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Every Employer who is paying salary to his employee which is more then maximum amount exempt from tax has to deduct TDS on such Salaries Under section 192 of the Income tax Act,1961. While deducting TDS employers are faced with following questions :-

1. How to Calculate TDS and What Rate TDS needs to be deducted?

2. How to Compute Average rate of TDS deduction on Salary?

3. TDS on Perquisites

4. What if Employee is receiving Salary from more then one employer or received from more then one employer

5. Relief When Salary Paid in Arrear or Advance:

6. Information regarding Income under any other head:

7. Computation of income under the head “ Income from house property”:

8. Conditions for Claim of Deduction of Interest on Borrowed Capital for Computation of Income From House Property Section 24(b):

9. Salary Paid in Foreign Currency

SECTION 192 OF THE INCOME-TAX ACT, 1961: BROAD SCHEME OF TAX DEDUCTION AT SOURCE FROM “SALARIES”:

1.  Method of Tax Calculation:

Every person who is responsible for paying any income chargeable under the head “Salaries” shall  deduct income-tax  on  the estimated income of the assessee  under the head “Salaries” for the financial year 2013-14. The income-tax is required to be calculated on the basis of the rates  given in the post titled – Income Tax rates for FY 2013-14 / AY 2014-15 , subject to the  provisions related to requirement to furnish PAN as per sec 206AA of the Act, and shall be deducted at the time of each payment. No tax, however, will 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. 2,00,000/- or Rs.2,50,000/- or Rs. 5,00,000/-, as the case may be, depending upon the age of the employee.(Some typical examples of computation of tax are given at Annexure-I).

2.  Payment of Tax on Perquisites by Employer:

An option has been given to  the employer to pay the tax  on non-monetary perquisites given to an employee.  The employer  may, at its option, make  payment of the tax on such perquisites himself  without making any TDS from the salary of the  employee. However, the employer will have to pay the 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.

2.1  Computation of Average Income Tax:

For the purpose  of  making  the  payment  of  tax mentioned in para 3.2 above, tax  is to be determined at the  average  of income  tax  computed on the  basis of rate in force  for  the financial  year, on  the  income  chargeable under the  head  ”salaries”, including the  value of perquisites for  which tax  has been paid by the employer himself.

2.2  Illustration:

The income chargeable under the head “salaries” of an employee below sixty 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.

STEPS:

Income Chargeable under the head “Salaries”
inclusive of all perquisites
Rs.  4,50,000/-
Tax on Total Salary (including Cess)Rs.  25,750/-
Average Rate of Tax [(25,750/4,50,000) X 100]5.72%
Tax payable on Rs.50,000/= (5.72% of 50,000)Rs.  2,861/-
Amount required to be deposited each monthRs.  240 (Rs. 238.4) =2881/12)

The  tax  so paid  by  the  employer shall be deemed to be TDS made from the salary of the employee.

3.  Salary From More Than One Employer:

Section 192(2) 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 therefrom, 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).

4.  Relief When Salary Paid in Arrear or Advance:

4.1  Under  section  192(2A)  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  Section 89(1)  he may furnish to the person responsible  for making the payment referred to  in Para (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(1) above.

Here “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, to be a University for the purposes of that Act.

4.2  With effect from 1/04/2010 (AY 2010-11), 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 sector company referred to in section 10(10C)(i) (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 section 10(10C) in respect of such, or any other, assessment year.

5.  Information regarding Income under any other head:

(i) Section 192(2B)  enables a taxpayer to furnish  particulars  of income under any head other than “Salaries” ( not being a loss under any such head other than the loss under the head “ Income from house property”) received by the taxpayer for the same financial year and of any tax deducted at source thereon. The particulars may now be furnished in a simple statement, which is properly signed and verified by the taxpayer in the  manner as prescribed under Rule 26B(2) of the Rules and shall be annexed to the simple statement. The form of verification is reproduced as under:

I, …………………. (name of the assessee), do declare that what is stated above is true to the best of my information and belief.

