost by the reducing balance method for each completed year of use. Electronic gadgets in this case means data storage and handling devices like computer, digital diaries and printers. They do not include household appliance (i.e., white goods) like washing machines, microwave ovens, mixers, hot plates, ovens etc. Similarly, in case of cars, the value of perquisite shall be worked out by reducing 20 per cent of its actual cost by the reducing balance method for each completed year of use.
XIV. Employee Stock Option Plan - Prior to Finance Act, 2000, stock options were taxed at two stages i.e., as perquisite (on the amount representing the difference between the exercise price and the fair market value on the date of exercise), and as capital gains at the time of transfer of the same. With effect from 1-4-2001 (relevant to assessment year 2001-02) onward, stock options issued as per guidelines of the Central Government are to be taxed only once, at the time of sale, as capital gains. In cases, where perquisite has been assessed with reference to exercise of the option by the employee under section 17(2), the fair market value at the time of exercise of the option shall be the cost of acquisition of share for working out the capital gains. The relevant guidelines of the Central Government have been issued vide Notification No. 1021(E), dated 11-10-2001. Stock options not in conformity with the above guidelines (non-qualified stock options) shall continue to be taxed at both the stages.
XV. Residual Clause - A benefit or amenity not included in the rules shall be valued at the cost under an arms-length transaction to the employer where the employer pays for the benefit or amenity. However, the benefit of conveyance to and from residence to place of work, periodicals and journals required for discharge of work and expenses on telephones including a mobile phone shall not be included in calculating perquisite value.
It is pertinent to mention that benefits specifically exempt under sections 10(13A), 10(5), 10(14), 17 etc. would continue to be exempt. These include benefits like travel on tour and transfer, leave travel, daily allowance to meet tour expenses as prescribed, medical facilities subject to conditions.
Incomes not included in the Head Salaries (Exemptions)
5.2 Any income falling within any of the following clauses shall not be included in computing the income from salaries for the purpose of section 192 of the Act:
(1) The value of any travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding (a) on leave to any place in India or (b) on retirement from service, or, after termination of service to any place in India is exempt under clause (5) of section 10 subject, however, to the conditions prescribed in rule 2B of the Income-tax Rules, 1962. For the purpose of this clause, family in relation to an individual means:
(i) the spouse and children of the individual; and
(ii) the
parents, brothers and sisters of the individual or any of them, wholly or
mainly dependent on the individual.
It may also be noted that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.
(2) Death-cum-retirement gratuity or any other gratuity which is exempt to the extent specified from inclusion in computing the total income under clause (10) of section 10.
(3) Any payment in commutation of pension received under the Civil Pension (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union, or holders of civil posts/posts connected with defence, under the Union, or civil posts under a State, or to the members of the All India Services/Defence Services, or, to the employees of a local authority or a corporation established by a Central, State or Provincial Act, is exempt under sub-clause (i) of clause (10A) of section 10. As regards payments in commutation of pension received under any scheme of any other employer, exemption will be governed by the provisions of sub-clause (ii) of clause (10A) of section 10.
(4) Any payment received by an employee of the Central Government or a State Government, as cash-equivalent of the leave salary in respect of the period of earned leave 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 ten months leave. This exemption will be further limited to the maximum amount specified by the Government of India Notification No. S.O. 588(E), dated 31-5-2002 at Rs. 3,00,000 in relation to such employees who retire, whether on superannuation or otherwise, after the 1st day of April, 1998.
(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. The maximum limit of such payment is Rs. 5,00,000 where retrenchment is on or after 1-1-1977.
(6) Under section 10(10C), any payment received by an employee of the following bodies at the time of his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of public sector company, a scheme of voluntary separation, is exempted from income-tax to the extent that such amount does not exceed five lakh rupees :
(a) A
public sector company;
(b) Any
other company;
(c) An
Authority established under a Central, State or Provincial Act;
(d) A
Local Authority;
(e) A
Cooperative Society;
(f) A
university established or incorporated or under a Central, State or Provincial
Act, 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 Institute of
Technology Act, 1961;
(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. The exemption of amount received under VRS is extended to employees of the Central Government and State Government employees.
(7) Any sum received under a Life Insurance Policy, including the sum allotted by way of bonus on such policy other than any sum received under sub-section (3) of section 80DDA.
(8) Any payment from a Provident Fund to which the Provident Funds Act, 1925 (19 of 1925), applies (or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette).
(9) Under section 10(13A) of the Income-tax Act, 1961, any special allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee is exempt from income-tax to the extent as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations. According to rule 2A of the Income-tax Rules, 1962, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be :
(a) The
actual amount of such allowance received by an employer in respect of the
relevant period; or
(b) The
actual expenditure incurred in payment of rent in excess of 1/10 of the salary
due for the relevant period; or
(c) Where
such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50 per
cent of the salary due to the employee for the relevant period; or
(d) Where
such accommodation is situated in any other place, 40 per cent of the salary
due to the employee for the relevant period, whichever is the least.
For this purpose, Salary includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in Rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the House Rent Allowance or any portion thereof from the total income of the employee.
Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance upto Rs. 3,000 per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.
(10) Clause (14) of section 10 provides for exemption of the following allowances :
(i) Any special allowance or benefit granted to an
employee to meet the expenses incurred in the performance of his duties as
prescribed under Rule 2BB subject to the extent to which such expenses are
actually incurred for that purpose.
(ii) Any
allowance granted to an employee 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) which has been amended vide Notification No. SO 403(E), dated 24-4-2000 (F.No. 142/34/99-TPL). The transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of duty is exempt to the extent of Rs. 800 per month vide Notification No. S.O. 395(E), dated 13-5-1998.
(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-N.S.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) Clause (18) of section 10 provides for exemption of any income by way of pension received by an individual or family pension received by any member of the family of an individual who has been in the service of the Central Government or State Government and has been awarded Param Vir Chakra or Maha Vir Chakra or Vir Chakra or such other gallantry award as may be specifically notified by the Central Government. Such notification has been made vide Notification Nos. S.O. 1948(E), dated 24-11-2000 and 81(E), dated 29-1-2001 which are enclosed as per Annexures IVA & IVB.
