Circular/Income-tax
Act
Section 192 of the Income-tax Act, 1961 -
Deduction of tax at source - Salaries - Income-tax deduction from salaries
during the financial year 2003-2004 under section 192
Circular No.
9/2003, dated 18-11-2003
Reference
is invited to Circular No. 13/2002 dated 23-12-2002 wherein the 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
2. 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.
3.1 Method of tax calculation - Every
person who is responsible for paying any income chargeable under the head
“Salaries” shall deduct income-tax on the estimated income of the assessee
under the head “Salaries” for the financial year 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).
3.2 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.
3.3 Computation of average income-tax
- For the purpose of making the payment of tax mentioned in para 3.2 above, tax
is to be determined at the average of income-tax computed on the basis of rate
in force for the financial year, on the income chargeable under the head
“Salaries”, including the value of perquisites for which tax has been paid by
the employer himself.
Illustration :
Suppose
that the income chargeable under the head “Salary” of an employee for the year
inclusive of all perquisites is Rs. 2,40,000, out of which, Rs. 40,000 is on
account of non-monetary perquisites and the employer opts to pay the tax on
such perquisites as per the provisions discussed in para 3.2 above.
Steps :
|
Income chargeable under the head “Salary” inclusive of all
perquisites : |
Rs. 2,40,000 |
|
Tax on total salaries : |
Rs. 37,000 |
|
Average rate of tax [(37,000/2,40,000) × 100] : |
15.41% |
|
Tax payable on Rs. 40,000 (15.41% of 40,000) : |
Rs. 6,167 |
|
Amount required to be deposited each month : (6,167/12) |
Rs. 514 |
The
tax so paid by the employer shall be deemed to be TDS made from the salary of
the employee.
3.4 Salary from more than one employer
- Sub-section (2) of section 192 deals with situations where an individual is
working under more than one employer or has changed from one employer to
another. It provides for deduction of tax at source by such employer (as the
taxpayer may choose) from the aggregate salary of the employee who is or has
been in receipt of salary from more than one employer. The employee is now
required to furnish to the present/chosen employer details of the income under
the head “Salary” due or received from the former/other employer and also tax
deducted at source therefrom, in writing and duly verified by him and by the
former/other employer. The present employer will be required to deduct tax at
source on the aggregate amount of salary (including salary received from the
former or other employer).
3.5 Relief when salary paid in arrear or
advance - Under sub-section (2A) of section 192 where the assessee, being a
Government servant or an employee in a company, co-operative society, local
authority, university, institution, association or body is entitled to the
relief under sub-section (1) of section 89, he may furnish to the person
responsible for making the payment referred to in para (3.1), such particulars
in Form No. 10E duly verified by him, and thereupon the person responsible as
aforesaid shall compute the relief on the basis of such particulars and take
the same into account in making the deduction under para (3.1) above.
Explanation - For this purpose
“University” means a University established or incorporated by or under a
Central, State or Provincial Act, and includes an institution declared under
section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be
University for the purposes of the Act.
3.6 Furnishing of declaration by taxpayer
in Form 12C - Sub-section (2B) of section 192 enables a taxpayer to furnish
particulars of income under any head other than “Salaries” and of any tax
deducted at source thereon in the prescribed Form (No. 12C) vide
Annexure II. 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.
3.7 Conditions for claim of deduction of
interest on borrowed capital for computation of income from house property
- (i) For the purpose of computing income/loss under the head “Income
from house property” in respect of a self-occupied residential house, a normal
deduction of Rs. 30,000 is allowable in respect of interest on borrowed
capital. However, a deduction on account of interest up to a maximum limit of
Rs. 1,50,000 is available if such loan has been taken on or after 1-4-1999 for
constructing or acquiring the residential house and the construction or
acquisition of the residential unit out of such loan has been completed within
three years from the end of the financial year in which capital was borrowed.
Such higher deduction is not allowable in respect of interest on capital borrowed
for the purposes of repairs or renovation of an existing residential house. To
claim the higher deduction in respect of interest upto Rs. 1,50,000, 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.
3.8 Adjustment for excess or shortfall of
deduction - The provisions of sub-section (3) of section 192 allow the
deductor to make adjustments for any excess or shortfall in the deduction of
tax already made during the financial year, in subsequent deductions for that
employee within that financial year itself.
3.9 TDS on payment of balance under
provident fund and superannuation fund - The trustees of a Recognized
Provident Fund, or any person authorized by the regulations of the Fund to make
payment of accumulated balances due to employees, shall, in cases where
sub-rule (1) of rule 9 of Part A of the Fourth Schedule to the Act applies, at
the time when the accumulated balance due to an employee is paid, make
therefrom the deduction specified in rule 10 of Part A of the Fourth Schedule.
3.10 Where any contribution made by an
employer, including interest on such contributions, if any, in an approved
Superannuation Fund is paid to the employee, tax on the amount so paid shall be
deducted by the trustees of the Fund to the extent provided in rule 6 of Part B
of the Fourth Schedule to the Act.
3.11 Salary paid in foreign currency -
For the purposes of deduction of tax on salary payable in foreign currency, the
value in rupees of such salary shall be calculated at the prescribed rate of
exchange.
Persons responsible for deducting tax and their duties
4.1 Under clause (i) of section 204 of
the Act the “persons responsible for paying” for the purpose of section 192
means the employer himself or if the employer is a Company, the Company itself
including the Principal Officer thereof.
4.2 The tax determined as per para 7 should
be deducted from the salary under section 192 of the Act.
4.3 Deduction of tax at lower rate -
Section 197 enables the taxpayer to make an application in Form No. 13 to his
Assessing Officer, and, if the Assessing Officer is satisfied that the total
income of the taxpayer justifies the deduction of income-tax at any lower rate
or no deduction of income-tax, he may issue an appropriate certificate to that
effect which should be taken into account by the Drawing and Disbursing Officer
while deducting tax at source. In the absence of such a certificate furnished
by the employee, the employer should deduct income-tax on the salary payable at
the normal rates : (Circular No. 147, dated 28-10-1974).
4.4 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.
4.5 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.
4.6 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.
4.7 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.
4.8 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.
4.9 A return filed on a
floppy, diskette, magnetic cartridge tape, CD-ROM or any other computer
readable media as may be specified by the Board shall be deemed to be a return
for the purposes of section 206 and the Rules made thereunder, and shall be
admissible in any proceeding thereunder, without further proof of production of
the original, as evidence of any contents of the original or of any fact stated
therein. While receiving such returns on computer media, necessary checks by
scanning the documents filed on computer media will be carried out and the
media may be duly authenticated by the Assessing Officer.
4.10 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.
4.11 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.
4.12 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.
4.13 TDS certificates issued by Central
Government departments which are making payments by book adjustment, should be
accepted by the Assessing Officers if they indicate that credit has been
effected to the Income-tax Department by book adjustment and the date of such
adjustment is given therein. In such cases, the Assessing Officers may not
insist on details like challan numbers, dates of payment into Government
Account etc., but they should in any case satisfy themselves regarding the
genuineness of the certificates produced before them : Circular No., 747 dated
27-12-1996.
4.14 There is a specific procedure laid down
for refund of payments made by the deductor in excess of taxes deducted at
source, vide Circular No. 285, dated 21-10-1980.
4.15 In respect of non-residents, the salary
paid for services rendered in India shall be regarded as income earned in India.
It has been specifically provided in the Act that any salary payable for rest
period or leave period which is both preceded or succeeded by service in India
and forms part of the service contract of employment will also be regarded as
income earned in India.
Estimation of income under the head “Salaries”
5.1 Income chargeable under the head
“Salaries” - (1) The following income shall be chargeable to income-tax
under the head “Salaries”:
(a) any salary due from an employer or a former
employer to an assessee in the previous year, whether paid or not;
(b) any salary paid or allowed to him in the
previous year by or on behalf of an employer or a former employer though not
due or before it became due to him;
(c) any arrears of salary paid or allowed to him
in the previous year by or on behalf of an employer or a former employer, if
not charged to income-tax for any earlier previous year.
(2)
For the removal of doubts, it is clarified that where any salary paid in
advance is included in the total income of any person for any previous year it
shall not be included again in the total income of the person when the salary
becomes due. Any salary, bonus, commission or remuneration, by whatever name
called, due to, or received by, a partner of a firm from the firm shall not be
regarded as “Salary”.
Definition of ‘Salary’ :
(3)
“Salary” includes wages, fees, commissions, perquisites, profits in lieu of,
or, in addition to salary, advance of salary, annuity or pension, gratuity,
payments in respect of encashment of leave etc. It also includes the annual
accretion to the 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.
(4)
Section 17 defines the terms “salary”, “perquisite” and “profits in lieu of
salary”.
Perquisite includes:
(a) The value of rent free accommodation provided
to the employee by his employer;
(b) The value of any concession in the matter of
rent in respect of any accommodation provided to the employee by his employer;
(c) The value of any benefit or amenity granted
or provided free of cost or at concessional rate in any of the following cases:
(i) By a company to an employee who is a director
of such company;
(ii) By a company to an employee who has a
substantial interest in the company;
(iii) By an employer (including a company) to an
employee, who is not covered by (i) or (ii) above and whose
income under the head “Salaries” (whether due from or paid or allowed by one or
more employers), exclusive of the value of all benefits and amenities not
provided by way of monetary payment, exceeds Rs. 50,000.
The
rules relating to valuation of such benefits and amenities have been prescribed
in rule 3. It is further provided that ‘profits in lieu of salary’ shall
include amounts received in lump sum or otherwise, prior to employment or after
cessation of employment for the purposes of taxation. The rules for valuation
of perquisite are as under :—
I.
Accommodation - 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.
