Appuonline - Regulation

INTRODUCTION
1. The Indian Income Tax Act provides for chargeability of tax on the total income of a person on an annual basis. The quantum of tax determined as per the statutory provisions is payable as:-

Advance Tax
Self Assessment
Tax deducted at Source (TDS)
Tax Collected at Source

Tax deducted at source (TDS), as the very name implies aims at collection of revenue at the very source of income. It is essentially an indirect method of collecting tax which combines the concept of pay as you earn and "collect as it is being earned." Its significance to the government lies in the fact that it prep ones the collection of tax, ensure a regular source of revenue, provides for a greater reach and wider base for tax. At the same time, to the tax payer, it distributes the incidents of tax and provides for a simple and convenient mode of payment.

The concept of TDS requires that the person, on whom responsibility has been cast, is to deduct tax at the appropriate rates, from payments of specific nature which are being made to a specific recipient. The deducted sum is required to be from whose income, tax has been deducted at source, gets the credit of the amount deducted in his personal assessment on the basis of the certificate issued by the deductor.

While the statute provides for deduction of tax at source on a variety of payments of different nature, in this booklet, an attempt is being made to discuss various provisions relevant only to the salaried class of taxpayers.

2.1 Introduction
Section 192 of the I.T. Act, 1961 provides that every person responsibility for paying any income which is chargeable under the head 'salary', shall deduct income tax on the estimated income of the assessee under the head salaries. The tax is required to be calculated at the average rate of income tax as computed on the basis of the rates of force. The deduction is to be made at the time of actual payment. However, no tax is required to be deducted at source, unless the estimated salary income exceeds the maximum amount not chargeable to tax applicable in case of an individual during the relevant financial year (i.e.2005-06) for the F.Y. 2005-2006 this exemption limit is Rs.100,000/-. The tax once deducted is required to be issued to the employee. This certificate is to be furnished by the employee with his income tax return after which he gets the credit of the TDS in his personal income tax assessment. Finally, the employer/deductor is required to prepare and file an annual statement of TDS (From No. 24) with the Income Tax Department.

2.2 Who is to deduct tax
The stature requires deduction of tax at source from the income under the head salary. As such the existence of "employer-employee" relationship is the "sine-qua-non" for taxing a particular receipt under the head salaries. Such a relationship is said to exist when the employee not only works under the direct control and supervision of his employer but also is subject to the right of the employer to control but also is subject to the right of the employer to control the manner in which he carries out the instructions. Thus the law essentially requires the deduction of tax when;

Payment is made by the employer to employee.
The payment is in the nature of salary and
The income under the head salaries is above the maximum amount not chargeable to tax.

For the various categories of employers, the persons responsible for making payment under the head salaries and for deduction of tax are as below:-
In the case of,

1. Central/State Government/P.S.U.	The designated drawing & distrusting officers.
2. Private & Public Companies	The Company itself as also the principal officer thereof.
3. Firm	The managing pasterns/partner of the firm
4. HUF	Karta of the HUF
5. Proprietorship concern	The Proprietor of the said concern
6. Trusts	Managing trustees thereof.

In case of a company, it is to be noted, that through the company may designate an officer / employee to make payments on the behalf of the company, still the statutory responsibility to deduct tax at source rests with the company and its principal officer thereof. In respect of companies, the I.T. Act Section 2(35) has specified principal officer to mean:

Secretary, Treasurer, Manager or agent of the company.
Any person connected with the management or administration of the company or upon whom the assessing officer has severed the notice of his intention to treat him as a principal officer.

2.3 T.D.S. on simultaneous employment with more than one employer or on change of employment
Sub-section 2 of the Section 192 provides that where a person is simultaneously employed with more than one employer; he may furnish the particulars of salary payment and TDS to the employer of his choice. Similarly, on change of employment the particulars of salary and TDS of earlier employment may be furnished to the subsequent employer. These particulars are to be furnished in form 12B in accordance with Rule 26A of the I.T. Rules. The employer on receipt of such information is required to take into account the particulars of salary and TDS and then deduct tax at source considering the aggregate salary from all sources.

2.4 When is tax to be deducted?
Section 192 casts the responsibility on the employer, of tax deduction at source, at the time of actual payment of salary to the employee. Unlike the provisions of TDS, pertaining to payments other than salary where the obligation to deduct tax arises at that time of credit or payment, which ever is earlier, the responsibility to deduct tax from salaries arises only at the time of payment. Thus, when advance salary and arrears of salary has been paid, the employer has to take the same into account t while computing the tax deductible.

2.5 Rate of deduction of tax
As per Section 192 the employer is required to deduct tax at source on the amount payable at the average rate of income tax. This is to be computed on the basis of rates in force for the financial year in which payment is made.

