FINANCIAL YEAR 1984-85
1683. Instructions for deduction of tax at source from salary during financial year 1984-85 at the rates specified in Part III of First Schedule to Finance Act, 1984
1. I am directed to invite a reference to this Ministry’s Circular No. 362 [F.No. 275/21/83-IT(B)], dated 18-6-1983 wherein the rates of income-tax deduction during the financial year 1983-84, from the payments of income chargeable under the head “Salaries” under section 192 were intimated.
2. Sub-section (1) of the said section provides that the person responsible for paying any income chargeable under the head “Salaries” shall, at the time of making payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee for that financial year. The provisions of sub-section (3) are intended for making adjustments of excess or shortfalls of inadvertent nature and/or due to unforeseen circumstances. Thus, the aggregate tax calculated on the estimated income divided by twelve and rounded off to the nearest rupee is required to be deducted from the monthly salary.
3. In the Finance Act, 1984, some modifications have been made. An extract of Sub-Paragraph I of Paragraph A of Part III of the First Schedule is at Annex I.
4. The substance of the main provisions of law insofar as they relate to income chargeable under the head “Salaries”, on which tax is to be deducted at source during the financial year 1984-85, is given hereunder :
(1) No tax will be deductible at source in any case unless the estimated salary income for the financial year exceeds Rs. 15,000. Some typical examples of calculation are at Annex II.
(2) The value of perquisites by way of free or confessional residential accommodation, or motor cars provided by employers to their employees, shall be determined under rule 3 of the Income-tax Rules, 1962. Further, the value of other benefits or amenities provided free of cost or at concessional rates to the employees, like supply of gas, electric energy, water for household consumption, educational facilities, etc., should also be taken into account, for the purpose of computing the estimated salary income of the employees during the current financial year [Example II at Annex II illustrates computation of some such perquisites].
It may also be added that the Taxation Laws (Amendment) Act, 1984 has inserted a new sub-clause (vi) under clause (2) of section 17 with effect from 1-4-1985 which reads as under :
‘(vi) where the employer has advanced any loan to the employee for the purpose of building a house or purchasing a site or a house and a site or for purchasing a motor car, and either no interest is charged by the employer on the amount of such loan or interest is charged at a rate lower than the rate of interest which the Central Government may, having regard to the rate of interest charged by it from its employees on loans for such purpose granted to them specify in this behalf by notification in the Official Gazette, an amount equal to:
(a) in a case where such loan is advanced without charging any interest, the interest calculated in the prescribed manner on such loan at the rate so specified;
(b) in a case where such loan is advanced by charging interest at a rate lower than the rate so specified, the difference between the interest calculated in the prescribed manner on such loan at the rate so specified and the interest charged by the employer:
Provided that this sub-clause shall not apply in the case of—
(1) an employee of the Central Government or any State Government; or
(2) an employee, not being an employee referred to in paragraph (a) or paragraph (b) of sub-clause (iii), whose income under the head “Salaries”, exclusive of the value of all benefits or amenities not provided for by way of monetary payment, does not exceed eighteen thousand repees.’
(3) Exemptions in computing total income:
(a) Sub-clause (i) of clause (10 ) of section 10 provides exemption of death-cum-retirement gratuity from inclusion in computing total income. The maximum limit to which it can be excluded is Rs. 36,000.
(b) Sub-clause (i) of clause (10AA ) of section 10 provides for exemption of any payment received by an employee as cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement on superannuation or otherwise.
(c) In the case of an employee other than an employee of the Central or State Government any payment of the nature referred to in sub-clause (i) of clause (10AA) of section 10 is to be excluded in computing the total income subject to the provisions of sub-clause (ii ) of the said clause (10AA).
(4) The amount repaid to an employee from the Additional Dearness Allowance Deposit Account under the provisions of the Additional Emoluments (Compulsory Deposit) Act, 1974, shall be liable to be included in his total income of the previous year in which it is repaid as already explained in the Ministry’s Circular No. 182 [F.No. 275/12/75-ITJ], dated 28-10-1975. The amount repaid will include an element of interest also. While the repayment of principal sum will be regarded as salary paid during the relevant financial year and assessed to tax accordingly, the interest element qualifies for deduction in accordance with section 80L.