(13) 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 as provided in Rule 3A(2) of
Income-tax Rules, 1962, in any hospital approved by the Chief Commissioner
having regard to the prescribed guidelines as provided in Rule 3(A)(1) of
Income-tax Rules, 1962:
In
a case falling in sub-clause (ii)
above, the employee shall attach with his return of income a certificate from
the hospital specifying the disease or ailment for which medical treatment was
required and the receipt for the amount paid to the hospital.
(c) premium
paid by the employer in respect of medical insurance taken for his employees
(under any scheme approved by the Central Government) or reimbursement of
insurance premium to the employees who take medical insurance for themselves or
for their family members (under any scheme approved by the Central Government);
(d) reimbursement,
by the employer, of the amount spent by an employee in obtaining medical
treatment for himself or any member of his family from any doctor, not
exceeding in the aggregate Rs. 15,000 in an year.
(e) as
regards medical treatment abroad, the actual expenditure on stay and treatment
abroad of the employee or any member of his family, or, on stay abroad of one
attendant who accompanies the patient, in connection with such treatment, will
be excluded from perquisites to the extent permitted by the Reserve Bank of
India. It may be noted that the expenditure incurred on travel abroad by the
patient/attendant, it shall be excluded from perquisites only if the employees
gross total income, as computed before including the said expenditure, does not
exceed Rs. 2 lakhs.
For the purpose of availing exemption on expenditure incurred on medical treatment hospital includes a dispensary or clinic or nursing home. Family in relation to an individual means the spouse and children of the individual. Family also includes parents, brothers and sisters of the individual if they are wholly or mainly dependent on the individual.
5.3 Deductions under section 16 of the Act (Standard Deduction) - Under section 16 of the Income-tax Act, the standard deduction available is as under :
In the case of an assessee whose income from salary, before allowing a deduction under this clause :
(a) does not exceed one lakh
fifty thousand rupees, a deduction of a sum equal to thirty-three and one-third
per cent of the salary or thirty thousand rupees, whichever is less.
(b) exceeds one lakh
fifty thousand rupees but does not exceed three lakh
rupees, a deduction of a sum of twenty five thousand rupees.
(c) exceeds three lakh
rupees but does not exceed five lakh rupees, a
deduction of a sum of twenty thousand rupees;
No standard deduction is available to an assessee whose income from salary exceeds 5 lakh rupees.
Explanation : For the purposes of this clause, where salary is due from, or paid or allowed by, more than one employer, the deduction under this clause shall be computed with reference to the aggregate salary due, paid or allowed to the assessee and shall in no case exceed the amount specified under this clause.
Entertainment Allowance - A deduction is also allowed under clause (ii) of section 16 in respect of any allowance in the nature of an entertainment allowance specifically granted to the assessee by his employer, who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees whichever is less. The deduction hitherto available to non-government employees has been withdrawn.
Tax on Employment - The tax on employment within the meaning of clause (2) of article 276 of the Constitution of India leviable by, or, under any law, shall also be allowed as a deduction in computing the income under the head Salaries.
5.4 Deductions under Chapter VI-A of the Act - The following deductions under Chapter VI-A of the Act are available:
(1) As per section 80CCC, where an assessee being an individual has in the previous year paid or deposited any amount out of his income chargeable to tax to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer 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, 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 shall be in accordance with a scheme framed in this behalf by
(a) the
General Insurance Corporation of India formed under section 9 of the General
Insurance Business (Nationalization) Act, 1972 and approved by the Central
Government in this behalf; or
(b) any
other insurer and approved by the Insurance Regulatory and Development
Authority established under sub-section (1) of section 3 of the Insurance
Regulatory and Development Authority Act, 1999.
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.
However, the deduction can be allowed for a sum not exceeding Rs. 15,000 per annum where the assessee or his wife or husband, or dependent parents or any member of the family (in case the assessee is a Hindu Undivided Family) is a senior citizen which means an individual resident in India who is of the age of sixty-five years or more at any time during the relevant previous year.
(3) Under section 80DD an assessee, who is a resident in India being an individual or a Hindu Undivided Family has during the previous year
(a) incurred
any expenditure for the medical treatment (including Nursing), training and
rehabilitation of a handicapped dependent, or
(b) paid
or deposited any amount under a Scheme framed in this behalf by the Life
Insurance Corporation or any other insurer or Unit Trust of India subject to
the conditions specified in sub-section (2) and approved by the Board in this
behalf for the maintenance of handicapped dependent
shall in accordance with and subject to the provisions of this section be allowed a deduction of a sum of forty thousand rupees in the previous year.
The handicapped dependent means a person who is a Relative (as defined in section 2(41) of the Income-tax Act, 1961) of the individual or a member of HUF and is not dependent on any person other than such individual or HUF for his support and maintenance and is suffering from permanent physical disability (including blindness or mental retardation, specified in rule 11A of the Income-tax Rules, 1962). The deduction will be available to individuals without any restriction with regard to their total income. The permanent physical disability or mental retardation of the dependent relative has to be certified by a physician, surgeon, oculist or a psychiatrist as the case may be, working in a Government hospital, including a Departmental dispensary or a hospital maintained by a local authority as per Explanation given below section 80DD. It would be sufficient if the employee furnishes a medical certificate from a Government Hospital and a declaration in writing duly signed by the claimant certifying the actual amount of expenditure on account of medical treatment (including nursing) training and rehabilitation of the handicapped dependent and receipt/acknowledgement for the amount paid or deposited in the specified schemes of LIC or UTI. Therefore, DDOs may not insist on production of vouchers/bills by the employees for having incurred expenditure on medical treatment of their handicapped dependents for allowing the deduction under section 80DD for the purpose of computing tax deductible at source. (Ref. CBDT Circular No. 775, dated 26-3-1999)
(4) Under section 80DDB, where an assessee who is resident in India has, during the previous year, actually incurred any expenditure on the medical treatment of such disease or ailment as may be specified in rule 11DD made in this behalf by the Board
(a) for
himself or a dependent relative, in case the assessee
is an individual,
(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 forty thousand rupees in respect of that previous year in which such expenditure was actually incurred. However, if the assessee or his dependent relative, or any member of the Hindu Undivided Family of the assessee, is a senior citizen, a deduction of a sum of Rs. 60,000 shall be allowed in respect of that previous year in which such expenditure was actually incurred. Such deduction shall be reduced by the amount received, if any, under an insurance from an insurer on the medical treatment of the person referred to above. The listed diseases as per the relevant Rule 11DD are specified neurological diseases, and 40 per cent and above disability caused by cancer, full-blown AIDS, Chronic Renal Failure, Hemophilia and Thalassaemia :
Provided that no such deduction shall be allowed unless the assessee furnishes a certificate in such form and from such Authority as may be prescribed. The form is Form 10-I, and the Prescribed Authority is any doctor registered with the Indian Medical Association and holding Post-graduate qualifications.