It is reiterated that the DDO can take into account any loss only under the head “Income from house  property”.  Loss under any other head cannot be considered by the DDO for calculating the  amount  of  tax  to be deducted.

6.  Computation of income under the head “ Income from house property”:

While  taking  into  account  the  loss  from  House  Property,  the  DDO  shall  ensure  that  the employee  files  the declaration referred to above and encloses therewith  a computation of such loss from house property. Following details shall be obtained and kept by the employer in respect of loss claimed under the head “ Income from house property” separately for each house property:

a)  Gross annual rent/value

b)  Municipal Taxes paid, if any

c)  Deduction claimed for interest paid, if any

d)  Other deductions claimed e)  Address of the property

f)Amount of loan, if any; and

g)  Name and address of the lender (loan provider)

6.1  Conditions for Claim of Deduction of Interest on Borrowed Capital for Computation of Income From House Property Section 24(b):

Section 24(b) of the Act allows deduction from income from houses property on interest on borrowed capital as under:-

(i) the deduction is allowed only in case of  house property which is owned and is in the occupation of the employee for his own residence.However, if it is actually not occupied by the employee in view of his place of the employment being at other place, his residence in that other place should not be in a building belonging to him.

(ii) The quantum of deduction allowed as per table below:

Sl
No
Purpose of borrowing capital

Date of borrowing
capital

Maximum Deduction
allowable

1

Repair or renewal or reconstruction of the
house
Any timeRs. 30,000/-

2

Acquisition or construction of the houseBefore 01.04.1999Rs. 30,000/-

3

Acquisition or construction of the houseOn or after 01.04.1999Rs. 1,50,000/-

In case of Serial No. 3 above

(a) The acquisition or constructing of the house should be completed within3 years from the end of the FY in which the capital was borrowed. Hence it is necessary for the DDO to have the completion certificate of the house property against which deduction is claimed either from the builder or through self-declaration from the employee.

(b) Further any prior period interest for the FYs upto the FY in which the property was acquired and constructed shall be deducted in equal installments for the FY in question and subsequent four FYs.

(c) The employee has to furnish before the DDO a certificate from the person to whom any interest is payable on the borrowed capital specifying the amount of interest payable. In case a new loan is taken to repay the earlier loan, then the certificate should also show the details of  Principal and Interest of the loan so repaid.

7.  Adjustment for Excess or Shortfall of Deduction:

The provisions of Section 192(3) 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.

8.  Salary Paid in Foreign Currency:

For  the purposes of deduction of tax on salary payable  in  foreign currency, the value in rupees of such salary shall be calculated at the “Telegraphic transfer buying rate” of such currency as on the date on which tax is required to be deducted at source ( see Rule 26).

ANNEXURE-I

SOME ILLUSTRATIONS

Example  1

For Assessment Year 2014-15

(A) Calculation of Income tax in the case of an employee (Male or Female) below the age of sixty years and having gross salary income of:

i) Rs.2,00,000/- ,

ii)  Rs.5,00,000/- ,

iii) Rs.10,00,000/- and

iv) Rs.20,00,000/-.

v)  1,10,00,000

(B) What will be the amount of TDS in case of above employees, if PAN is not submitted by them to their DDOs/Offices:

Particulars

Rupees
(i)

Rupees
(ii)

Rupees
(iii)

Rupees
(iv)

Rupees
(v)

Gross Salary Income
(including allowances)
2,00,0005,00,00010,00,00020,00,0001,10,00,000
Contribution of G.P.F.45,00050,0001,00,0001,00,0001,00,000

Computation of Total Income and tax payable thereon

Particulars

Rupees
(i)

Rupees
(ii)

Rupees
(iii)

Rupees
(iv)

Rupees
(v)