The Finance Act of each financial year specifies the rates in force for deduction of tax at source. For F.Y. 2005-2006 rate of TDS is specified in Part-3, schedule of Finance Act 2005. The same as follow:-

I In case of individual & HUF (other than II and III below):-

Particulars	Rates of TDS
(i) where the total income does not exceed Rs.1,00,000/-	Nil
(ii) where the total income exceed Rs.1,00,000/-but does not exceed Rs.1,50,000/-	10% of the amount in excess of Rs.1,00,000/-
(iii) where the total income exceed Rs.1,50,000/-but does not exceed Rs.2,50,000/-	Rs.5,000/- + 20% of the amount by which total income exceeds Rs.2,50,000/-
(iv) where the total income exceed Rs.2,50,000/-	Rs.2,50,000/- + 30% of the amount by which total income exceeds Rs.2,50,000/-

II In case of individual being a woman resident in India and below 65 years at any time during the previous year:-

Particulars	Rates of TDS
(i) where the total income does not exceed Rs.1,35,000/-	Nil
(ii) where the total income exceed Rs.1,35,000/-but does not exceed Rs.1,50,000/-	10% of the amount by which the total income exceeds Rs.1,00,000/-
(iii) where the total income exceed Rs.1,50,000/-but does not exceed Rs.2,50,000/-	Rs.1,500/- + 20% of the amount by which total income exceeds Rs.1,50,000/-
(iv) where the total income exceed Rs.2,50,000/-	Rs.2,50,000/- + 30% of the amount by which total income exceeds Rs.2,50,000/-

III In case of individual resident who is of the age of 65 years or more at any time during the previous year:-

Particulars	Rates of TDS
(i) where the total income does not exceed Rs.1,85,000/-	Nil
(ii) where the total income exceed Rs.1,85,000/-but does not exceed Rs.2,50,000/-	20% of the amount by which the total income exceeds Rs.1,85,000/-
(iii) where the total income exceed Rs.2,50,000/-	Rs.13,000/- + 30% of the amount by which total income exceeds Rs.2,50,000/-
(iii) where the total income exceed Rs.2,50,000/-

2.5.1 Surcharge on tax
The amount of income tax computed as per rates specified above is to be the amount of rebate of income tax calculated as per sections 88/88B/88C (in case of individuals, HUF, AOP & BOI). The income tax so arrived at is to be increased by a surcharge calculated at the rate of 101% on such income tax. The finance Act 2005 has provided for levy of surcharge only when the total income exceeds Rs.10, 00,000/-. The amount of income tax as increased by surcharge, if any as mentioned above shall be further increased by as Education Cess of 2% on the income tax and surcharge. The deduction of tax at source is then to be made after also taking into account the surcharge as well as Education Cess on tax so calculated.

2.5.2 Average rate of deduction
The statute enjoins employer to compute the tax liability of the employee on the basis of the rates in force and to deduct the tax at the average rate computed on the basis of the same. Thus, the employer is required to compute at the beginning of the during the financial year. Further, the employer should also take into account any other income as reported by the employee. After considering the incomes exempt, deductions, rebate and relief, the tax liability of the employee should be determined on the basis of the rates in force for the financial year. Every month, 1/12 of this net tax liability as computed above is required to be deducted.

2.5.3 Payment of tax by employer on non monetary perquisite
The Finance Act 2002 has provided the employer an option to pay tax on the non monetary perquisite given to the employee. W.e.f.01.06.2002 two sections 192(1A) & 192 (1B) have been incorporated in the income Tax Act, enabling the employer at his option, to make payment of the entire tax or a part of the tax due on such non monetary perquisite . The tax payable is to be determined at the average rate of the income tax computed on the basis of rates in force and the payment will have to be made when such tax was otherwise deductible, i.e. at the time of payment of income chargeable under the head salaries, to the employee. Further, the tax so paid shall be deemed to be the TDS made from the salary of the employee.

2.5.4 Revision of estimate of tax liability
As per Sub-section 3 of the Section 192 a deductor can make adjustments for any excess or shortfall in the deduction of tax already made during the financial year, in the subsequent deductions. For instance, in the case where payment of advance salary, arrears or salary, or increase of salary, commission, bonus, etc. has taken place, the tax liability of the employee will increase. Deduction of tax at source in accordingly required to be increased. Similarly, if the employee makes certain investments which quality for deduction or rebate and furnishes the required proof which reduces the tax liability, then the employer can accordingly reduce the quantum of TDS.

2.5.5 Deduction at a lower rate or non-deduction of tax
Section 197 enables a tax payer to make an application his Assessing Officer for deduction of tax at a lower rate or non deduction of Tax. The application to his Assessing Officer is satisfied that the total income of a tax payer justifies the deduction of income tax at any lower rate or no deduction of income tax, he may issue a certificate in Form No. 15AA (relevant Rule 28AA) providing for deduction of tax at lower rate or no deduction of tax.

The certificate is valid only for the assessment year as specified therein. On expiry of the validity period, a fresh application may be made. A certificate is issued directly to the person responsible for deducting tax/DDO with a copy to the applicant. In absence of such a certificate from the employee, the employer should deduct income tax on salary payable at normal rates (Circular No. 147 dt.28-10-1974). However, this provision is not applicable where the employer has made payment of tax on non-monetary perquisite as provided Section 192 (1A).

