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    Jan 15, 2010

    DEDUCTION OF TDS AND INCOME TAX ON SALARY U/s 192 FOR F.Y 2009-10

     GOVERNMENT OF INDIA
    MINISTRY OF FINANCE
    DEPARTMENT OF REVENUE
    CENTRAL BOARD OF DIRECT TAXES
    DEDUCTION OF TAX AT SOURCE —
    INCOME–TAX DEDUCTION FROM SALARIES
    UNDER SECTION 192 OF THE
    INCOME–TAX ACT, 1961
    DURING THE FINANCIAL YEAR 2009-2010
    CIRCULAR NO.1/2010
    F.No.275/192/2009IT(B)]
    NEW DELHI, dated the 11th January,2010

    3
    CIRCULAR NO.: 1/2010
    F.No. 275/192/2009-IT(B)
    Government of India
    Ministry of Finance
    Department of Revenue
    Central Board of Direct Taxes
    .....
    New Delhi, dated the 11th January,2010

    SUBJECT: INCOME-TAX DEDUCTION FROM SALARIES DURING THE
    FINANCIAL YEAR 2009-2010 UNDER SECTION 192 OF THE
    INCOME-TAX ACT, 1961.
    ……………
    Reference is invited to Circular No.08/2007 dated
    5.12.2007 whereby 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
    2008-2009, 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 2009-2010 and
    explains certain related provisions of the Income-tax.
    2. FINANCE ACT,2009
    As per the Finance Act, 2009, 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 2009-
    2010 (i.e. Assessment Year 2010-2011) at the following rates:
    RATES OF INCOME-TAX
    A. Normal Rates of tax:
    1. Where the total income does not Nil
    exceed Rs.1,60,000/-.
    2. Where the total income exceeds 10 per cent, of the
    Rs.1,60,000 but does not exceed amount by which the
    Rs.3,00,000/-. total income exceeds
    Rs.1,60,000/-
    3. Where the total income exceeds Rs.14,000/- plus 20
    Rs.3,00,000/- but does not exceed per cent of the
    Rs.5,00,000/-. amount by which the
    total income exceeds
    Rs.3,00,000/-.
    4. Where the total income exceeds Rs.54,000/- plus 30
    Rs.5,00,000/-. per cent of the
    amount by which the
    total income exceeds
    Rs.5,00,000/-.
    4
    B. Rates of tax for a woman, resident in India and below
    sixty-five years of age at any time during the financial
    year:
    1. Where the total income does not Nil
    exceed Rs.1,90,000/-.
    2. Where the total income exceeds 10 per cent, of the
    Rs.1,90,000 but does not exceed amount by which the
    Rs.3,00,000/-. total income exceeds
    Rs.1,90,000/-
    3. Where the total income exceeds Rs. 11,000/- plus 20
    Rs.3,00,000/- but does not exceed per cent of the
    Rs.5,00,000/-. amount by which the
    total income exceeds
    Rs.3,00,000/-.
    4. Where the total income exceeds Rs.51,000/- plus 30
    Rs.5,00,000/-. per cent of the
    amount by which the
    total income exceeds
    Rs.5,00,000/-.
    C. Rates of tax for an individual, resident in India and of the
    age of sixty-five years or more at any time during the
    financial year:
    1. Where the total income does not Nil
    exceed Rs.2,40,000/-.
    2. Where the total income exceeds 10 per cent, of the
    Rs.2,40,000 but does not exceed amount by which the
    Rs.3,00,000/-. total income exceeds
    Rs.2,40,000/-
    3. Where the total income exceeds Rs.6,000/- plus 20
    Rs.3,00,000/- but does not exceed per cent of the
    Rs.5,00,000/-. amount by which the
    total income exceeds
    Rs.3,00,000/-.
    4. Where the total income exceeds Rs.46,000/- plus 30
    Rs.5,00,000/-. per cent of the amount
    By which the total
    income exceeds
    Rs.5,00,000/-.
    Surcharge on Income tax:
    There will be no surcharge on income tax payments by individual
    taxpayers during FY 2009-10 (AY 2010-11).
    Education Cess on Income tax:
    The amount of income-tax shall be further increased by an
    additional surcharge (Education Cess on Income Tax) at the rate of
    two percent of the income-tax.
    5
    Additional surcharge on Income Tax (Secondary and Higher
    Education Cess on Income-tax):
    From Financial Year 2007-08 onwards, an additional surcharge is
    chargeable at the rate of one percent of income-tax (not
    including the Education Cess on income tax).
    Education Cess, and Secondary and Higher Education Cess are
    payable by both resident and non-resident assessees.
    3.SECTION 192 OF THE INCOME-TAX ACT,1961: BROAD
    SCHEME OF TAX DEDUCTION AT SOURCE FROM "SALARIES".
    Method of Tax Calculation:
    3.1 Every person who is responsible for paying any
    income chargeable under the head "Salaries" shall deduct
    income-tax on the estimated income of the assessee under the
    head "Salaries" for the financial year 2009-2010. The incometax
    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 required to be deducted at
    source in any case unless the estimated salary income
    including the value of perquisites, for the financial year
    exceeds Rs.1,60,000/- or Rs.1,90,000/- or Rs.2,40,000/-, as the
    case may be, depending upon the age and gender of the
    employee.(Some typical examples of computation of tax are given
    at Annexure-I).
    Payment of Tax on Non-monetary Perquisites by Employer:
    3.2 An option has been given to the employer to pay the tax
    on non-monetary perquisites given to an employee. The employer
    may, at his option, make payment of the tax on such perquisites
    himself without making any TDS from the salary of the employee.
    The employer will have to pay such tax at the time when such tax
    was otherwise deductible i.e. at the time of payment of income
    chargeable under the head salaries to the employee.
    Computation of Average Income Tax:
    3.3 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 a
    male employee below sixty-five years of age for the year
    inclusive of all perquisites is Rs.4,50,000/-, out of which,
    Rs.50,000/- 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.
    6
    STEPS:
    Income Chargeable under the head “Salaries”
    inclusive of all perquisites: Rs. 4,50,000
    Tax on Total Salaries(including Cess): Rs. 45,320
    Average Rate of Tax [(45,320/4,50,000) X 100]: 10.07%
    Tax payable on Rs.50,000/- (10.07% of 50,000): Rs. 5,035
    Amount required to be deposited each month: Rs. 420
    (5,035/12)
    The tax so paid by the employer shall be deemed to be
    TDS made from the salary of the employee.
