Under section S. 192 of the Income-tax
Act (the Act) the employer; i.e., the payer is required to deduct Income
Tax at the time of the payment ‘salary income’, at the average of income
tax computed on the basis of the rates in force for the financial year
in which the payment is made, on the estimated income of the assessee
under the head "Salaries"for that financial year.
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Estimation of salary
Estimate of salary income payable
to employees should be made at the beginning of the year. For the
purpose of estimating salary, regard must be had to the provisions
of sections 15, 16 and 17 which explain the scope and manner of computation
of salary income.
Every year CBDT issues a circular
explaining the manner in which estimation of salary is to be made
and also allows certain deductions for the purpose of this computation
which may be used advantageously since the circular grants certain
reliefs in the Income Tax incidence.
The relevant circular for the purpose
of F.Y. 2003-04 is circular No. 9/2003 dt. 18-11-2003.
As per the annual circular referred
to above the employer has to obtain such particulars/interaction/certificates
from the employees as he may consider necessary to verify the genuineness
of the claim for tax rebate.
Thus in the beginning it would be
sufficient to obtain information, in the form of written statement/declaration
regarding payments/investments proposed to be made by the employee.
At the end of the year before making the final deduction, actual proof;
i.e., certificates/Xerox copies of receipts/challans etc. may be obtained.
Collective reading of the above referred
sections brings out the following –
As per clause (a) section 15 any
salary due from an employer or a former employer to an assessee in
the previous year whether paid or not shall be chargeable to tax under
the head salaries.
Thus for the purpose of estimation
of salary income, for a particular financial year, all the salary
due whether paid or not is required to be taken into account.
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Average of income tax
Though it is believed that, section
192 requires deduction at ‘Average rate of income tax’, the provisions
as they stand today requires the deduction at ‘Average of Income-tax’.
The term ‘average rate of income tax’ has been defined under section
2 clause (10) of the Act. However, the term ‘Average of income tax’
has not been defined anywhere in the Act.
Sub-section (1) of section 192 of
the Act requires that the average of Income-tax is to be computed
on the basis of rates in force for the financial year in which the
payment is made. Since it is required to be done with reference to
the estimated salary income for that financial year, in my opinion,
just because some payments are made in the subsequent financial year
would not mean that the rates in force for that subsequent financial
year are to be used for payments made in subsequent financial year
as it would lead to an absurd situation in some cases.
The Circular No. 9/2003 dt. 18-11-2003
which explains the manner of calculation of salary income and tax
thereon states that the employer should estimate the salary income
of the employee as per instructions contained in the circular and
estimate the tax liability on the basis of rates in force in the said
financial year and this tax liability divided by number of months
(12) is the tax that is required to be deducted from monthly salary.
(Para 7.5 of the circular states that the amount of tax arrived at
para 7.3 should be deducted every month in equal installments.)
In my opinion, the denominator of
12 is to be taken not as a standard or a rule but more as an example
to explain the manner of computation of deduction under the presumption
that there would be normally 12 payments of salary in the year. Hence
in my opinion this denominator may have to be changed by the employer
based on his peculiar payment pattern requiring the denominator to
be higher or lower as the case may be.
Here reference may be made to sub-section
(3) of section 192 which is reproduced below.
Section 192(3)
"The person responsible for making
the payment referred to in sub-section (1) or sub- section (1A) or
sub-section (2) or sub-section (2A) or sub-section (2B)] may, at the
time of making any deduction, increase or reduce the amount to be
deducted under this section for the purpose of adjusting any
excess or deficiency arising or out of any previous deduction or failure
to deduct during the financial year."
Thus collective reading of the provisions
of the circular and section 192 brings out the following.
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Though average rate of income
tax and average of income tax are interpreted as virtually synonymous
terms generally, the term average of income tax has
to be interpreted in different manner considering the language
of the circular.
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The purpose of providing for
deduction of average of income tax is to ensure that deduction
are made evenly from respective payments.
