Instructions for deduction of tax at source from salary during the financial year 1986-87 at the rates specified in Part III of First Schedule to Finance Act, 1986

1. I am directed to invite the reference to this Ministry’s Circular No. 429 [F. No. 275/35/85-IT(B)], dated 8-8-1985, wherein the rates of income-tax deductions during the financial year 1985-86 from the payment of income chargeable under the head “Salaries” under section 192 were intimated.

2. The aforesaid circular explains the duties devolving upon the person responsible for paying any income chargeable under the head “Salaries” to deduct income-tax on the amount payable at the average rate of income computed on the basis of the rates in force for the financial year in which the payment is made and also the method of calculation of such deductions. It also ex­plains the liabilities to which such a person will be exposed in case of failure to deduct tax at source or after deducting fails to pay the tax to the credit of the Central Government within the stipulated time. It also refers to the various exemptions/deduc­tions admissible under the Income-tax Act, in computing the income-tax for the purpose of deduction under section 192.

3. The Finance Act, 1986 has not made any modification in the rate at which income-tax will be deductible during the financial year 1986-87 from the payment of income chargeable under the head ‘Salaries’. An extract of Sub-Paragraph I of Paragraph A of Part III of the First Schedule is at Annex I. Some important changes brought about by the Finance Act, 1986, in relation to income-tax deduction from the payment of income chargeable under the head ‘Salaries’ during the financial year 1986-87 are given below :

(1) The standard deduction admissible in the case of salaried taxpayers has been raised to 30 per cent of the salary subject to a maximum of Rs. 10,000. This amendment is effective from April 1, 1987 and will accordingly apply in relation to the assessment year 1987-88 and subsequent years.

(2) With a view to providing relief to employees getting house rent allowance and removing the disparity in the matter of liability of income-tax as between an employee getting house rent allowance and another provided with rent-free accommodation by the employer, the ceiling limit of Rs. 400 per month has been removed.

4. The contents of this circular are not exhaustive and are issued with a view to helping the employers to understand the material provisions of the Income-tax Act which are applicable to deduction from ‘Salary’ income. Wherever there is any difference of opinion or doubt a reference should always be made to the provisions of the Income-tax Act and the relevant Finance Act, through which changes in the tax structure are made. Wherever necessary, the previous years’ circular may also be referred to.

Circular : No. 459 [F.No. 275/64/86-IT(B)], dated 16-6-1986, as amended by Circular No. 476, dated 11-12-1986.

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