2.5.6 TDS where the salary paid is at net of tax
Where the employee enters into an agreement or an arrangement as per which the tax chargeable on the income is borne by the employer then for the purpose of deduction of tax, the income is to be increased to such an amount would, after deduction of tax thereon be equal to the net amount payable as per the agreement or arrangement (Section 195A). However, this provision is not applicable where the emplyer has made payment of tax on non-monetary perquisites as provided in Section 192(1A).

2.5.7 Refund of TDS
In case of excess deduction of tax at source, claim of refund of such excess TDS can be made by the deductor. The excess amount is refundable as per procedure laid down for refund of TDS vides Circular No. 285dt. 21-10-1980.

The difference between the actual payment made by the deductor and the tax deducted at source or deductible, whichever is more will be treated as the excess payment made. This amount is to be first adjustment any existing tax liability under any of the Direct Tax Acts. After meeting such liability, the balance amount is to be refunded.

2.6 Deposition of tax in Government Account
As per Section 200 of the IT Act, the person responsible for deducting tax from payment made to an employee is also required to deposit the tax so deducted in Government account within the prescribed time and in the manner prescribed vide Rule 30.

2.6.1 Time limit for deposition
Where deduction is made by or on behalf of the Government the payment has to be made on the day of tax deduction itself. In other cases, the payment has to be normally made within a week of deduction. However, vide Rule 30(1) (ii) (a), the Assessing Officer can, in special cases with prior approval of Jt.CIT, allow payment of TDS quarterly, i.e. on 15th of June, 15th of September, 15th of December and 15th of March.

2.6.2 Place of deposition of tax
Tax to be deposited to the credit of the Central Government in any of the branches of RBI, or any specified public sector banks. The payment can be made either in cherub or cash or draft drawn on local banks. In case of repayment made by cherub, the date of encashment of the cherub will be the date of payment of tax (Circular No. 141 dt.23-7-1974).

It has been clarified vide circular No. 306dt.19-6-1961 that payment of tax deducted at source should be made at the place where the DDO/the person responsible for TDS is required to file annual/periodical statement of TDS.

2.6.3 Challan of Payment
Where a deduction is made by or on behalf of the Government, the amount is to be credited in the manner specified above without the use of challan (See Rule 30). In case of other deductors, the deposition of TDS is to be made vide challan No. ITNS 281. The deductor must ensure that the details like employee's name and address, PAN, TAN, the Assessing Officer having jurisdiction, the amount of tax and sur-charge, the date of payment, the salary from which TDS has been done and the tax which is being paid are correctly filled. Where TDS is credited to Govt. account through book adjustment, care should be taken by the DDOs to ensure that the correct amount of income tax is reflected therein.

2.7 Issue of T.D.S. Certificate
Every person deducting tax at source is required as per Section 203 to furnish a certificate to the payee to the effect that tax has been deducted along with certain other particulars. This certificate, usually called the TDS certificate, has to be furnished within a period of one month from the end of the relevant financial year. Even the banks deducting tax at the time of payment of pension are required to issue such certificates. In case of employees receiving salary income including pension, the certificate has to issued in form No. 16 amended by CBDT's notification No. S.O.1062 dt. 04.10.2002 and subsequently amended by the second and eighth amendment rules 2004 (see annexure for new form-16). The certificate is to be issued in the deductor's own stationary. However, there is to issued in the deductor's own stationery. However, there is no obligation to issue TDS in case of tax at source is not deducted/deductible by virtue of claim of exemptions/deductions.

A New Sub section 203(3) has been incorporated in the statue by the Finance Act, 2004. as per this section where the tax has been deducted or paid on or after the 1st day of April, 2006 they shall be no requirement to furnish a TDS Certificate as required by section 203(2).

Further, as per section 203AA the prescribed income tax authority or the person authorized by the such authority (as referred in section 200(3) is required to deliver to the person from whose income the tax has been deducted/paid a statement of deduction of tax in the prescribed form. Such statement as per rule 31AB is to be furnished in form No.26AS by the 31st July following the financial year during which the taxes were deducted/paid (also refer Notification No.928 E dt.30.6.2005 of CBDT).

2.7.1 Furnishing of details of perquisites and profits in lieu of salary
W.e.f.1-6-2001, a new Section 192(2C) has been inserted. It requires that, every person responsible for paying any income chargeable under the head salaries, shall furnish to the employee a statement giving correct and complete particulars of perquisites or profits in lieu of salary, provided him and the value thereof in:-

Relevant columns provided in Form No. 16, if the amount salary paid or payable to the employee is not more than one lakh and fifty thousand rupees, or
In form No.12BA:- if the amount of salary paid or payable to the employee is more than one lakh and fifty thousand rupees (as per notification No. S.O. 1062dt. 04.10.2002 new proforma for Form 12BA has been provided).

2.7.2 Issue of duplicate certificate
Where the original TDS certificate is lost, the employee can approach the employee for issue of a duplicate on a plain paper giving the necessary details as contained in Form No. 16(Relevant Rule-31(4)).