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At the time of each payment the
employer may increase or reduce the amount to be deducted for
the purpose of adjusting any excess or deficiency arising out
of the earlier months payments and this would mean changing of
the denominator from 12 to higher or lower number (depending on
estimated number of payments remaining thereafter)
Whether the term ‘may’ used in sub
(3) of S. 192 is mandatory or directory would depend upon the intent
and not upon the language in which this intent is clothed. Generally
if the object of the enactment will be defeated by holding the same
as directory it will be construed as mandatory, whereas if by holding
it mandatory serious general inconvenience will be created to innocent
persons without very much furthering the object of enactment, the
same will be construed as directory. In the context of sub-section
3 of section, 192 the words ‘may’ though apparently give the discretion
to the employer the intention is to further the object of the Act;
i.e., ensure proper collection of revenue in the light of earlier
omission or failure and hence in my opinion these words should be
interpreted as ‘shall’ and accordingly employer at the same time every
payment should adjust the deduction accordingly.
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Actual deduction
The section requires that the deduction
is to be made at the time of payment. Thus, though salary may become
due to any employee and tax may be deductible therefrom the deduction
would be made only at the time of payment and not at the point of
time when the amount becomes due to an employee.
The term payment would cover constructive
payments also, where there is transfer by credit entries in the books
of a/cs without actual cash being handled and credit entry so transferred
is such that in whose favour it is made has a right to operate upon
and draw the amount there is constructive receipt (or payment)
The failure on the part of the employer
to comply with the provisions of the section 192 would entail certain
consequences as per provisions of Ss. 201, 221, 271C etc.
Payment to the Government
The tax deducted from salary has
to be paid to the Government within one week from the date of deduction.
In case where employer is Government,
then payment of tax deducted has to be made on the same day.
In special cases, where permission
has been obtained from the Assessing Officer, with the approval of
Joint Commissioner for quarterly payments; then payments of tax deducted
shall be made quarterly on 15th June, 15th September, 15th December,
15th March.
More than one employer [(Section
192(2)]
If in any financial year employee
is working with more than one employer simultaneously, then he may
give information about his salary income. TDS effected etc. in Form
12B to any one of the employers. Though this is optional for the employee,
employer receiving such form is bound to take the information contained
in Form 12B into account, while estimating that employee’s salary
income and for a tax to be deducted therefrom.
If during the financial year the
employee leaves the job from one employer and joins another employer,
he may furnish Form 12B referred to above to the subsequent employer,
who shall be then bound to take that information into account as stated
in the previous paragraph.
Other income [S. 192(2B)]
The employee also has an option to
furnish information about his other income or in the case of income
from house property only, ‘the loss’ if any in Form 12C.(w.e.f. 1-10-2003
this form has been deleted. Now the information in this respect can
be provided on plain paper with a verification prescribed by rule
26 B).
On receiving such information, the
employer is bound to take this into account for estimating salary
income and tax to be deducted therefrom.
However, if due to consideration
of the other income (not loss under the head income from House property)
and tax deducted from the same, the tax deductible is likely to reduce,
the provisions of the sub-section would be in operative; i.e., employer
in that case should ignore the information.
The employee seeking lower or Nil deduction
can make an application in Form 13 to the assessing officer. If the assessing
officer is satisfied, then he may issue certificate in Form 15AA to the
employer directly authorising nil or lower deductions.
Employer has been given an option to
make the payment of income tax on income by way of non monetary perquisite,
instead of deducting tax in respect of such income. Such a payment of
tax shall for all the purposes be treated as if it is tax deducted at
source.
[The tax so actually paid is exempt under
S. 10(10cc)]
Annual return in Form 24 is required
to be filed by the employer before 30th June of the immediately following
financial year.
Trustees of approved superannuation fund
are required to file a statement in Form 22 within two months from the
end of the financial year.
TDS Certificate in Form 16 is required
to be issued within one month from the end of the financial year in which
the deduction is made.