    Salary From More Than One Employer:
    3.4 Sub- section (2) of section 192 deals with situations where
    an individual is working under more than one employer or has
    changed from one employer to another. It provides for deduction
    of tax at source by such employer (as the tax payer may choose)
    from the aggregate salary of the employee who is or has been in
    receipt of salary from more than one employer. The employee is
    now required to furnish to the present/chosen employer details
    of the income under the head "Salaries" due or received from the
    former/other employer and also tax deducted at source there from,
    in writing and duly verified by him and by the former/other
    employer. The present/ chosen employer will be required to deduct
    tax at source on the aggregate amount of salary (including salary
    received from the former or other employer).
    Relief When Salary Paid in Arrear or Advance:
    3.5 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.
    However with effect from 1/04/2010 (AY 2010-11) that no such
    relief shall be granted in respect of any amount received or
    receivable by an assessee on his voluntary retirement or
    termination of his service, in accordance with any scheme or
    schemes of voluntary retirement or in the case of a public
    7
    sector company referred to in sub-clause (i) of clause (10C)
    of section 10 (read with Rule 2BA), a scheme of voluntary
    separation, if an exemption in respect of any amount received
    or receivable on such voluntary retirement or termination of
    his service or voluntary separation has been claimed by the
    assessee under clause (10C) of section 10 in respect of such,
    or any other, assessment year
    [Form 12C has been omitted by the IT(24th Amendment) Rules, 2003
    w.e.f. 1.10.2003.
    3.6 (i) 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. Form no.
    12C, which was earlier prescribed for furnishing such
    particulars), has since been omitted from the Income Tax Rules.
    However, the particulars may now be furnished in a simple
    statement, which is properly verified by the taxpayer in the same
    manner as was required to be done in Form 12C.
    (ii) Such income should not be a loss under any such head
    other than the loss under the head "Income from House
    Property" for the same financial year. The person responsible
    for making payment (DDO) shall take such other income and tax,
    if any, deducted at source from such income, and the loss, if
    any, under the head "Income from House Property" into account
    for the purpose of computing tax deductible under section 192
    of the Income-tax Act. However, 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 any loss (negative
    income)only under the head “income from House Property” and no
    other head for working out the amount of total tax to be
    deducted. While taking into 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.
    (iii) 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 form no. 12BA. (Annexure-II). Form no. 12BA alongwith form
    no. 16, as issued by the employer, are required to be produced
    on demand before the Assessing Officer in terms of Section 139C
    of the Income Tax Act.
    Conditions for Claim of Deduction of Interest on Borrowed Capital
    for Computation of Income From House Property
    3.7(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
    8
    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.
    3.7(ii)The essential conditions for availing higher deduction
    of interest of Rs.1,50,000/- in respect of a self-occupied
    residential house are that the amount of capital must have been
    borrowed on or after 01.4.1999 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 01.4.1999 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 01.4.1999.The
    loan taken prior to 01.4.1999 will carry deduction of interest
    up to Rs.30,000/ only. However, in any case the total amount of
    deduction of interest on borrowed capital will not exceed
    Rs.1,50,000/- in a year.
    Adjustment for Excess or Shortfall of Deduction:
    3.8 The provisions of sub-section (3) of Section 192 allow the
    deductor to make adjustments for any excess or shortfall in
    the deduction of tax already made during the financial year,
    in subsequent deductions for that employee within that
    financial year itself.
    TDS on Payment of Balance Under Provident Fund and Superannuation
    Fund:
    3.9 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 there from 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
    9
    to the extent provided in rule 6 of Part B of the Fourth Schedule
    to the Act.
    Salary Paid in Foreign Currency:
    3.11 For the purposes of deduction of tax on salary payable
    in foreign currency, the value in rupees of such salary shall
    be calculated at the prescribed rate of exchange.
    4.PERSONS RESPONSIBLE FOR DEDUCTING TAX AND THEIR DUTIES:
    4.1. Under clause (i) of Section 204 of the Act the
    "persons responsible for paying" for the purpose of Section 192
    means the employer himself or if the employer is a Company,
    the Company itself including the Principal Officer thereof.
    4.2. The tax determined as per para 6 should be deducted from
    the salary u/s 192 of the Act.
    Deduction of Tax at Lower Rate:
    4.3. Section 197 enables the tax-payer to make an
    application in form No.13 to his Assessing Officer, and, if the
    Assessing Officer is satisfied that the total income of the taxpayer
    justifies the deduction of income-tax at any lower rate
    or no deduction of income tax, he may issue an appropriate
    certificate to that effect which should be taken into
    account by the Drawing and Disbursing Officer while deducting
    tax at source. In the absence of such a certificate furnished
    by the employee, the employer should deduct income tax on
    the salary payable at the normal rates: (Circular No. 147
    dated 28.10.1974.)
    Deposit of Tax Deducted:
    4.4. According to the provisions of section 200, any person
    deducting any sum in accordance with the provisions of Section
    192 or paying tax on non-monetary perquisites on behalf of the
    employee under Section 192(1A), shall pay the sum so deducted or
    tax so calculated on the said non-monetary perquisites, as the
    case may be, to the credit of the Central Government in
    prescribed manner (vide Rule 30 of the Income-tax Rules,1962).
    In the case of deductions made by, or, on behalf of the
    Government, the payment has to be made on the day of the taxdeduction
    itself. In other cases, the payment has to be made
    within one week from the last day of month in which deduction is
    made.
    Interest, Penalty & Prosecution for Failure to Deposit Tax
    Deducted:
    4.5 If a person fails to deduct the whole or any part
    of the tax at source, or, after deducting, fails to pay the
    whole or any part of the tax to the credit of the Central
    Government within the prescribed time, he shall be liable
    to action in accordance with the provisions of section 201.
    Sub-section (1A) of section 201 lays down that such person
    10
    shall be liable to pay simple interest at one percent for every
    month or part of the month 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. Such interest, if chargeable, has to
    be paid before furnishing of quarterly statement of TDS for each
    quarter. 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, along with
    fine.