For the purposes of this section, dependent means a person who is not dependent for his support or maintenance on any person other than the assessee.
(5) Under section 80E of the Act a deduction will be allowed in respect of repayment of loan taken for higher education, subject to the following conditions :
(i) In computing the total income of an assessee, being an individual, 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 forty thousand
rupees.
(ii) The
deduction specified above shall be allowed in computing the total income in
respect of the initial assessment year and seven assessment years immediately
succeeding the initial assessment year or until the loan referred to above
together with interest thereon is paid by the assessee
in full, whichever is earlier.
For this purpose
(a) approved
charitable institution means an institution established for charitable purposes
and notified by the Central Government under clause (2C) of section 10, or, an institution referred to in clause (a) of sub-section (2) of section 80G.
(b) financial
institution means a banking company to which the Banking Regulation Act, 1949
(10 of 1949) applies (including any bank or banking institution referred to in
section 51 of that Act); or any other financial institution which the Central
Government may, by notification in the Official Gazette, specify in this
behalf;
(c) higher
education means full-time studies for any graduate or post-graduate course in
engineering medicine, management, or, for post-graduate course in applied
sciences or pure sciences, including mathematics and statistics;
(d) initial
assessment year means the assessment year relevant to the previous year, in
which the assessee starts repaying the loan or
interest thereon.
(6) No deduction should be allowed by the D.D.O. from the salary income in respect of any donations made for charitable purposes. The tax relief on such donations as admissible under section 80G of the Act, will have to be claimed by the tax payer in the return of income. However, D.D.O. on due verification may allow donations to following bodies to the extent of 50 per cent of the contribution :
(i) Jawaharlal Nehru Memorial Fund,
(ii) The
Prime Ministers Drought Relief Fund,
(iii) The
National Childrens Fund,
(iv) The
Indira Gandhi Memorial Trust,
(v) The
Rajiv Gandhi Foundation,
and to the following bodies to the extent of 100 per cent of the contribution:
(i) National Defence
Fund or The Prime Ministers National Relief Fund.
(ii) The
Prime Ministers Armenia Earthquake Relief Fund.
(iii) The
Africa (Public Contributions - India) Fund.
(iv) The
National Foundation for Communal Harmony.
(v) Chief
Ministers Earthquake Relief Fund - Maharashtra.
(vi) National
Blood Transfusion Council.
(vii) State
Blood Transfusion Council.
(viii) Army
Central Welfare Fund.
(ix) Indian
Naval Benevolent Fund.
(x) Air
Force Central Welfare Fund.
(xi) The
Andhra Pradesh Chief Ministers Cyclone Relief Fund - 1996.
(xii) The National Illness Assistance Fund.
(xiii) The Chief Ministers Relief Fund or Lieutenant
Governors Relief Fund in respect of any State or Union Territory as the case
may be, subject to certain conditions.
(xiv) The
University or Educational Institution of national eminence approved by the
Prescribed Authority.
(xv) The
National Sports Fund to be set up by the Central Government.
(xvi) The National Cultural Fund Set up by the
Central Government.
(xvii) The Fund for Technology Development and
Application set by the Central Government.
(xviii) The National Trust for Welfare of persons with
Autism, Cerebral Palsy, Mental Retardation and Multiple disabilities.
(7) Under section 80GG of the Act an assessee is entitled to a deduction in respect of house rent paid by him for his own residence. Such deduction is permissible subject to the following conditions :
(a) the
assessee has not been in receipt of any House Rent
Allowance specifically granted to him which qualifies for exemption under
section 10(13A) of the Act;
(b) the
assessee files the declaration in Form No. 10BA.
(Annexure-V);
(c) he
will be entitled to a deduction in respect of house rent paid by him in excess
of 10 per cent of his total income, subject to a ceiling of 25 per cent thereof
or Rs. 2,000 per month, whichever is less. The total
income for working out these percentages will be computed before making any
deduction under section 80GG;
(d) the
assessee does not own :
(i) any residential accommodation himself or by
his spouse or minor child or where such assessee is a
member of a Hindu Undivided Family, by such family, at the place where he
ordinarily resides or performs duties of his office or carries on his business
or profession; or
(ii) at
any other place, any residential accommodation being accommodation in the
occupation of the assessee, the value of which is to
be determined under sub-clause (i) of clause (a),
or as the case may be, clause (b)
of sub-section (2) of section 23 :
The Drawing and Disbursing Authorities should satisfy themselves that all the conditions mentioned above are satisfied before such deduction is allowed by them to the assessee. They should also satisfy themselves in this regard by insisting on production of evidence of actual payment of rent.
(8) Section 80L of the Income-tax Act allows deduction of interest from certain specified investments including interest on bank deposits and certain securities. A normal deduction of upto Rs. 12,000 may be allowed. An additional deduction of Rs. 3,000 for interest on Government Securities is separately available.
(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 certified by a physician, surgeon, oculist or psychiatrist as the case may be, working in a Government Hospital and which has the effect of reducing considerably such individuals capacity for normal work or engaging in a gainful employment or occupation. The expression Government hospital will include a departmental dispensary or a hospital maintained by a Local Authority as specified in section 80DD(4).