( 5) The amount of deposit made by a taxpayer under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, is not allowable as deduction in computing his taxable income. Accordingly, such deposit has to be ignored for the purpose of determining the amount of income-tax deductible at source.
1( 6) Under section 10(13A), any special allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent (by whichever name called) in respect of residential accommodation occupied by the assessee, is exempt from income-tax to the extent (not exceeding Rs. 400 p.m.) as may be prescribed having regard to the area or place in which such accommodation is situated and other relevant considerations. Rule 2A of the Income-tax Rules, 1962, prescribe the limits in respect of the amount which is not to be included in the total income of the assessee for the purpose of section 10(13A). 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 house rent allowance from the total income of the employee.
However, the Hon’ble Punjab and Haryana High Court has held in the case of CIT v. Justice S.C. Mittal [1980] 121 ITR 503, that even in the case of an assessee occupying his own house, the house rent allowance received from the employer is not liable to tax subject to the limitations imposed under section 10(13A) and rule 2A. That judgment had not been accepted by the department and an appeal has been filed after special leave was granted by the Hon’ble Supreme Court. The disbursing authorities may, however, allow exemption in respect of house rent allowance granted to every employee assessable/assessed to income-tax under the jurisdiction of the Hon’ble Punjab and Haryana High Court and residing in the house/flat owned by him subject to limits laid down in rule 2A in deference to the said judgment. The actual rent paid for the purpose of the said rule would be deemed to be the annual letting value of the house/flat for which production of evidence in the form of a document showing the annual letting value fixed by municipal authority, etc., may be insisted upon before granting the exemption. In the annual salary return asterisk (*) against the name of each such employee may be given together with the following remark at the end of the return :
“*Admissible exemption of HRA allowed in view of judgment in Justice S.C. Mittal’s case.”
(7) Under section 16, the taxable salary is to be computed after providing standard deduction. The standard deduction is to be allowed of an amount equal to 25 per cent of the salary subject to a maximum of Rs. 6,000. For this purpose, the term “salary” will include fees, commission, perquisites or profits in lieu of or in addition to salary, but will not include any payments received by the employees which are specifically exempt from tax under clauses (10), (10A), (10AA ), (10B), (11), (12 ), and (13A) of section 10. Thus, house rent allowance to the extent exempt under section 10(13A), will not be taken into account for the purposes of computing the amount of the standard deduction. It is to be noted that standard deduction on the above basis is to be allowed irrespective of whether any expenditure incidental to employment is actually incurred by the employee or not. This deduction will be available also to persons drawing pension during the current financial year at the same rates and subject to the same ceiling as to the employees in actual service. Further, the standard deduction will be limited to Rs. 1,000 only in cases where the employee is provided with any motor car, motor cycle, scooter or other moped by his employer (for use otherwise than wholly and exclusively in the performance of his duties, or where he is allowed the use of any one or more motor cars otherwise than wholly and exclusively in the performance of his duties) out of a pool of motor cars owned or hired by the employer at any time during the financial year. In this connection, it may be noted that the use of a motor car by the employee for the purpose of going from his residence to the place where the duties of his employment are to be performed, or from such place back to his residence will not be regarded as use of the motor cars in the performance of his duties.
(8) ( a) Under section 80C, while computing the taxable income, the disbursing officers should allow a deduction of the whole of the first Rs. 6,000. 50 per cent of the next Rs. 6,000 and 40 per cent of the balance of the qualifying amount of payment towards life insurance premia, contributions to provident fund (including contributions to public provident fund constituted under the Public Provident Fund Act, 1968), contributions for participation in the Unit-linked Insurance Plan, 1971, made under section 19(1)(cc) of the Unit Trust of India Act, 1963, deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, and subscription to the National Savings Certificates (VI Issue) and the National Savings Certificates (VII Issue). The qualifying amount of payments of all these items will be subject to a maximum of Rs. 40,000.
(b) In respect of contributions to “recognised provident funds” there is another monetary ceiling limit laid down in clause (d) of sub-section (2) of section 80C, in that the employee’s own contribution to his individual account in the fund will not exceed one-fifth of his salary during the financial year or Rs. 10,000, whichever is less. “Salary” for this purpose would include dearness allowance if the terms of employment so provide but will exclude all other allowances or perquisites. The expression “recognised provident fund” has been defined in section 2(38) to mean a provident fund which has been and continues to be recognised by the Commissioner in accordance with the rules contained in Part A of the Fourth Schedule to the Act and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952.