    Furnishing of Certificate for Tax Deducted:
    4.6 According to the provisions of section 203, every
    person responsible for deducting tax at source is required to
    furnish a certificate to the payee to the effect that tax has
    been deducted and to specify therein the amount deducted and
    certain other particulars. This certificate, usually called
    the “TDS certificate”, has to be furnished within a period of
    one month from the end of the relevant financial year. Even
    the banks deducting tax at the time of payment of pension
    are required to issue such certificates. In the case of
    employees receiving salary income (including pension), the
    certificate has to be issued in Form No.16. However, in the case
    of an employee who is resident in India and whose income from
    salaries does not exceed Rs.1,50,000/-, the certificate of
    deduction of tax shall be issued in Form No. 16AA ( Specimen form
    16AA enclosed as ANNEXURE-III). It is, however, clarified that
    there is no obligation to issue the TDS certificate (Form 16 or
    Form 16AA) in case tax at source is not deductible/deducted
    by virtue of claims of exemptions and deductions. As per
    section 192, the responsibility of providing correct
    and complete particulars of perquisites or profits in lieu
    of salary given to an employee is placed on the person
    responsible for paying such income i.e., the person
    responsible for deducting tax at source. The form and
    manner of such particulars are prescribed in Rule 26A, Form
    12BA, Form 16 and Form 16AA of the Income-tax Rules .
    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 Form
    16 itself. In either case, Form 16 with Form 12BA or Form 16 by
    itself will have to be furnished within a period of one month
    from the end of relevant financial year.
    An employer, who has paid the tax on perquisites on behalf
    of the employee as per the provisions discussed in paras 3.2
    and 3.3, shall furnish to the employee concerned a certificate
    to the effect that tax has been paid to the Central Government
    and specify the amount so paid, the rate at which tax has been
    paid and certain other particulars in the amended Form 16.
    The obligation cast on the employer under Section 192(2C)
    for furnishing a statement showing the value of perquisites
    11
    provided to the employee is a serious responsibility of the
    employer, which is expected to be discharged in accordance
    with law and rules of valuation framed thereunder. Any false
    information, fabricated documentation or suppression of requisite
    information will entail consequences therefore provided under the
    law. The certificates in form no.12BA and form no. 16 are to be
    issued on 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.
    Option to issue TDS Certificates by way of digital signatures:
    4.7 Since the requirement of annexing the TDS certificates with
    the return of income has been dispensed with, the TDS
    certificates will be now issued only for the purpose of personal
    record of the deductees subject to the condition that they may be
    required to produce the same on demand before the Assessing
    Officer in terms of section 139C, inserted by the Finance Act,
    2007. The TDS claim made in the return of income is also
    required to be matched with the e-TDS returns furnished by the
    deductors. Assessing Officers may, if considered necessary, also
    write to the deductors for verification of the correctness of the
    taxes deducted or other particulars mentioned in the certificate.
    It has been decided for the proper administration of this Incometax
    Act to allow the deductors, at their option, in respect of
    the tax to be deducted at source from income chargeable under the
    head Salaries to use their digital signatures to authenticate the
    certificates of deduction of tax at source in Form No. 16. The
    deductors will have to ensure that TDS certificates in Form No.
    16 bearing digital signatures have a control No. with log to be
    maintained by the employer (deductor). The deductor will ensure
    that its TAN and the PAN of the employee are correctly mentioned
    in such Form No. 16 issued with digital signatures. The
    deductors will also ensure that once the certificates are
    digitally signed, the contents of the certificates are not
    amenable to change by anyone. The Income-tax authorities shall
    treat such certificate with digital signatures as a certificate
    issued in accordance with rule 31 of the Income-tax Rules,
    1962.(Circular No.2/2007 dated 21.5.2007).
    Mandatory Quoting of PAN and TAN:
    4.8 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, TDScertificates,
    statements and other documents. Detailed
    instructions in this regard are available in this
    Department's Circular No.497 (F.No.275/118/87-IT(B) dated
    9.10.1987). If a person fails to comply with the provisions of
    section 203A, he will be liable to pay, by way of penalty,
    under section 272BB, a sum of ten thousand rupees. Similarly,
    as per Section 139A(5B), it is obligatory for persons
    deducting tax at source to quote PAN of the persons from whose
    income tax has been deducted in the statement furnished
    12
    u/s 192(2C), certificates furnished u/s 203 and all returns
    prepared and delivered as per the provisions of section 200(3) of
    the Income Tax Act, 1961.
    4.9 All tax deductors/collectors are required to file the TDS
    returns in Form No.24Q (for tax deducted from salaries). As the
    requirement of filing TDS/TCS certificates has been done away
    with, the lack of PAN of deductees is creating difficulties in
    giving credit for the tax deducted. It has, therefore, been
    decided that TDS returns for salaries, i.e. Form No. 24Q with
    less than 95% of PAN data will not be accepted during FY 2009-10.
    Tax deductors and tax collectors are, therefore, advised to quote
    correct PAN details of all deductees in the TDS returns, failing
    which the TDS returns will not be accepted and all penal
    consequences under the Income Tax Act will follow. Taxpayers
    liable to TDS are also advised to furnish their correct PAN with
    their deductors, failing which they will also face penal
    proceedings under the Income Tax Act.
    Quarterly Statement of TDS:
    4.10. The person deducting the tax (employer in case of salary
    income), is required to file Quarterly Statements of TDS for the
    periods ending on 30th June, 30th September, 31st December and 31st
    March of each financial year, duly verified, to the Director
    General of Income Tax (Systems) or M/s National Securities
    Depository Ltd (NSDL). These statements are required to be filed
    on or before the 15th July, the 15th October, the 15th January
    in respect of the first three quarters of the financial year and
    on or before the 15th June following the last quarter of the
    financial year. The requirement of filing an annual return of TDS
    has been done away with w.e.f. 1.4.2006. The quarterly statement
    for the last quarter filed in Form 24Q (as amended by
    Notification No. S.O.704(E) dated 12.5.2006) shall be treated as
    the annual return of TDS.
    It is now mandatory for all offices of the Government,
    companies, deductors who are required to get their accounts
    audited under section 44AB of the Income Tax Act or where the
    number of deductees’ records in a quarterly statement for any
    quarter of the immediately preceding financial year is equal to
    or more than fifty to file quarterly statements of TDS on
    computer media only in accordance with the “Electronic Filing of
    Returns of Tax Deducted at Source Scheme, 2003” as notified vide
    Notification No. S.O. 974 (E) dated 26.8.2003. (ANNEXURE-IV) .
    The quarterly statements are to be filed by such deductors in
    electronic format with the e-TDS Intermediary at any of the TIN
    Facilitation Centres, particulars of which are available at
    www.incometaxindia.gov.in and at http://tin.nsdl.com. If a person
    fails to furnish the quarterly statements in due time, he
    shall be liable to pay by way of penalty under section
    272A(2)(k), a sum which shall be Rs.100/- for every day
    during which the failure continues. However, this sum shall not
    exceed the amount of tax which was deductible at source.