Tax rebate
6. An assessee, being an individual, will be entitled to tax rebates under Chapter VIII of the Act as given below :
(1) Payment of insurance premium to effect or to keep in force an insurance on the life of the individual, the wife or husband or any child of the individual.
(2) Any payment made to effect or to keep in force a contract for a deferred annuity, not being an annuity plan as is referred to in item (8) herein below on the life of the individual, the wife or husband or any child of the individual, provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity.
(3) Any sum deducted from the salary payable by, or, on behalf of the Government to any individual, being a sum deducted in accordance with the conditions of his service for the purpose of securing to him a deferred annuity or making provision for his wife or children, insofar as the sum deducted does not exceed 1/5th of the salary.
(4) Any contribution made:
(a) by
an individual to any Provident Fund to which the Provident Fund Act, 1925
applies;
(b) to
any provident fund set up by the Central Government, and notified by it in this
behalf in the Official Gazette, where such contribution is to an account standing
in the name of an individual, or a minor, or of whom he is a guardian;
(c) by
an employee to a Recognized Provident Fund;
(d) by
an employee to an Approved Superannuation Fund;
It may be noted that contribution to any Fund shall not include any sums in repayment of loan.
(5) Any deposit in a ten year account or a fifteen year account under the Post Office Savings Bank (Cumulative Time Deposit) Rules, 1959, as amended from time to time, where such sums are deposited in an account standing in the name of an individual, or a minor, or of whom he is the guardian.
(6) Any subscription:
(a) to
any such security of the Central Government or any such deposit scheme as the
Central Government may, by notification in the Official Gazette, specify in
this behalf;
(b) to
any such saving certificates as defined under section 2(c) of the Government Saving Certificate Act, 1959 as the
Government may, by notification in the Official Gazette, specify in this
behalf. Interest on NSC (VI Issue) and NSC (VIII Issue) which is deemed
investment also qualifies for the rebate.
(7) Any sum paid as contribution in the case of an individual, for himself, spouse or any child,
(a) for
participation in the Unit Linked Insurance Plan, 1971 of the Unit Trust of
India;
(b) for
participation in any unit-linked insurance plan of the LIC Mutual Fund notified
by the Central Government under clause (23D)
of section 10.
(8) Any subscription made to effect or keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may by notification in the Official Gazette, specify.
(9) Any subscription not exceeding rupees ten thousand, made to any units of any Mutual Fund, notified under clause (23D) of section 10, by the Unit Trust of India established under the Unit Trust of India Act, 1963, under any plan formulated in accordance with any scheme as the Central Government, may, by notification in the Official Gazette, specify in this behalf.
(10) Any contribution made by an individual to any pension fund set up by any Mutual Fund notified under clause (23D) of section 10, or, by the Unit Trust of India established under the Unit Trust of India Act, 1963, as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(11) Any subscription made to any such deposit scheme of, or, any contribution made to any such pension fund set up by, the National Housing Bank, as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(12) Any subscription made to any such deposit scheme (not being a scheme the interest on deposits whereunder qualifies for deduction under section 80L), as the Central Government may, by notification in the Official Gazette, specify for the purpose of being floated by (a) public sector companies engaged in providing long-term finance for construction or purchase of houses in India for residential purposes, or, (b) any authority constituted in India by, or, under any law, enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both.
(13) Any sums paid by an assessee for the purpose of purchase or construction of a residential house property, the income from which is chargeable to tax under the head Income from house property (or which would, if it has not been used for assessees own residence, have been chargeable to tax under that head) where such payments are made towards or by way of any instalment or part payment of the amount due under any self-financing or other scheme of any Development Authority, Housing Board etc. The deduction will also be allowable in respect of re-payment of loans borrowed by an assessee from the Government, or any bank or Life Insurance Corporation, or National Housing Bank, or certain other categories of institutions engaged in the business of providing long term finance for construction or purchase of houses in India. Any repayment of loan borrowed from the employer will also be covered, if the employer happens to be a public company, public sector company or a university established by law or a college affiliated to such university, or a local authority or a co-operative society. The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. Payment towards the cost of house property, however, will not include, admission fee or cost of share or initial deposit or the cost of any addition or alteration to, or, renovation or repair of the house property which is carried out after the issue of the completion certificate by competent authority, or after the occupation of the house by the assessee or after it has been let out. Payments towards any expenditure in respect of which the deduction is allowable under the provisions of section 24 of the Income-tax Act will also not be included in payments towards the cost of purchase or construction of a house property. Where the house property in respect of which deduction has been allowed under these provisions is transferred by the taxpayer at any time before the expiry of five years from the end of the financial year in which possession of such property is obtained by him or he receives back, by way of refund or otherwise, any sum specified in section 88(2)(xv), no deduction under these provisions shall be allowed in respect of such sums paid in such previous year in which the transfer is made and the aggregate amount of deduction of income tax so allowed in the earlier years shall be added to the tax on the total income of the assessee with which he is chargeable for such assessment year. It may be noted that the amount which will qualify for tax rebate in respect of this item will not exceed Rs. 20,000.
(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 or as subscription to any eligible issue of capital by any public finance institution in the prescribed form:
Provided that where a deduction is claimed and allowed under this clause with reference to the cost of any equity shares or debentures, the cost of such shares or debentures shall not be taken into account for the purposes of sections 54EA and 54EB.
Explanation : For the purposes of this clause
(i) eligible issue of capital means an issue made
by a public company formed and registered in India or a public financial
institution and the entire proceeds for the purposes of developing, maintaining
and operating an infrastructure facility or for generating, or for generating
and distributing, power or for providing telecommunication services whether
basic or cell;
(ii) infrastructure
facility shall have the meaning assigned to it in the Explanation to sub-section (4) of section 80-IA;
(iii) Public
Company shall have the meaning assigned to it in section 3 of the Companies
Act, 1956 (1 of 1956);
(iv) Public
Financial Institution shall have the meaning assigned to it in section 4A of
the Companies Act, 1956.
(15) Subscription to any units of any mutual fund referred to in clause (23D) of section 10 and approved by the Board on an application made by such mutual fund in the prescribed form:
Provided that where a deduction is claimed and allowed under this clause with reference to the cost of units, the cost of such units shall not be taken into account for the purposes of sections 54EA and 54EB:
Provided further that this clause shall apply if the amount of subscription to such units is subscribed only in the eligible issue of capital of any company.
