Section 192 of the Income-tax Act, 1961 : Broad
scheme of tax deduction at source from "Salaries" etc.
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).
Payment of tax on non-monetary perquisites
by employer - Finance Act, 2002 has given the employer the option
to pay the tax on non-monetrary 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.
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.
Steps:
| Income Chargeable under the head Salary |
Rs. |
| inclusive of all perquisites: |
2,40,000 |
| Tax on Total Salaries (including surcharge): |
48,300 |
| Average Rate of Tax [(48,300/2,40,000) × 100]: |
20.12% |
| Tax payable on Rs. 40,000 : (20.12% of 40,000) |
8,050 |
| 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
Salary from more than one employer - Sub-section
(2) of section 192 deals with situations where an individual is
working under more than on 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 no 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).
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.
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.
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 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.
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.
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.
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.
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
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.
The tax determined as per para 7 should be
deducted from the salary under section 192 of the Act.
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
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
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
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 Board's 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 deductor's 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
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 Department's
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
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 has was deductible at source.
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
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
In the case of pensioners who receive their
pension from a nationa-lized 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 RBI's 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
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.
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.
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. In respect
of non-residents, the salary paid for serivces 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 serivce in
India and forms part of the service contract of employment will
also be regarded as income earned in India.
Employee claiming that salary is not chargeable to tax and no
income-tax should be deducted at source - Employer to require
employee to obtain certificate under
section 197(1)
Under the provisions of section 192, any person
responsible for paying any income chargeable under the head “Salaries”
is required at the time of payment to deduct income-tax from the
amount payable. In any case where an employee claims that his
salary is not chargeable to income-tax and, therefore, no income-tax
should be deducted at source from the salary receivable by him,
the employer should require the employee to obtain from the concerned
Income-tax Officer a certificate under section 197(1) authorising
no deduction or deduction at such lower rates as may be prescribed
in the said certificate. 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 [F. No. 275/80/74-ITJ], dated
28-10-1974.
Foreign technician received tax-free salary
- Tax due on his salary not paid - Whether company should have
paid tax so due at source and whether failure to do so attracts
section 201(1A)
An assessee had employed a foreign technician
under an agreement by which foreign technician was to receive
tax-free salary and tax chargeable under the head “Salaries”
was to be paid by the company. The agreement was approved by the
Central Government under section 10(6)(vii)(a)(ii). However, the
tax on his salary from December 5, 1965 to October 4, 1970 was
paid by the assessee only in the financial year 1971-72 after
a demand was raised by the Income-tax Officer.
The question for consideration was whether
the company should have paid the tax so due at source under section
192(1) and whether failure to do so attracted provisions of section
201(1A).
The liability of the employer to deduct and
pay tax under section 192(1) is absolute. The provisions of section
192(1) were attracted in the aforesaid case as it was the liability
of the employer to have deducted and paid the tax regularly. Failure
to do so would attract liability to pay interest under section
201(1A) as well as other penal provisions under the Act.
Letter: F.No. 237/4/75-A & PAC, dated 23-11-1976.
Calculation of exempt amount of house rent
allowance under section 10(13A) for the purposes of deduction
of tax at source under the section - Salary whether includes dearness
pay
I am directed to invite reference to the Ministry’s
letter F.No. 12/19/64 IT (A-I), dated 2-1-1967 [see section 10(13A)],
wherein the manner in which the house rent allowance is to be
treated as exempt from the income-tax under section 10(13A), read
with rule 2A of the Rules, was explained.
As per rule 2A “salary” has the
same meaning as assigned to it in clause (h) of rule 2 of Part
‘A’ of the Fourth Schedule to the Act, i.e., “salary”
includes dearness allowance if the terms of employment so provide
but excludes all other allowances and perquisites. A question
has arisen about the treatment to be given to the element of “dearness
pay” in relation to rule 2A, insofar as Government servants
are concerned. With the issue of orders in the Government of India,
Ministry of Finance (Department of Expenditure) O.M. No. F. 1(34)-EII(B)/68,
dated 18-1-1969 “dearness pay” is considered as “pay”
for the purposes of pension and gratuity and compensatory allowance
(including house rent allowance, etc.) in the case of Central
Government servants. It is, therefore, clarified that for the
purposes of calculating the house rent allowance that would be
exempt under rule 2A the term “salary” includes “dearness
pay” also. Where State Government servants are being paid
“dearness pay” as in the case of Central Government
employees, the clarification given above will apply.
