COMPULSORY DEPOSIT
SCHEME ACT, 1963
COMPULSORY DEPOSIT SCHEME ACT, 1963
1557. Compulsory Deposit Scheme explained
CLARIFICATION 1
1. I am directed to invite a reference to para 3 of this Ministry’s letter of even number, dated 25-4-1963. It has been stated therein that for the present till the month of August 1963, the pay for which is due on September 1, 1963, the deduction of additional surcharge from salaries should be allowed to the extent of a sum equal to the maximum amount of deposit as specified in the Compulsory Deposit Scheme Act, 1963, and that a further communication would follow when the deposit scheme was brought into force. The Compulsory Deposit (Income-tax Payers) Scheme has since been finalised by the Government. Although the above Scheme has come into force on July 1, 1963, persons who want to take full benefit of reduction in the payment of additional surcharge leviable on their residual income for the financial year 1963-64 will have to make the deposit under the Scheme on the basis of their income for the full year.
2. The Scheme relating to income-tax payers does not impose any obligation on the employer to make any deduction on account of deposits from the monthly salary paid by him to his employees. The employees themselves will be responsible for depositing the amounts under the Scheme at the deposit offices of their choice who will issue separate receipts for each deposit made in addition to the pass book. The Scheme thus does not envisage any deduction at source of the deposits in the case of employees who are subject to income-tax.
3. The important provisions of the Scheme are mentioned below :
Section 4(4) of the Compulsory Deposit Scheme Act, 1963, provides that where an employee who is an income-tax payer makes a deposit under the Scheme in any financial year, the person responsible for paying the salary shall reduce the amount of additional surcharge included in the tax to be deducted at source from salary under section 192 of the Income-tax Act, 1961, to the prescribed extent, on production of proof of the fact of such deposit having been made. The reduction of additional surcharge admissible is of an amount equal to 3 per cent of the residual income falling within the first slab of Rs. 6,000 and 2 per cent of the residual income exceeding the aforesaid slab or Rs. 6,000 or the sum actually deposited under the Scheme, whichever is less. Para 4(2) of the Compulsory Deposit (Income-tax Payers) Scheme, 1963, also refers to the deduction from the additional surcharge to the above extent, if the person makes a deposit under the Scheme. Para 5(2) of the Compulsory Deposit (Income-tax Payers) Scheme, 1963, prescribes that a salaried employee may forward a statement to the person responsible for paying the salary declaring the amount he has already deposited under the Scheme and the amount, if any, which he would further deposit before the close of the year. The person responsible for paying the salaries may also require the depositor to produce the pass book issued to him for the purposes of verification.
1 4. Every salaried employee who pays income-tax and who wants to take the benefit of a reduction in the payment of additional surcharge may be asked to furnish a statement to the disbursing officer/employer, before the pay for the month of September 1963 is drawn, declaring the amount he has already deposited under the Scheme and the amount, if any, which he would further deposit before the close of the financial year ending March 31, 1964. Where such statements are furnished by the depositors, they may be accepted and acted upon as contemplated in para 5(2) of the Scheme and benefit of reduction in the payment of additional surcharge to the full prescribed extent should be given at source in such cases. However, where such statements are not furnished, full additional surcharge should be deducted at source from the salary for the month of September 1963, and onwards till such statement is actually filed. In case such a statement is filed in a later month, the benefit of reduced additional surcharge may be given from that month.
2 5. In order to verify that deposits are being made as contemplated in the declaration furnished by each employee, the disbursing officer/employer should obtain, from each such person in the month of February 1964, information regarding the actual deposits made till January 31, and the further deposits he may make before March 31 of the year. The information to be obtained may consist of such details as the name of deposit office, account number, amount already deposited from July 1, 1963, till January 31, 1964, and the amount which may be further deposited before March 31, 1964. The disbursing officer/employer may, for the purposes of verification, call for the pass book or any other proof of deposit having been made. The benefit of reduction from additional surcharge should be given to the full prescribed extent taking into account the further deposit proposed to be made before the close of the year. The disbursing officers/employers should make a final check in the month of April with a view to verify whether the deposits have been paid in full by March 31. If it is found in any case that the full amount of deposit has not been made before the close of the year, the disbursing officers/employers should report such fact to the Income-tax Officer so that steps may be taken by the Income-tax Officer to recover the additional surcharge short collected by taking regular assessment proceedings. To facilitate the work of the Income-tax Officer in this regard, the disbursing officers/employers should furnish to him a complete list of all such employees who have failed to make before the close of the year the deposit in full showing the amount declared for deposit and the amount of deposit actually made. Such list should be sent to the Income-tax Officer before April 30. Further, in submitting to the Income-tax Officer the annual return of salaries under section 206, the disbursing officers/employers should specify in the remarks column the amount of deposit actually made by each employee in the year under the Compulsory Deposit (Income-tax Payers) Scheme, 1963, so as to facilitate checking of tax calculations.