Explanation : For the purposes of this clause - eligible issue of capital means an issue referred to in clause (i) of Explanation to clause (xvi) in sub-section (2) of section 88.
Total amount qualifying for rebate under section 88
(16) There is an overall limit of Rs. 1,00,000 invested in various items mentioned in sub-paras (1) to (15) of para 6, which qualifies for rebate under section 88. Out of this, amounts invested in items mentioned in sub-paras (1) to (13) can be up to a maximum of Rs. 70,000. Further, instalments paid towards purchase or construction of a residential house, as discussed in sub-para (13) would qualify for rebate only upto a maximum of Rs. 20,000.
Investments in various items mentioned under para 6 can be made at any time during the year. The rebate under section 88 would be allowed on such aggregate amount, which does not exceed the total income of the relevant financial year.
Rate of rebate under section 88
(17) A graded system of tax-rebate under section 88 has been introduced by the Finance Act, 2002. The tax-rebate on the qualifying amount shall now be computed at the following rates:
|
|
Nature and level of Income |
% age of sums invested to be allowed as rebate |
|
1. |
Where the gross total income does not exceed Rs. 1,50,000 |
20% |
|
2. |
Where the gross total income exceeds Rs. 1,50,000 but does not exceed Rs. 5,00,000 |
15% |
|
3. |
Where the gross total income exceeds Rs. 5,00,000 |
Nil |
|
4. |
In case of an individual, where the income under the head salaries does not exceed Rs. 1,00,000 (before allowing standard deduction) and is at least 90 per cent of his gross total income |
30% |
The above rates shall be applicable to all individuals including sportsmen, artists, authors, playwrights, etc. Higher rebate earlier allowed to such special category individuals has been withdrawn by the Finance Act, 2002.
Rebate to senior citizens
(18) Under section 88B, an assessee, being an individual resident in India, who is of the age of sixty-five years or more at any time during the previous year shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under Chapter VIII) on his total income, with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of fifteen thousand rupees, whichever is less.
Rebate to woman residents
(19) Under section 88C, as inserted by Finance Act, 2000, an assessee, being a women resident in India, and below the age of sixty-five years, at any time during the previous year shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under Chapter VIII) on her total income, with which she is chargeable for any assessment year, of an amount equal to hundred per cent, of such income tax or an amount of five thousand rupees, whichever is less.
DDOs to satisfy themselves of the genuineness of claim
(20) 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.
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) above.
(c) Allow
deductions mentioned in para 5.4 from the figure arrived at (b) above ensuring that aggregate of
the deductions mentioned in para 5.4 does not exceed the figure of (b) and if it exceeds, it should be
restricted to that amount.
This will be the amount of income under the head Salaries on which income-tax would be required to be deducted. This income should be rounded off to the nearest multiple of ten rupees.
7.2 Income-tax on the estimated income from salary as shown in para 7.1 shall be calculated at the rates given in para 2.
7.3 The amount of tax rebates computed under para 6 shall be deducted from the income-tax calculated according to para 7.2. However, it is to be ensured that the tax rebates given as per para 6 is limited to the income-tax calculated as per para 7.2. Further, tax payable so arrived at shall be increased by surcharge at the rate of five per cent to arrive at the total tax payable.
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 2002-2003.
7.5 The amount of tax as arrived at para 7.3 should be deducted every month in equal instalments. The net amount of tax deductible should be rounded off to the nearest rupee.
Miscellaneous
8.1 These instructions are not exhaustive and are issued only with a view to helping the employers to understand the various provisions relating to deduction of tax from salaries. Wherever there is any doubt, reference may be made to the provisions of the Income-tax Act, 1961, the Income-tax Rules, 1962 and the Finance Act, 2002.
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.
Annexure I
For Assessment Year 2003-04
Example 1
Calculation of Income-tax in the
case of an employee having gross salary income :
(i) upto Rs. 1,00,000
(ii) More than Rs. 1,00,000 but less than Rs. 5,00,000 and
(iii) Exceeding Rs. 5,00,000
|
Particulars |
(Rupees) |
(Rupees) |
(Rupees) |
|
|
(i) |
(ii) |
(iii) |
|
Gross Salary Income (including allowances) |
1,00,000 |
5,00,000 |
6,00,000 |
|
Contribution to G.P.F. |
10,000 |
20,000 |
30,000 |
Computation
of Total Income and tax Payable thereon
|
1. |
Gross Salary |
1,00,000 |
5,00,000 |
6,00,000 |
|
2. |
Less : Standard deduction u/s-16 (i) |
30,000 |
20,000 |
Nil
|
|
|
Taxable Income |
70,000 |
4,80,000 |
6,00,000 |
|
|
Tax thereon |
3,000 |
1,18,000 |
1,54,000 |
|
|
Less : tax rebate u/s 88 |
3,000 (30%) |
3,000 (15%) |
Nil |
|
|
Income-tax payable |
NIL |
1,15,000 |
1,54,000 |
|
|
Add: Surcharge @ 5% |
|
5,750 |
7,700
|
|
|
Total Tax Payable |
|
1,20,750 |
1,61,700 |
Example
2
Calculation of Income-tax in the
case of assessee having handicapped dependent.
|
|
Particulars |
(Rupees) |
||
|
1. |
Gross Salary |
3,20,000 |
||
|
2. |
Amount Spent on treatment of dependent who is handicapped |
7,000 |
||
|
3. |
Amount paid to LIC with regard to annuity for the maintenance of handicapped dependent |
40,000 |
||
|
4. |
G.P.F. contribution |
25,000 |
||
|
5. |
LIP paid |
10,000 |
||
|
|
Computation
of Tax |
|
||
|
1. |
Gross Salary |
3,20,000 |
||
|
2. |
Less : Standard deduction |
20,000 |
||
|
|
|
3,00,000 |
||
|
|
Less: Deduction u/s 80DD(1) |
40,000 |
||
|
|
(Restricted to Rs. 40,000 only) |
|
||
|
|
Taxable Income |
2,60,000 |
||
|
|
Income-tax thereon |
52,000 |
||
|
|
Rebate u/s 88 |
|
||
|
|
GPF |
25,000 |
|
|
|
|
LIP |
10,000 |
|
|
|
|
Total |
35,000 |
|
|
|
|
Rebate @ 15% on Rs. 35,000 |
5,250 |
||
|
|
Tax payable |
46,750 |
||
|
|
Add: Surcharge @ 5% |
2,338 |
||
|
|
Total Tax payable |
49,088 |
||
|
|
|
|
|
|
Example
3
Calculation of Income-tax in the
case of an employee where Medical Treatment expenditure was borne by the
employer.