The above clarification may please be brought
to the notice of all disbursing officers and State undertakings
under the control of the State Government. This may be kept in
view, inter alia, for calculating income-tax to be deducted at
source from salaries.
Circular: No. 90 [F.No. 275/79/72-ITJ], dated
26-6-1972.
Whether tax is not to be deducted at source
from conveyance allowance where disbursing authority is satisfied
that conveyance allowance is exempt under section 10(14)
Reference is invited to this Department’s
Circular No. 195 [F.No. 275/47/76-ITJ], dated 25-3-1976 on the
above subject.
This Department has received several references,
enquiries, etc., from various private and public establishments
seeking clarification on the point of admissibility of standard
deduction under section 16(i) in the cases where the employees
are in receipt of conveyance allowance. The procedure for deduction
of tax at source explained in this Department’s circular
referred to above indicates, in the worked example annexed thereto,
how, in cases where conveyance allowance is granted by the employer
to his employees, the standard deduction under section 16(i) is
to be restricted to Rs. 1,000. Normally, conveyance allowance
will come within the definition of perquisites under section 17(2)(iv).
Hence, in the worked examples, conveyance allowance paid to an
employee has been added back to determine the total income for
purposes of deduction of tax at source. Section 10 indicates income
which do not form part of the total income. Section 10(14) reads
as under:
“Any special allowance or benefit, not
being in the nature of an entertainment allowance or other perquisite
within the meaning of clause (c) of section 17, specifically granted
to meet expenses wholly, necessarily and exclusively incurred
in the performance of the duties of an office or employment of
profit, to the extent to which such expenses are actually incurred
for that purpose.
Explanation : For the removal of doubts, it
is hereby declared that any allowance granted to the assessee
to meet his personal expenses at the place where the duties of
his office or employment of profit are ordinarily performed by
him or at the place where he ordinarily resides shall not be regarded,
for the purposes of this clause as a special allowance granted
to meet expenses wholly, necessarily and exclusively incurred
in the performance of such duties.”
In terms of this section, allowance granted
specifically to meet expenses wholly, necessarily and exclusively
incurred in the performance of the duties of an office will not
form part of the total income.
If the disbursing authority is satisfied that
the conveyance allowance granted to the employees is covered by
section 10(14), then the obligation to deduct tax thereon may
not arise. In such contingency tax is not liable to be deducted
at source from this allowance. However, at the same time it will
have to be ensured that a certificate in terms of section 10(14)
is endorsed on the tax deduction bills, by the disbursing authority.
The employees who are in receipt of conveyance allowance would
also have to furnish the necessary certificate before the assessing
authorities in support of the fact that conveyance allowance is
only a reimbursement of expenses laid out wholly, necessarily
and exclusively for the performance of the duties of an office.
Such satisfaction of the disbursing authority would still be liable
for scrutiny by the Income-tax Officer during regular assessment
proceedings before him.
Circular: No. 196 [F. No. 275/29/76-ITJ], dated
31-3-1976.
Authorisation by Board under section 119(2)(a)
directing ITO not to require employer to deduct tax at source
in respect of that part of conveyance allowance which has been
treated as exempt under section 10(14) in the last completed assessment
In exercise of the powers conferred by clause
(a) of sub-section (2) of section 119, the Central Board of Direct
Taxes, being of opinion that it is necessary and expedient so
to do, hereby orders that an Income-tax Officer shall not require
an employer to deduct tax at source from the salary of his employee
in respect of that part of conveyance allowance which is equal
to the amount that had been treated by the Income-tax Officer
as exempt under clause (14) of section 10 in the last completed
assessment of the employee. If the employee claims to have spent
during the year in regard to which the tax is to be deducted at
source a larger portion of conveyance allowance than had been
allowed in the last completed assessment year, a further deduction
may be claimed by such employee at the time of regular assessment.
Order : F. No. 35/2/68-IT(A-I), dated 15-11-1972.
Disbursing officers directed to take into account
value of rent-free accommodation for computation of tax to be
deducted at source at the time of payment of salary to Government
servants
Although, under section 18(2) of 1922 Act [corresponding
to section 192(1) and (3) of the 1961 Act], there is no statutory
obligation on the disbursing officers to deduct tax at source
in respect of the value of rent-free accommodation, the Central
Government consider that in the case of Government servants, the
disbursing officers should see that the value of rent-free accommodation
occupied by persons, in their payment, is taken into account for
the computation of tax to be deducted at source at the time of
payment of salary. This course would also be convenient to the
Government servant as he will not be required to pay tax in respect
of the perquisite in lump sum on assessment by the Income-tax
Officer.