2.7.3 Credit of the tax where TDS is by book adjustments
In case of deduction of tax at source by any department of the Central Government, payment of the same to the credit of the Income Tax Department by means of book adjustment is permitted. In such a case, in the certificate of TDS (Form No. 16) issued to the employee the DDO must specify that the credit of TDS has been aforesaid details have been given in the give credit of the TDS in the personal assessment of the rejected by the assessing officer if they do not contain details like Challan No. or date of payment in Government account. However, the assessing officer is free to verify the genuineness of such certificate by corresponding with the DDO's of Central Government department. The DDOs are bound to offer facility of examination of their payment to central Government (Circular No. 749 dt.27-12-1996).

ANNUAL RETURN OF T.D.S
2.8 What is an annual return of TDS?
Annual return of TDS is a comprehensive yearly statement containing details of salary paid and taxes deducted thereon from the employees along with other prescribed details. Every deductor is required as per the provisions of section 206 (read with Rule 36A and 37) to prepare and deliver an annual return of tax deducted at source. Such a return has to be prepared and signed by the following -

The DDO or the prescribed officer in case of government office;
The principal officer in the case of every company;
The managing partner/partners in the case of a firm;
Managing trustee in the case of trust;
Karta in the case of HUF;
Prescribed person in the case of a local authority/public body/association.

2.8.1 Filling of returns of TDS:-
The return of TDS is to be filled in filed in form No. 24 and it is to be delivered to the assessing officer before the 30th June following the concerned financial year. A copy of each of the TDS certificates issued during the year is to be enclosed with it. This annual return is to be furnished to the assessing Officer so designated by the CCIT/CIT, within whose area of jurisdiction, the office of the person responsible for the tax deduction of source is situated, or in any other case to the assessing officer within whose area of jurisdiction the office of the deductor is situated.

2.8.2 Filing of Return on Compute Readable Media:-
Section 206(2) permits the deductor to file the annual return of Section 206(2) computer readable media including a floppy diskette, magnetic cartridge or CD ROM. However, the finance Act 2003 has provided that W.e.f.01.06.2003, a return in computer readable media is to be filed only in accordance with such scheme and subject to such conditions and manner, as may be specified by the Board by notification in Official gazette.

Further where the assessing officer considers a return filed u/s 206(2) to be defective, then he may intimate the defect to the deductor/employer filing the return, giving him an opportunity to rectify the defect. This must be rectified within a period of 15 days from the date of intimation or within such further period which the assessing officer allows, on an application made by the employers/deductor. However on failure to rectify the defect within the period specified above, the return shall be treated to be invalid and the provisions of the Act shall apply as if the person had failed to deliver the return.

As per proviso to Section 206(2), w.e.f1.4.2005, the prescribed person in the case of every office of the government and the principal officer in the case of every company, responsible for deducting tax, is mandatory required to deliver such returns on the computer readable media, after the end of each financial year and within the prescribed time.

The scheme of electronic filling of return on the Tax Deducted at source (E-TDS) has been notified vide notification no. S.O. 974(e) dt.26.08.03. Now the Government and the corporate deductors are required to file the annual TDS return in electronic form only with the e-TDS intermediary at any of the TIN Facilitation Centers (Particulars available at the websites, www.incometaxindia.gov.in and http://tin.nsdl.com

2.8.3 Quarterly statement of TDS
As per sec.200(3) w.e.f.01.04.2005 every person responsible for deducting tax, is required to file quarterly statements of TDS for the quarter ending on 30th June, 30th September, 31st December & 31st March in each financial year which is to be delivered to the prescribed Income-tax authority or the persons authorized by such authority. This statement is to be filed in Form No. 24Q (relevant rule 31A) on or before the 15th July, the 15th October and the 15th January in respect of the first three quarters of the financial year and on or before the 15th June following the last quarter of the financial year. (Also refer Notification no. 928(E) dt.30.6.2005 of CBDT).

TAX DEDUCTION ACCOUNT NUMBER
2.9 Introduction:
T.A.N. or tax deduction account number is a unique number allotted to the deductor of tax at source for the purpose of identification of every deductor.

2.9.1 Who shall apply for TAN?
Every person deducting tax at source is required as per Section 203(A) to apply to the assessing officer for allotment of TAN.

The application has to be made in duplicate in form 49B within one month from the end of the month in which tax was deducted at source (Rule 114A). Such application has to be either furnished to the AO specifically assigned the function of allotment of TAN by the CCIT/CIT or in any other case to the AO having jurisdiction to assess the applicant.

2.9.2 Responsibility to quote TAN
Section 203(a)(2) casts a statutory responsibility on the deductor to quote TAN in the following places once it has been allotted:-

In all Challans for the payment of any sum in accordance with the provisions of Section 200.
In all Certificates issued pertaining to deduction of tax in accordance with the provisions of Section 203
In all returns filed pertaining to deducting of tax at source in accordance with the provisions of Section 203
In all other document pertaining to such transactions as may be prescribed in the interest of revenue

2.9.3 Quoting of PAN by Employer/Deductor
W.e.f1.6.2001 the deduction of tax at source is required as per section 1.39(5B) to quote the PAN of the person from whose income TDS has done in;

Statement furnished u/s 192(2c) (statement of particulars of profit in lieu of salary)
Certificate furnished u/s 203 (TDS Certificate)
Annual return of TDS prepaid & delivered u/s 206.