|
|
Particulars |
(Rupees) |
|||
|
1. |
Gross Salary |
3,00,000 |
|||
|
2. |
Medical Reimbursement by employer on the treatment of self and dependent family member |
30,000 |
|||
|
3. |
Contribution to GPF |
20,000 |
|||
|
4. |
LIP |
20,000 |
|||
|
5. |
Repayment of House Building Advance |
25,000 |
|||
|
6. |
Investment in infrastructure Bond under section 88(2)(xvi) |
20,000 |
|||
|
|
Computation
of Tax |
|
|||
|
1. |
Gross Salary |
3,00,000 |
|||
|
2. |
Add : Perquisite in respect of reimbursement of Medical Expenses in excess of Rs. 15,000 in view of section 17(2)(v) |
15,000 |
|||
|
|
|
3,15,000 |
|||
|
|
Less : Standard deduction |
20,000 |
|||
|
|
Taxable Income |
2,95,000 |
|||
|
|
Tax thereon |
62,500 |
|||
|
|
Rebate under section 88 |
|
|||
|
|
GPF |
20,000 |
|
||
|
|
LIP |
20,000 |
|
||
|
|
Repayment of House Building Advance (Maximum) |
20,000 |
|
||
|
|
Investment in infrastructural Bonds under section 88(2)(xvi) |
20,000 |
|
||
|
|
Total |
80,000 |
|
||
|
|
Rebate @ 15% on Rs. 80,000 |
12,000 |
|||
|
|
Tax payable |
50,500 |
|||
|
|
Add : Surcharge @ 5% |
2,525 |
|||
|
|
Total Tax payable |
53,025 |
|||
|
|
|
|
|
|
|
Example
4
Illustrating calculation of
House Rent Allowance under section 10(13A) in respect of residential accommodation situated in Delhi
|
|
Particulars
|
(Rupees) |
|
|
1. |
Salary |
49,500 |
|
|
2. |
Dearness Allowances |
43,680 |
|
|
3. |
House Rent allowance |
9,600 |
|
|
4. |
C.C.A. |
1,200 |
|
|
5. |
House rent paid |
18,000 |
|
|
6. |
General Provident Fund |
24,000 |
|
|
7. |
Life Insurance Premium |
2,500 |
|
|
8. |
Cumulative Time Deposit |
2,400 |
|
|
9. |
Subscription to Infrastructure Bonds |
10,000 |
|
|
|
Computation of total income and tax payable thereon |
||
|
1. |
Salary + D.A. + C.C.A. |
94,380 |
|
|
|
House rent allowance |
9,600 |
|
|
2. |
Total Salary Income |
1,03,980 |
|
|
3. |
Less : House Rent allowance exempt under section 10(13A): Least of |
|
|
|
|
(a) Actual amount of HRA received = 9600 |
|
|
|
|
(b) Expenditure of rent in excess of 10% of salary (including D.A. as presumed that D.A. is taken for retirement benefit) (18000-9318=8682) |
8,682 |
|
|
|
(c) 50% of Salary (+Basic) Rs. 46,590 |
95,298 |
|
|
|
Less : Standard deduction under section 16(i) @ 33.33% or 30,000 whichever is less |
30,000 |
|
|
|
Total Income (rounded off) |
65,300 |
|
|
|
Tax on Total Income |
2,060 |
|
|
|
Rebate under section 88 |
|
|
|
|
GPF |
24,000 |
|
|
|
LIP |
2,500 |
|
|
|
CTD |
2,400 |
|
|
|
Subscription to Infrastructure Under section 88(xiiib) 38,900 @ 20% |
10,000 |
|
|
|
Total |
38,900 |
|
|
|
Rebate @ 30% |
11,670 |
|
|
|
Tax on Total Income |
2,060 |
|
|
|
Less : Tax rebate restricted to Rs. 2,060 |
2,060 |
|
|
|
Tax
payable |
Nil
|
|
Example 5
Illustrating valuation of perquisite
and calculation of tax in the case of an employee of a private company in
Mumbai who was provided accommodation in a flat at concessional
rate for ten months and in a hotel for two months. Employee owns a car (cubic
capacity of engine exceeds 1.61) used partly for personal and partly for
official work and actual running and maintenance charges including chauffeurs
salary are reimbursed by employer, but no documents are maintained regarding
details of journeys
|
|
Particulars |
(Rupees) |
||||
|
1. |
Salary |
1,08,000 |
||||
|
2. |
Bonus |
12,000 |
||||
|
3. |
Free gas, electricity, water, etc. (actual bills paid by Company) |
6,000 |
||||
|
4. |
(a) Furnished flat provided to the employee for which actual rent paid by the Company per annum |
78,000 |
||||
|
4. |
(b) Hotel rent paid by employer (for two months) |
30,000 |
||||
|
4. |
(c) Rent recovered from the employee |
5,000 |
||||
|
5. |
Car expenses reimbursed |
40,200 |
||||
|
6. |
Furniture at cost |
50,000 |
||||
|
7. |
Subscription Infrastructure Bond under section 88(2)(xvi) |
30,000 |
||||
|
8. |
Life Insurance Premium |
3,000 |
||||
|
9. |
Subscription to NSC (VIII) Issue |
18,000 |
||||
|
10. |
Contribution to Recognised PF |
24,000 |
||||
|
|
Computation of total income and tax payable thereon |
|||||
|
1. |
Salary |
1,08,000 |
||||
|
2. |
Bonus |
12,000 |
||||
|
3. |
Total Salary for valuation of perquisite i.e. |
|
||||
|
|
Rs. 10,000 per month |
1,20,000 |
||||
|
|
Valuation of perquisites: |
|
||||
|
|
(a) Perquisite for flat |
|
|
|||
|
|
Lower of (10% of salary for ten months=Rs. 10,000 actual rent paid=Rs. 65,000) |
10,000 |
|
|||
|
|
(b) Perquisite for hotel |
|
|
|||
|
|
Less of (24% of salary of 2 months= Rs. 4,800, actual payment= Rs. 30,000) |
4,800 |
|
|||
|
|
(c) Perquisite for furniture @ 10% |