It is also requested that a direction to all
administrative authorities should also be issued to furnish to
the disbursing officers (accounts officers and treasury officers
in the case of gazetted Government servants and heads of offices
in the case of non-gazetted Government servants) an exhaustive
list of the posts the incumbents of which are entitled to rent-free
residences, the rental value in each case and other particulars
necessary for assessment of income-tax on the rental value of
the rent-free accommodation provided. The administrative officers
may also be made responsible for intimating to the disbursing
officer concerned the subsequent changes, if any, in the assessment
of rental value or in the list of posts to which the concession
of rent-free residence is attached. In respect of the non-gazetted
Government servants, the audit officer should also be kept informed
of all cases of grant of rent-free residences.
The value of such residences (excluding value
of rent-free furniture, water, electricity and other services)
should not ordinarily be taken at more than 10 per cent of the
salary of the officers.
Circular : No. 38-D(LXIII-1) [F.No. 35(16)/IT/50],
dated 9-7-1951.
Instructions regarding deduction of donations
made to Chief Minister’s Earthquake Relief Fund, Maharashtra
under section 80G
In the wake of the unfortunate earthquake which
caused widespread devastation in certain areas of Maharashtra
in the month of September 1993, the Government of India has issued
a Press Note informing the general public that all donations made
to the Chief Minister’s Earthquake Relief Fund, Maharashtra,
will qualify for 100% deduction, without any ceiling.
It was also stated in the Press Note that all
donations made to the Chief Minister’s Relief Fund for earthquake
relief, prior to the setting up of the fund mentioned in para
1 above, would also qualify for 100% deduction.
The Board have been receiving queries from
various quarters as to whether the Drawing and Disbursing Officers
can allow 100% deduction of the aforesaid donations from salaries,
under section 80G of the Income-tax Act, 1961, while computing
the tax liability of the employees who make such donations. The
Board have decided that the D.D.Os can do so in the case of all
donors upon being satisfied about the amount donated and the evidence
of its receipt by the Fund.
In cases where the employees of an organisation
make donations to the aforesaid Fund(s) through their employers,
that is, by deduction from their pay through the pay bill, it
is quite possible that the amounts so deducted would be sent in
lump sum to the fund and the fund would issue only one receipt
for the same to the employer. In such cases the employer shall
furnish to the Fund a list showing the names and designations
of the donors, and the amount donated individually, along with
the cheque for the lump sum donation and have the list countersigned
by the Fund. Besides, allowing 100% deduction at his level, wherever
permissible, the employer should issue a certificate to the concerned
employee(s) stating the amount of deduction made, the number and
date of the pay bill and the number and date of the cheque by
which the lump sum amount including the donation made by the concerned
employee(s) was paid to the Fund, so that the same could be filed
by the concerned employees with their returns of income, if necessary.
There would be no upper ceiling for the purpose
of deduction in respect of the amount donated to the funds mentioned
in paras 1 and 2 above. It may, however, be noted that no deduction
will be allowed if the sum donated is less than Rs. 250.
Necessary amendment to section 80G of the Income-tax
Act will be made shortly. Meanwhile, the DDOs can allow deduction
in respect of donations made during the current financial year
(1993-94) to the Funds mentioned in paras 1 and 2 above.
Circular: No. 678, dated 10-2-1994.
Employers authorised to give deduction of allowance
under section 80U from salary income while deducting tax at source
on production of certificate issued by Income-tax Officer
Section 80U authorises deduction of Rs. 5,000
from the income of a resident individual who, at the end of the
previous year, is either totally blind or is subject to or suffers
from a permanent physical disability (other than blindness) which
has the effect of reducing substantially his capacity to engage
in a gainful employment or occupation.
The deduction of Rs. 5,000 is to be allowed
to such a resident individual by the Income-tax Officer on production,
in respect of the first assessment year for which deduction is
claimed (a) in the case of a totally blind person, a certificate
from a registered medical practitioner being an oculist; and (b)
in the case of a permanent disabled person, a certificate from
a registered medical practitioner as to the permanent physical
disability referred to in clause (ii) of section 80U.
In order to avoid any inconvenience to such
handicapped persons, the Board have been considering the question
of authorising the employers to take into account this deduction
while working out the tax to be deducted at source in case they
derive income assessable under the head “Salaries”.