(c) The additional monetary ceiling of one-fifth of salary or Rs. 10,000, whichever is less, will not be applicable to the contributions to the provident funds referred to in sub-clauses (iii) and (iv) of clause ( a) of sub-section (2) of section 80C. Such provident funds are :
(A) Government provident fund and Railway provident fund.
(B) Provident funds established by such local authorities and institutions as are mentioned in the Schedule to the Provident Funds Act, 1925, and those notified by the Government from time to time under section 8(3) of that Act.
(C) Any provident fund set up by the Central Government and notified by it in the Official Gazette—Public Provident Fund set up under the Public Fund Act, 1968 is an example of such a fund.
(d) Clause (b) of sub-section (2) of section 80C has been substituted by a new clause with effect from 1st day of April, 1984, by the Finance Act, 1983. The new clause (b) is as under :
“( b) where the assessee is a Hindu undivided family,—
(i) any sums paid in the previous year by the assessee out of its income chargeable to tax—
(1) to effect or to keep in force an insurance on the life of any member of the family ; or
(2) as a contribution to any provident fund referred to in sub-clause (iv) of clause (a), where such contribution is to an account standing in the name of any member of the family ; or
(ii) any sums deposited in the previous year by the assessee out of its income chargeable to tax in a ten-year account or a fifteen-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, as amended from time to time where such sums are deposited in an account standing in the name of any member of the family.”
In the existing Explanation below this clause, for the word, brackets and letter “clause (b)”, the words, brackets, figure and letter “sub-clause (i) of clause (b)”, have been substituted.
(e) In sub-section (4) of section ibid., for clauses (i) to ( iv), the following clauses have also been substituted :
“(i) in the case of an individual being an author, playwright, artist, musician, actor or sportsman (including an athlete), sixty thousand rupees ;
(ii) in the case of any other individual or a Hindu undivided family or any such association of persons or a body of individual as is referred to in clause (g) of sub-section (2), forty thousand rupees.”
These changes may be taken note of while allowing deductions under this section.
(9) No deduction should be made from the salary income in respect of any donations for charitable purpose. The tax relief on such donations, as admissible under section 80G will have to be claimed by the taxpayer separately at the time of finalisation of the assessment. However, in cases where contributions to the National Defence Fund, Jawaharlal Nehru Memorial Fund, the Prime Minister’s Drought Relief Fund, the Prime Minister’s National Relief Fund or the National Children’s Fund are made, 50 per cent of such contributions may be deducted in computing the total income of the employee. Deduction will not be admissible where the aggregate of all contributions for the year is less than Rs. 250.
(10) Under section 80GG an assessee is entitled to a deduction in respect of house rent paid by him for his own residence at the places specified under rule 11B of the Income-tax Rules. 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).
(b) He will be entitled to a deduction in respect of house rent paid by him in excess of 10 per cent of his total income, subject to a ceiling of 15 per cent thereof or Rs. 400 per month, whichever is less. The total income for working out these percentages will be computed before making any deductions under section 80GG.
(c) 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, being accommodation in the occupation of the assessee, the value of which is to be determined under clause (i) or, as the case may be, clause (ii) of sub-section (2) of section 23.
(d) The accommodation occupied by him for the purpose of his own residence is situated in any of the following places, namely :—
(i) Agra, Ahmedabad, Allahabad, Amritsar, Bangalore, Bhopal, Calcutta, Coimbatore, Delhi, Faridabad, Gwalior (Lashkar), Hyderabad, Indore, Jabalpur, Jaipur, Kanpur, Lucknow, Ludhiana City, Madurai, Nagpur, Patna, Pune (Poona), Srinagar, Surat, Vadodara (Baroda), or Varanasi (Banaras) or the urban agglomeration of each of such places ; and
(ii) Bombay, Calicut, Cochin, Ghaziabad, Hubli-Dharwar, Madras, Sholapur, Trivandrum or Vishakhapatnam.