    The Quarterly Statements are be filed on computer media
    only in accordance with rule 31A of the Income-tax Rules, 1962.
    These Quarterly Statements compulsorily require quoting of the
    Tax Deduction Account Number (TAN) of the tax-deductor and the
    13
    Permanent Account Number(PAN) of the employees whose tax has been
    deducted. Therefore, all Drawing and Disbursing Officers of the
    Central and State Governments/ Departments, who have not yet
    obtained TAN, must immediately apply for and obtain TAN.
    Similarly, all employees (including non-resident employees) from
    whose income, tax is to be deducted may be advised to obtain PAN,
    if not already obtained, and to quote the same correctly, as
    otherwise the credit for the tax deducted cannot be given. A
    penalty under section 272B of Rs.10,000/- has been prescribed for
    willfully intimating a false PAN.
    4.11. A return filed on the prescribed computer readable media
    shall be deemed to be a return for the purposes of section
    200(3) 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.
    Challans for Deposit of TDS:
    4.12. 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
    challan no. ITNS-281. Wherever the amount of tax deducted at
    source is credited to the Central Government through book
    adjustment, care should be taken to ensure that the correct
    amount of income-tax is reflected therein.
    TDS on Income from Pension:
    4.13. 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
    under section 80C on account of contribution to Life
    Insurance, Provident Fund, NSC etc., if the pensioners furnish
    the relevant details to the banks, may 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)-/92) dated the 27th
    April, 1992, and, these instructions should be followed by all
    the branches of the Banks, which have been entrusted with the
    task of payment of pensions. Further all branches of the banks
    are bound u/s 203 to issue certificate of tax deducted in Form
    16 to the pensioners also vide CBDT circular no. 761 dated
    13.1.98.
    New Pension Scheme
    The New Pension Scheme(NPS) has become operational since 1st Jan,
    2004 and is mandatory for all new recruits to the Central
    Government Services from 1st January, 2004. Since then it has
    been opened to employees of State Governments, Private Sector and
    Self Employed (both organized and unorganized).
    14
    The income received by the NPS trust is exempt. The NPS trust is
    exempted from the Dividend Distribution Tax and is also exempt
    from the Securities Transaction Tax on all purchases and sales of
    equities and derivatives. The NPS trust will also receive income
    without tax deduction at source. The above amendments are
    retrospectively effective from 1/4/09 (AY 2009-10) onwards
    Important Circulars:
    4.14. 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.
    4.15. 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.
    4.16 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.
    4.17 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.
    5. ESTIMATION OF INCOME UNDER THE HEAD "SALARIES"
    5.1 Income chargeable under the head "Salaries".
    (1) The following income shall be chargeable to incometax
    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.
    15
    (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 Incometax
    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. Any contribution made by the Central
    Government or any other employer to the account of the employee
    under the New Pension Scheme as notified vide Notification No.
    F.N. 5/7/2003- ECB&PR dated 22.12.2003(enclosed as Annexure-IVA)
    referred to in section 80CCD (para 5.4(C) of this Circular) shall
    also be included in the salary income. Other items included in
    salary, profits in lieu of salary and perquisites are
    described in Section 17 of the Income-tax Act. 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 which is exempt, 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;
    16
    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/-.
    What constitute concession in the matter of rent have been
    prescribed in explanation 1 to 4 below 17(2)(ii)of the Income Tax
    Act, 1961.
    With effect from 1/04/2010 (AY 2010-11) it is further
    clarified that the value of any specified security or sweat
    equity shares allotted or transferred, directly or indirectly,
    by the employer, or former employer, free of cost or at
    concessional rate to the assessee, shall be constituted as
    perquisites in the hand of employees.
    Explanation.—For the purposes of this subclause,—
    (a) “specified security” means the securities as
    defined in clause (h) of section 2 of the Securities Contracts
    (Regulation) Act, 1956 (42 of 1956) and, where employees’ stock
    option has been granted under any plan or scheme therefore,
    includes the securities offered under such plan or scheme;
    (b) “sweat equity shares” means equity shares
    issued by a company to its employees or directors at a discount
    or for consideration other than cash for providing know-how or
    making available rights in the nature of intellectual property
    rights or value additions, by whatever name called;
    (c) the value of any specified security or sweat
    equity shares shall be the fair market value of the specified
    security or sweat equity shares, as the case may be, on the
    date on which the option is exercised by the assessee as
    reduced by the amount actually paid by, or recovered from the
    assessee in respect of such security or shares;
    (d) “fair market value” means the value determined
    in accordance with the method as may be prescribed;
    (e) “option” means a right but not an obligation
    granted to an employee to apply for the specified security or
    sweat equity shares at a predetermined price;
    The amount of any contribution to an approved
    superannuation fund by the employer in respect of the assessee,
    to the extent it exceeds one lakh rupees; and
    The value of any other fringe benefit or
    amenity as may be prescribed.
    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 : -
    17
    I. Accommodation :- For purpose of valuation of the
    perquisite of unfurnished accommodation, all employees are
    divided into two categories: I)Central Govt. & State Govt.
    employees; and ii)Others.
    For employees of the Central and State governments 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, as discussed below:
    a. Where the accommodation provided to the employee is
    owned by the employer, the rate is 15% of 'salary' in
    cities having population exceeding 25 lakh as per the
    2001 census. The rate is 10% of salary in cities having
    population exceeding 10 lakhs but not exceeding 25 lakhs
    as per 2001 Census. For other places, the perquisite
    value would be 7 1/2% of the salary.
    b. Where the accommodation so provided is taken on lease/
    rent by the employer, the prescribed rate is 15% of the
    salary or the actual amount of lease rental payable by
    the employer, whichever is lower, as reduced by any
    amount of rent paid by the employee.
    For furnished accommodation, the value of perquisite as
    determined by the above method shall be increased byi)
    10% of the cost of furniture, appliances and
    equipments, or
    ii) where the furniture, appliances and equipments
    have been taken on hire, by the amount of actual
    hire charges payable.
    - as reduced by any charges paid by the employee
    himself.
    "Accommodation" 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
    provided to an employee working at a mining site or an onshore
    oil exploration site or a project execution site
    or a dam site or a power generation site or an off-shore site
    will not be treated as a perquisite. However, such
    accommodation should either be located in a “remote area” or
    where it is not located in a “remote area”, the accommodation
    should be of a temporary nature having plinth area of not more
    than 800 square feet and should not be located within 8
    kilometers of the local limits of any municipality or cantonment
    board. A project execution site for the purposes of this subrule
    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.