It has been decided that an employer would
give a deduction of Rs. 5,000 from the income assessable under
the head “Salaries” while deducting the tax at source
thereon in any financial year on the production of a certificate.
Such certificate will be issued by the Income-tax Officer in the
name of the employer on a request made by the resident individual
entitled to this deduction in the course of his assessment for
the first assessment year or later. The certificate will be issued
on completing the first year’s assessment if such an individual
is held entitled to the deduction of Rs. 5,000 under section 80U.
A certificate once issued will continue to
be in force till it is withdrawn by the Income-tax Officer or
till the resident individual leaves the employment of the employer
in whose favour the certificate is issued.
Circular: No. 272 [F. No. 275/16/80-IT(B)],
dated 27-5-1980.
Procedure for regulating refund of amounts
paid in excess of tax deducted and/or deductible
The Board have been considering the manner
of refunding the amount paid in excess of the tax deducted and/or
deductible (whichever is more) under sections 192 to 194D of the
Income-tax Act. The Board are advised that such excess payment
can be refunded, independently of the Income-tax Act, to the person
responsible for making such payment subject to necessary administrative
safeguards.
In supersession of the earlier instruction
on the subject, the following procedure is laid down to regulate
the refund of such excess payments.
The excess payment would be the difference
between the actual payment made by the deductor and the tax deducted
at source or that deductible, whichever is more. This amount should
be adjusted against the existing tax liability under any of the
Direct Tax Acts. After meeting such liability the balance amount,
if any, should be refunded to the assessee.
Where the tax is deducted at source and paid
by the branch office of the assessee and the quarterly statement/annual
return (in case of salaries) of tax deduction at source is filed
by the branch, such branch office would be treated as a separate
unit independent of the head office. After meeting any existing
tax liability of such a branch, which would normally be in relation
to the deduction of tax at source, the balance amount may be refunded
to the said branch office. The Income-tax Officer, who will refund
the amount, would be the one who receives the quarterly statement/annual
return (in case of salaries) of tax deduction at source from that
branch office and keeps record of the payments of tax deduction
at source made by that branch.
The adjustment of refund against the existing
tax liability should be made in accordance with the present procedure
on the subject. A separate refund voucher to the extent of such
liability under each of the direct taxes should be prepared by
the Income-tax Officer in favour of the “income-tax department”
and sent to the bank along with the challan of the appropriate
type. The amount adjusted and the balance, if any, refunded would
be debitable under the sub-head “Other refunds” below
the minor head “Income-tax on companies”—major
head “020—Corporation Tax” or below the minor
head “Income-tax other than Union Emoluments”—major
head “021—Taxes on incomes other than corporation
tax” according as the payment has originally credited to
the major head “020—Corporation tax” or the
major head “021—Taxes on incomes other than corporation
tax”.
Since the adjustment/refund of the amount paid
in excess would arise in relation to the deduction of tax at source,
the recording of the particulars of adjustment/refund should be
done in the quarterly statement of TDS/Annual return (in case
of salaries) under the signatures of the Income-tax Officer at
the end of the statement, i.e., below the signatures of the person
furnishing the statement.
Circular: No. 285 [F. No. 275/77/79-IT(B)],
dated 21-10-1980.
Clarification regarding liability to income-tax
in India and deduction of tax at source of members of the crew
of foreign going Indian ship
A person resident in India in any year is liable
to pay tax in India on his global income. A non-resident, on the
other hand, is charged to tax in India only on income which is
received or is deemed to be received in India or which accrues
or arises or is deemed to accrue or arise to him in India. Thus,
in the case of a non-resident, income which accrues or arises
outside India and is also received outside India is not subjected
to tax in India.
After the amendment made in section 6 of the
Income-tax Act, 1961 by the Finance Act, 1990, w.e.f. 1-4-1990,
an Indian citizen who is a member of the crew of an Indian ship
as defined in clause (18) of section 3 of the Merchant Shipping
Act, 1958 is regarded as a resident in India only if he is in
India for 182 days or more during the relevant year irrespective
of the extent of his stay in India in earlier years. For this
purpose, it is necessary to note that the term “India”
as defined in section 2(25A) of the Income-tax Act, 1961 does
not extend to Indian ships operating beyond Indian territorial
waters. However, if he is outside India and comes on a visit to
India in any year, and leaves India otherwise than as a member
of the crew of an Indian ship he will be regarded as a resident
in India if his stay in India during that year is for 150 days
or more if during the 4 years preceding that year he has been
in India for 365 days or more.