3.1 Introduction:
The statute enjoins every employer to estimate the liability of tax deductible at source and to deduct tax at an average rate. For this the employer is required to determine the salary payable to the employee and accordingly compute the tax liability. The employer must estimate this tax liability at the very beginning of the financial year in accordance with the following sequence of steps:-

The employer should first compute the gross salary payable to the employee during the year taking into account any salary received/receivable by the employee from any other employer/former employer.
The gross salary is to be reduced by those payments which are exempt from taxation.
Standard deductions and other deductions u/s 16 are to the reduced from the above amount to arrive at the net salary payable.
Income chargeable under any other head as reported by the employee is to be added and accordingly the gross total income (GTI) is to be computed.
Deduction under Chapter VI-A for which the employee is eligible is to be reduced from gross total income is to be computed.
On the basis of the rate in force, the tax liability on the total income of the employee is to be computed. From this amount, rebate u/s 88, 88B and 88C is to be reduced.
The tax liability so computed is to be increased by the surcharge payable and 1/12th of this net tax payable is to be deducted every month by the employer.

3.2 Salary

3.2.1 What is "salary?"
Salary is said to be the remuneration received by or accruing to an individual for service rendered as a result of an express or implied contract. The statute, gives an inclusive but not exhaustive definition of salary. As per sec. 17(1), salary includes therein (i) wages (ii) annuity or pension (iii) Gratuity (iv) fees, commission, perquisites or profits in lieu of salary (v) Advance salary (vi) Receipt from provident fund (vii) Contribution of employer to a recognized provident fund in excess of prescribed limit (viii) Leave encashment (ix) compensation as a result of variation of service contract etc.

3.2.2 Exceptions to salary income
The existence of an employer-employee' relationship is a must for a payment to be taxed under the head salaries. Accordingly, the following classes of payments do not fall under the purview of the head 'salary":-

Salary received by a partner from his partnership firm carrying on business- This income is taxable under the head "profits and gains of business and profession".
Salary received by a person as MP or MLA -This income is taxable under the head "income from other sources". However, the salary received by a person as a Minister of Central Government is chargeable under the head salaries.
Family pension that is pension received by the members of the family of an employee subsequent to his death- this is taxable under the head "income from other sources". However the pension received by an employee from his former employee is taxable under the head salaries.

3.3 Valuation of Perquisites:
The taxable value of perquisites in the hands of the employee is normally taken to be its cost to the employer. However, there are specific rules for valuation of certain perquisites laid down in rule 3 of the I.T. Rules, which have been revised by CBDT notification dated 25.9.2001. These are briefly given below. It may be noted that while the revised rule 3 relating to valuation of perquisite shall be deemed to have come into force on 1.4.2001. The employer may at the option of employee compute the value of all perquisites made available to him for the period from 1.4.2001 to accordance with the rule 3 as it stood before this amendment. However this option of the tax payer of using old or new rules for the period specified above shall be applied uniformly in resist of all perquisites in case of a particular tax payer.

3.3.1 Valuation of residential accommodation provided by the employer:-

Union or State Government Employees- The value of perquisites is the license fee as determined by the Govt. as reduced by the rent actually paid by the employee.
Non Govt. Employees- The value of perquisite is an amount equal to 10% of the salary (7.5% of salary in cities where population as per 1991 census is below 4 lacs). In case the accommodation provided is not owned by the employer, but is taken on lease or rent, then the value of the perquisites would be the actual amount of lease rented paid/payable by the employer or 10% of the salary, whichever is lower. In both of above cases, the value of the perquisite would be reduced by the rent, if any, actually paid by the employee.

3.3.2 Value of Furnished Accommodation
The value would be the value of unfurnished accommodation as computed above increased by 10% per annum of the cost of furniture (including T.V./radio/refrigerator/AC/other gadgets). In case such furniture is hired from a third party, the value of unfurnished accommodation would be increased by the hire charges paid/payable by the employer. However, a payment recovered from the employee towards the above would be reduced from this amount.

3.3.3 Value of hotel accommodation provided by the employer
The value of perquisite arising out of the above would be 24% of salary or the actual charges paid or payable to the hotel, whichever is lower. The lower would be reduced by any rent actually paid by the employee. It may be noted that no perquisite would arise if the employee is provided such accommodation on transfer from one place to another for a period of 15 days or less.

3.3.4 Perquisite of motor car provided by the employer

If it is used wholly and exclusively for the official purpose value of the perquisite would be nil. Rule 3(2)(B)provided the following documents are maintained by the employer:-

Complete details of journey undertaken (including date of journey, destination, mileage etc.)
Certificate by the employee that the expenses ere wholly and exclusively for official purposes.
Certificate by the supervising authority that the expenses were wholly and exclusively for official purpose.