Explanation : “Urban agglomeration” in relation to a place means the area for the time being included in the urban agglomeration of such place for the purpose of grant of house rent allowance by the Central Government to its employees under the orders issued by it from time to time in this regard.
The 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.
(11) Section 10(14) provides for exemption from income-tax of any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning of clause (2) of section 17 specially granted to the employee to meet the expenses actually incurred wholly, necessarily and exclusively, in the performance of the duties of an office or employment of profit. In view of this provision, disbursing authorities have been authorised, vide Board’s Circular No. 196 [F.No. 275/29/76-ITJ], dated 31-3-1976 not to deduct tax at source from conveyance allowance granted to an employee to the extent it is exempt under the said section. It has been stated herein that the employee in receipt of conveyance allowance would have to furnish the necessary certificate before the disbursing authority in support of the fact that the conveyance allowance is a only a reimbursement of expenses laid down wholly, necessarily and exclusively in the performance of duties of an office or employment of profit. The satisfaction of the disbursing authorities would still be liable for scrutiny by the Income-tax Officer during regular assessment proceedings before him. The disbursing authority is also required to endorse a certificate in terms of section 10(14 ) on the tax deduction certificate issued under section 203. In this connection, attention is invited to the Explanation clause (14) of section 10 which clarifies that any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides shall not be regarded for purposes of that clause, as a special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties. This may be kept in view while deciding whether any expenditure from the special allowance has been actually incurred, and if so, the extent to which it has been incurred to meet the expenses wholly, necessarily and exclusively in the performance of duties of an office or employment of profit.
(12) Section 80RRA provides that where the gross total income of an individual who is a citizen of India, includes any remuneration received by him in foreign currency from any employer (i.e., a foreign employer of an Indian concern) for any services rendered by him outside India, 50 per cent of such remuneration will be deducted in computing the taxable income. It also provides that where the assessee renders continuous service abroad for more than 36 months, the remuneration received by him for any period of service after the expiry of the said 36 months will not qualify for any deduction. In the case of employee of the Central Government or any State Government or a person who was, immediately before taking up the service outside India, in the employment of the Central Government or any State Government, the deduction will be allowed only if the service of the employee is sponsored by the Central Government. In the case of any other individual, the deduction will be allowed only if he is a “technician” and the terms and conditions of his service outside India are approved for the purpose of the said section by the Central Government or the prescribed authority. It is pertinent to note that the deduction is to be allowed with reference to the remuneration received by the individual in foreign currency for services rendered outside India. Thus, if the remuneration is paid to the Indian technician, etc., partly in Indian currency and partly in foreign currency, the amount paid in India currency will not be taken into account for purposes of deduction under section 80RRA. Likewise, if a part of the remuneration, although paid in foreign currency, relates to services rendered in India, then such part of the remuneration will also not qualify for deduction under section 80RRA.
The expression “foreign employer” has been defined in Explanation (b) to section 80RRA to mean (i) the Government of a foreign State ; or (ii) a foreign enterprise; or (iii) any association or body established outside India. While allowing the deduction under this section, documentary evidence should be obtained on the following points :
(i) In the case of individual who is in the employment of the Central Government or any State Government, the fact of his service having been sponsored by the Central Government.
(ii) In the case of any other individual being a technician, the fact of the terms and conditions of his service outside India having been approved in this behalf by the Central Government (Ministry of Finance, Department of Revenue, Foreign Tax Division, New Delhi).
[It should also be ensured that the deduction is allowed only with reference to the remuneration received in foreign currency in respect of the period of service outside India. The fact that deduction is admissible only in relation to the first 36 months of continuous service outside India should also be kept in view.]
(13) Section 80U, as amended by the Finance Act, 1984, is reproduced below :
“(1) In computing the total income of an individual, being a resident, who, as at the end of the previous year,—
(i) is totally blind, or
(ii) is subject to or suffers from a permanent physical disability (other than blindness) being a permanent physical disability specified in the rules made in this behalf by the Board, and which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation,
there shall be allowed a deduction of a sum of ten thousand rupees :
Provided that such individual produces before the Income-tax Officer in respect of the first assessment year for which deduction is claimed under this section,—
(a) in a case referred to in clause (i), a certificate as to his total blindness from a registered medical practitioner being an oculist; and
(b) in a case referred to in clause (ii), a certificate as to the permanent physical disability referred to in the said clause from a registered medical practitioner.