Thus, generally, Indian members of the crew
of a foreign-going Indian ship would be non-resident in India
if they are on board such ship outside the territorial waters
of India for 182 days or more during any year. Accordingly, such
seamen will be charged to tax in India only in respect of earnings
received in India or the earnings for the period when they are
working within the Indian waters on coastal ships, etc.
Under section 192 of the Income-tax Act, persons
responsible for paying salary and other incomes chargeable under
Income-tax Act under the head “Salaries” are required
to deduct income-tax from such income at the time of payment.
For this purpose, the amount of tax to be deducted is computed
at the average rate of income-tax arrived at by applying the rates
in force for the financial year in which the payment is made on
the estimated income of the person to whom salary is paid. Since,
as explained above, in the case of members of crew of foreign-going
Indian ships, who are not likely to be in India for a period or
periods exceeding 182 days in a year, income which accrues or
arises outside India and is also received outside India is not
liable to tax in India, the shipping companies and other persons
responsible for paying salary to such members of crew may take
these factors into account while computing the amount to be deducted
as tax and deduct only so much of tax as would be chargeable on
the estimated income liable to tax in India. If the shipping company
or other person responsible for paying to such members of crew
subsequently finds that any person who was earlier considered
as not likely to be resident in India and deduction of tax at
source was made on that basis is now likely to be resident in
India, the shipping company or the other person responsible for
making the payment, may increase the deduction so as to adjust
any deficiency arising out of an earlier short deduction or non-deduction
during the same financial year.
Circular: No. 586, dated 28-11-1990.
Procedure for deducting tax at source from
seamen’s wages
Ship-owners are liable to deduct tax at source
under section 192(1). There is no bar in the Merchant Shipping
Act for such a deduction. Under section 125 of the Merchant Shipping
Act, the Master of every ship has to deliver to the seaman a full
account of seaman’s wages and of all deductions to be made
therefrom on any account whatsoever. The deduction of tax from
the wages of seaman may be shown in a separate column in the statement
to be given to the seaman by the Master of the ship to comply
with the section.
In view of the specific provisions of sub-section
(1) of section 192, no other specific order of the Central Board
of Direct Taxes directing deduction of tax at source is necessary.
No special system of recovery is necessary
regarding the deduction of tax. The Board does not consider it
appropriate to adopt the U.K. system regarding tax deduction or
to centralise cases of seamen at one place at Delhi as suggested
by the two Committees. For the purposes of determining the rate
of tax applicable, the total salary of the seamen for the year
may be estimated as the amount of wages due for a period of ten
months on the basis of the monthly wages fixed as per articles
of agreement. In cases, where the agreement itself covers a period
of more than ten months, the estimated income of such actual period
would have to be taken into account for the purpose of tax deduction.
If an agreement starts towards the latter part of the year and
any seaman satisfies his employer that his income for the year
as a whole would not be above the taxable limit, no tax need be
deducted for that financial year. The return of salaries may be
made by the Indian employer or the agent of the foreign employer
within the time mentioned in section 206 of the Income-tax Act,
1961. If any difficulty is felt in furnishing the return in respect
of any employee, the person liable to file the return should give
particulars of the person employed and obtain time from the Commissioner
for filing the return later.Considering that the ships would be
on the high seas for weeks, payment of the tax may be made quarterly
as provided in rule 30 of the Income-tax Rules, 1962. However,
the employer will have to ensure that before wages are paid to
the seamen at the time of discharge, the tax liabilities are properly
calculated and final recovery is effected from such wages paid
at the time of discharge. In respect of Indian seamen engaged
on foreign owned ships, the agents in India of the foreign principal
will be responsible for deduction of the tax at source under section
192(1) of the Income-tax Act, 1961.
Letter: F. No. 12/71/65-IT(B), (Extract), dated
5-3-1966.
Deduction admissible for deposits made in National
Savings Scheme to be allowed while computing income of employees
for purpose of deduction of tax at source
I am directed to invite a reference to this
Ministry’s Circular No. 489 [F.No. 275/51/87-IT(B)], dated
25-6-1987, wherein the rates of income-tax deduction during the
year 1987-88 from the payment of income chargeable under the head
“Salaries” under section 192 were intimated.