Gross Salary2,00,0005,00,000

10,00,00
0

20,00,0001,10,00,000
Less: Deduction U/s 80C45,00050,0001,00,0001,00,0001,00,000
Taxable Income1,55,0004,50,0009,00,00019,00,0001,09,00,000
(A)  Tax thereonNil23,0001,10,0004,00,0003,10,00,00

Surcharge

31,00,00
Add:
(i) Education Cess @ 2%. (ii) Secondary and Higher Education Cess  @1%
Nil
Nil
400
230
2200
1100
8000
4000
68200
34100

 

Total tax payableNil25,7501,13,3004,12,0003512900
(B) TDS under sec. 206AA in case where PAN is not furnished by the employeeNil90,0001,80,0004,12,0003512900

Example 2

For Assessment Year 2014-15

Calculation of Income Tax in the case of an employee below the age of sixty years having a handicapped dependent ( With valid PAN furnished to employer).

S.No.

Particulars

Rupees
1Gross Salary3,20,000
2Amount  spent  on  treatment  of a  dependant,  being  person  with disability (but not severe disability)

7000

3Amount paid to LIC with regard to annuity for the maintenance of adependant,beingpersonwithdisability(butnotsevere disability)60,000
4GPF Contribution25,000
5LIP Paid10,000

Computation of Tax

S.No.

Particulars

Rupees
1Gross Salary3,20,000
Less: Deduction U/s 80DD (Restricted to Rs.50,000/- only)50,000
2

Taxable income

2,70,000
Less:  Deduction U/s 80C (i) GPF  Rs.25,000/-(ii) LIP  Rs.10,000/-= Rs.35,000/-35,000
3

Total Income

2,35,000
4Income Tax thereon/payable

1,500

Add: (i).  Education Cess @2%(ii).  Secondary and Higher Education Cess @1%

30
15

5Total Income Tax payable

1,545

6

Rounded off to

1,550

Example 3

For Assessment Year 2014-15

Calculation of Income Tax in the case of an employee below age of sixty years where medical treatment expenditure was borne by the employer ( With valid PAN furnished to employer).

S.No.ParticularsRupees
1Gross Salary4,00,000
2Medical Reimbursement by employer on the treatment of self and
dependent family member
35,000
3Contribution of GPF20,000
4LIC Premium20,000
5Repayment of House Building Advance25,000
6Tuition fees for two children60,000
7Investment in Unit-Linked Insurance Plan20,000

 

S.No.

Particulars

Rupees
1Gross Salary4,00,000
Add: Perquisite in respect of reimbursement of Medical Expenses In excess of Rs.15,000/- in view of Section 17(2)(v)20,000
2

Taxable income

4,20,000
Less:  Deduction U/s 80C (i) GPF Rs.20,000/-(ii) LIC  Rs.20,000/-(iii) Repayment of House Building AdvanceRs.25,000/-

(iv)  Tuition fees for two children Rs.60,000/-

(v) Investment in Unit-Linked Insurance PlanRs.20,000/-

Total=Rs.1,45,000/- Restricted to Rs. 1,00,000/-

1,00,000
3

Total Income

3,20,000
4Income Tax thereon/payable10,000
Add: (i).  Education Cess @2%(ii).  Secondary and Higher Education Cess @1%

200
100

5Total Income Tax payable10,300
6

Rounded off to

Computation of Tax

Example 4

For Assessment Year 2014-15

Illustrative calculation of House Rent Allowance U/s 10 (13A)in respect of residential accommodation situated in Delhi in case of an  employee below the age of sixty years (With valid PAN furnished to employer).

S.No.ParticularsRupees
1Salary2,50,000
2Dearness Allowance1,00,000
3House Rent Allowance1,40,000
4House rent paid1,44,000
5General Provident Fund36,000
6Life Insurance Premium

4,000

7Subscription to Unit-Linked Insurance Plan50,000

Computation of total income and tax payable thereon

S.No.

