In every case in which tax is to be deducted at the rates in force under the provisions of sections 193, 194, 194A, 194B, 194BB, 194D and 195 of the Income tax Act, the rates for deduction of income-tax at source during the financial year 2008-09 have been specified in Part II of the First Schedule to the Act. The rates for deduction of income-tax at source during the financial year 2008-09 will continue to be the same as those specified in Part II of the First Schedule to the Finance Act, 2007 except for the following changes:

 In the case of a person who is resident in India (other than a company), the rate at which tax is to be deducted from income by way of interest payable on any security of the Central or State Government has been specified at ten percent.

Change in rate of short term capital gain from securities: The special tax rate of 10% under section 111A and section 115AD has been increased to 15% from existing 10%. These special tax rates are applicable on short term capital gain arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund, where such transaction is chargeable to securities transaction tax.

 Surcharge – The tax deducted at source in each case shall be increased by a surcharge for purposes of the Union as follows:

(i) in the case of every individual, Hindu undivided family, association of persons and body of individuals, at the rate of ten per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds ten lakh rupees;

(ii) in the case of every artificial juridical person, at the rate of ten per cent. of such tax;

 In the case of every firm and company, the tax deducted at source in each case shall be increased by a surcharge only where the income or the aggregate of such incomes paid or likely to be paid and subject to deduction exceeds one crore rupees. Such surcharge shall be computed as follows-

(i) in the case of every firm and domestic company, at the rate of ten per cent. of such income-tax.

(ii) in the case of every company other than a domestic company, at the rate of two and one-half per cent. of such income-tax.

No surcharge shall be levied on the amount of income-tax deducted in the case of a co-operative society and local authority.

 Education Cess – The additional surcharge, called the “Education Cess on income-tax” shall continue to be levied for the purposes of the Union at the rate of two per cent. of income-tax and surcharge, if any, in all cases. For instance, if such tax is Rs. 1,00,000/- and the surcharge is Rs. 10,000/-, then the education cess of two per cent. is to be computed on Rs. 1,10,000/- which works out to be Rs. 2,200/- .

In addition, the amount of tax deducted and surcharge shall be further increased by an additional surcharge called “Secondary and Higher Education Cess on income-tax” at the rate of one per cent. in all cases. Thus in the earlier illustration, where the amount of tax deducted is Rs. 1,00,000/-, the surcharge is Rs. 10,000/-, the Education Cess of
two per cent. is Rs. 2,200/-, the said Secondary and Higher Education Cess will be computed on Rs. 1,10,000/- which works out to be Rs. 1,100/-. The total cess in this case will amount to Rs. 3,300/- (i.e. Rs. 2,200/- + Rs. 1,100/-).

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