6. For the purpose of calculating the “residual income” mentioned in para 3(ii) of the letter dated 25-4-1963, income-tax and super tax include surcharge on income-tax and surcharge on super tax.
7. There is no change in the rates mentioned in the first schedule enclosed with the Ministry’s letter dated 25-4-1963.
Letter : No. 29/2/63-IT(A-I), dated 3-8-1963.
CLARIFICATION 2
1. I am directed to invite a reference to para 4 of this Ministry’s letter of even number, dated 3-8-1963 [printed here as Clarification 1].
2. It appears that these instructions have been interpreted in some quarters to mean that the reduction in the additional surcharge to the prescribed extent on account of the deposit will not be given at the time of deduction of tax at source under section 192, unless deposit has been made before September 30, 1963. That is not the correct position since, under the Scheme, deposit can be made at any time before the close of the financial year. The intention is that in all cases where a statement is furnished by the employee in terms of para 5(2) of the Compulsory Deposit (Income-tax Payers) Scheme, 1963, reduction in additional surcharge should be given at source to the full prescribed extent. If no deposit has been made so far and in the statement it is declared that the amount deposited till the date of declaration is nil and that a deposit of Rs…. will be made before March 31, 1964, the statement should be accepted and acted upon and the benefit of reduction in the additional surcharge to the full prescribed extent should still be given at source at the time of monthly deduction of tax under section 192. If the required statement is not furnished in the current month (i.e., September 1963) but is furnished in a later month, the benefit of reduced additional surcharge may be given from that month. If the contemplated deposit is not made before the close of the financial year, the excess rebate allowed at source in the current year will be recovered from the employee by the Income-tax Officer in the course of the regular assessment for the assessment year 1964-65.
Letter : No. 29/2/63-IT(A-I), dated 23-9-1963.
CLARIFICATION 3
I am directed to invite a reference to para 5 of this Ministry’s letter of even number, dated 3-8-1963 [printed here as Clarification 1] wherein a request was made that the disbursing officers/employers should make a final check of the compulsory deposits made during 1963-64 in the month of April 1964 and a list of all such employees who fail to make deposits before the close of the year should be furnished to the Income-tax Officer concerned before April 30, 1964. By a Press Note dated 24-4-1964, Government have since extended the date for making compulsory deposits relating to the salary income earned during 1963-64 up to June 30, 1964. It has, therefore, been decided that the pass books, etc., for purposes of verification, should be called for from the employees other than those who are permitted to draw their salaries directly from the Treasury in the month of July 1964 and the list of the employees who fail to make the full payments of compulsory deposit by June 30, 1964 should be furnished to the Income-tax Officer concerned by August 15, 1964.
Letter : No. 29/2/63-IT(A-I), dated 29-4-1964.
CLARIFICATION 4
The Scheme at present applies to all employees drawing annual salary of Rs. 1,500 or above but who are not subject to income-tax. Following the analogy of the Employees’ Provident Funds Scheme, it has been decided that compulsory deposits will be recovered from those employees only who are drawing an annual salary of Rs. 1,500 or above but who are not subject to income-tax and who have completed on July 1, 1963 continuous service of 240 days under the same employer. In the case of employees who completed 240 days’ continuous service under the same employer on a date subsequent to July 1, 1963, compulsory deposits will be recoverable from the salaries paid to them on or after such date.
Continuous service, as in the case of Employees’ Provident Funds Scheme, will mean uninterrupted service but will include service interrupted by sickness, accident, authorised leave, strike which is not illegal or involuntary unemployment.
The expression “salary or wages” shall include only the basic pay or wages, dearness allowance, leave with pay or wages, cash value of any food concession and retaining allowance, if any, but shall exclude house rent allowance and variable items like overtime allowances, bonuses, commissions, presents, etc.
Compulsory deposits will be recovered by the employer whenever the salary or wages paid by him to his employee amounts to Rs. 125 or more in any one month. Provision is also being made to refund, after the close of the year, with interest, the deposits recovered from the employee whose salary or wages for the year amounted to less than Rs. 1,500.
It is no longer obligatory for the employer to get an application form signed by his employee for opening a compulsory deposit account in his name. In cases where the applications of the employees are not forthcoming, the employer can make a single application to the deposit office for opening the accounts of compulsory deposits in the name of each of his employees. The employees shall be allowed to send their applications through their employers any time after their accounts have been opened to enable them to claim the payment of the deposits, on their maturity, without the intervention of the employer.