Particulars

Rupees
1Salary + Dearness Allowance + House Rent Allowance
2,50,000+1,00,000+1,40,000 = 4,90,000
4,90,000
2

Total Salary Income

4,90,000
3Less: House Rent allowance exempt U/s 10(13A):Least of:(a). Actual amount of HRA received=  1,40,000(b). Expenditure of rent in excess of 10% of salary (including D.A. presuming that D.A. is taken for retirement benefit) (1,44,000-35,000)  =  1,09,000

(c). 50% of Salary(Basic+ DA)=  1,75,000

1,09,000

Gross Total Income

3,81,000
Less:  Deduction U/s 80C (i) GPFRs.36,000/-(ii) LICRs.4,000/-  Rs.4,000(iii) Investment in Unit-Linked Insurance Plan  Rs.50,000/-

Total =Rs.90,000/-

90,000
3

Total Income

2,91,000
Tax payable on total income

7,100

Add: (i).  Education Cess @2%(ii).  Secondary and Higher Education Cess @1%

142
71

Total Income Tax payable

7313

Rounded off to

7310

Example 5

For Assessment Year 2014-15

S.No.ParticularsRupees
1Salary7,00,000
2Bonus1,40,000
3Free gas, electricity, water etc. (Actual bills paid by company)40,000
4(a)Flat at concessional rate (for ten month).= Rs.3,60,003,60, 000
4(bHotel rent paid by employer (for two month)1,00,000
4(c)Rent recovered from employee.60,000
4(d)Cost of furniture.2,00,000
5Subscription to Unit Linked Insurance Plan50,000
6Life Insurance Premium10,000
7Contribution to recognized P.F.42,000
8Investment in long term infrastructure bonds (80CCF)20,000

Illustrating valuation of perquisite and calculation of tax in the case of an employee below age of sixty years of a private company in Mumbai who was provided accommodation in a flat at concessional rate for ten months and in a hotel for two months ( With valid PAN furnished to employer).

S.No.

Particulars

Rupees
1Salary7,00,000
2Bonus1,40,000
3Total Salary(1+2) for Valuation of Perquisites8,40,000
Valuation of perquisites
4(a)Perq.forflat:Lower of (15% of salary for 10 mnths=Rs.1,05,000/-)
and (actual rent paid= Rs 3,60,000) Rs. 1,05,000
1,38,600
4(b)Perq for hotel : Lower of (24% of salary of 2 mths=Rs 33,600)
and (actual payment= Rs 1,00,000) Rs  33,600
4(c)Perquisites for furniture(Rs.2,00,000) @ 10% of cost  20,000
4(c)(i)Total of [4(a)+(b)+(c)] (1,05,000+ 33,600+ 20,000)Rs.158,600
Less: rent recovered(-)Rs. 60,000
=Rs. 98,600
4(d)Add
perq. for free gas, electricity, water etc.  Rs.40,000 (+) Rs 98,600 [4(c)(i)] =  Rs1,38,600
Total perquisites
5Gross Total Income (Rs.8,40,000+ 1,38,600)9,78,600
6Gross Total Income9,78,600
7Less: Deduction U/s 80C & 80CCF: (i). Provident Fund (80C):52,000(ii). LIC(80C):10,000(iii). Subscription to Unit Linked Insurance Plan(80C)  :50,000/-

Total  = 1,12,000

Restricted to Rs 1,00,000 u/s 80C

1,00,000

COMPUTATION OF TOTAL INCOME AND TAX PAID THEREON:

8Total Income8,78,600
9Tax Payable1,05,720
10Add: (i).Education Cess @2%(ii).  Secondary and Higher Education Cess @1%

2,114
1,057

11Total Income Tax payable10,88,91
12Rounded off to10,88,90

Example 6

For Assessment Year 2014-15

Illustrating Valuation of perquisite and calculation of tax in the case of an employee below the age of 60 years of a Private Company posted at Delhi and repaying House Building Loan ( With valid PAN furnished to employer).