II. Motor car :
(a) Where the motor car is owned or hired by the
employer and is used wholly and exclusively in the performance of his official
duties, no perquisite arises in the hands of the employee, subject to
maintenance of documents as prescribed in sub-para (f) below. No
perquisite arises even if the motor car is owned by the employee himself but
the actual running and maintenance charges (including remuneration of the
chauffeur, if any) are reimbursed to him by the employer, provided that the
motor car is used wholly and exclusively for official purposes and the
documents as prescribed in sub-para (f) below are maintained.
(b) Where the motor car is owned or hired by the
employer and is used exclusively for the private or personal purpose of the
employee, the value of perquisite would be equal to the actual amount of
expenditure incurred by the employer on the running and maintenance of the
motor car (including remuneration of the chauffeur, if any), as increased by
the amount representing 10 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 specified in
column (1) of the Table below.
(d) Where the motor car is owned or hired by the
employer and is used partly in the performance of his duties and partly for
personal or private purposes, the value of perquisite shall be determined as
per the Table below :
|
|
|
Small car |
Large car |
If chauffeur |
|
|
|
(upto 1.6 ltrs. |
(above 1.6 |
provided by |
|
|
|
engine |
ltrs. engine |
employer to |
|
|
|
capacity) |
capacity) |
run the motor |
|
|
|
|
|
car, an addi- |
|
|
|
|
|
tional amount |
|
|
|
|
|
as below is |
|
|
|
|
|
also
charged |
|
(i) |
Car owned/hired by employer and expenses on maintenance
and running are met or reimbursed by the employer |
Rs. 1200 per month |
Rs. 1600 per month |
Rs. 600 per month |
|
(ii) |
Car
owned/hired by employer but the expenses on running and maintenance for such
private or personal use are fully met by the employee. |
Rs. 400 per month |
Rs. 600 per month |
Rs. 600 per month |
(e) However, where a second or additional cars
are provided, such other cars shall be deemed to be for exclusively personal
use and the value of perquisite shall be computed accordingly.
(f) In a situation described in para (c)
above, if it is claimed that the expenses on running and maintenance of the
motor car for official purposes are higher than the amount mentioned in Column
(1) of the Table above, such higher amount can be claimed as a deduction from
the actual amount of expenditure incurred by the employer, subject to the
fulfilment of the following conditions:
(i) the employer has maintained complete details
of journeys undertaken for official purpose which may include date of journey,
destination, mileage and the amount of expenditure incurred thereon; and
(ii) the employer gives a certificate that the
expenditure was incurred wholly and exclusively for the performance of his
official duties.
III. Personal attendants etc. :
The old rules provided for valuation of perquisite of free services of a
sweeper, a gardener and a watchman at Rs. 120 per month. Under the new rules,
the value of free service of all personal attendants including a sweeper,
gardener, and a watchman is to be at actual cost to the employer. Where the
attendant is provided at the residence of the employee, full cost will be taxed
as perquisite in the hands of the employee irrespective of the 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.
IV. Gas electricity & water :
For free supply of gas, electricity and water for household consumption, the
rules provide that the amount paid by the employer to the agency supplying the
amenity shall be the value of perquisite. However, when the supply is made from
employer’s own resources, under the old rules the value of perquisite was taken
as Nil. There was also a separate provision in the old rules for
valuation at 6.25 per cent of salary of the taxpayer for part official use.
This has been discontinued. Under the new rules even where the supply is made
from the employer’s own resources, the manufacturing cost per unit incurred by
the employer would be the value of perquisite. Any amount paid by the employee
for such facilities or services shall be reduced from the above amount.
V. Free or concessional education :
The old rules already provide that value of free education facility would be
the expenditure incurred by the employer. Under the new rules free or
concessional education shall be valued in a manner assuming that such expenses
are borne by the employee, and would cover cases where an employer may be
running, maintaining or directly or indirectly financing the educational
institution. Any amount paid by the employee for such facilities or services
shall be reduced from the above amount. However, where such educational
institution itself is maintained and owned by the employer or where such free
educational facilities are provided in any institution by reason of his being
in employment of that employer, the value of the perquisite to the employee
shall be determined with reference to the cost of such education in a similar
institution in or near the locality if the cost of such education or such
benefit per child exceeds Rs. 1000 p.m.
VI. Free or concessional journeys :
The perquisite value of free or concessional journeys provided by an employer
engaged in carriage of passengers or goods shall be taken as the value at which
such benefit or amenity is offered by such undertaking to the public, as
reduced by any amount actually paid by the employee. The conveyance may be
owned, leased or made available by any other arrangement by the employer.
However, no perquisite on account of free or concessional journeys arises in
the case of the employees of an airline or the Railways. Journey tickets for
leave travel, tours and transfers which are already exempt under section 10(5)
and 10(14) would continue to be exempt.
VII. Interest free or concessional loans :
It is common practice particularly in financial institutions to provide
interest free or concessional loans to employees. The value of such perquisite
would be the excess of interest payable at prescribed interest rate over
interest if any actually paid by the employee. The prescribed interest rate
would now be 10 per cent per annum for loans for housing and conveyance and 13
per cent per annum for other loans. Perquisite value would be calculated on the
basis of the maximum outstanding monthly balance by the simple interest method.
For valuing perquisites under this rule, any other method of calculation and
adjustment otherwise adopted by the employer shall not be relevant. The
concessional rate of interest of 10 per cent is applicable only in respect of
such housing or conveyance loans which have been used for “acquiring capital
assets” i.e., house or conveyance, as the case may be, and not for
repairs thereof. In case of loans taken for repairs, renovations etc., the
higher interest rate of 13 per cent would be applicable for calculation of
perquisite.
Small
loans up to Rs. 20,000 in the aggregate are exempt. Loans for medical treatment
specified in rule 3A are also exempt, provided the amount of loan for medical
reimbursement is not reimbursed under any medical insurance scheme. Where any
medical insurance reimbursement is received, the perquisite value at the rate
of 13 per cent shall be charged from the date of reimbursement on the amount
reimbursed, but not repaid against the outstanding loan taken specifically for
this purpose.
VIII. Travelling, touring, accommodation and other holiday
expenses : It is increasingly common for employees to be
provided with vacation and holiday facilities. The value of such perquisite
shall be the expenditure incurred by the employer. This would also apply to
official tours extended as a vacation and family members accompanying taxpayers
on official tours. However, leave travel as per section 10(5) and
enjoyment of holiday home facilities available uniformly to all classes of
employees would remain exempt.
IX. Free meals : The provision of free
meals varies widely from uniform canteen food, coupons etc. to lavish hotel
meals. The scheme of free meals as a staff welfare measure had been recognized
and was admissible up to Rs. 35 for each meal. The new rule does not treat as
perquisite free meals if the cost per meal does not exceed Rs. 50. Where any
amount is recovered from the employee, such amount shall be reduced from the
value of perquisite. Such free or subsidised meal should however be provided at
office premises or though non-transferable vouchers meant for only meals during
working hours. These vouchers should be provided by employers encashable only
at an eatery, restaurant or a cafe. Tea or similar non-alcoholic beverages and
snacks - in the form of light refreshments during working hours are not charged
as perquisite. Also, arrangements for meals in ‘remote areas’ as prescribed in
para 5.1(I) and similar off-shore sites as specified, shall be exempt. However,
expenditure on provision of free meals by the employer in excess of Rs. 50
should be treated as perquisite, as reduced by recoveries made from the
employee.
X. Gift, voucher or token in lieu of gift :
The value of any gift, or voucher, or token in lieu of which such gift may be
received by the employee or by member of his household on ceremonial occasions
or otherwise shall be determined as the sum equal to the amount of such gift.
However, where the value of such gift, voucher or token, as the case may be, is
below Rs. 5,000 in the aggregate during the previous year, the value of
perquisite shall be taken as nil.
XI. Credit card & club expenses :
Credit card expenses of employees both business and personal, are often borne
by employers. Such credit card payments would ordinarily be chargeable to tax
as a perquisite. However, these expenses are often incurred to entertain
customers and clients for the purposes of business. Therefore, where such
expenses on entertainment including meals are for purposes of business and
proper records for the same are maintained no perquisite would arise.
Club
expenses of employees borne by employers are charged as perquisite in terms of
section 17(2)(iv). It has been specifically provided in the rules
that annual and periodical club fees paid by the employer will be chargeable as
perquisite. However, to ensure that basic facilities for the health and
recreation of employees are not hit, health clubs, sports facilities, etc.
provided uniformly to all classes of employees by the employer at the
employer’s premises are exempt. The initial one time deposit or fees for
corporate or institutional membership, where the benefit does not remain with
the employee after cessation of employment, are exempt. Where such expenses on
entertainment including meals are for purposes of business and proper records
for the same are maintained no perquisite would arise.
For
credit card and club expenses to be exempt for business purposes, the following
documentation needs to be maintained by the employer :
(a) complete details in respect of such expenditure
including the date of expenditure and the nature of expenditure;
(b) a certificate by employer to the employee to
the effect that the same was incurred wholly and exclusively for the
performance of official duties.
XII. Use of assets : It is common practice
for an asset owned by the employer to be used by the employee. This perquisite
is to be charged at the rate of 10 per cent of the original cost of the asset
as reduced by any charges recovered from the employee for such use. However,
the user of Computers and Laptops would not give rise to any perquisite.
XIii. Transfer
of assets : Often an employee or member of his household
benefits from the transfer of movable asset (not being shares or securities) at
no cost or at a cost less than its market value from the employer. The
difference between the original cost of the movable asset (not being shares or
securities) and the sum, if any, paid by the employee, shall be taken as the
value of perquisite. In case of a movable asset, which has already been put to
use, the original cost shall be reduced by a sum of 10 per cent of such
original cost for every completed year of use of the asset. Owing to a higher
degree of obsolescence, in case of computers and electronic gadgets, however,
the value of perquisite shall be worked out by reducing 50 per cent of the
actual cost by the reducing balance method for each completed year of use.