For determining the annual income from salary or wages for purposes of applying the exemption limit of 11 per cent, variable items like cash value of food concessions or dearness allowance, when fixed with reference to cost of living indexes, should be reckoned provisionally on the basis of amounts drawn in the previous financial year or likely to be drawn in the current financial year. The employers will, however, review the position during the course of the year on the basis of actuals and wherever exemption has been allowed incorrectly, recover the full amount of compulsory deposits from the salary payable to the employee in the closing month of the year. Public sector enterprises under the Central and State Governments will be allowed the option, as in the case of factories and establishments exempted under the Employees’ Provident Funds Act, 1952, to assume the responsibility for maintaining individual accounts of compulsory deposits recovered by them from their employees provided the total amount deducted every month is deposited with the authorised deposit office in lump sum in a single account in the name of the public sector enterprise concerned. Similarly, large departments of Central and State Governments employing more than 1000 persons at the same station, will be allowed the option of maintaining individual accounts of compulsory deposits and rendering other services in connection therewith, as may be prescribed by the Central Government.
Press Note : Dated 17-6-1963, issued by the Ministry of Finance.
1558. Exemption from payment of compulsory deposit up to Rs. 150 which could not be deposited on or before June, 30, 1964
I am directed to refer to your letter, dated September 10, 1964 on the above subject and to state that instructions have since been issued by the Government to the Income-tax Officers to the effect that where the total compulsory deposit payable by a person in respect of the assessment years 1963-64 and 1964-65, put together, does not exceed Rs. 150, then, the full benefit of deduction from additional surcharge should be given to him notwithstanding the fact that no compulsory deposits have been made by him. You are, therefore, requested to take up the matter with the Income-tax Officer concerned.
Letter : F. No. 3(49)/63-CDS, dated 16-12-1964.
1559. Interest on compulsory deposit – Whether exempt from income-tax
A doubt had been expressed in certain quarters regarding income-tax liability of interest on deposits under the Compulsory Deposit (Income-tax Payers) Scheme, 1963. It is clarified for general information that such interest is exempt from income-tax and is also not to be taken into account for calculating the taxable income.
Press Note : Dated 9-6-1970, issued by the Ministry of Finance.
1560. Repayment of compulsory deposit – Procedure therefor
Deposits made under the Compulsory Deposit (Income-tax Payers) Scheme, 1963, are repayable in full together with interest on the expiry of five years from the end of the financial year in which the deposits were made. Accordingly, deposits made during 1963-64 are repayable on or after April 1, 1969. Repayment will be made by the deposit offices themselves where the compulsory deposit accounts of the persons concerned stand, that is, by the Post Offices, the various branches of the Reserve Bank of India, the State Bank of India and its subsidiaries and of the following commercial banks :
1. The Bank of Baroda Limited.
2. The Bank of India Limited.
3. The Central Bank of India Limited.
4. Dena Bank Limited.
5. The Indian Bank Limited.
6. The Punjab National Bank Limited.
7. United Bank of India Limited.
8. The United Commercial Bank Limited.
Interest – Interest on the deposit at 4 per cent per annum (simple) calculated from the 1st of the month following the month in which the deposits were made up to March 31, 1969, would also be paid along with the principal. While depositors can claim repayment of the deposits made during 1963-64 on April 1, 1969, they may, if they so choose, continue to keep the amount in deposit with the Government. In that case, interest at the same rate, i.e., at 4 per cent per annum (simple) will be allowed on their deposits beyond March 31, 1969 and up to the last day of the month preceding the month in which the withdrawal is actually effected and the interest will be free of income-tax.
Procedure for repayment – For claiming repayment, a depositor has to apply to the deposit office, at which the account stands, in withdrawal Form ‘C’ (available with the deposit offices) along with the pass book. A depositor can also authorise any person to receive repayment of amounts due to him on his behalf, by means of a letter of authority in that person’s favour. He should, however, sign the portion for receipt at the bottom of withdrawal Form ‘C’. Where a minor depositor has not attained majority, the application for repayment should be made by his parent or guardian.
Repayment of deposits of deceased depositors can be claimed only by the nominees appointed by the depositors. If no nominee has been appointed by the depositor, repayment can be claimed by his legal heirs.
In such cases, it is not necessary for the claimants to wait till April 1, 1969 as repayments are made even before that date on receipt of a claim in this behalf by the deposit offices.
Press Note : Dated 31-12-1968, issued by the Ministry of Finance.