    18
    If an accommodation is provided by an employer in a
    hotel the value of the benefit in such a case shall be 24%
    of the annual salary or the actual charges paid or payable
    to such hotel, whichever is lower, for the period during
    which such accommodation is provided 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 Personal attendants etc.: The value of free service of all
    personal attendants including a sweeper, gardener and a
    watchman is to be taken at actual cost to the employer.
    Where the attendant is provided at the residence of the
    employee, full cost will be taxed as perquisite in the
    hands of the employee irrespective of the degree of personal
    service rendered to him. Any amount paid by the employee for
    such facilities or services shall be reduced from the above
    amount.
    III 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. Where the supply is made from the employer's own
    resources, the manufacturing cost per unit incurred by the
    employer would be taken for the valuation of perquisite. Any
    amount paid by the employee for such facilities or services
    shall be reduced from the above amount.
    IV Free or concessional education: Perquisite on account of
    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 is 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
    19
    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.
    V Interest free or concessional loans - It is common
    practice, particularly in financial institutions, to provide
    interest free or concessional loans to employees or any member of
    his household. The value of perquisite arising from such loans
    would be the excess of interest payable at prescribed interest
    rate over interest, if any, actually paid by the employee or
    any member of his household. The prescribed interest rate would
    now be the rate charged per annum by the State Bank of India as
    on the 1st day of the relevant financial year in respect of loans
    of same type and for the same purpose advanced by it to the
    general public. Perquisite value would be calculated on the
    basis of the maximum outstanding monthly balance method. For
    valuing perquisites under this rule, any other method of
    calculation and adjustment otherwise adopted by the employer
    shall not be relevant.
    However, 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 prescribed rate shall be charged
    from the date of reimbursement on the amount reimbursed, but
    not repaid against the outstanding loan taken specifically for
    this purpose.
    VI Use of assets: It is common practice for an asset
    owned by the employer to be used by the employee or any member
    of his household. This perquisite is to be charged at the
    rate of 10% of the original cost of the asset as reduced by
    any charges recovered from the employee for such use.
    However, the use of Computers and Laptops would not give rise to
    any perquisite.
    VII Transfer of assets: Often an employee or member of his
    household benefits from the transfer of movable asset (not
    being shares or securities) at no cost or at a cost less than
    its market value from the employer. The difference
    between the original cost of the movable asset(not being
    shares or securities) and the sum, if any, paid by the
    employee, shall be taken as the value of perquisite. In
    case of a movable asset, which has already been put to use, the
    original cost shall be reduced by a sum of 10% of such original
    cost for every completed year of use of the asset. Owing to a
    higher degree of obsolescence, in case of computers and
    electronic gadgets, however, the value of perquisite shall be
    worked out by reducing 50% of the actual cost by the
    reducing balance method for each completed year of use.
    Electronic gadgets in this case means data storage and
    handling devices like computer, digital diaries and printers.
    They do not include household appliance (i.e. white goods)
    like washing machines, microwave ovens, mixers, hot plates,
    ovens etc. Similarly, in case of cars, the value of perquisite
    20
    shall be worked out by reducing 20% of its actual cost by the
    reducing balance method for each completed year of use.
    VIII Medical Reimbursement by the employer exceeding RS. 15,000/-
    p.a. u/s. 17(2)(v) is to be taken as perquisites.
    It is further clarified that the rule position regarding valuation
    of perquisites are given at Section 17(2) of Income Tax Act’61 and
    at Rule 3 of Income Tax Rules’62. The deductors may look into the
    above provisions carefully before they determine the perquisite
    value for deduction purposes.
    It is pertinent to mention that benefits specifically exempt
    u/s 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. Any
    death-cum-retirement gratuity received under the revised Pension
    Rules of the Central Government or, as the case may be, the
    Central Civil Services (Pension) Rules, 1972, or under any
    similar scheme applicable to the members of the civil services of
    the Union or holders of posts connected with defence or of civil
    posts under the Union (such members or holders being persons not
    governed by the said Rules) or to the members of the all-India
    services or to the members of the civil services of a State or
    holders of civil posts under a State or to the employees of a
    21
    local authority or any payment of retiring gratuity received
    under the Pension Code or Regulations applicable to the members
    of the defence service.
    Gratuity received in cases other than above on retirement,
    termination etc is exempt up to the limit as prescribed by the
    Board.
    (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. Also, any payment
    in commutation of pension received from a Regimental Fund or Non-
    Public Fund established by the Armed Forces of the Union referred
    to in Section 10(23AAB) is exempt under sub-clause (iii) 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, whether 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 31.05.2002 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 1.1.1997.
    (6) Under Section 10(10C), any payment received or
    receivable (even if received in installments) by an employee
    of the following bodies at the time of his
    voluntary retirement or termination of his service, in
    22
    accordance with any scheme or schemes of voluntary
    retirement or in the case of public sector company , a
    scheme of voluntary separation, is exempted from income-tax
    to the extent that such amount does not exceed five lakh
    rupees:
    a) A public sector company;
    b) Any other company;
    c) An Authority established under a Central,
    State or Provincial Act;
    d) A Local Authority;
    e) A Cooperative Society;
    f) A university established or incorporated or
    under a Central, State or Provincial Act,
    or, an Institution declared to be a
    University under section 3 of the University
    Grants Commission Act, 1956;
    g) Any Indian Institute of Technology within
    the meaning of Clause (g) of Section 3 of
    the Institute of Technology Act, 1961;
    h) Such Institute of Management as the
    Central Government may by notification in
    the Official Gazette, specify in this
    behalf.
    The exemption of amount received under VRS has been
    extended to employees of the Central Government and State
    Government and employees of notified institutions having
    importance throughout India or any State or States. 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.
    (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 percent 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
    23
    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 measure
    that salaried employees drawing house rent allowance upto
    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
    24
    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.SO617(E) dated 7th July, 1995 (F.No.142/9/95-TPL)which has
    been amended vide notification SO No.403(E) dt 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
    S.O.No. 395(E) dated 13.5.98.
    (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 out of his retirement
    benefits, in accordance with such scheme framed in this
    behalf by the Central Government and notified in the
    Official Gazette is exempt from income-tax. By
    notification No.F.2/14/89-NS-II dated 7.6.89, as amended by
    notification No.F.2/14/89-NS-II dated 12.10.89, the Central
    Government has notified a scheme called Deposit Scheme for
    Retiring Government Employees, 1989 for the purpose of the
    said clause.
    (12) Any scholarship granted to meet the cost of education is not
    to be included in total income as per subsection (16) of section
    10 of Income Tax Act.