Electronic gadgets in this case means data storage and handling devices like
computer, digital diaries and printers. They do not include household appliance
(i.e., white goods) like washing machines, microwave ovens, mixers, hot
plates, ovens etc. Similarly, in case of cars, the value of perquisite shall be
worked out by reducing 20% of its actual cost by the reducing balance method
for each completed year of use.
XIV Employee Stock Option Plan
- Prior to Finance Act, 2000, stock options were taxed at two stages i.e.,
as perquisite (on the amount representing the difference between the exercise
price and the fair market value on the date of exercise), and as capital gains
at the time of transfer of the same. With effect from 1-4-2001 (relevant to
assessment year 2001-2002) onward, stock options issued as per guidelines of
the Central Government are to be taxed only once, at the time of sale, as
capital gains. In cases, where perquisite has been assessed with reference to
exercise of the option by the employee under section 17(2), the fair
market value at the time of exercise of the option shall be the cost of
acquisition of share for working out the capital gains. The relevant guidelines
of the Central Government have been issued vide Notification No.
1021(E), dated 11-10-2001. Stock options not in conformity with the above
guidelines (non-qualified stock options) shall continue to be taxed at both the
stages.
XV Residual clause - A benefit or amenity
not included in the rules shall be valued at the cost under an arm’s-length
transaction to the employer where the employer pays for the benefit or amenity.
However, the benefit of conveyance to and from residence to place of work,
periodicals and journals required for discharge of work and expenses on
telephones including a mobile phone shall not be included in calculating
perquisite value.
It
is pertinent to mention that benefits specifically exempt under section 10(13A),
10(5), 10(14), 17 etc. would continue to be exempt. These include
benefits like travel on tour and transfer, leave travel, daily allowance to
meet tour expenses as prescribed, medical facilities subject to conditions.
5.2 Incomes not included in the head
“Salaries” (Exemptions) - Any income falling within any of the following
clauses shall not be included in computing the income from salaries for the
purpose of section 192 of the Act:—
(1)
The value of any travel concession or assistance received by or due to an
employee from his employer or former employer for himself and his family, in
connection with his proceeding (a) on leave to any place in India or (b)
on retirement from service, or, after termination of service to any place in
India is exempt under clause (5) of section 10 subject, however, to the
conditions prescribed in rule 2B of the Income-tax Rules, 1962.
For
the purpose of this clause, “family” in relation to an individual means:
(i) The spouse and children of the individual;
and
(ii) The parents, brothers and sisters of the
individual or any of them, wholly or mainly dependent on the individual.
It
may also be noted that the amount exempt under this clause shall in no case
exceed the amount of expenses actually incurred for the purpose of such travel.
(2)
Death-cum-retirement gratuity or any other gratuity which is exempt to the
extent specified from inclusion in computing the total income under clause (10)
of section 10.
(3)
Any payment in commutation of pension received under the Civil Pension
(Commutation) Rules of the Central Government or under any similar scheme
applicable to the members of the civil services of the Union, or holders of
civil posts/posts connected with defence, under the Union, or civil posts under
a State, or to the members of the All India Services/Defence Services, or, to
the employees of a local authority or a corporation established by a Central,
State or Provincial Act, is exempt under sub-clause (i) of clause (10A)
of section 10. As regards payments in commutation of pension received under any
scheme of any other employer, exemption will be governed by the provisions of
sub-clause (ii) of clause (10A) of section 10.
(4)
Any payment received by an employee of the Central Government or a State
Government, as cash-equivalent of the leave salary in respect of the period of
earned leave at his credit at the time of his retirement on superannuation or
otherwise, is exempt under sub-clause (i) of clause (10AA) of
section 10. In the case of other employees, this exemption will be determined
with reference to the leave to their credit at the time of retirement on
superannuation, or otherwise, subject to a maximum of ten months’ leave. This
exemption will be further limited to the maximum amount specified by the
Government of India Notification No. S.O. 588(E), dated 31-5-2002 at Rs.
3,00,000 in relation to such employees who retire, whether on superannuation or
otherwise, after 1-4-1998.
(5)
Under section 10(10B), the retrenchment compensation received by a
workman is exempt from income-tax subject to certain limits. The maximum amount
of retrenchment compensation exempt is the sum calculated on the basis provided
in section 25F(b) of the Industrial Disputes Act, 1947 or any amount not
less than Rs. 50,000 as the Central Government may by notification specify in
the Official Gazette, whichever is less. These limits shall not apply in the
case where the compensation is paid under any scheme which is approved in this
behalf by the Central Government, having regard to the need for extending
special protection to the workmen in the undertaking to which the scheme
applies and other relevant circumstances. The maximum limit of such payment is
Rs. 5,00,000 where retrenchment is on or after 1-1-1977.
(6)
Under section 10(10C), any payment received or receivable (even if
received in instalments) by an employee of the following bodies at the time of
his voluntary retirement or termination of his service, in accordance with any
scheme or schemes of voluntary retirement or in the case of public sector
company, a scheme of voluntary separation, is exempted from income-tax to the
extent that such amount does not exceed five lakh rupees:
(a) A public sector company;
(b) Any other company;
(c) An authority established under a Central,
State or Provincial Act;
(d) A local authority;
(e) A co-operative society;
(f) A university established or incorporated or
under a Central, State or Provincial Act, or, an Institution declared to be a
University under section 3 of the University Grants Commission Act, 1956;
(g) Any Indian Institute of Technology within the
meaning of clause (g) of section 3 of the Institute of Technology Act,
1961;
(h) Such Institute of Management as the Central
Government may by notification in the Official Gazette, specify in this behalf.
It
may also be noted that where this exemption has been allowed to any employee
for any assessment year, it shall not be allowed to him for any other
assessment year. The exemption of amount received under VRS has been extended
to employees of the Central Government and State Government employees and
employees of notified institutions having importance throughout India or any
State or States.
(7)
Any sum received under a Life Insurance Policy, including the sum allocated by
way of bonus on such policy other than:
(i) any sum received under sub-section (3) of
section 80DD or sub-section (3) of section 80DDA or,
(ii) any sum received under Keyman Insurance
Policy or,
(iii) any sum received under an insurance policy
issued on or after 1-4-2003 in respect of which the premium payable for any of
the years during the term of the policy exceeds 20 per cent of the actual
capital sum assured. However, any sum received under such policy on the death
of a person would still be exempt.
(8)
Any payment from a Provident Fund to which the Provident Funds Act, 1925 (19 of
1925), applies (or from any other provident fund set up by the Central
Government and notified by it in this behalf in the Official Gazette).
(9)
Under section 10(13A) of the Income-tax Act, 1961, any special allowance
specifically granted to an assessee by his employer to meet expenditure
incurred on payment of rent (by whatever name called) in respect of residential
accommodation occupied by the assessee is exempt from Income-tax to the extent
as may be prescribed, having regard to the area or place in which such
accommodation is situated and other relevant considerations. According to rule
2A of the Income-tax Rules, 1962, the quantum of exemption allowable on account
of grant of special allowance to meet expenditure on payment of rent shall be :
(a) The actual amount of such allowance received
by an employer in respect of the relevant period; or
(b) The actual expenditure incurred in payment of
rent in excess of 1/10 of the salary due for the relevant period; or
(c) Where such accommodation is situated in
Bombay, Calcutta, Delhi or Madras, 50% of the salary due to the employee for
the relevant period; or
(d) Where such accommodation is situated in any
other place, 40% of the salary due to the employee for the relevant period,
whichever is the least.
For
this purpose, “Salary” includes dearness allowance, if the terms of employment
so provide, but excludes all other allowances and perquisites.
It
has to be noted that only the expenditure actually incurred on payment of rent
in respect of residential accommodation occupied by the assessee subject to the
limits laid down in rule 2A, qualifies for exemption from income-tax. Thus,
house rent allowance granted to an employee who is residing in a house/flat
owned by him is not exempt from income-tax. The disbursing authorities should
satisfy themselves in this regard by insisting on production of evidence of
actual payment of rent before excluding the house rent allowance or any portion
thereof from the total income of the employee.
Though
incurring actual expenditure on payment of rent is a pre-requisite for claiming
deduction under section 10(13A), it has been decided as an
administrative measures that salaried employees drawing house rent allowance up
to Rs. 3000 per month will be exempted from production of rent receipt. It may,
however, be noted that this concession is only for the purpose of tax deduction
at source, and, in the regular assessment of the employee, the Assessing
Officer will be free to make such enquiry as he deems fit for the purpose of
satisfying himself that the employee has incurred actual expenditure on payment
of rent.
(10)
Clause (14) of section 10 provides for exemption of the following allowances
:
(i) Any special allowance or benefit granted to
an employee to meet the expenses incurred in the performance of his duties as
prescribed under rule 2BB subject to the extent to which such expenses are
actually incurred for that purpose.
(ii) Any allowance granted to an employee either
to meet his personal expenses at the place of his posting or at the place he
ordinarily resides or to compensate him for the increased cost of living, which
may be prescribed and to the extent as may be prescribed.
However,
the allowance referred to in (ii) above should not be in the nature of a
personal allowance granted to the assessee to remunerate or compensate him for
performing duties of a special nature relating to his office or employment
unless such allowance is related to his place of posting or residence.
The
CBDT has prescribed guidelines for the purpose of clauses (i) and (ii)
of section 10(14) vide notification No. SO 617(E), dated 7th
July, 1995 (F.No.142/9-95-TPL) which has been amended vide Notification
No. SO 403(E), dated 24-4-2000 (F.No. 142/34/99-TPL). The transport allowance
granted to an employee to meet his expenditure for the purpose of commuting
between the place of his residence and the place of duty is exempt to the
extent of Rs. 800 per month vide Notification No. SO 395(E), dated
13-5-1998.