(2) The Board shall, in making any rules for specifying any disability for the purposes of clause (ii ) of sub-section (1), have regard to the nature of such disability and the effect which such disability is likely to have on the capacity of a person subject thereto, or suffering therefrom, to engage in a gainful employment or occupation.”
The deduction of Rs. 10,000 from the total income is allowed by the employer subject to the production of a certificate from the Income-tax Officer in favour of the employer as laid down in this Ministry’s Circular No. 272, dated 27-5-1980. The certificate once issued will continue to be in force till it is withdrawn by the Income-tax Officer.
(14) The total income computed in accordance with the provisions of the Act should be rounded off to the nearest multiple of ten rupees by ignoring the fraction which is less than five rupees and increasing the fraction which amounts to five rupees or more, to ten rupees. The net amount of tax deductible should be similarly rounded off to the nearest rupee.
(15) Section 201 reads as under :
“(1) If any such person and in the cases referred to in section 194 the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax :
Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the Income-tax Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax.
(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at twelve per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.
(2) Where the tax has not been paid as aforesaid after it is deducted the amount of tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person or the company, as the case may be, referred to in sub-section (1).”
(16) Attention is also invited to section 276B, where it is provided that if a person without reasonable cause or excuse fails to deduct, or after deducting fails to pay the tax as required under the provisions of Chapter XVII-B of the 1961 Act, he shall be punishable :
(i) in a case where the amount of tax which he has failed to deduct or pay exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine ; and
(ii) in any other case, with rigorous imprisonment for a term which shall not be less than the three months but which may extend to three years and with fine.
5. While making the payment of tax deducted at source to the credit of the Central Government, it may kindly be ensured that the correct amount of income-tax and surcharge is recorded in the relevant challan. It may also be ensured that the right type of challan is used. The relevant challan for making payment of tax deducted at source from salaries is No. 9 with “Blue Colour Band”. Where the amount of tax deducted at source is credited to the Central Government through book adjustment, care should be taken to ensure that the correct amount of income-tax and surcharge is reflected therein.
6. For the information of employees, the rates of compulsory deposit to be made during the financial year 1984-85 under the Compulsory Deposit (Income-tax Payers) Act, 1974, are given at Annex III. The deposit has to be made by a person whose current income during the financial year exceeds Rs. 15,000. The last date for making the deposit in the case of a person who is not required to pay advance tax under the Income-tax Act, 1961, is the 31st March, of the financial year in which the deposit is to be made and the deposit can be made in one or more instalments of his choice at any time during the financial year. A person who is required to pay advance tax, is liable to make the deposit (in one sum or in instalments of his choice) on or before the date on which the last instalments of advance tax is payable by him.
7. These instructions are not exhaustive and are issued only with a view to helping the employers to understand the various relevant provisions. Wherever, there is difference to opinion, a reference should also always be made to the provisions of the Income-tax Act, 1961, and the relevant Finance Act through which the changes in the tax structure are made.
Circular: No. 388 [F.No. 275/13/84-IT (B)], dated 16-7-1984.
