Method of calculation of salary and computation of average income tax (Part – 2 of Circular 17/2014)

3. SECTION 192 OF THE INCOME-TAX ACT,
1961: BROAD SCHEME OF TAX DEDUCTION AT SOURCE FROM “SALARIES”:

 

3.1 Method of
Tax Calculation:

 

Every person who is
responsible for paying any income chargeable under the head
“Salaries” shall deduct income-tax on the estimated income of the
assessee under the head “Salaries” for the
financial year 2014-15. The income-tax is required to be calculated on the
basis of the rates given above, subject to the provisions related to
requirement to furnish PAN as per sec 206AA of the Act, and shall be deducted
at the time of each payment. No tax, however, will be required to be deducted
at source in any case unless the estimated salary income including the value of
perquisites, for the financial year exceeds Rs. 2,50,000/- or Rs.3,00,000/- or
Rs. 5,00,000/-, as the case may be, depending upon the age of the employee.(Some
typical illustrations of computation
of tax are given at Annexure-I).

 

3.2  Payment of Tax on Perquisites by Employer:

 

An option has been given to the employer to pay the
tax on non-monetary perquisites given to an employee. The employer may, at its
option, make payment of the tax on such perquisites himself without making any
TDS from the salary of the employee. However, the employer will have to pay the
tax at the time when such tax was otherwise deductible i.e. at the time of
payment of income chargeable under the head ?salaries? to the employee.

 

3.2.1
Computation of Average Income Tax:

 

For the purpose of making the payment of tax
mentioned in para 3.2 above, tax is to be determined at the average of income
tax computed on the basis of rate in force for the financial year, on the
income chargeable under the head “salaries”, including the value of
perquisites for which tax has been paid by the employer himself.

 

3.2.2       
Illustration:

 

The income chargeable under the head ?salaries of an
employee below sixty years of age for the year inclusive of all perquisites is
Rs.4,50,000/-, out of which, Rs.50,000/- is on account of non-monetary
perquisites and the employer opts to pay the tax on such perquisites as per the
provisions discussed in para 3.2 above.

 

STEPS:

 

Income Chargeable
under the head ?Salaries inclusive of all perquisites

Rs.  4,50,000/-

Tax
on Total Salary (including Cess)

20,600/-

Average
Rate of Tax [(20,600/4,50,000) X 100]

4.57%

Tax
payable on Rs.50,000/= (4.57% of 50,000)

Rs.
2285/-

Amount
required to be deposited each month

190
((Rs. 190.40) =2285/12)

 

The tax so paid by the employer shall be deemed to
be TDS made from the salary of the employee.

 

3.3 Salary
From More Than One Employer:

 

Section 192(2) deals with situations
where an individual is working under more than one employer or has changed from
one employer to another. It provides for deduction of tax at source by such
employer (as the tax payer may choose) from the aggregate salary of the
employee, who is or has been in receipt of salary from more than one employer.
The employee is now required to furnish to the present/chosen employer details
of the income under the head “Salaries” due or received from the
former/other employer and also tax deducted at source therefrom, in writing
and duly verified by him and by the former/other employer. The
present/chosen employer will be required to deduct tax at source on the
aggregate amount of salary (including salary received from the former or other
employer).

 

3.4 Relief
When Salary Paid in Arrear or Advance:

 

3.4.1       
Under section 192(2A) where the
assessee, being a Government servant or an employee in a company, co-operative
society, local authority, university, institution, association or body is
entitled to the relief under Section 89(1) he may furnish to the person
responsible for making the payment referred to in Para (3.1), such particulars
in Form No. 10E duly verified by him, and thereupon the person
responsible, as aforesaid, shall compute the relief on the basis of such
particulars and take the same into account in making the deduction under
Para(3.1) above.

 

3.4.2       
With effect from 1/04/2010 (AY
2010-11), no such relief shall be granted in respect of any amount received or
receivable by an assessee on his voluntary retirement or termination of his
service, in accordance with any scheme or schemes of voluntary retirement or in
the case of a public sector company referred to in section 10(10C)(i) (read
with Rule 2BA), a scheme of voluntary separation, if an exemption in respect of
any amount received or receivable on such voluntary retirement or termination
of his service or voluntary separation has been claimed by the assessee under
section 10(10C) in respect of such, or any other, assessment year.