If it is used exclusively for the private purposes of the employee or any member of his household, the value of the perquisite would be the actual expenses incurred by the employer on the running/maintenance of the car, remuneration paid to the chuffer and normal wear and tear of the car. For the purpose of this sub rule, the normal wear & tear of a car shall be taken as 10% per annum of the actual cost.
If it is used for both personal and official purposes, the value of the perquisite would Rs.1200 (Rs.1600 if the car has H.P. greater than 16) plus Rs.600 for chauffeur, if any. In case, the expenses on running/maintenance relating to personal use are met by the employee, the value of the perquisite would be Rs.400 (Rs.600 if car has H.P. greater than 16) plus Rs.600 for chauffeur.

In case the motor car is owned by the employee but the running/maintenance charges and chauffeur's salary, if any, are met by the employer, then the value of the perquisite would be :-

Nil if the vehicle is used only for official purposes and the documents listed at (a) above are maintained.
If used for both personal and official purposes, the value would be the actual expenses incurred by the employer as reduced by an amount of Rs.1200 (Rs.1600 if car has H.P. grater than 16) plus Rs.600 in case any driver has been engaged.

3.3.5 Perquisite arising out of supply of gas, electric energy or water
This shall be determined as the amount paid by the employer to the agency supplying the same. If the supply is form the employer's own resources, the value of the perquisite would be the manufacturing cost per unit incurred by the employer.

3.3.6 Free/Concessional Educational Facility -
Value of the perquisite would be the expenditure incurred by the employer. If the educational institution is maintained & owned by the employer, the value would be nil if the reasonable cost of such education in a similar institution in or near the locality.

3.3.7 Free/Concessional journeys provided by an undertaking engaged in carriage or passengers or goods
Value of perquisite would be the value at which such amenity is offered to general public as reduced by any amount if recovered from the employees of Indian Railways.

3.3.8 Value of certain other benefits:-

Interest free/concessional loans: - The value of the perquisite shall be the sum equal to the simple interest computed @ 10% per annum in respect of house or conveyance by any interest actually paid by the employee.
Value of free meals- shall be the expenditure incurred by the employer. However, free meals provided during office hours or through non-transferable paid vouchers usable only at eating joints shall be exempt upto Rs.50/- per meal.
Value of gift or voucher or token - Received by the employee from the employer would be the sum equal to the amount of such gift. However, if the aggregate value of such gifts during the year is below Rs.5000/-, the perquisite shall be taken as nil.
Credit card provided by employer - the value of the perquisite shall be the amount of expenses including membership fees and annual fees incurred by the employee. However, if the same is used exclusively for official purposes, the value of the perk shall be nil.
Club membership provided by employer - The value of the perquisite shall be the amount of all expenses incurred by the employer or reimbursed to the employee including the annual fees. However, if the same is incurred exclusively for official purposes, the value of the perquisite shall be nil.
Provision of sweeper, gardener, watchman or attendant- The value of perquisite resulting from provision of a sweeper, a gardener, a watchmen or a personal attendant shall be the actual cost to the employer as reduced by the amount paid by the employee in respect of such services. (Cost to the employer in respect of the above will be the salary paid/payable).

3.3.9
The value of any other benefit or amenity provided by the employer shall be determined on the basis of cost to the employer under an arms' length transaction as reduced by the employee's contribution.

3.4.1 Section 10 of the I.T. Act provides for certain categories of payments t be exempt from taxation, either wholly or partly. Such payments are not to be included under the head salary for computing the tax deductible. Some of these are listed below and are discussed in details in chapter-5 of this booklet.

Death cum retirement gratuity or any other gratuity - Exempt to the extent specified u/s 10(10)
Commutation of pension - Exempt to the extent provided in Sec. (10A)
Leave encashment - Exempt to the extent provided in Sec. (10AA)
Retirement Compensation - exempt to the extent provided by section 10(10B)
Compensation on voluntary retirement - Exempt to the provided in Sec. 10(10 C)
Payment from provident fund - Exempt to the extent provided in Sec. 10(11) & Sec. 10(12).
Payment from approval superannuation fund - Exempt under Section 10(13).
Interest income & investment - As provided u/s 10(15)
Exemption of pension/family pension to awardees of PVC, MVC and VC - Clause (18) of section 10 provides for exemption of any income by way of the pension recrived by an individual or family received by any member of the family of an individual who has been in the service of the Central Government of State Government and has been awarded "Param Vir Chakra" or "Maha Vir Chakra" or "Vir Chakra" or such other gallantry award as may be specially notified by the Central Government.

3.4.2 Exemption of Allowances
There are various other receipt besides the above given regularly in addition to salary for meeting specific requirement of the employee. These are referred to as allowances; in common parlance and taxability of some of these are discussed here.