(11)
Under section 10(15)(iv)(i) of the Income-tax Act,
interest payable by the Government on deposits made by an employee of the
Central Government or a State Government or a public sector company from out of
his retirement benefits, in accordance with such scheme framed in his behalf by
the Central Government and notified in the Official Gazette is exempt from
income-tax. By Notification No. F.2/14/89-NS-II, dated 7-6-1989, as amended by
Notification No. F.2/14/1989-NS-II, dated 12-10-1989, the Central Government
has notified a scheme called Deposit Scheme for Retiring Government Employees,
1989 for the purpose of the said clause.
(12)
Clause (18) of section 10 provides for exemption of any income by way of
pension received by an individual or family pension received by any member of
the family of an individual who has been in the service of the Central
Government or State Government and has been awarded “Param Vir Chakra” or “Maha
Vir Chakra” or “Vir Chakra” or such other gallantry award as may be
specifically notified by the Central Government. Such notification has been
made vide Notification Nos. S.O. 1948(E), dated 24-11-2000 and 81(E),
dated 29-1-2001 which are enclosed as per Annexures IV and IVA.
(13)
Under section 17 of the Act, exemption from tax will also be available in
respect of :—
(a) the value of any medical treatment provided
to an employee or any member of his family, in any hospital maintained by the
employer;
(b) any sum paid by the employer in respect of
any expenditure actually incurred by the employee on his medical treatment or
of any member of his family :
(i) in any hospital maintained by the Government
or any local authority or any other hospital approved by the Government for the
purposes of medical treatment of its employees;
(ii) in respect of the prescribed diseases or
ailments as provided in rule 3A(2) of Income-tax Rules, 1962, in any hospital
approved by the Chief Commissioner having regard to the prescribed guidelines
as provided in rule 3A(1) of I.T. Rules, 1962 :
In
a case falling in sub-clause (ii) above, the employee shall attach with
his return of income a certificate from the hospital specifying the disease or
ailment for which medical treatment was required and the receipt for the amount
paid to the hospital.
(c) premium paid by the employer in respect of
medical insurance taken for his employees (under any scheme approved by the
Central Government) or reimbursement of insurance premium to the employees who
take medical insurance for themselves or for their family members (under any
scheme approved by the Central Government);
(d) reimbursement, by the employer, of the
amount spent by an employee in obtaining medical treatment for himself or any
member of his family from any doctor, not exceeding in the aggregate Rs. 15,000
in a year.
(e) as regards medical treatment abroad, the
actual expenditure on stay and treatment abroad of the employee or any member
of his family, or, on stay abroad of one attendant who accompanies the patient,
in connection with such treatment, will be excluded from perquisites to the
extent permitted by the Reserve Bank of India. It may be noted that the
expenditure incurred on travel abroad by the patient/attendant, it shall be
excluded from perquisites only if the employee’s gross total income, as
computed before including the said expenditure, does not exceed Rs. 2 lakhs.
For
the purpose of availing exemption on expenditure incurred on medical treatment
“hospital” includes a dispensary or clinic or nursing home. “Family” in
relation to an individual means the spouse and children of the individual.
Family also includes parents, brothers and sisters of the individual if they
are wholly or mainly dependant on the individual.
5.3 Deductions under section 16 of the Act
(Standard deduction) - Under section 16 of the Income-tax Act, the standard
deduction available is as under :
In
the case of an assessee whose income from salary, before allowing a deduction
under this clause :
(a) does not exceed five lakh rupees, a deduction
of a sum equal to forty per cent of the salary or thirty thousand rupees,
whichever is less;
(b) exceeds five lakh rupees, a deduction of a
sum of twenty thousand rupees.
It
is clarified that where salary is due from, or paid or allowed by, more than
one employer, the deduction under this clause shall be computed with reference
to the aggregate salary due, paid or allowed to the assessee and shall, in no
case, exceed the amount specified under this clause.
Entertainment allowance : A deduction
is also allowed under clause (ii) of section 16 in respect of any
allowance in the nature of an entertainment allowance specifically granted to
the assessee by an employer, who is in receipt of a salary from the Government,
a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or
other perquisite) or five thousand rupees whichever is less. The deduction
hitherto available to non-Government employees has been withdrawn.
Tax on employment : The tax on
employment within the meaning of clause (2) of article 276 of the
Constitution of India, leviable by or under any law, shall also be allowed as a
deduction in computing the income under the head “Salaries”.
5.4 Deduction under Chapter VI-A of the
Act - The following deductions under Chapter VI-A of the Act are available
:
(1) As per section 80CCC, where an assessee being
an individual has in the previous year paid or deposited any amount out of his
income chargeable to tax to effect or keep in force a contract for any annuity
plan of Life Insurance Corporation of India or any other insurer for receiving
pension from the Fund referred to in clause (23AAB) of section 10, he
shall, in accordance with, and subject to the provisions of this section, be
allowed a deduction in the computation of his total income, of the whole of the
amount paid or deposited (excluding interest or bonus accrued or credited to
the assessee’s account, if any) as does not exceed the amount of ten thousand
rupees in the previous year.
Where
any amount paid or deposited by the assessee has been taken into account for
the purposes of this section, a rebate with reference to such amount shall not
be allowed under section 88.
(2) Under section 80D, in the case of the
following categories of persons, a deduction can be allowed for a sum not
exceeding Rs. 10,000 per annum to the extent payment is made by cheque out of
their income chargeable to tax to keep in force an insurance on the health of
the categories of persons mentioned below provided that such insurance shall be
in accordance with a scheme framed in this behalf by—
(a) the General Insurance Corporation of India
formed under section 9 of the General Insurance Business (Nationalisation) Act,
1972 and approved by the Central Government in this behalf; or
(b) any other insurer and approved by the
Insurance Regulatory and Development Authority established under sub-section
(1) of section 3 of the Insurance Regulatory and Development Authority Act,
1999.
The
categories of persons are :
(a) where the assessee is an individual, any sum
paid to effect or to keep in force an insurance on the health of the assessee
or on the health of the wife or husband, dependent parents or dependent
children of the assessee,
(b) where the assessee is a Hindu undivided
family, any sum paid to effect or to keep in force an insurance on the health
of any member of the family.
However,
the deduction can be allowed for a sum not exceeding Rs. 15,000 per annum where
the assessee or his wife or husband, or dependent parents or any member of the
family (in case the assessee is a Hindu undivided family) is a senior citizen
which means an individual resident in India who is of the age of sixty-five
years or more at any time during the relevant previous year.
(3) Under section 80DD, where an assessee, who is
a resident in India, has, during the previous year,—
(a) incurred any expenditure for the
medical treatment (including nursing), training and rehabilitation of a
dependant, being a person with disability; or
(b) paid or deposited any amount under a scheme
framed in this behalf by the Life Insurance Corporation or any other insurer or
the Administrator or the specified company subject to the conditions specified
in this regard and approved by the Board in this behalf for the maintenance of
a dependant, being a person with disability,
the
assessee shall be allowed a deduction of a sum of fifty thousand rupees from
his gross total income of that year, subject to the conditions listed below :
However,
where such dependant is a person with severe disability, an amount of
seventy-five thousand rupees shall be allowed as deduction subject to the
specified conditions.
The
deduction under this section shall be allowed only if the following conditions
are fulfilled :—
A.
(i) the scheme referred to in clause (b) above provides for
payment of annuity or lump sum amount for the benefit of a dependant, being a
person with disability, in the event of the death of the individual in whose
name subscription to the scheme has been made;
(ii)
the assessee nominates either the dependant, being a person with disability, or
any other person or a trust to receive the payment on his behalf, for the
benefit of the dependant, being a person with disability.
However,
if the dependant, being a person with disability, predeceases the assessee, an
amount equal to the amount paid or deposited under sub-para (3)(b) above
shall be deemed to be the income of the assessee of the previous year in which
such amount is received by the assessee and shall accordingly be chargeable to
tax as the income of that previous year.
B.
The assessee, claiming a deduction under this section, shall furnish a copy of
the certificate issued by the medical authority in the prescribed form and
manner, along with the return of income under section 139, in respect of the
assessment year for which the deduction is claimed :
In
cases where the condition of disability requires reassessment of its extent
after a period stipulated in the aforesaid certificate, no deduction under this
section shall be allowed for any subsequent period unless a new certificate is
obtained from the medical authority in the prescribed form and manner and a
copy thereof is furnished along with the return of income.
For
the purposes of section 80DD,—
(a) “Administrator” means the
Administrator as referred to in clause (a) of section 2 of the Unit
Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002)
(b) “dependant” means—
(i) in the case of an individual, the spouse,
children, parents, brothers and sisters of the individual or any of them;
(ii) in the case of a Hindu undivided family, a
member of the Hindu undivided family,
dependant wholly or mainly on such
individual or Hindu undivided family for his support and maintenance, and who
has not claimed any deduction under section 80U in computing his total income
for the assessment year relating to the previous year;
(c) “disability” shall have the meaning
assigned to it in clause (i) of section 2 of the Persons with Disabilities
(Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1
of 1996);
(d) “Life Insurance Corporation” shall have the
same meaning as in clause (iii) of sub-section (8) of section 88;
(e) “medical authority” means the medical
authority as referred to in clause (p) of section 2 of the Persons with
Disabilities (Equal Opportunities, Protection of Rights and Full Participation)
Act, 1995 (1 of 1996).
(f) “person with disability” means a
person as referred to in clause (t) of section 2 of the Persons with
Disabilities (Equal Opportunities, Protection of Rights and Full Participation)
Act, 1995 (1 of 1996);
(g) “person with severe disability” means
a person with eighty per cent or move of one or more disabilities, as referred
to in sub-section (4) of section 56 of the Persons with Disabilities (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of
1996);
(h) “specified company” means a company
as referred to in clause (h) of section 2 of the Unit Trust of India
(Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002).