5,000 |
|
|||
|
|
|
19,800 |
|
|||
|
|
Less : Rent recovered from employee |
5,000 |
|
|||
|
|
|
14,500 |
|
|||
|
|
(d) Add : Perquisite for free gas, electricity, water |
6,000 |
|
|||
|
|
(e) Add : Perquisite for car expenses reimbursement [40,200-12 (1600+600)] |
13,800 |
|
|||
|
|
Total perquisite |
34,600 |
|
|||
|
|
Gross Total Income (1,20,000+34,600) |
1,54,600 |
||||
|
|
Less : Standard deduction under section 16(i) |
25,000 |
||||
|
|
Total income |
1,29,600 |
||||
|
|
Tax on Total Income |
14,920 |
|
|||
|
|
Tax Rebate under section 88 |
|
||||
|
|
Provident Fund |
24,000 |
|
|||
|
|
Subscription to NSC VIII issue |
18,000 |
|
|||
|
|
LIP |
3,000 |
|
|||
|
|
Contribution to Infrastructure Bond |
30,000 |
|
|||
|
|
Total |
75,000 |
|
|||
|
|
Tax Rebate @ 20% |
15,000 |
|
|||
|
|
Tax on Total Income |
14,920 |
|
|||
|
|
Tax rebate (restricted) |
14,920 |
||||
|
|
Tax Payable |
Nil
|
||||
|
|
|
|
|
|
|
|
Example
6
Illustrating
valuation of perquisite and calculation of tax in the case of an employee of a
Private Company posted at Delhi and repaying Housing Building Loan
|
|
Particulars |
|
(Rupees) |
|
|
1. |
Salary |
|
1,18,000 |
|
|
2. |
Dearness allowance |
|
36,000 |
|
|
3. |
House Rent allowance |
|
12,000 |
|
|
4. |
Special Duties allowance |
|
2,400 |
|
|
5. |
Provident Fund |
|
20,000 |
|
|
6. |
LIP |
|
10,000 |
|
|
7. |
Deposit in NSC VIII Issue |
|
20,000 |
|
|
8. |
Rent paid by the employee for house hired by him |
|
24,000 |
|
|
9. |
Repayment of House Building loan taken by the employee from LIC |
|
12,000 |
|
|
10. |
Subscription to eligible issue of capital of a Company approved under section 88(2)(xvi) |
|
20,000 |
|
|
|
Computation
of total income and tax payable thereon |
|
|
|
|
1. |
Gross Salary |
|
1,68,400 |
|
|
|
Less : House rent allowance exempt under section 10(13A) |
|
|
|
|
|
(a) Actual amount of HRA received |
12,000 |
|
|
|
|
(b) Expenditure on rent in excess of 10% of salary (including D.A.) as personal D.A. is included for retirement benefits |
8,600 |
|
|
|
|
(c) 50% of salary (including D.A.) |
77,000 |
(-) 8,600 |
|
|
|
Total Salary Income |
|
1,59,800 |
|
|
|
Less : Standard deduction |
|
25,000 |
|
|
|
Total Taxable Income |
|
1,34,800 |
|
|
|
Tax on total income |
|
15,960 |
|
|
|
Tax rebate under section 88 |
|
|
|
|
|
(i)Provident Fund |
20,000 |
|
|
|
|
(ii) LIP |
10,000 |
|
|
|
|
(iii) NSC VIII Issue |
20,000 |
|
|
|
|
(iv) Repayment of HRA |
12,000 |
|
|
|
|
(v)Subscription to eligible issue of company approved under section 88(2)(xvi) |
20,000 |
|
|
|
|
Total |
82,000 |
|
|
|
|
Rebate @ 20% |
16,200 |
15,960 |
|
|
|
|
|
(restricted) |
|
|
|
Net Tax Payable |
|
Nil
|
|
|
|
|
|
|
|
Example 7
Income-tax calculation in the
case of an employee who claims loss under the head income from house property
|
|
Particulars
|
|
(Rupees) |
|
|||
|
1. |
Gross Salary |
|
4,00,000 |
|
|||
|
2. |
Housing Loan repaid (principal) |
|
30,000 |
|
|||
|
3. |
Interest payable on housing loan (Loan taken after 1-4-1999) |
|
2,00,000 |
|
|||
|
4. |
Donation paid to National Childrens Fund |
|
5,000 |
|
|||
|
5. |
N.S.C. purchased |
|
10,000 |
|
|||
|
6. |
G.P.F. |
|
20,000 |
|
|||
|
|
Computation of Taxable Income and Tax thereon |
|
|||||
|
1. |
Salary Income |
|
|
|
|||
|
|
Gross Salary |
|
4,00,000 |
|
|||
|
|
Less : Standard deduction |
|
|
20,000 |
|
||
|
|
Taxable Salary |
|
3,80,000 |
|
|||
|
2. |
Income from House Property |
|
|
|
|||
|
|
Annual value |
Nil |
|
|
|||
|
|
Interest payable on loan under section 24 |
2,00,000 |
|
|
|||
|
|
Loss from House Property (maximum allowable) |
|
|
1,50,000 |
|
||
|
|
Gross Total Income |
|
2,30,000 |
|
|||
|
|
Less : Deduction under section 80G 50% of Rs. 5,000 |
|
|
2,500 |
|
||
|
|
Net Taxable Income |
|
|
2,27,500 |
|
||
|
|
Tax thereon |
|
42,250 |
|
|||
|
|
Less : Rebate under section 88 |
|
|
|
|||
|
|
G.P.F. |
20,000 |
|
||||
|
|
N.S.C. |
10,000 |
|
||||
|
|
Housing Loan repaid (maximum) |
20,000 |
|
||||
|
|
Total |
50,000 |
|
||||
|
|
Rebate @ 15% of Rs. 50,000 |
|
7,500 |
|
|||
|
|
Tax payable |
|
34,750 |
|
|||
|
|
Add : Surcharge @ 5% |
|
1,738 |
|
|||
|
|
Total Tax payable |
|
43,988 |
|
|||
|
|
|
|
|
|
|
|
|
Example 8
Income-tax calculation in the
case of an employee who claims loss under the head income from house property,
loan taken before 1-4-1999
|
|
Particulars
|
|
(Rupees) |
|||
|
1. |
Gross Salary |
|
4,00,000 |
|||
|
2. |
Housing Loan repaid (principal) |
|
30,000 |
|||
|
3. |
Interest payable on housing loan (Loan taken after 1-4-1999) |
|
2,00,000 |
|||
|
4. |