    (13) Clause (18) of Section 10 provides for exemption of
    any income by way of pension received by 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 or family
    pension received by any member of the family of such individual.
    “Family” for this purpose shall have the meaning assigned to it
    25
    in Section 10(5) of the Act. Such notification has been made
    vide Notifications No.S.O.1948(E) dated 24.11.2000 and 81(E)
    dated 29.1.2001, which are enclosed as per Annexure VA & VB.
    (14) 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 I.T. Rules
    1962, in any hospital approved by the Chief
    Commissioner having regard to the prescribed
    guidelines as provided in Rule 3(A)(1)of I.T.
    Rule, 1962 :
    (c) premium paid by the employer in respect of medical
    insurance taken for his employees (under any scheme
    approved by the Central Government or Insurance
    Regulatory and Development Authority) 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 or Insurance Regulatory and
    Development Authority);
    (d) reimbursement, by the employer, of the amount spent by
    an employee in obtaining medical treatment for
    himself or any member of his family from any
    doctor, not exceeding in the aggregate Rs.15,000/- in
    an year.
    (e) As regards medical treatment abroad, the actual
    expenditure on stay and treatment abroad of
    the employee or any member of his family, or, on
    stay abroad of one attendant who accompanies the
    patient, in connection with such treatment, will be
    excluded from perquisites to the extent
    permitted by the Reserve Bank of India. It may be
    noted that the expenditure incurred on travel
    abroad by the patient/attendant, 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.
    26
    For the purpose of availing exemption on
    expenditure incurred on medical treatment, "hospital" includes
    a dispensary or clinic or nursing home, and "family" in relation
    to an individual means the spouse and children of the
    individual. Family also includes parents, brothers and
    sisters of the individual if they are wholly or mainly
    dependent on the individual.
    5.3 Deductions u/s 16 of the Act
    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 by an employer to
    the assessee, 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. No deduction on account of entertainment
    allowance is available to non-government employees.
    Tax On Employment:
    The tax on employment (Professional Tax) 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".
    It may be clarified that “Standard Deduction” from gross salary
    income, which was being allowed up to financial year 2004-05 is not
    allowable from financial year 2005-06 onwards.
    5.4 Deductions under chapter VI-A of the Act
    In computing the taxable income of the employee, the
    following deductions under Chapter VI-A of the Act are to be allowed
    from his gross total income:
    A. As per section 80C, an employee will be entitled to deductions for
    the whole of amounts paid or deposited in the current financial year in the
    following schemes, subject to a limit of Rs.1,00,000/-:
    (1) Payment of insurance premium to effect or to keep in force an
    insurance on the life of the individual, the spouse 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 (7) herein below on the life of the individual, the spouse
    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 spouse or
    27
    children, in so far 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 spouse
    or children ;
    [The Central Government has since notified Public
    Provident Fund vide Notification S.O. No. 1559(E) dated
    3.11.05.]
    (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 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.
    [The Central Government has since notified
    National Saving Certificate (VIIIth Issue) vide
    Notification S.O. No. 1560(E) dated 3.11.05.]
    (6) 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 referred to in clause
    (23D) of section 10 and as notified by the Central
    Government.
    [The Central Government has since notified Unit
    Linked Insurance Plan (formerly known as
    Dhanraksha, 1989) of LIC Mutual Fund vide
    Notification S.O. No. 1561(E) dated 3.11.05.]
    (7) Any subscription made to effect or keep in force a contract for
    such annuity plan of the Life Insurance Corporation or any
    28
    other insurer as the Central Government may, by notification in the
    Official Gazette, specify;
    [The Central Government has since notified New Jeevan
    Dhara, New Jeevan Dhara-I, New Jeevan Akshay, New
    Jeevan Akshay-I and New Jeevan Akshay-II vide
    Notification S.O. No. 1562(E) dated 3.11.05 and Jeevan
    Akshay-III vide Notification S.O. No. 847(E) dated
    1.6.2006 ]
    (8) Any subscription made to any units of any Mutual Fund, referred to
    in clause(23D) of section 10, or from the Administrator or the
    specified company referred to in Unit Trust of India (Transfer of
    Undertaking & Repeal) Act, 2002 under any plan formulated in
    accordance with any scheme as the Central Government, may, by
    notification in the Official Gazette, specify in this behalf;
    [The Central Government has since notified the Equity Linked
    Saving Scheme, 2005 for this purpose vide Notification S.O.
    No. 1563(E) dated 3.11.2005]
    The investments made after 1.4.2006 in plans formulated
    in accordance with Equity Linked Saving Scheme, 1992 or
    Equity Linked Saving Scheme, 1998 shall also qualify for
    deduction under section 80C.
    (9) Any contribution made by an individual to any pension fund
    set up by any Mutual Fund referred to in clause (23D) of section
    10, or, by the Administrator or the specified company referred to in
    Unit Trust of India (Transfer of Undertaking & Repeal) Act, 2002, as
    the Central Government may, by notification in the Official
    Gazette, specify in this behalf;
    [The Central Government has since notified UTI-Retirement Benefit
    Pension Fund vide Notification S.O. No. 1564(E) dated 3.11.05.]
    (10) 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;
    (11) Any subscription made to any such deposit scheme, as the
    Central Government may, by notification in the Official
    Gazette, specify for the purpose of being floated by (a)
    public sector companies engaged in providing long-term finance for
    construction or purchase of houses in India for residential
    purposes, or, (b) any authority constituted in India by, or,
    under any law, enacted either for the purpose of dealing
    with and satisfying the need for housing accommodation
    or for the purpose of planning, development or improvement of
    cities, towns and villages, or for both.
    [The Central Government has since notified the Public Deposit
    Scheme of HUDCO vide Notification S.O. No.37(E), dated 11.01.2007,
    for the purposes of Section 80C(2)(xvi)(a)].
    (12) 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
    29
    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 selffinancing
    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, or a public sector company, or a university
    established by law, or a college affiliated to such
    university, or a local authority, or a cooperative society, or
    an authority, or a board, or a corporation, or any other body
    established under a Central or State Act.
    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
    tax-payer 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 80C(2)(xviii), 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 deductions of income so allowed
    in the earlier years shall be added to the total income of the
    assessee of such previous year and shall be liable to tax
    accordingly.
    (13) 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.
    Full-time education includes any educational course offered by any
    university, college, school or other educational institution to a
    student who is enrolled full-time for the said course. It is also
    clarified that full-time education includes play-school
    activities, pre-nursery and nursery classes.