(4) Under section 80E of the Act a deduction will
be allowed in respect of repayment of loan taken for higher education, subject
to the following conditions :
(i) In computing the total income of an assessee,
being an individual, there shall be deducted, in accordance with and subject to
the provisions of this section, any amount paid by him in the previous year,
out of his income chargeable to tax, by way of repayment of loan, taken by him
from any financial institution or any approved charitable institution for the
purpose of pursuing his higher education, or interest on such loan :
Provided that the amount which
may be so deducted shall not exceed forty thousand rupees.
(ii) The deduction specified above shall be
allowed in computing the total income in respect of the initial assessment year
and seven assessment years
immediately
succeeding the initial assessment year or until the loan referred to above
together with interest thereon is paid by the assessee in full, whichever is
earlier.
For
this purpose—
(a) “approved charitable institution”
means an institution established for charitable purposes and notified by the
Central Government under clause (2C) of section 10, or, an institution
referred to in clause (a) of sub-section (2) of section 80G.
(b) “financial institution” means a
banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies
(including any bank or banking institution referred to in section 51 of that
Act); or any other financial institution which the Central Government may, by
notification in the Official Gazette, specify in this behalf;
(c) “higher education” means full-time
studies for any graduate or post-graduate course in engineering, medicine,
management, or, for post-graduate course in applied sciences or pure sciences,
including mathematics and statistics;
(d) “initial assessment year” means the
assessment year relevant to the previous year, in which the assessee starts
repaying the loan or interest thereon.
(5) No deduction should be allowed by the D.D.O.
from the salary income in respect of any donations made for charitable
purposes. The tax relief on such donations as admissible under section 80G of
the Act, will have to be claimed by the tax payer in the return of income.
However, D.D.O. on due verification may allow donations to following bodies to
the extent of 50% of the contribution :
(i) Jawaharlal Nehru Memorial Fund
(ii) The Prime Minister’s Drought Relief Fund
(iii) The National Children’s Fund
(iv) The Indira Gandhi Memorial Trust
(v) The Rajiv Gandhi Foundation
and to the following bodies to the extent
of 100% of the contribution :
(i) National Defence Fund or The Prime
Minister’s National Relief Fund
(ii) The Prime Minister’s Armenia Earthquake
Relief Fund
(iii) The Africa (Public Contributions - India)
Fund
(iv) The National Foundation for Communal Harmony
(v) Chief Minister’s Earthquake Relief Fund
- Maharashtra
(vi) National Blood Transfusion Council
(vii) State Blood Transfusion Council
(viii) Army Central Welfare Fund
(ix) Indian Naval Benevolent Fund
(x) Air Force Central Welfare Fund
(xi) The Andhra Pradesh Chief Minister’s Cyclone
Relief Fund - 1996
(xii) The National Illness Assistance Fund
(xiii) The Chief Minister’s Relief Fund or
Lieutenant Governor’s Relief Fund in respect of any State or Union Territory as
the case may be, subject to certain conditions.
(xiv) The
university or educational institution of national eminence approved by the
prescribed authority.
(xv) The
National Sports Fund to be set up by Central Govern-ment.
(xvi) The
national cultural fund set up by the Central Govern-ment.
(xvii) The
fund for technology development and application set up by the Central
Government.
(xviii) The
national trust for welfare of persons with autism, cerebral palsy, mental
retardation and multiple disabilities.
(6) Under
section 80GG of the Act an assessee is entitled to a deduction in respect of
house rent paid by him for his own residence. Such deduction is permissible
subject to the following conditions :—
(a) the
assessee has not been in receipt of any house rent Allowance specifically
granted to him which qualifies for exemption under section 10(13A) of
the Act;
(b) the
assessee files the declaration in Form No. 10BA. (Annexure V).
(c) He
will be entitled to a deduction in respect of house rent paid by him in excess
of 10 per cent of his total income, subject to a ceiling of 25 per cent thereof
or Rs. 2,000 per month, whichever is less. The total income for working out
these percentages will be computed before making any deduction under section
80GG.
(d) The
assessee does not own :
(i) any
residential accommodation himself or by his spouse or minor child or where such
assessee is a member of a Hindu undivided family, by such family, at the place
where he ordinarily resides or performs duties of his office or carries on his
business or profession; or
(ii) at
any other place, any residential accommodation being accommodation in the
occupation of the assessee, the value of which is to be determined under
sub-clause (i) of clause (a), or as the case may be, clause (b)
of sub-section (2) of section 23 :
The Drawing and Disbursing
Authorities should satisfy themselves that all the conditions mentioned above
are satisfied before such deduction is allowed by them to the assessee. They
should also satisfy themselves in this regard by insisting on production of
evidence of actual payment of rent.
(7) Section 80L of the Income-tax Act allows
deduction of interest from certain specified investments including interest on
bank deposits and certain securities. A normal deduction of up to Rs. 12,000
may be allowed. An additional deduction of Rs. 3000 for interest on Government
securities is separately available.
(8) Under section 80U, in computing the total
income of an individual, being a resident, who, at any time during the previous
year, is certified by the medical authority to be a person with disability,
there shall be allowed a deduction of a sum of fifty thousand rupees.
However,
where such individual is a person with severe disability, a higher deduction of
seventy-five thousand rupees shall be allowable.
Every
individual claiming a deduction under this section shall furnish a copy of the
certificate issued by the medical authority in the prescribed form and manner
along with the return of income, in respect of the assessment year for which
the deduction is claimed.
In
cases where the condition of disability requires reassessment of its extent
after a period stipulated in the aforesaid certificate, no deduction under this
section shall be allowed for any subsequent period unless a new certificate is
obtained from the medical authority in the prescribed form and manner and a
copy thereof is furnished along with the return of income.
For
the purposes of this section, the expressions “disability”, “medical
authority”, “person with disability” and “person with severe disability” shall
have the same meaning as given in section 80DD (sub-para (3) of para 5.4 of
this Circular).
Tax rebate
6. An assessee, being an individual, will be
entitled to tax rebates under Chapter VIII of the Income-tax Act as given below
:
(1) Payment of insurance premium to effect or to
keep in force an insurance on the life of the individual, the wife or husband
or any child of the individual.
(2) Any payment made to effect or to keep in
force a contract for a deferred annuity, not being an annuity plan as is
referred to in item (8) herein below on the life of the individual, the wife or
husband or any child of the individual, provided that such contract does not
contain a provision for the exercise by the insured of an option to receive a
cash payment in lieu of the payment of the annuity.
(3) Any sum deducted from the salary payable by,
or, on behalf of the Government to any individual, being a sum deducted in
accordance with the conditions of his service for the purpose of securing to
him a deferred annuity or making provision for his wife or children, insofar as
the sum deducted does not exceed 1/5th of the salary.
(4) Any contribution made :
(a) by an individual to any Provident Fund to
which the Provident Fund Act, 1925 applies;
(b) to any provident fund set up by the Central
Government, and notified by it in this behalf in the Official Gazette, where
such contribution is to an account standing in the name of an individual, or a
minor, or of whom he is a guardian;
(c) by an employee to a Recognized Provident
Fund;
(d) by an employee to an approved superannuation
fund;
It
may be noted that “contribution” to any Fund shall not include any sums in
repayment of loan.
(5) Any deposit in a ten year account or a
fifteen year account under the Post Office Savings Bank (Cumulative Time
Deposit) Rules, 1959, as amended from time to time, where such sums are
deposited in an account standing in the name of an individual, or a minor, or
of whom he is the guardian.
(6) Any subscription :
(a) to any such security of the Central
Government or any such deposit scheme as the Central Government may, by
notification in the Official Gazette, specify in this behalf;
(b) to any such saving certificates as defined
under section 2(c) of the Government Saving Certificate Act, 1959 as the
Government may, by notification in the Official Gazette, specify in this
behalf. Interest on NSC (VI Issue) and NSC (VIII Issue) which is deemed
investment also qualifies for the rebate.
(7) Any sum paid as contribution in the case of
an individual, for himself, spouse or any child,—
(a) for participation in the Unit Linked
Insurance Plan, 1971 of the Unit Trust of India;
(b) for participation in any Unit-linked
Insurance Plan of the LIC Mutual Fund notified by the Central Government under
clause (23D) of section 10.
(8) Any subscription made to effect or keep in force
a contract for such annuity plan of the Life Insurance Corporation as the
Central Government may by notification in the Official Gazette, specify.
(9) Any subscription not exceeding rupees ten
thousand, made to any units of any Mutual Fund, notified under clause (23D)
of section 10, by the Unit Trust of India established under the Unit Trust of
India Act, 1963, under any plan formulated in accordance with any scheme as the
Central Government, may, by notification in the Official Gazette, specify in this
behalf;
(10) Any contribution made by an individual to any
pension fund set up by any Mutual Fund notified under clause (23D) of
section 10, or, by the Unit Trust of India established under the Unit Trust of
India Act, 1963, as the Central Government may, by notification in the Official
Gazette, specify in this behalf.
(11) Any subscription made to any such deposit
scheme of, or, any contribution made to any such pension fund set up by, the
National Housing Bank, as the Central Government may, by notification in the
Official Gazette, specify in this behalf.
(12) Any subscription made to any such deposit
scheme (not being a scheme the interest on deposits whereunder qualifies for
deduction under section 80L), as the Central Government may, by notification in
the Official Gazette, specify for the purpose of being floated by (a)
public sector companies engaged in providing long-term finance for construction
or purchase of houses in India for residential purposes, or, (b) any
authority constituted in India by, or, under any law, enacted either for the
purpose of dealing with and satisfying the need for housing accommodation or
for the purpose of planning, deve-lopment or improvement of cities, towns and
villages, or for both.