Donation paid to National Childrens Fund |
|
5,000 |
|||
|
5. |
N.S.C. purchased |
|
10,000 |
|||
|
6. |
G.P.F. |
|
20,000 |
|||
|
|
Computation of Taxable Income and Tax thereon |
|||||
|
1. |
Salary Income |
|
|
|||
|
|
Gross Salary |
|
4,00,000 |
|||
|
|
Less : Standard deduction |
|
20,000 |
|||
|
|
Taxable Salary |
|
3,80,000 |
|||
|
2. |
Income from House Property |
|
|
|||
|
|
Annual value |
Nil |
|
|||
|
|
Interest payable on loan under section 24 |
2,00,000 |
|
|||
|
|
Loss from House Property (maximum allowable for loans taken before 1-4-1999) |
|
30,000 |
|||
|
|
Gross Total Income |
|
3,50,000 |
|||
|
|
Less : Deduction under section 80G 50% of Rs. 5,000 |
|
2,500 |
|||
|
|
Net Taxable Income |
|
3,47,500 |
|||
|
|
Tax thereon |
|
78,250 |
|||
|
|
Less : Rebate under section 88 |
|
|
|||
|
|
G.P.F. |
20,000 |
|
|||
|
|
N.S.C. |
10,000 |
|
|||
|
|
Housing Loan repaid (maximum) |
20,000 |
|
|||
|
|
Total |
50,000 |
|
|||
|
|
Rebate @ 15% of Rs. 50,000 |
|
7,500 |
|||
|
|
Tax payable |
|
70,750 |
|||
|
|
Add : Surcharge @ 5% |
|
3,538 |
|||
|
|
Total Tax payable |
|
74,288 |
|||
|
|
|
|
|
|
|
|
Example
9
Income-tax calculation in the
case of a women assessee who is less than age of 65
years
|
Particulars |
(Rupees) |
||
|
Gross Salary |
1,20,000 |
||
|
G.P.F. |
10,000 |
||
|
N.S.C. purchased |
10,000 |
||
|
Computation of Taxable Income and Tax thereon |
|||
|
Gross Salary |
1,20,000 |
||
|
Less : Standard deduction under section 16(i) |
30,000 |
||
|
Taxable income |
90,000 |
||
|
Tax thereon |
7,000 |
||
|
Less : Rebate under section 88C (Being women) |
5,000 |
||
|
Less : Rebate under section 88 : |
|
||
|
G.P.F. |
10,000 |
|
|
|
N.S.C. |
10,000 |
|
|
|
Total |
20,000 |
|
|
|
Rebate under section 88 @ 20% of Rs. 20,000 = |
|
||
|
Rs. 4,000 restricted to Rs. 2,000 |
2,000 |
||
|
Tax
payable |
Nil
|
||
|
|
|
|
|
Note:- In the case of a women assessee who is of 65 years age or more, she will be entitled to rebate only under section 88B of the Act meant for Senior citizens and not under section 88C of the Act.
Annexure II
Form for sending particulars of income
under section 192(2B) for the year
ending 31st March, 2002
1. Name and address of the employee .....................................
2. Permanent Account Number .....................................
3. Residential status .....................................
4. Particulars of income under any head of income other than salaries (not being a loss under any such head other than the loss under the head Income from house property) received in the financial year
(i) Income from house property .....................................
(in case of loss, enclose computation thereof) .....................................
(ii) Profits and gains of business or profession .....................................
(iii) Capital gains .....................................
(iv) Income from other sources
(a) Dividends .....................................
(b) Interest .....................................
(c) Other incomes (specify) Total .....................................
5. Aggregate of sub-items (i) to (iv) of item 4.
6. Tax deducted at source (enclose certificates issued under section 203)
Place .............................
Date .............................. ..........................................................
Signature of the employee
Verification
I,..........................................., do hereby declare that what is stated above is true to the best of my knowledge and belief.
Verified today, the ...................... day of .................. 2002.
Place .............................
Date .............................. ......................................................
Signature of the employee
Annexure III
I.T. (Twenty-fifth Amendment) Rules, 2002 - See [2002] 124 Taxman 63.
Annexure III-A
Form No. 12BA : Statement showing particulars of perquisites, other fringe benefits or amenities and profits in lieu of salary with value thereof - See [2002] 124 Taxman 64 (St.).
Annexure III-B
Form No. 16 : Certificate under section 203 of the Income-tax Act, 1961 for tax deducted at source from income chargeable under the head Salaries - See [2002] 124 Taxman 67 (St.)
Annexure IV-A
Notification SO 1048(E), dated 24-11-2000 : See [2000] 113 Taxman 52 (St.).
Annexure IV-B
Notification SO 81(E), dated 29-1-2001 : See [2001] 115 Taxman 183 (St.).
Annexure V
Form No. 10BA : Declaration to be filed by the assessee claiming deduction under section 80GG - Income-tax (Nineteenth Amendment) Rules, 1998 - See [1998] 100 Taxman 110 (St.).