1696. Exemption limit of income raised from Rs. 6,000 to Rs. 8,000 by Finance (Amendment) Act, 1975 – Employers permitted to make adjustments of tax deducted at source against tax deductible from salaries

1. Attention is invited to paragraph 2 of Circular No. 176 [F. No. 275/12/75-ITJ], dated 16-8-1975 enclosing an extract of the revised Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1975, giving the revised rate of tax deduction at source from salaries during financial year 1975-76, consequent to raising of the exemption limit of taxable income from Rs. 6,000 to Rs. 8,000. It was requested in the said circu­lar that deduction of income-tax may be made during the financial year according to the revised rates indicated in the Schedule.

2. Several representations have been received stating that tax has already been deducted in the first few months of the current financial year on the basis of the rates specified in the Finance Act, 1975 and that such deduction made on behalf of the employees drawing taxable income up to Rs. 8,000 has become superfluous in view of the revised rates for deduction of tax stipulated by the Finance (Amendment) Act of 1975 and that undue hardship would be caused to such persons from whose emoluments tax has been deduct­ed and from whom, by virtue of the Amendment Act, tax was not deductible under section 192 if they have to approach the Department for refund of tax so deducted. It has been requested that in such cases of excess deduction and payment to Government account, employers may be permitted to adjust tax deducted in the first few months from the emoluments of employees having taxable income exceeding Rs. 6,000 but below Rs. 8,000 in the subsequent tax deduction bills against tax deductible from other employees whose taxable emoluments exceed Rs. 8,000 so that the benefit granted under the Amendment Act really reached this class of employees and they may be saved the routine of having to make regular claims of refunds of tax deducted at source by filing of returns, etc., after April 1, 1976.

3. These representations have been very carefully considered. Once tax is deducted at source, as required under section 192, and paid to Government account as required under rule 30 of the Income-tax Rules, it is not permissible for the employer to make internal adjustments of taxes deducted on behalf of employees in the manner suggested in the representations. However, to mitigate the real hardship that would arise in requiring employees having taxable emoluments below Rs. 8,000 to approach the Income-tax Department for refund of taxes deducted in the first few months of the current financial year, it has been decided that the employers would be permitted, as a special case, to make neces­sary adjustment of such tax deduction at source made by them on behalf of this group of employees in their tax deduction bill for the subsequent months.

4. Rule 30(1)(b)(ii) requires private employers making deduction of tax at source from salaries paid to the employees to deposit such tax to Government account within a week of deduction thereof. The rules also require that the employer furnishes a monthly return to the Income-tax Officer concerned in Form No. 21 prescribed under rule 32 indicating the name of the employee on whose behalf tax is deducted, the details of emoluments, perqui­sites and tax deduction made in the month as also deduction made up to the end of the month, etc. Therefore, while making the adjustments now permitted to be made, the employers should, in the first instance, determine the excess deduction made in the earlier months on account of such employees whose taxable annual income under the head “Salaries” is likely to be below Rs. 8,000. After such determination, the employers should clearly indicate for the month in which the adjustment is proposed to be made, the total deduction due for the month and reduce it by the amount of excess deductions made in the months previous to the month in which the adjustment is made. Simultaneously, the employers should ensure that the monthly returns filed in Form No. 21 for the months earlier to the month in which the adjustment is made is also suitably revised to put matters beyond doubt. They should also furnish a certificate that the concerned employees have been reimbursed the deduction made earlier and now permitted to be adjusted. The employers should also ensure that, while giving certificates of tax deduction at source in individual cases, due care is taken to indicate the adjustments, they are now permitted to make, so that the excess tax now permitted to be adjusted is not claimed as a refund by the employees.

5. These instructions would apply to non-Government employers for the financial year 1975-76 only.

Circular No. 185 [F. No. 275/12/75-ITJ], dated 18-12-1975.

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