(13) Any sums paid by an assessee for the purpose
of purchase or construction of a residential house property, the income from
which is chargeable to tax under the head “Income from house property” (or
which would, if it has not been used for assessee’s own residence, have been
chargeable to tax under that head) where such payments are made towards or by
way of any instalment or part payment of the amount due under any
self-financing or other scheme of any Development Authority, Housing Board etc.
The deduction will also be allowable in respect of repayment of loans borrowed
by an assessee from the Government, or any bank or Life Insurance Corporation,
or National Housing Bank, or certain other categories of institutions engaged
in the business of providing long term finance for construction or purchase of
houses in India. Any repayment of loan borrowed from the employer will also be
covered, if the employer happens to be a public company, public sector company
or a university established by law or a college affiliated to such university,
or a local authority or a cooperative society. The stamp duty, registration fee
and other expenses incurred for the purpose of transfer shall also be covered.
Payment towards the cost of house property, however, will not include,
admission fee or cost of share or initial deposit or the cost of any addition
or alteration to, or, renovation or repair of the house property which is
carried out after the issue of the completion certificate by competent
authority, or after the occupation of the house by the assessee or after it has
been let out. Payments towards any expenditure in respect of which the
deduction is allowable under the provisions of section 24 of the Income-tax Act
will also not be included in payments towards the cost of purchase or
construction of a house property. Where the house property in respect of which
deduction has been allowed under these provisions is transferred by the
taxpayer at any time before the expiry of five years from the end of the
financial year in which possession of such property is obtained by him or he
receives back, by way of refund or otherwise, any sum specified in section
88(2)(xv), no deduction under these provisions shall be allowed in
respect of such sums paid in such previous year in which the transfer is made
and the aggregate amount of deduction of income-tax so allowed in the earlier
years shall be added to the tax on the total income of the assessee with which
he is chargeable for such assessment year. It may be noted that the amount
which will qualify for tax rebate in respect of this item will not exceed Rs.
20,000.
(14) Tuition fees, whether at the time of
admission or thereafter, paid to any university, college, school or other
educational institution situated in India, for the purpose of full-time
education of any two children of the employee.
It
is clarified that any payment towards any development fees or donation or
payment of similar nature does not qualify for rebate under these provisions.
(15) Subscription to equity shares or debentures
forming part of any eligible issue of capital made by a public company or by
any public finance institution, which is approved by the Board.
(16) Subscription to any units of any mutual
fund referred to in clause (23D) of section 10 and approved by the Board
for this purpose.
(17) Total amount qualifying for rebate under
section 88 - There is an overall limit of Rs. 1,00,000 invested in various
items mentioned in sub-paras (1) to (16) of para 6, which qualifies for rebate
under section 88. Out of this, amounts invested in items mentioned in sub-paras
(1) to (14) can be up to a maximum of Rs. 70,000. Further, instalments paid
towards purchase or construction of a residential house, as discussed in
sub-para (13) would qualify for rebate only with respect to a maximum amount of
Rs. 20,000. Moreover, the qualifying amount for rebate for tuition fees paid,
as discussed in sub-para (14) would not exceed an amount of Rs. 12,000 per
child.
It
is further provided that the amount of premium or other payment made on an
insurance policy [other than a contract for deferred annuity mentioned in
sub-para (2)] shall be eligible for rebate only to the extent of 20 per cent of
the actual capital sum assured. In calculating any such actual capital sum, the
following shall not be taken into account :
(i) the value of any premiums agreed to be
returned, or
(ii) any benefit by way of bonus or otherwise over
and above the sum actually assured which may be received under the policy.
Investments in various items mentioned
under para 6 can be made at any time during the year. The rebate under section
88 would be allowed on such aggregate amount, which does not exceed the total
income of the relevant financial year.
(18) Rate of rebate under section 88 - A
graded system of tax rebate under section 88 has been introduced by the Finance
Act, 2002. The tax rebate on the qualifying amount shall now be computed at the
following rates :—
|
|
Nature
and level of income |
%age of sums invested to |
|
1. |
Where the gross total income does not exceed Rs. 1,50,000 |
20% |
|
2. |
Where
the gross total income exceeds Rs. 1,50,000 but does not exceed Rs. 5,00,000 |
15% |
|
3. |
Where
the gross total income exceeds Rs. 5,00,000 |
Nil |
|
4. |
In
case of an individual, where the income under the head “salaries” does not
exceed Rs. 1,00,000 (before allowing standard deduction) and is at least 90%
of his gross total income. |
30% |
‘Gross total income’ means the total of incomes under all
heads before allowing deductions under Chapter VIA of the Income-tax Act, 1961.
It
is further clarified that the income under the head “Salaries” is derived after
allowing standard deduction.
The
above rates shall be applicable to all individuals including sportsmen,
artists, authors, playwrights, etc. Higher rebate earlier allowed to such
special category individuals has been withdrawn by the Finance Act, 2002.
(19) Rebate to senior citizens - Under
section 88B, an assessee, being an individual resident in India, who is of the
age of sixty-five years or more at any time during the previous year shall be
entitled to a deduction from the amount of income-tax (as a computed before
allowing the deductions under Chapter VIII) on his total income, with which he
is chargeable for any assessment year, of an amount equal to one hundred per cent
of such income-tax or an amount of twenty-thousand rupees, whichever is less.
(20) Rebate
to woman residents - Under section 88C, as inserted by Finance Act, 2000,
an assessee, being a woman resident in India, and below the age of sixty-five
years, at any time during the previous year, shall be entitled to a deduction
from the amount of income-tax (as computed before allowing the deductions under
Chapter VIII) on her total income, with which she is chargeable for any
assessment year, of an amount equal to hundred percent, of such income-tax or
an amount of five thousand rupees, whichever is less.
(21) DDOs
to satisfy themselves of the genuineness of claim - The Drawing and
Disbursing Officers should satisfy themselves about the actual
deposits/subscriptions/payments made by the employees, by calling for such
particulars/information as they deem necessary before allowing the aforesaid
rebate. In case the DDO is not satisfied about the genuineness of the
employee’s claim regarding any deposit/subscription/payment made by the
employee, he should not allow the same, and the employee would be free to claim
the rebate on such amount by filing his return of income and furnishing the
necessary proof etc., therewith, to the satisfaction of the Assessing Officer.
Calculation of income-tax to be deducted
7.1 Salary income for the
purpose of section 192 shall be estimated as follow :—
(a) First
compute the gross salary as mentioned in para 5.1 excluding all the incomes
mentioned in para 5.2.
(b) Allow
deductions mentioned in para 5.3 from the figure arrived at (a) above.
(c) Allow
deductions mentioned in para 5.4 from the figure arrived at (b) above
ensuring that aggregate of the deductions mentioned in para 5.4 does not exceed
the figure of (b) and if it exceeds, it should be restricted to that
amount.
This will be the amount of income under
the head “Salaries” on which income-tax would be required to be deducted. This
income should be rounded off to the nearest multiple of ten rupees.
7.2 Income-tax on the
estimated income from salary as shown in para 7.1 shall be calculated at the
rates given in para 2.
7.3 The amount of tax
rebates computed under para 6 shall be deducted from the income-tax calculated
according to para 7.2. However, it is to be ensured that the tax rebates given
as per para 6 is limited to the income-tax calculated as per para 7.2. Further,
tax payable so arrived at shall be increased by surcharge at the prescribed
rate to arrive at the total tax payable.
7.4 It is also to be noted that deductions
under Chapter VIA of the Act as mentioned in para 5.4 of this Circular are
allowed only if the investments or the payments have been made out of the
income chargeable to tax during the financial year 2003-04.
7.5 The amount of tax as arrived at para 7.3
should be deducted every month in equal instalments. The net amount of tax
deductible should be rounded off to the nearest rupee.
Miscellaneous
8.1 These instructions are not exhaustive and
are issued only with a view to help the employers to understand the various
provisions relating to deduction of tax from salaries. Wherever there is any
doubt, reference may be made to the provisions of the Income-tax Act, 1961, the
Income-tax Rules, 1962 and the Finance Act, 2003.
8.2 In case any assistance is required, the
Assessing Officer/the local Public Relation Officer of the Income-tax
Department may be contacted.
8.3 These instructions may be brought to the
notice of all Disbursing Officers and Undertakings including those under the
control of the Central/State Governments.
Annexure I
For assessment
year 2004-05
Example 1
Calculation of income-tax in the case of an employee having
gross salary income of :
|
(i) |
Rs. 1,00,000 |
|
|
|
(ii) |
Rs. 6,00,000 and |
|
|
|
(iii) |
Rs. 9,00,000 |
|
|
|
Particulars |
(Rupees) |
|
(Rupees) |
|
(Rupees) |
|
|
(i) |
|
(ii) |
|
(iii) |
|
Gross salary income |
1,00,000 |
|
6,00,000 |
|
9,00,000 |
|
(Including allowances) |
|
|
|
|
|
|
Contribution to G.P.F. |
10,000 |
|
20,000 |
|
30,000 |
|
Computation of
total income and tax payable thereon |
|||||
|
Gross Salary |
1,00,000 |
|
6,00,000 |
|
9,00,000 |
|
Less : Standard Deduction u/s 16(i) |
30,000 |
|
20,000 |
|
20,000 |
|
Taxable Income |
70,000 |
|
5,80,000 |
|
8,80,000 |
|
Tax thereon |
3,000 |
|
1,48,000 |
|
2,38,000 |
|
Less : Tax rebate u/s 88 |
3,000 |
|
Nil |
|
Nil |
|
Income tax payable |
Nil |
|
1,48,000 |
|
2,38,000 |
|
Add : Surcharge |
|
|
Nil |
|
23,800 |
|
Total Tax payable |
Nil |
|
1,48,000 |
|
2,61,800 |
Example 2
Calculation of Income-tax in the case of assessee having
handicapped dependent.