    It is clarified that the amount allowable as tuition fees shall
    include any payment of fee to any university, college, school or
    other educational institution in India except the amount
    30
    representing payment in the nature of development fees or
    donation or capitation fees or payment of similar nature.
    14) Subscription to equity shares or debentures forming
    part of any eligible issue of capital made by a public company,
    which is approved by the Board or by any public finance
    institution.
    (15) Subscription to any units of any mutual fund referred
    to in clause (23D) of Section 10 and approved by the Board, if
    the amount of subscription to such units is subscribed only in
    eligible issue of capital of any company.
    (16) Investment as a term deposit for a fixed period of not less
    than five years with a scheduled bank, which is in accordance with
    a scheme framed and notified by the Central Government, in the
    Official Gazette for these purposes.
    [The Central Government has since notified the Bank
    Term Deposit Scheme, 2006 for this purpose vide Notification
    S.O. No. 1220(E) dated 28.7.2006]
    (17) Subscription to such bonds issued by the National Bank for
    Agriculture and Rural Development, as the Central Government may,
    by such notification in the Official Gazette, specify in this
    behalf.
    (18) Any investment in an account under the Senior Citizens
    Savings Scheme Rules, 2004.
    (19) Any investment as five year time deposit in an account
    under the Post Office Time Deposit Rules, 1981.
    It may be clarified 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 deduction
    only to the extent of 20 percent 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.
    B. 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 one lakh rupees in the previous
    year.
    31
    Where any amount paid or deposited by the assessee has
    been taken into account for the purposes of this section, a
    rebate/ deduction with reference to such amount shall not be
    allowed under section 88 up to assessment year 2005-06 and
    under section 80C from assessment year 2006-07 onwards.
    C. As per the provisions of section 80CCD, where an assessee,
    being an individual employed by the Central Government on or
    after the 1st day of January, 2004, has in the previous year paid
    or deposited any amount in his account under a pension scheme as
    notified vide Notification No. F.N. 5/7/2003- ECB&PR dated
    22.12.2003, he shall be allowed a deduction in the computation of
    his total income, of the whole of the amount so paid or deposited
    as does not exceed ten per cent of his salary in the previous
    year.
    The benefit of new pension scheme has been extended to any other
    employees (also self employed person) w.r.e.f 1/04/09 and
    deduction is allowed to employees upto 10% of salary in the
    previous year and in other cases upto 10% of his gross total
    income in the previous year. Further it has been specified that
    w.r.e.f 1/04/09 any amount received by the assessee from the new
    pension scheme shall be deemed not to have received in the
    previous year if such amount is used for purchasing an annuity
    plan in the previous year.
    Where any amount standing to the credit of the assessee in
    his account under such pension scheme, in respect of which a
    deduction has been allowed as per the provisions discussed above,
    together with the amount accrued thereon, if any, is received by
    the assessee or his nominee, in whole or in part, in any
    financial year,—
    (a) on account of closure or his opting out of such pension
    scheme; or
    (b) as pension received from the annuity plan purchased or
    taken on such closure or opting out,
    the whole of the amount referred to in clause (a) or clause (b)
    above shall be deemed to be the income of the assessee or his
    nominee, as the case may be, in the financial year in which such
    amount is received, and shall accordingly be charged to tax as
    income of that financial year.
    For the purposes of deduction under section 80CCD, “salary”
    includes dearness allowance, if the terms of employment so
    provide, but excludes all other allowances and perquisites.
    The aggregate amount of deduction under sections 80C, 80CCC and
    80CCD shall not exceed Rs.1,00,000/- (Section 80CCE)
    D. Section 80D provides for deduction available for health premia
    paid etc. In computing the total income of an assessee, being an
    individual or a Hindu undivided family, there shall be deducted such
    sum, as specified below payment of which is made by any mode, other
    than cash, in the previous year out of his income chargeable to tax.
    Where the assessee is an individual, the sum referred to shall be
    the aggregate of the following, namely:—
    32
    (a) the whole of the amount paid to effect or to keep in force an
    insurance on the health of the assessee or his family as does not
    exceed in the aggregate fifteen thousand rupees; and
    (b) the whole of the amount paid to effect or to keep in force an
    insurance on the health of the parent or parents of the assessee as
    does not exceed in the aggregate fifteen thousand rupees.
    Explanation.—For the purposes of clause (a), “family” means the
    spouse and dependent children of the assessee.
    Where the assessee is a Hindu undivided family, the sum referred to
    shall be the whole of the amount paid to effect or to keep in force
    an insurance on the health of any member of that Hindu undivided
    family as does not exceed in the aggregate fifteen thousand rupees.
    Where the sum specified above is paid to effect or keep in force an
    insurance on the health of any person specified therein, and who is a
    senior citizen, the deduction available is “twenty thousand rupees
    rather than fifteen thousand as specified above.
    Explanation.—For the above “senior citizen” 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.
    The insurance referred to above shall be in accordance with a scheme
    made in this behalf by—
    (a) the General Insurance Corporation of India formed under section 9 of
    the General Insurance Business (Nationalisation) Act, 1972 (57 of
    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 (41
    of 1999).]
    E. 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.
    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 clause (b) of sub-section (1) 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;
    33
    (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(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) and includes
    “autism”, “cerebral palsy” and “multiple disability”
    referred to in clauses (a), (c) and (h) of section 2 of
    the National Trust for Welfare of Persons with Autism,
    Cerebral Palsy, Mental Retardation and Multiple
    Disabilities Act, 1999 (44 of 1999);
    (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) or
    such other medical authority as may, by notification, be
    34
    specified by the Central Government for certifying
    “autism”, “cerebral palsy”, “multiple disabilities”,
    “person with disability” and “severe disability” referred
    to in clauses (a), (c), (h), (j) and (o) of section 2 of
    the National Trust for Welfare of Persons with Autism,
    Cerebral Palsy, Mental Retardation and Multiple Disabilities
    Act, 1999 (44 of 1999);
    (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) or clause (j) of
    section 2 of the National Trust for Welfare of Persons
    with Autism, Cerebral Palsy, Mental Retardation and
    Multiple Disabilities Act, 1999 (44 of 1999);
    (g) “person with severe disability” means—
    (i) a person with eighty per cent or more 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); or
    (ii) a person with severe disability referred to in clause (o)
    of section 2 of the National Trust for Welfare of Persons
    with Autism, Cerebral Palsy, Mental Retardation and
    Multiple Disabilities Act, 1999 (44 of 1999);
    (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).]