Leave travel concession - The value of any travel concession or assistance accrued by or due to an employee from his employee or former employer in connection of his proceeding on leave (a) to any place in India on retirement or after termination of service. The amount exempt as prescribed in Rule 2B is the amount actually incurred on performance of travel on leave in India by the shortest route to that place, subject to economy air fare or A.C. Ist class fare. This exemption is available only in respect of two journeys in a block of 4 calendar years.

House Rent allowance - House rent allowance granted to the employee is exempt u/s 10(13A) to the following extent;

Provided expenditure on rent is actually incurred, the amount of exemption granted is the least of

HRA received
Rent paid less 10% of salary
40% of salary (50% in case of Mumbai, Chennai, Calcutta & Delhi) salary means bonus + Dearness allowance. Where provided by terms of employment).

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 the house rent allowance or any portion thereof of rent before excluding the house rent allowance or any portion thereof from the total income of the employee. Through incurring actual expenditure on payment of rent is a prerequisite for claiming deduction under Section 10(13A). it has been decided as an administrative measure that salaried employees drawing house rent allowance upto Rs.3,000 per month will be exempted from concession is only for the purpose of tax deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such inquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment on rent.

Allowance exempt u/s 10(14): certain allowances given by the employer to the employee are exempt u/s 10(14) w.e.f.1-7-1995, all these exempt allowances are detailed in Rule 2BB of Income Tax Rules and are briefly given blew:

Allowance granted to meet cost of travel on tour or transfer.
Allowance granted on tour or journey in connection with transfer to meet the daily charges incurred by the employee.
Allowance granted to meet conveyance expense incurred in performance of duty, provided no free conveyance is provided.
Allowance granted to meet expenses incurred on a helper engaged for performance of official duty.
Academic, research or training allowance granted in educational or research institutions.
Uniform purchase or maintenance allowance.
Other allowances as prescribed in Rule 2BB(2) for the purpose of section 10(14)(ii)

3.4.3 Perquisites exempt from Income Tax
Some instances of perquisites exempt from tax are given below-

Provision of medical facilities (Proviso to Sec. 17(2):- Value of medical treatment in any hospital maintained by the Government or any local authority or by the employer or approved by the employer or approved by the Chief Commission of Income Tax. Besides, any sum paid by the employer towards medical reimbursement other than as discussed above is exempt upto Rs.15,000/-
Perquisites allowed outside India by the Government to a citizen of India for rendering services outside India (Sec. 10(7)).
Rent free official residence provided to a Judge of High Court or Supreme Court or an Officer of Parliament, union Minister or Leader of Opposition.
No Perquisites shall arise if Interest free/concessional loans are made available for medical treatment of specified diseases in Rule 3A or where the loan is petty not exceeding in the aggregate Rs.20,000/-
No Perquisites shall arise in relation to expenses on telephones including a mobile phone incurred on behalf of the employee by the employer.

3.5 Deduction From Salary Income
The deductions allowable from the salary income as specified in Section 16 of the IT Act and are being given below:-

3.5.1 Standard Deduction- For assessment year 2004-05, the standard deduction allowable was in the case of an assessee whose income fro salary, before allowing a deduction under this clause-

Does not exceed five lakh rupees, a deduction of a sum equal to forty per cent of the salary or thirty thousand rupees, whichever is less.
Exceeds five lakh rupees, a deduction of a sum of twenty thousand rupees.

It is to be noted that no standard deduction is available from the salary income w.e.f. 01.04.2006 i.e. A.Y. - 2006-07 (relevant to F.Y.-2005-6) onwards.

3.5.2 Professional/employment tax-
As levied by the State Government

3.5.3 Entertainment allowance -
With effect from A.Y. 2002-03, this deduction is admissible only to government employees to the extent of Rs.5, 000 or 2% of salary whichever less is.

INCOME FROM OTHER THAN SALARY

4.1 Introduction
An employee may be in receipt of other income chargeable to tax such as interest income, capital gains, and income from house property, etc. In such a case, Sub Section 2B of Section 192 enables the employee to furnish particulars of such income and any TDS thereon to the employer/drawing & disbursing Officer. This should be furnishes in the prescribed Form-12C has been omitted and the particulars of loss may be furnished in a simple statement which is properly verified by the tax payer in the same manner as in form 12C.

The particulars of income furnished should not be loss under any such head, other than loss under the head "Income from House Property", for the same financial year. The person responsible for making payments shall take such income and the loss, if any, under the head income from house property into account for the purpose of computing tax deductible u/s 192. it id further provided that except in a case where loss under the head income from house property has been taken into account, this sub-section shall not in any other case have the effect of reducing the tax deductible from income under the head salaries below the amount which would have been deductible if the other income and tax deductible thereon had not been taken into account.

4.2 Loss from house Property
The D.D.O. can take into account any loss from a house property only for working out the amount of total tax to be deducted. While taking into account this loss the D.D.O. shall ensure that the assessee files declaration in form No. 12C and enclose there with the computation of such loss.