|
|
Particulars |
(Rupees) |
|
1. |
Gross
Salary |
3,20,000 |
|
2. |
Amount
spent on treatment of a dependent, being person with disability (but not
severe disability) |
7,000 |
|
3. |
Amount
paid to LIC with regard to annuity for the maintenance of a dependant, being
person with disability (but not severe disability) |
50,000 |
|
4. |
GPF
Contribution |
25,000 |
|
5. |
LIP
Paid |
10,000 |
Computation of
Tax
|
Gross
Salary |
|
|
3,20,000 |
|
Less
: Standard Deduction |
|
|
30,000 |
|
|
|
|
2,90,000 |
|
Less
: Deduction u/s 80DD (Restricted to Rs. 50,000 only) |
50,000 |
|
|
|
Taxable
Income |
|
|
2,40,000 |
|
Income
tax thereon |
|
|
46,000 |
|
Rebate
under section 88 |
|
|
|
|
GPF |
25,000 |
|
|
|
LIP |
10,000 |
|
|
|
Total |
35,000 |
|
|
|
Rebate
@ 15% on Rs. 35,000 |
|
|
5,250 |
|
Tax
Payable |
|
|
40,750 |
|
Add
: Surcharge |
|
|
Nil |
|
Total
tax payable |
|
|
40,750 |
Example 3
Calculation of Income-tax in the case of an employee where
medical treatment expenditure was borne by the employer.
|
|
Particulars |
(Rupees) |
|
1. |
Gross
Salary |
3,00,000 |
|
2. |
Medical
reimbursement by employer on the treatment of self and dependent family
member |
30,000 |
|
3. |
Contribution
of GPF |
20,000 |
|
4. |
LIC
premium |
20,000 |
|
5. |
Repayment
of House Building Advance |
25,000 |
|
6. |
Tuition
fees for two children (Rs. 20,000 for one child and Rs. 10,000 for other
child) |
30,000 |
|
7. |
Investment
infrastructure Bond u/s 88(2)(xvi) |
20,000 |
Computation of
tax
|
Gross
Salary |
|
|
3,00,000 |
|
Add
: Perquisite in respect of reimbursement of Medical Expenses in excess of Rs.
15,000 in view of sec. 17(2)(v) |
|
|
15,000 |
|
|
|
|
3,15,000 |
|
Less
: Standard Deduction |
|
|
30,000 |
|
Taxable
Income |
|
|
2,85,000 |
|
Tax
thereon |
|
|
59,500 |
|
Rebate
u/s 88 : |
|
|
|
|
GPF |
20,000 |
|
|
|
LIC |
20,000 |
|
|
|
Repayment
of HBA (Maximum) |
20,000 |
|
|
|
Tuition
Fees (Restricted to max. of 12,000 per child or actuals, whichever is lesser) |
22,000 |
|
|
|
Investment
in infrastructural Bonds u/s 88(2)(xvi) |
20,000 |
|
|
|
Total |
1,02,000 |
|
|
|
Restricted
to Rs. 90,000 |
|
|
|
|
(70,000
+ 20,000) |
|
|
|
|
Rebate
@ 15% on Rs. 90,000 |
|
|
13,500 |
|
Tax
payable |
|
|
46,000 |
|
Add
: Surcharge |
|
|
Nil |
|
Total
Tax Payable |
|
|
46,000 |
Example 4
Illustrative calculation of House Rent Allowance u/s 10
(13A) in respect of residential accommodation situated in Delhi
|
|
Particulars: |
(Rupees) |
|
1. |
Salary |
49,500 |
|
2. |
Dearness
Allowance |
43,680 |
|
3. |
House
Rent Allowance |
9,600 |
|
4. |
C.C.A. |
1,200 |
|
5. |
House
rent paid |
18,000 |
|
6. |
General
Provident Fund |
24,000 |
|
7. |
Life
Insurance Premium |
2,500 |
|
8. |
Cumulative
Time Deposit |
2,400 |
|
9. |
Subscription
to Infrastructure Bonds |
10,000 |
Computation of
total income and tax payable thereon
|
|
|
(Rupees) |
||
|
1. |
Salary +D.A. + C.C.A. |
94,380 |
||
|
|
House Rent Allowance |
9,600 |
||
|
2. |
Total Salary Income |
1,03,980 |
||
|
3. |
Less : House Rent Allowance exempt u/s 10(13A)
: Least of |
|
||
|
|
a .Actual
amount of HRA received = 9600 |
|
||
|
|
b .Expenditure
of rent in excess of 10% of salary |
|
||
|
|
(including
D.A. as presumed that D.A. is taken |
|
||
|
|
For
retirement benefit) (18,000-9,318=8,682) |
|
||
|
|
c. 50%
of Salary (+Basic) Rs. 46,590 |
8,682 |
||
|
|
|
95,298 |
||
|
|
Less
: Standard deduction u/s 16(i) @
40% |
|
||
|
|
or 30,000 whichever is less |
30,000 |
||
|
|
Total income (rounded off) |
65,300 |
||
|
|
Tax on total income |
2,060 |
||
|
|
Rebate u/s 88 |
|
||
|
|
GPF |
24,000 |
|
|
|
|
LIP |
2,500 |
|
|
|
|
CTD |
2,400 |
|
|
|
|
Subscription
to Infrastructure |
|
|
|
|
|
Bonds
u/s 88(2)(xvi) |
10,000 |
|
|
|
|
Total |
38,900 |
|
|
|
|
Rebate
@ 30% |
11,670 |
|
|
|
|
Tax on total income |
2,060 |
||
|
|
Less : Tax Rebate restricted to Rs. 2,060 |
2,060 |
||
|
|
Tax Payable |
Nil |
||
Example 5
Illustrating
valuation of perquisite and calculation of tax in the case of an employee of a
private company in Mumbai who was provided accommodation in a flat at
concessional rate for ten months and in a hotel for two months. Employee owns a
car (cubic capacity of engine exceeds 1.6 ltr.) used partly for personal and
partly for official work and actual running and maintenance charges including
chauffeur’s salary are reimbursed by employer, but no documents are maintained
regarding details of journeys—
(Rupees)
|
1. |
Salary |
1,08,000 |
|
2. |
Bonus |
12,000 |
|
3. |
Free
gas, electricity, water etc. (Actual bills paid by company) |
6,000 |
|
4. |
(a) Furnished flat provided to the employee for
which actual rent paid by the company per annum |
78,000 |
|
|
(b) Hotel rent paid by employer (for two months) |
30,000 |
|
|
(c) Rent recovered from employee |
5,000 |
|
5. |
Car
expenses reimbursed |
40,200 |
|
6. |
Furniture
at cost |
50,000 |
|
7. |
Subscription
to infrastructure bonds u/s 88(2)(xvi) |
30,000 |
|
8. |
Life
Insurance Premium |
3,000 |
|
9. |
Subscription
to NSC (VIII) Issue |
18,000 |
|
10. |
Contribution
to recognised P.F. |
24,000 |
Computation of
total income and tax paid thereon
(Rupees)
|
1. |
Salary |
|
|
1,08,000 |
|
|
2. |
Bonus |
|
|
12,000 |
|
|
|
Total
Salary for Valuation of perquisite |
|
|
|
|
|
|
i.e.,
Rs. 10,000 per month |
|
|
1,20,000 |
|
|
|
Valuation
of perquisites |
|
|
|
|
|
(a) |
Perq.
for flat : |
|
|
|
|
|
|
Lower
of (10% of salary for ten months = |
|
|
|
|
|
|
Rs.
10,000 actual rent paid = 65,000) |
10,000 |
|
|
|
|
(b) |
Perq.
for hotel |
|
|
|
|
|
|
Less
of (24% of salary of 2 months = 4800, |
|
|
|
|
|
|
actual
payment = 30,000) |
4,800 |
|
|
|
|
(c) |
Perq.
for furniture @ 10% |
5,000 |
|
|
|
|
|
|
19,800 |
|
|
|
|
|
Less
: Rent recovered from employee |
5,000 |
|
|
|
|
|
|
14,800 |
|
|
|
|
(d) |
Add
perq. for free gas, elec., water |
6,000 |
|
|
|
|
(e) |
Add
perq. for car expenses reimbursement |
|
|
|
|
|
|
(40,200
- 12(1600+600) |
13,800 |
|
|
|
|
|
Total
perquisites : |
34,600 |
|
|
|
|
|
(Gross
Total Income (1,20,000 + 34,600) |
|
|
1,54,600 |
|
|
|
Less
: Standard Deduction u/s 16(i) |
|
|
30,000 |
|
|
|
Total
income |
|
|
1,24,600 |
|
|
|
Tax
on Total Income |
13,920 |
|
|
|
|
|
Tax
rebate u/s 88 |
|
|
|
|
|
|
Provident
Fund |
24,000 |
|
|
|
|
|
Subscription
to NSC VIII Issue |
18,000 |
|
|
|
|
|
LIP |
3,000 |
|
|
|
|
|
Contribution
to infrastructure Bond |
30,000 |
|
|
|
|
|
Total |
75,000 |
|
|
|
|
|
Tax
Rebate @ 20% |
15,000 |
|
|
|
|
|
Tax
on total income |
13,920 |
|
|
|
|
|
Tax
rebate (restricted) |
|
|
13,920 |
|
|
|
Tax
payable |
|
|
Nil |
|
|
|
|
|
|
|
|
Example 6
Illustrating
Valuation of perquisite and calculation of tax in the case of an employee of a
Private Company posted at Delhi and repaying House Building Loan.