ANNEX I – EXTRACTS FROM PART III OF FIRST SCHEDULE TO
FINANCE ACT, 1984
Paragraph A
Sub-Paragraph I
In the case of every individual or Hindu undivided family or unregistered firm or other association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii ) of clause (31) of section 2 of the Income-tax Act, not being a case to which Sub-Paragraph II of this Paragraph or any other Paragraph of this Part applies,—
Rates of income-tax
| (1) | where the total income does not exceed Rs. 15,000 | Nil; |
| (2) | where the total income exceeds Rs. 15,000 but does not exceed Rs. 20,000 | 20 per cent of the amount which the total income exceeds Rs. 15,000 ; |
| (3) | where the total income exceeds Rs. 20,000 but does not exceed Rs. 25,000 | Rs. 1,000 plus 25 per cent of the amount by which the total income exceeds Rs. 20,000 ; |
| (4) | where the total income exceeds Rs. 25,000 but does not exceed Rs. 30,000 | Rs. 2,250 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000 ; |
| (5) | where the total income exceeds Rs. 30,000 but does not exceed Rs. 40,000 | Rs. 3,750 plus 35 per cent of the amount by which the total income exceeds Rs. 30,000 ; |
| (6) | where the total income exceeds Rs. 40,000 but does not exceed Rs. 50,000 | Rs. 7,250 plus 40 per cent of the amount by which the total income exceeds Rs. 40,000 ; |
| (7) | where the total income exceeds | Rs. 11,250 plus 45 per cent of the amount by |
| Rs. 50,000 but does not exceed | which the total income exceeds Rs. 50,000 ; | |
| Rs. 70,000 | ||
| (8) | where the total income exceeds Rs. 70,000 but does not exceed Rs. 1,00,000 | Rs. 20,250 plus 50 per cent of the amount by which the total income exceeds Rs. 70,000 ; |
| (9) | where the total income exceeds Rs. 1,00,000 | Rs. 35,250 plus 55 per cent of the amount by which the total income exceeds Rs. 1,00,000. |
Surcharge on income-tax
The amount of income-tax computed in accordance with the preceding provisions of this Sub-Paragraph shall be increased by a surcharge for purposes of the Union calculated at the rate of twelve and a half per cent of such income-tax.
ANNEX II – TYPICAL EXAMPLES OF INCOME-TAX CALCULATION
Example I
| Rs. | Rs. | ||
| (1) | Total salary income | 25,000 | |
| (2) | Contribution to Government provident fund | 4,200 | |
| (3) | Payment towards LIP | 1,000 | |
| (4) | Contribution for participation in the Unitlinked Insurance Plan, 1971, made under section 19(1)(cc) of the Unit Trust of India Act, 1963 | 300 | |
| (5) | Deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959 | 500 | 6,000 |
| (6) | Total salary income | 25,000 | |
| (7 ) | Deduct : Amount of standard deduction under section 16(i) @ 25% of the amount subject to maximum of Rs. 6,000 |
6,000 |
|
| (8) | Gross total income (6–7) | 19,000 | |
| (9 ) | Deduct : Amount on account of contributions towards G.P.F. Life insurance premia, Unit-linked insurance plan and deposits in a 10- year account or 15-year account under the Post Office Saving Bank (Cumulative Time Deposits) Rules, 1959. The total amount paid Rs. 6,000 |
6,000 |
|
| (10) | Total income (8–9) | 13,000 | |
| (11) | Total tax payable | Nil |
Example II
[Illustrating calculation of limits under section 80C and valuation of some
perquisites in case of an employee of a private company posted at Bombay)
| Rs. | ||
| (1) | Salary including dearness allowance | 48,000 |
| (2) | Bonus | 9,600 |
| (3) | Contribution to recognised provident fund | 11,000 |
| (4) | LIP | 10,000 |
| (5) | Subscription to National Savings Certificates (VI and VII Issues) | 5,400 |
| (6) | Free gas, electricity, water, etc. (actual bills paid by the company) | 2,400 |
| (7) | Furniture at cost (including television set, radio set, refrigerator, other household appliances and an air-conditioner) belonging to the company | 40,000 |
| (8) | (i) Furnishing flat provided to the employee for which actual rent paid by the company (actual rent assumed to be equal to the “fair rental value”) | 42,000 |
| (ii) Rent recovered from the employee | 12,000 |
Computation of total income
| . | Rs | Rs. | |
| (1) | Salary | 48,000 | |