S.No.ParticularsRupees
1Salary4,00,000
2Dearness Allowance1,00,000
3House Rent Allowance1,80,000
4Special Duties Allowance12,000
5Provident Fund60,000
6LIP10,000
7Deposit in NSC VIII issue30,000
8Rent Paid by the employee for house hired by her1,20,000
9Repayment of House Building Loan (Principal)60,000
10Tuition Fees for three children (Rs.10,000 per child)30,000

Computation of total income and tax payable thereon

S.No.

Particulars

Rupees
1Gross Salary (Basic+DA+HRA+SDA)6,92,000
Less: House rent allowance exempt U/s 10 (13A) Least of: (a). Actual amount of HRA received.  :Rs.1,80,000(b). Expenditure on rent in excess of 10% of salary (Including D.A.)assuming D.A. is including for retirement benefits (1,20,000- 40,000):Rs. 80,000(c). 50% of salary (including D.A): Rs. 2,00,00080,000
2Gross Total Taxable Income6,12,000
Less:  Deduction U/s 80C(i).  Provident Fund: 60,000(ii).LIP  : 10,000(iii).  NSC VIII Issue  : 30,000

(iv).  Repayment of HBA: 60,000

(v).Tuition Fees (Restricted to two children)  :20,000

Total: 1,80,000

Restricted to  1,00,0001,00,000

Total Income

5,12,000
Income Tax thereon/payable32,400
Add:
(i).  Education Cess @2%
(ii).  Secondary and Higher Education Cess @1%

648
324

Total Income Tax payable33372

Rounded off to

33370

Example  7

For Assessment Year 2013-14

A.   Calculation of Income tax in the case of a retired employee above the age of sixty years but below the age of 80 years and having gross pension of:

i.  Rs.4,50,000/-, ii.  Rs.8,00,000/- ,

BWhat will be the amount of TDS in case of above employees, if PAN is not submitted by them to their DDOs/Offices:

Particulars

Rupees
(i)

Rupees
(ii)

Rupees
(iii)

Gross Pension4,50,0008,00,0001,25,0000
Contribution of P.P.F.70,00070,00070,000

Computation of Total Income and tax payable thereon

Particulars

Rupees
(i)

Rupees
(ii)

Rupees
(iii)

Gross Pension4,50,0008,00,0001,25,0000
Less: Deduction U/s 80C70,00070,00070,000
Taxable Income3,80,0007,30,00011,80,000

Tax thereon

11,00071,0001,79000
Add:
(i) Education Cess @ 2%.
(ii) Secondary and Higher Education Cess  @1%

220
110

1420
710

3580
1790
Total tax payable11,33073,130184370
TDS under sec. 206AA in case where PAN is not furnished by the employee76,0001,46,0002,36,000

 

Example  8

For Assessment Year 2014-15

A.   Calculation of Income tax in the case of a retired employee above the age of 80 years and having gross pension of:

iii.  Rs.4,50,000/-, iv.   Rs.8,00,000/- ,

BWhat will be the amount of TDS in case of above employees, if PAN is not submitted by them to their DDOs/Offices:

Particulars

Rupees
(i)

Rupees
(ii)

Rupees
(iii)

Gross Pension5,00,0008,00,0001,25,0000
Contribution of P.P.F.70,00070,00070,000

Computation of Total Income and tax payable thereon

Particulars

Rupees
(i)

Rupees
(ii)

Rupees
(iii)

Gross Pension5,00,0008,00,0001,25,0000
Less: Deduction U/s 80C70,00070,00070,000
Taxable Income4,30,0007,30,00011,80,000
Tax thereon

Nil

46,0001,54,000
Add: (i) Education Cess @ 2%.(ii) Secondary and Higher Education Cess  @1%920
460
3080
1540
Total tax payable

Nil

47,38015,8,620
TDS under sec. 206AA in case where PAN is not furnished by the employee

Nil

1,46,0002,36,000

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