It may be added that the Finance Act, 1987
has inserted a new section 80CCA. Under the new provisions, deduction
will be allowed to an individual, a Hindu undivided family and
certain categories of associations of persons or bodies of individuals
in respect of the deposits made in the National Savings Scheme.
The deduction will be restricted to 50 per cent1 of the amount
deposited, as does not exceed Rs. 20,000 in a previous year. The
maximum deduction admissible on this account is limited to Rs.
10,000 per annum. In case the depositor makes any withdrawals
from the amount standing to his credit in the National Savings
Scheme together with the interest accrued thereon, an amount equal
to 50 per cent of the amount so withdrawn shall be deemed to be
the income of the taxpayer for the previous year in which such
withdrawal is made. Interest on the deposits made under the National
Savings Scheme will be taxable only in the year of withdrawal
and to the extent of fifty per cent thereof. The Department of
Economic Affairs in the Ministry of Finance by their notification
No. GSR 335(E), dated 30-3-1987.
The deductions admissible under section 80CCA
in respect of the deposits made by the employees out of their
income chargeable to tax in the said National Savings Scheme may
be allowed by the drawing and disbursing officer while computing
the income of the employees for the purpose of deduction of tax
at source. These instructions may please be brought to the notice
of all disbursing officers and State undertakings under the control
of the State Governments, etc.
It may be noted that the deduction admissible
under this section is in addition to the deduction admissible
under section 80C.
Circular : No. 501 [F. No. 275/109/87-IT(B)],
dated 20-1-1988.
Effect of insertion of sub-sections (2), (2A)
and (2B) in section 192 by the Finance Act, 1987 - Relevant rules
amended to enable tax deduction at source in situations envisaged
in the said sub-sections
I am directed to say that under the provisions
of section 192, tax was to be deducted at source by any person
responsible for paying any income chargeable under the head “Salaries”.
The rates of income-tax deduction during the year 1987-88 and
the relevant rules applicable have already been circulated under
Circular No. 489, dated 25-6-1987. The scope of deduction of tax
at source from “salaries” was modified by the Finance
Act, 1987, by the insertion of sub-sections (2), (2A) and (2B)
in section 192. The salient features of these provisions are given
below :
(a) The new sub-section (2) inserted in 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 “Salaries”
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 former or other employer).
(b) Under the existing provisions of section
89(1) it is the ITO who is empowered to give relief from the incidence
of tax at a higher rate in a case where an employee receives salary
in arrears or in advance. The Amending Act by inserting sub-section
(2A) in section 192 provides that in respect of salary payment
of employees of Government or public sector undertakings deduction
of tax at source may be made after allowing relief under section
89(1).
(c) Presently the person making payment of
salary cannot take into account other incomes of the employee
for the purpose of deduction of tax at source. The Amending Act
by inserting sub-section (2B) enables a taxpayer to furnish particulars
of income other than salaries to his employer who shall deduct
out of the salary payment, the tax due on the total income subject
to the condition that the total amount of tax deducted shall not
be less than the amount deductible from income from salaries only.
(d) These amendments will come into force with
effect from 1st June, 1987. To meet the requirements of the new
provisions, the Central Government have notified necessary amendments
in the Income-tax Rules, 1962 vide Notification No. SO 963(E),
dated 29-10-1987 [vide the Income-tax (Amendment) Rules, 1987].
Circular: No. 504 [F.No. 275/138/87-IT(B)],
dated 8-2-1988.
Instruction to companies to give information
regarding employees drawing Rs. 50,000 p.a. and above
As you may be aware, the Government of India
has attached very serious importance to the question of tax deduction
at source from the payments made to employees of the corporate
sector and other institutions. In view of certain exemptions and
deductions allowed from the computation of total income, a number
of instances have been brought to the notice of the Government
of categorising some of the allowances as not taxable and hence
excluded from the tax deduction net. Experience has shown that
innumerable allowances such as educational allowance, house rent
allowance, medical allowance, telephone allowance, car allowance,
taxi reimbursement allowance, hill allowance, clothing allowance,
washing allowance, entertainment allowance, servant allowance,
house up-keeping allowance, and so on, have been granted to the
employees. Most of these allowances are taxable receipts and have
to be taken into account while deduction of tax is made, even
if this may be in the form of reimbursement of expenditure.
The Government of India wishes to ensure that
the tax is deducted at source on all taxable receipts in a proper
manner.