| (2) | Bonus | 9,600 |
| (3) | Valuation of perquisites : | 57,600 | |||
| (a) | Furnished flat at concessional rent under section 17(2) read with clauses (a) and ( b) of rule 3 of the Income-tax Rules, 1962 | ||||
| Fair rental value (FRV) (assumed to be equal to actual rent Rs. 42,000) 10% of salary including bonus | 5,760 | ||||
| Add : Excess of FRV over 60% of salary including bonus, of Rs. 57,600 (i.e., Rs. 42,000—Rs. 34,560) | 7,440 | ||||
| Add : Perquisite of the furniture (10% of cost, i.e., Rs. 40,000) | 4,000 | ||||
| 17,200 | |||||
| Less : Rent paid by the employee | 12,000 | 5,200 | |||
| 62,800 | |||||
| (4 ) | Free gas, electricity, etc. | 2,400 | |||
| 65,200 | |||||
| (5) | Less : Standard deduction under section 16(i) @ 25% subject to maximum of Rs. 6,000 | 6,000 | |||
| (6) | Gross total income | 59,200 | |||
| (7) | Less : Deduction under section 80C : | ||||
| P.F. paid Rs. 11,000 but restricted to 1/5th of salary, Rs. 48,000 (excluding bonus) or Rs. 10,000, whichever is less | 9,600 | ||||
| LIP | 10,000 | ||||
| National Savings Certificates (VI & VII Issues) | 5,400 | ||||
| Total of P.F. and L.I.P. of Rs. 19,600 (maximum allowable up to Rs. 40,000) | 25,000 | ||||
| First Rs. 6,000 (100%) | 6,000 | ||||
| Next Rs. 6,000 (50%) | 3,000 | ||||
| On balance Rs. 13,000 (40%) | 5,200 | ||||
| 14,200 | |||||
| (8) | Total income (6–7) (Rs. 59,200—Rs. 14,200) | 45,000 | |||
| (9) | Tax payable thereon (Rs. 7,250 + 40% of excess over Rs. 40,000) | 9,250 | |||
| (10 ) | Surcharge @ 12½% of income-tax payable | 1,156.25 | |||
| (11) | Total tax payable | 10,406.25 | |||
| (12) | Rounded off under section 288B | 10,406.00 | |||
[Rate at which monthly deduction from salary is required to be made works out to Rs. 867]
Notes :
1. In the case of a Government servant, the value of perquisites of unfurnished accommodation provided fee is determined in accordance with the rules framed by the Government for allotment of residence to its employees. For determining the perquisite value of free furniture, it is taken, as in other cases, at 10 per cent per annum of the original cost of the furniture, or if it is hired from a third party, the actual hire charges payable.
2. Where unfurnished accommodation is provided to its employee by the Reserve Bank of India or any other public sector body specified in sub-clause (2) of clause (a) of rule 3 of the Income-tax Rules, say, a nationalised bank, State Trading Corporation etc., it is taken as 10 per cent of the salary due to the employee and where the accommodation is furnished as in other cases, if an additional 10 per cent or the original cost of furniture, or if it is hired from a third party, the actual hire charges payable therefor.
3. In the example given above, the actual rent has been assumed to be equal to the “fair rental value”. “Fair rental value” can, however, be different from the actual rent. It is defined in Explanation 2, below clause (a) of rule 3, to mean, in the case of an accommodation which is unfurnished, “the rent which a similar accommodation would realise in the same locality or the municipal valuation in respect of the accommodation, whichever is higher”.
4. In case the accommodation is situated in Bombay, Calcutta, Delhi and Madras the excess over 60 per cent of salary over fair rental value, as against 50 per cent in other cases, is required to be added in determining the value of perquisites in view of Board’s Circular No. 374, dated 14-12-1983.
Example III
[Illustrating limits of deduction under section 80C]
| Rs. | Rs. | ||
| (1) | Total salary income (including Rs. 2,400 as conveyance allowance @ Rs. 200 p.m. received from the employer) | 30,000 | |
| (2) | Contribution to recognised provident fund | 9,500 | |
| (3) | Payment to life insurance premia | 1,000 | |
| (4) | Contribution for participation in the Unit-linked Insurance Plan, 1971, made under section 19(1)(cc) of the Unit Trust of India Act, 1963 | 1,500 | |
| (5) | Deposit in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959 | 1,000 | |
| (6) | Total salary income | 30,000 | |