|
|
Particulars
: |
(Rupees) |
|
1. |
Salary |
1,18,000 |
|
2. |
Dearness
allowance |
36,000 |
|
3. |
House
rent allowance |
12,000 |
|
4. |
Special
duties allowance |
2,400 |
|
5. |
Provident
Fund |
20,000 |
|
6. |
LIP |
10,000 |
|
7. |
Deposit
in NSC VIII issue |
20,000 |
|
8. |
Rent
paid by the employee for house hired by him |
24,000 |
|
9. |
Repayment
of House Building loan taken |
|
|
|
by
the employee from LIC |
12,000 |
|
10. |
Subscription
to eligible issue of capital of |
|
|
|
a
company approved u/s 88(2)(xvi) |
20,000 |
Computation of
total income and tax payable thereon
(Rupees)
|
1. |
Gross salary |
|
|
1,68,400 |
|||
|
|
Less : House rent allowance exempt u/s 10(13A) |
|
|
|
|||
|
a. |
Actual amount of HRA received |
12,000 |
|
|
|||
|
b. |
Expenditure on rent in excess of 10% of |
|
|
|
|||
|
|
salary (including D.A.) as personal D.A. is |
|
|
|
|||
|
|
including for retirement benefits 8,600) |
8,600 |
|
|
|||
|
c. |
50% of salary (including D.A.) |
77,000 |
|
(-) 8,600 |
|||
|
|
Total salary income |
|
|
1,59,800 |
|||
|
|
Less : Standard Deduction |
|
|
30,000 |
|||
|
|
Total Taxable Income |
|
|
1,29,800 |
|||
|
|
Tax on total Income |
|
|
14,960 |
|||
|
|
Tax rebate u/s 88 |
|
|
|
|||
|
i. |
Provident Fund |
20,000 |
|
|
|
|
|
|
ii. |
LIP |
10,000 |
|
|
|
|
|
|
iii. |
NSC VIII Issue |
20,000 |
|
|
|
|
|
|
iv. |
Repayment of HBA |
12,000 |
|
|
|
|
|
|
v. |
Subscription to eligible issue of |
|
|
|
|
|
|
|
|
Co. approved U/s 88(2)(xvi) |
20,000 |
|
|
|
|
|
|
|
Total |
82,000 |
|
|
|
|
|
|
|
Rebate @ 20% = |
16,200 |
|
14,960 |
|||
|
|
|
|
|
(restricted) |
|||
|
|
Net Tax Payable |
|
|
Nil |
|||
|
|
|
|
|
|
|
|
|
Example 7
Income-tax
calculation in the case of an employee who claims loss under the head income
from house property
|
|
Particulars |
(Rupees) |
|
1. |
Gross salary |
4,00,000 |
|
2. |
Housing Loan repaid (Principal) |
30,000 |
|
3. |
Interest payable on housing loan (Loan taken after
1-4-1999) |
2,00,000 |
|
4. |
Donation paid to National Children Fund |
5,000 |
|
5. |
NSC Purchased |
10,000 |
|
6. |
GPF |
20,000 |
Computation of
taxable income and tax thereon
(Rupees)
|
1. |
Salary income |
|
|
4,00,000 |
|
|
Gross salary |
|
|
|
|
|
Less : Standard Deduction |
|
|
30,000 |
|
|
Taxable salary |
|
|
3,70,000 |
|
2. |
Income from house property |
|
|
|
|
|
Annual value |
|
|
Nil |
|
|
Interest payable on loan under section 24 |
|
|
2,00,000 |
|
|
Loss from house property (Maximum allowable) |
|
|
1,50,000 |
|
|
Gross total income |
|
|
2,20,000 |
|
|
Less deduction under section 80G |
|
|
|
|
|
50% of Rs. 5,000 |
|
|
2,500 |
|
|
Net taxable income |
|
|
2,17,500 |
|
|
Tax thereon |
|
|
39,250 |
|
|
Less rebate under section 88 |
|
|
|
|
|
GPF |
20,000 |
|
|
|
|
NSC |
10,000 |
|
|
|
|
Housing
Loan repaid |
20,000 |
|
|
|
|
Total |
50,000 |
|
|
|
|
Rebate @ 15% of Rs. 50,000 |
|
|
7,500 |
|
|
Tax payable |
|
|
31,750 |
|
|
Add : Surcharge |
|
|
Nil |
|
|
Total tax payable |
|
|
31,750 |
Example 8
Income Tax calculation in the case of an employee who claims
loss under the head ‘Income from house property’, loan taken before 1-4-1999.
|
|
Particulars |
|
(Rupees) |
|
1. |
Gross Salary |
|
4,00,000 |
|
2. |
Housing Loan repaid (Principal) |
|
30,000 |
|
3. |
Interest payable on housing loan (Loan taken before 1-4-1999) |
|
2,00,000 |
|
4. |
Donation paid to National Children’s Fund |
|
5,000 |
|
5. |
N.S.C. purchased |
|
10,000 |
|
6. |
G.P.F. |
|
20,000 |
Computation of
Taxable Income and tax thereon
|
1. |
Salary Income |
|
|
4,00,000 |
|
|
Gross Salary |
|
|
|
|
|
Less: Standard deduction |
|
|
30,000 |
|
|
Taxable Salary |
|
|
3,70,000 |
|
2. |
Income from House Property |
|
|
|
|
|
Annual value |
Nil |
|
|
|
|
Interest payable on loan under section 24 |
2,00,000 |
|
|
|
|
Loss from House property (Maximum |
|
|
|
|
|
allowable for loans taken before 1-4-1999) |
|
|
30,000 |
|
|
Gross total income |
|
|
3,40,000 |
|
|
Less deduction under section 80G |
|
|
|
|
|
50% of Rs. 5,000 |
|
|
2,500 |
|
|
Net Taxable Income |
|
|
3,37,500 |
|
|
Tax thereon |
|
|
75,250 |
|
|
Less rebate under section 88 |
|
|
|
|
|
G.P.F. |
20,000 |
|
|
|
|
N.S.C. |
10,000 |
|
|
|
|
Housing
Loan repaid (maximum) |
20,000 |
|
|
|
|
Total: |
50,000 |
|
|
|
|
Rebate @ 15% of Rs. 50,000 |
|
|
7,500 |
|
|
Tax payable |
|
|
67,750 |
|
|
Add: Surcharge |
|
|
Nil |
|
|
Total Tax payable |
|
|
67,750 |
Example 9
Income-tax calculation in the case of a woman assessee who
is less than age of 65 years.
|
Particulars |
Rupees |
|
Gross Salary |
1,20,000 |
|
G.P.F. |
10,000 |
|
N.S.C. purchased |
10,000 |
Computation of
Taxable Income and Tax thereon
|
Gross Salary |
|
|
|
1,20,000 |
|
Less: Standard deduction under section 16(i) |
|
|
|
30,000 |
|
Taxable Income |
|
|
|
90,000 |
|
Tax thereon |
|
|
|
7,000 |
|
Less: Rebate under section 88C (Being woman) |
|
|
|
5,000 |
|
Less: Rebate under section 88 |
|
|
|
|
|
G.P.F. |
10,000 |
|
|
|
|
N.S.C. |
10,000 |
|
|
|
|
Total |
20,000 |
|
|
|
|
Rebate under section 88 @ 20% of Rs. 20,000 = |
|
|
|
|
|
Rs. 4,000 = restricted to Rs. 2,000 |
|
|
|
2,000 |
|
Tax payable |
|
|
|
Nil |
Note:- In the case of a woman assessee who is 65
years of age or more, she will be entitled to rebate only under section 88B of
the Act meant for Senior citizens and not under section 88C of the Act.
Annexure II
Form for sending
particulars of income u/s 192(2B)
for the year ending 31st March, 2002
|
1. |
Name
and address of the employee |
|
||
|
2. |
Permanent
Account Number |
|
||
|
3. |
Residential
status |
|
||
|
4. |
Particulars
of income under any head of income other than “salaries” (not being a loss
under any such head other than the loss under the head “Income from house
property”) received in the financial year |
|||
|
|
(i) |
Income
from house property |
|
|
|
|
|
(in
case of loss, enclose computation thereof) |
|
|
|
|
(ii) |
Profits
and gains of business or profession |
|
|
|
|
(iii) |
Capital
gains |
|
|
|
|
(iv) |
Income
from other sources |
|
|
|
|
(a) |
Dividends |
|
|
|
|
(b) |
Interest |
|
|
|
|
(c) |
Other
incomes (specify) |
|
|
|
|
|
Total |
|
|
|
5. |
Aggregate
of sub-items (i) to (iv) of item 4 |
|
||
|
6. |
Tax
deducted at source (enclose certificates) issued under section 203 |
|
||
|
|
|
|
|
|
|
Place................ |
|
|
Date................. |
....................................................... |
|
|
Signature of the employee |
Verification
I,.......................,
do hereby declare that what is stated above is true to the best of my knowledge
and belief.
Verified
today, the..........day of.................2003.
|
Place................ |
|
|
Date................. |
....................................................... |
|
|
Signature of the employee |
Annexure III
I.T. (Twenty-fifth Amendment) Rules, 2002 -
See
[2002] 124 Taxman 63 (St.)
Annexure III-A
Form No. 12BA : Statement showing
particulars of perquisites, other fringe benefits or amenities and profits in
lieu of salary with value thereof - See [2002] 124 Taxman 64 (St.).
Annexure III-B
Form No. 16 : Certificate under
section 203 of the Income-tax Act, 1961 for tax deducted at source from income
chargeable under the head “Salaries” - See [2002] 124 Taxman 67 (St.).
Annexure IV
Notification SO 1048(E), dated 24-11-2000 :
See [2000] 113 Taxman 52 (St.).
Annexure IV-A
Notification SO 81(E), dated 29-1-2001 :
See [2001] 115 Taxman 183 (St.).
Annexure V
Form No. 10BA : Declaration to be
filed by the assessee claiming deduction under section 80GG - Income-tax
(Nineteenth Amendment) Rules, 1998 - See [1998] 100 Taxman 110 (St.).
nn
++++++++++++++++++++++++