In order to verify the correctness of the deduction
of tax made by your company from the amount paid to the employees,
you are requested to direct the persons responsible for deducting
tax at source to send a statement of total emoluments including
all the allowances and also all the reimbursement of expenditure
allowed to your employees item-wise, made during the year ended
March 31, 1993. The statement should include the details of pay
and allowances (all kinds, whether paid as such or paid as reimbursement
of expenditure) separately and may be limited to those employees
who draw a total gross salary of Rs. 50,000 and above.
Source : Hindu, dated 23-6-1994.
Whether, where non-residents are deputed to
work in India and taxes are borne by employers, in certain cases
if an employee to whom refunds are due has already left India
and has no bank account here by the time assessment orders are
passed, refund can be issued to employer as tax has been borne
by it
References have been received by the Board
in cases where non-residents are deputed to work in India and
the taxes are borne by the employers. In certain cases, an employee
to whom refunds are due has already left India and has no bank
account here by the time the assessment orders are passed. A question
has been raised whether in such cases, the refund can be issued
to the employer as the tax has been borne by it.
The Board has considered the matter and it
is of the view that insofar as the payment of refund which has
already become due in concerned, there may be no objection to
giving the refund to the employer if the non-resident assessee
duly gives an authorisation in this regard. In such cases, the
procedure laid down in Circular No. 285, dated 21-10-1980 issued
by the Central Board of Direct Taxes needs to be followed.
Under the provisions of section 163 of the
Income-tax Act, 1961, inter alia, any person from or through whom
the non-resident is in receipt of any income, whether directly
or indirectly, can be regarded as an agent in relation to the
non-resident. Accordingly, the company itself can file the return
and can be assessed in its own name in respect of that income
under section 161(1) of the Act, and claim the refund.
Circular: No. 707, dated 11-7-1995.
Clarification regarding deduction of tax from
payments of additional pay, allowances and arrears to Central
Government employees following the notification based on recommendations
of the 5th Pay Commission
The Central Government has recently notified
new scales of pay and allowances for different categories of Government
employees based on the recommendations of the 5th Pay Commission.
In addition, the employee will be entitled to substantial amounts
of arrears. As a result of this increase, many employees whose
incomes according to the old pay scales were below the taxable
limit would now enter the tax net. Many other employees would
move to higher brackets for application of the tax rates.
As per section 192 of the Income-tax Act, 1961
the person responsible for paying any income under the head ‘Salaries’
is required, at the time of payment, to deduct income-tax on the
amount payable, at the average rate 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 for
that financial year.
All DDOs must, therefore, ensure that proper
and adequate tax is deducted from the disbursement to employees
of not only additional pay and allowances but also of arrears
payable to Central Government employees as a result of the implementation
of the revised pay scales.
Circular: No 756, dated 10-10-1997.
Clarification regarding deduction of tax from
payments of additional pay, allowances and arrears to Central
Government employees following the Notification based on recommendations
of the Fifth Pay Commission
Under the provision of section 192 of the Income-tax
Act, an employer is required to deduct tax at source from any
payments in the nature of salary which includes, inter alia, any
arrear payments. The manner of determining the amount of tax to
be deducted at source from these payments is set out in Circular
No. 757, dated 20th October, 1997 issued by the Central Board
of Direct Taxes read with Circular No. 756, dated 10th October,
1997.
However, it has come to our notice that a large
number of Drawing and Disbursing Officers have not deducted the
full quantum of the tax liability on the arrears paid to Central
Government employees as a consequence of the recently announced
revision of the pay-scales. The deductions have been made in an
ad hoc manner. This is in gross violation of the provisions of
the Income-tax Act and is liable to attract penal consequences
including prosecution.
All Drawing and Disbursing Officers in the
Central Government and various organisations under it are advised
to recompute the correct tax liability of every employee, on the
arrears drawn by him and immediately recover the full tax liability
thereon. They should further ensure that the tax so recovered
is paid to the account of the Central Government by 20th November,
1997.
Drawing and Disbursing Officers who fail to
comply with the provisions of section 192 of the Income-tax Act,
read with the above-referred Circulars, would be liable to pay
interest under sub-section (1A) of section 201 of the Income-tax
Act and to other penal consequences under the said law.
Circular: No. 758, dated 7-11-1997.
Clarification regarding taxability of transport
allowance
Reference have been received as to whether
the Transport Allowance granted to the Central Government employees
on the recommendations of Fifth Central Pay Commission forms part
of taxable salary for the purposes of deduction of tax at source.