| (7 ) | Deduct : Amount of standard deduction under section 16(i) @ 25% of the amount subject to maximum of Rs. 6,000 | 6,000 | |
| (8) | Gross total income (6—7) | 24,000 | |
| (9) | Deduction under section 80C : | ||
| Contribution of Rs. 9,500 to P.F. under section 80C(2)(d ) restricted to 1/5th of salary of Rs. 30,000 or Rs. 10,000, whichever is less, i.e., | 6,000 | ||
| Life insurance premia | 1,000 | ||
| Contribution for participation in the Unit-linked insurance plan, made under section 19(1)(cc) of the Unit Trust of India Act, 1963 | 1,500 | ||
| Deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959 | 1,000 | ||
| Deduction admissible on Rs. 9,500 | |||
| – on the first Rs. 6,000 (100%) | 6,000 | ||
| – on the balance Rs. 3,500 @ 50% | 1,750 | ||
| 7,750 | |||
| (10) | Total income (8—9) | 16,250 | |
| (11 ) | Income-tax payable at Rs. 16,250 (Rs. 16,250— | ||
| Rs. 15,000) @ 20% | 250 | ||
| (12) | Surcharge on income-tax @ 12½% | 31.25 | |
| (13) | Total tax payable (11 + 12) | 281.25 | |
| (14) | Rounded off under section 288B | ||
| [Rate at which monthly deduction is required to be made works out to Rs. 23.00] | 281.00 |
Example IV
[Illustrating calculation of house rent allowance under section 10(13A) in respect of residential accommodation situated at Delhi]
| Rs. | ||
| 1. | Salary (exclusive of allowances and perquisites) | 36,000 |
| 2. | House rent allowance received | 8,400 |
| 3. | Actual rent paid | 11,400 |
| 4. | Contribution to recognised provident fund | 6,000 |
| 5. | LIP | 3,000 |
| 6. | Deposits in a 10-year account under the P.O. Savings Bank (Cumulative Time Deposits) Rules, 1959 |
1,000 |
Computation of total income
| 1. | Salary | 36,000 | |
| 2. | House rent allowance received | 8,400 | |
| 44,400 | |||
| 3. | Less : Allowance under section 10(13A) : | ||
| Actual rent paid | 11,400 | ||
| Less : 10% of salary | 3,600 | ||
| 7,800 | |||
| 20% of salary (accommodation being situated at Delhi) | 7,200 | ||
| Maximum allowance @ Rs. 400 p.m. | 4,800 | 4,800 | |
| 39,600 | |||
| 4. | Less : Standard deduction under section 16(i) @ 25% subject to the maximum of Rs. 6,000 |
6,000 |
|
| 5. | Gross total income | 33,600 | |
| 6. | Less : Deduction under section 80C : | ||
| Total P.F., L.I.P. and C.T.D. Rs. 10,000. These contributions being within the prescribed admissible limits, the deduction is admissible on Rs. 10,000 : | |||
| – first Rs. 6,000 (100%) | 6,000 | ||
| – of balance Rs. 4,000 (50%) | 2,000 | 8,000 | |
| 7. | Total income | 25,600 | |
| 8. | Tax payable thereon [Rs. 2,250 + 30% of Rs. 600 (Rs. 25,600—Rs. 25,000)] | 2,430 | |
| 9. | Surcharge @ 12½% of income-tax payable | 303.75 | |
| 10. | Total tax payable (8 + 9) | 2,733.75 | |
| 11. | Rounded off under section 288B | 2,734.00 | |
| [Rate at which monthly deduction from salary is required to be made works out to Rs. 228.] |
ANNEX III – RATES OF COMPULSORY DEPOSIT
| (1) | where the current income exceeds Rs. 15,000 but does not exceed Rs. 25,000 | 4.5 per cent of the current income ; |
| (2) | where the current income exceeds Rs. 25,000 but does not exceeds Rs. 35,000 | Rs. 1,125 plus 11 per cent of the amount by which the current income exceeds Rs. 25,000; |
| (3) | where the current income exceeds Rs. 35,000 but does not exceed Rs. 50,000 | Rs. 2,225 plus 12.5 per cent of the amount by which the current income exceeds Rs. 35,000 ; |
| (4) | where the current income exceeds Rs. 50,000 but does not exceed Rs. 70,000 | Rs. 4,100 plus 15 per cent of the amount by which the current income exceeds Rs. 50,000 ; |
| (5) | where the current income exceeds Rs. 70,000 | Rs. 7,100 plus 18 per cent of the amount by which the current income exceeds Rs. 70,000 : |
Provided that—
(a) where the current income exceeds Rs. 15,000 but does not exceed Rs. 15,710, the compulsory deposit shall in no case exceed the amount by which the current income exceeds Rs. 15,000 ;
(b) where the amount of compulsory deposit calculated in accordance with the foregoing provisions is less than Rs. 100, it shall not be necessary for the taxpayer concerned to make such deposit.