    F. Under Section 80E of the Act a deduction will be
    allowed in respect of repayment of interest on 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 interest on
    loan, taken by him from any financial institution or any
    approved charitable institution for the purpose of pursuing
    his higher education or for the purpose of higher education
    of his spouse or children.
    (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 interest referred to above is paid in full by the
    assessee , whichever is earlier.
    For this purpose -
    (a) "approved charitable institution" means an
    institution established for charitable purposes and
    approved by the prescribed authority under clause (2C)
    of section 10, or, an institution referred to in
    clause (a) of sub-section (2) of Section 80G.
    35
    (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 any course of study pursued after
    passing the Senior Secondary Examination or its equivalent from
    any school, board or university recognised by the Central
    Government or State Government or local authority or by any
    other authority authorised by the Central Government or State
    Government or local authority to do so;
    (d) "initial assessment year" means the assessment year
    relevant to the previous year, in which the assessee
    starts paying the interest on the loan.
    (e) relative”, in relation to an individual, means the spouse
    and children of that individual or the student for whom the
    individual is the legal guardian
    G. Section 80G provides for deductions on account of donation made
    to various funds , charitable organizations etc. Generally 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 in cases where employees make donations to the
    Prime Minister’s National Relief Fund, the Chief Minister’s Relief
    Fund or the Lieutenant Governor’s Relief Fund through their
    respective employers, it is not possible for such funds to issue
    separate certificate to every such employee in respect of
    donations made to such funds as contributions made to these funds
    are in the form of a consolidated cheque. An employee who makes
    donations towards these funds is eligible to claim deduction under
    section 80G. It is, hereby, clarified that the claim in respect of
    such donations as indicated above will be admissible under section
    80G on the basis of the certificate issued by the Drawing and
    Disbursing Officer (DDO)/Employer in this behalf - Circular No.
    2/2005, dated 12-1-2005.
    H. 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.10
    BA. (Annexure-VI )
    (c) He will be entitled to a deduction in respect of
    house rent paid by him in excess of 10 per cent of
    36
    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 clause (a) of sub section (2)
    or, as the case may be, clause (a) of sub-section
    (4) 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.
    I. 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 one lakh 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 E of para 5.4 of this Circular).
    DDOs to satisfy themselves of the genuineness of claim:
    (21) The Drawing and Disbursing Officers should satisfy
    themselves about the actual deposits/ subscriptions / payments
    37
    made by the employees, by calling for such particulars/
    information as they deem necessary before allowing the
    aforesaid deductions. 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
    deduction/ rebate on such amount by filing his return of income
    and furnishing the necessary proof etc., therewith, to the
    satisfaction of the Assessing Officer.
    6. CALCULATION OF INCOME-TAX TO BE DEDUCTED:
    6.1 Salary income for the purpose of Section 192 shall be computed
    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 from salaries on which income
    tax would be required to be deducted. This income should be
    rounded off to the nearest multiple of ten rupees.
    6.2 Income-tax on such income shall be calculated at the rates
    given in para 2 of this Circular keeping in view the age and gender
    of the employee.
    6.3 The amount of tax payable so arrived at shall be increased
    by educational cess as applicable (2% for primary and 1% for
    secondary education) to arrive at the total tax payable.
    6.4 The amount of tax as arrived at para 6.3 should be
    deducted every month in equal installments. Any excess or
    deficit arising out of any previous deduction can be adjusted by
    increasing or decreasing the amount of subsequent deductions
    during the same financial year.
    38
    Subject :- Clarification regarding deduction of tax at source from
    payments of second installment of arrears to Government
    employees on account of implementation of Sixth Central Pay
    Commission’s recommendations matter regarding.
    Under the provisions of Section 192 of the Income-tax Act, an employer
    is required to deduct tax at source from any payments in the nature of
    salary, which inter alia also includes any arrear payments. The
    Implementation Cell of the Department of Expenditure, Govt of India, vide its
    Office Order dated 30th Aug’08 had stated that 40% of the aggregate arrear
    (first installment of arrears) would be payable during FY 2008-09. In
    Circular No. 09/2008 dated 29th Sept.2008 issued from this office it was
    stated that during 2008-09 the tax has to be deducted at source on this 40%
    of aggregate arrear during FY 2008-09.The OM,F.No-1//1/2008-IC, of the
    Implementation Cell of the Department of Expenditure, Govt of India, vide its
    order dated 25th August,2009 has stated that the remaining 60% of the
    aggregate arrear ( second installment of arrears) would be paid to the
    concerned Government servants during FY 2009-10. Such arrangements could be
    followed by State Governments also.
    In this regard, all the DDOs and PAOs as the case may be, in the
    Central/State Government and various organizations under them are advised to
    compute the correct tax liability of every employee on second installment of
    arrears drawn by him and immediately recover the full tax liability along
    with education cess thereon at the rates in force. The deduction of tax at
    source on such arrear payment should not be deferred in any circumstance.
    They should further ensure that the tax so recovered is paid to the account
    of Central Government account immediately as per the Income Tax Rules, 1962.
    The DDOs/PAOs are further advised that they should ensure that the PAN
    details of the deductees (recipient of arrears) are correctly quoted in the
    relevant quarterly e-TDS returns filed by them so that the Government
    Servants get proper credit of their tax deducted in their respective income
    tax returns.
    DDOs/PAOs who fail to comply with the provisions of Section 192 of the
    Income-tax Act, 1961 would be liable to pay interest under section
    201(1)/(1A) of Income Tax Act along with other penal consequences.
    Hindi version will follow.
    ( Ansuman Pattnaik )
    Director ( Budget )
    Circular No-6/2009 dated 31/08/09 F. No- 275/192/2008-IT(B)
    39
    7. MISCELLANEOUS:
    7.1 These instructions are not exhaustive and are
    issued only with a view to helping the employers to
    understand the various provisions relating to deduction of
    tax from salaries. Wherever there is any doubt, reference
    may be made to the provisions of the Income-tax Act, 1961,
    the Income-tax Rules, 1962 and the Finance Act 2009.
    7.2 In case any assistance is required, the Assessing
    Officer/the local Public Relation Officer of the Income-tax
    Department may be contacted.
    7.3 These instructions may be brought to the
    notice of all Disbursing Officers and Undertakings
    including those under the control of the Central/ State
    Governments.
    7.4 Copies of this Circular are available with the
    Director of Income-tax(Research, Statistics & Publications
    and Public Relations), 6th Floor, Mayur Bhavan, Indira
    Chowk, New Delhi-110 001 and at the following websites:
    www.finmin.nic.in
    www.incometaxindia.gov.in

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