 

3.5 Information
regarding Income under any other head:

 

(i) Section 192(2B) enables a taxpayer to furnish
particulars of income under any head other than “Salaries” ( not
being a loss under any such head other than the loss under the head ? Income
from house property?) received by the taxpayer for the same financial year and
of any tax deducted at source thereon. The particulars may now be furnished in
a simple statement, which is properly signed and verified by the
taxpayer in the manner as prescribed under Rule 26B(2) of the Rules and shall
be annexed to the simple statement. The form of verification is reproduced as
under:

 

I,
…………………. (name of the assessee), do declare that what is stated above is true
to the best of my information and belief.

 

It is reiterated that the DDO can take into
account any loss only under the head ?Income from house
property?. Loss under any other head cannot be considered by the DDO for
calculating the amount of tax to be deducted.

 

3.6             
Computation of income under the head “
Income from house property”
:

 

While taking into account the loss from House
Property, the DDO shall ensure that the employee files the declaration referred
to above and encloses therewith a computation of such loss from house property.
Following details shall be obtained and kept by the employer in respect of loss
claimed under the head ?Income from house property? separately for each house
property:

 

a)                 
Gross annual rent/value

 

b)                 
Municipal Taxes paid, if any

c)                 
Deduction claimed for interest paid, if
any

d)                 
Other deductions claimed

 

e)                 
Address of the property

 

f)                  
Amount of loan, if any; and

g)                 
Name and address of the lender (loan
provider)

 

3.6.1       
Conditions for Claim of
Deduction of Interest on Borrowed Capital for Computation of Income From House
Property [Section 24(b)]:

 

Section 24(b) of the Act allows deduction from
income from houses property on interest on borrowed capital as under:-

(i)                
the deduction is allowed only in case of
house property which is owned and is in the occupation of the employee for his
own residence. However, if it is actually not occupied by the employee in view
of his place of the employment being at other place, his residence in that
other place should not be in a building belonging to him.

 

(ii)              
the
quantum of deduction allowed as per table below:

 

Sr. No.

Purpose of borrowing capital

Date of borrowing capital

Maximum Deduction allowable

1

Repair  or 
renewal  or  reconstruction  of the house

Any time

Rs. 30,000/-

2

Acquisition
or construction of the house

Before 01.04.1999

Rs. 30,000/-

3

Acquisition
or construction of the house

On or after 01.04.1999

Rs. 1,50,000/- (up to AY 2014-15) Rs. 2,00,000/- (w. e. f. AY 2015-16)

 

In case of
Serial No. 3 above

 

(a)   
The acquisition or construction of the
house should be completed within3 years from the end of the FY in which the
capital was borrowed. Hence it is necessary for the

 

DDO to have the completion
certificate of the house property against which deduction is claimed either
from the builder or through self-declaration from the employee.

 

(b)  
Further any prior period interest for
the FYs upto the FY in which the property was acquired or constructed (as
reduced by any part of interest allowed as deduction under any other section of
the Act) shall be deducted in equal installments for the FY in question and
subsequent four FYs.

 

(c)   
The employee has to furnish before
the DDO a certificate from the person to whom any interest is payable on the
borrowed capital specifying the amount of interest payable. In case a new loan
is taken to repay the earlier loan, then the certificate should also show
the details of Principal and Interest of the loan so repaid.

 

3.7             
Adjustment for Excess or Shortfall of
Deduction:

 

The provisions of Section 192(3) allow the deductor
to make adjustments for any excess or shortfall in the deduction of tax already
made during the financial year, in subsequent deductions for that employee
within that financial year itself.

 

3.8             
Salary Paid in Foreign Currency:

 

For the purposes of deduction of tax on salary
payable in foreign currency, the value in rupees of such salary shall be
calculated at the “Telegraphic transfer buying rate” of such currency as
on the date on which tax is required to be deducted at source ( see Rule 26).

 Download Circular No. 17/2014

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