The matter has been considered by the Board.
The transport allowance granted to the employees of the Central
Government is to compensate them for the cost incurred on account
of commuting between the place of residence and the place of duty.
This allowance cannot be said to have been granted to meet expenses
incurred wholly, necessarily and exclusively in the performance
of the duties of an office or employment of profit. The said allowance
is, therefore, not covered by the provisions of section 10(14)(i)
of the Income-tax Act, 1961, read with rule 2BB(1)(c) of the Income-tax
Rules, 1962. It is further clarified that any allowance, by whatever
name called, granted by an employer, which has the element of
compensation of the expenditure incurred on commuting from residence
to office or vice versa, will also not qualify for the benefit
under section 10(14)(i).
Accordingly, the persons responsible for paying
any amount of the above nature, should treat the same as part
of taxable income and deduct tax at source at the appropriate
rates under the relevant provisions of the Income-tax Act, 1961.
Circular : No. 764, dated 20-2-1998.
Instructions for Deduction of Tax at Source
From Salary
Financial year 2003-2004
Income-tax deduction from salaries during the
financial year 2003-2004 under section 192
Reference is invited to Circular No. 13/2002
dated 23-12-2002 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 2002-03, 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
2003-04 and explains certain related provisions of the Income-tax
Act.
Finance Act, 2003
According to the Finance Act, 2003, 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 2003-2004 (i.e. assessment year 2004-2005)
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 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 ten per cent of such income-tax where the total
income exceeds eight hundred and fifty 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. 8,50,000 by more than the amount of income
that exceeds Rs. 8,50,000. 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.
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 2003-2004. 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).
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 2003-2004. 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).
Payment of tax on non-monetary perquisites
by employer - An option has been given to the employer to pay
the tax on non-monetary perquisites given to an employee. 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.
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.
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).
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.
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. After an amendment made to the Income-tax
Rules this year, the particulars may be furnished in a simple
statement, which is properly verified by the taxpayer in the same
manner as in Form No. 12C. 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 (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 the declaration referred to above 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 (Annexure III-A & B). These
forms are required to be filed by the employee along with the
Return of Income for the relevant year.
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, 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 up to 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.
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.
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.
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.
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
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.
The tax determined as per para 7 should be
deducted from the salary under section 192 of the Act.
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 - 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
- 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 twelve per cent per annum w.e.f. 8-9-2003 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
- 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 Board’s 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
as prescribed in Rule 26A, Form No. 12BA and Form No. 16 of the
Income-tax Rules as amended by notification No. S.O. No. 1062(E),
dated 4-10-2002 (copy enclosed as Annexures III-A & III-B).
Information relating to the nature and value
of perquisites is to be provided by the employer in Form No. 12BA
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
No. 16 itself. In either case, Form No. 16 with Form No. 12BA
or Form No. 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 No. 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 there-under. 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-deductor’s
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 - 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 Department’s 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 for 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 - 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 30th June 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.
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 - 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 - 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 RBI’s Pension Circular (Central Series) No. 7/C.D.R./1992
(Ref. CO:DGBA:GA(NBS) No. 60/GA.64 (11CVL)-91/92), dated April
27, 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 No. 16 to the pensioners also vide CBDT Circular No. 761,
dated 13-1-1998.
Important circulars - 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.
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.
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.
Estimation of income under the head "Salaries"
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.
Definition of ‘Salary’ :
“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 employee’s 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 times 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.
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 :—
Accommodation -
For purpose of valuation of the perquisite
of unfurnished accommodation, all employees are divided into two
categories: (i) Government and State Government 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 as reduced by the rent actually paid by
the employee.
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 up to the stage
of its commissioning. A “remote area” means an area
located at least 40 kilometers 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 furnishing, fittings
and furniture at 10 per cent of original cost per annum or actual
hire charges is continued. In case of employer other than Central
and State Government, where accommodation is taken on lease or
rent by employer, actual amount of lease rental paid or payable
by the employer or 10 per cent 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
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 charges for other facilities provided by the hotel will
be separately valued under the residual clause. Also, if on account
of an employee’s 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 up to 90 days.
However, after that the value of perquisite shall be charged for
both accommodations as prescribed.
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 per cent 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 reduced by the amounts
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 decree of personal service rendered to him. Any amount
paid by the employee for such facilities or services shall be
reduced from the above amount.
Gas, electricity & water :
For free supply of gas, electricity and water
for household consumption, the rules provide that the amount paid