4.3 Computation of loss from House Property
A loss is determinable under the head 'house property' only in a case where such loss is arising on account pf payment of interest on borrowed capital, which has been used for acquiring, constructing repairing or reconstructing the house property. In case of a let out property the entire amount of such interest is allowable as a deduction from the annual value of house property or a property unoccupied by owner for reasons of employment, business/profession at another place, such deduction is limited to Rs.30,000/- Where the property, however, has been acquired or constructed with capital borrowed, on or after the 1st day April 1999 and such acquisition or construction is complete before the 1st day of April 2003, then the amount of deduction allowable is upto is Rs. One lakh fifty thousand. The Finance Act, 2002 has provided that w.e.f. 01.04.2003, this higher deduction of Rs.1, 50,000/- on account of interest will be available if such loan has been taken after 01.04.99 and the construction or acquisition of the residential unit of such loan has been completed within 3 years from the end of the financial year in which capital was borrowed. Now the assessee is also required to furnish a certificate from the person to whom such interest is payable, specifying the amount of interest payable for the purpose of such acquisition or construction of property, or conversion of whole or any part of the capital borrowed which remains to be repaid as a new loan.

Further the interest on borrowed capital corresponding to the period prior to the previous year in which property has been acquired or constructed is also allowed as deduction in five equal installments, in the year of completion and four immediately succeeding years.

TDS ON PENSION AND RETIREMENT BENEFITS

5.1 What is pension?
Pension is described in Section 60 of the CPC and section 11 of the Pension Act as a periodical allowance or stipend granted on account of past service, particular merits, etc. It involves three essential features. Firstly, pension is a compensation for the past service; secondly, it owes its relationship. Lastly, it is paid on the basis of earlier relationship of agreement for service.

Pension received from a former employer is taxable as salary. As much the relevant provisions are also applicable to pension income and tax is deductible on the same as it is the case of payment of salary.

5.1.2 TDS on payment of pension through Nationalized Banks.
It has been clarified by CBDT vide circular No. 771 dt.3/11/98 that in the case of pensioners receiving pension through nationalized banks, provisions of TDS are applicable in the same manner as they apply to the salary income.

From the income being paid as pension the banks are required to deduct specified amount of standard deduction u/s 16. Similarly they are required to allow deductions under chapter VIA, tax rebate u/s 88, 88B (in respect of senior citizen and a rebate of Rs.15000/- or the entire tax payable whichever is less, is allowable u/s 88B w.e.f. 01.04.2004 the permissible rebate u/s 88B has been increased to Rs.20,000/-

The rebate u/s 88 is allowable to the pensioner on furnishing of relevant details by him to the bank. Similarly relief u/s 89(1) for the arrear of pension received is also to be granted by the banks. Instructions in this regard have been issued by Reserve Bank of India vide R.B.I's Pension circular (Central Series No. 7/CDR/1992) ( Ref No. PGBA GA: (NBS) No. 60/GAG4 (11CVL)-91/92) DT. 27/4/92.

5.1.3 Issue of TDS certificate to pensioners:-
All branches of all banks are bound u/s 203 to issue certificate of tax deducted in Form No. 16 to the pensioners. This has been also being clarified vide CBDT circular NO. dt.13/1/98) 5.2.1.

5.2.1 TDS on Retirement Benefits
Retirement benefits receivable by an employee is taxable under the head 'salaries' as "profits in lieu of salaries" as provided in Section 17(3). As such they attract the provisions of TDS as prescribed in Section 192 and other relevant sections. Accordingly, the employer must take them into account and compute the TDS at the time of retirement of an employee. However some of these retirement benefits are exempt from taxation u/s 10 either fully or partly. The details of these exemption are including are being given below. The remaining retirement benefits are includible under the head salary as described earlier and tax is deductible as provided in the preceding chapters.

5.2.2 GRATUITY (Sec 10(10)
All branches of all banks are bound u/s 203 to issue certificate of tax deducted in Form No. 16 to the pensioners. This has been also being clarified vide CBDT circular NO. dt.13/1/98) 5.2.1.

Any death cum retirement gratuity received by central and state govt. employees, defense employees and employees in local authority shall be exempt.
Any gratuity received by persons covered under the Payment of Gratuity Act, 1972 shall be exempt subject to following limits:-
1. For every complete year of service or part thereof, gratuity shall be paid at the rate of fifteen days wages based on the rate of wages last drawn by the concerned employee.
2. The amount of gratuity as calculated above shall not exceed Rs.3, 50,000.
In case of any other employee, gratuity shall be exempt subject to the following exemptions-
1. Exemption shall be limited to half month salary (based on last 10 months average) for each completed year of service or Rs. 3.5 lakhs whichever less is.
2. Where the gratuity was received in any one or more earlier previous years also and any exemption was allowed for the exemption to be allowed during the year gets reduced to the extent of exemption already allowed, the over all limit being Rs. 3.5 lakhs.

As per Board's letter F. No. 194/6/73-IT (A-1) Dated 19.06.73 exemption in respect of gratuity is permissible even in cases of termination of employment due to resignation. The taxable portion of gratuity will qualify for relief u/s 89(1)

Gratuity payment to a window or other legal heirs of any employee who dies in active service shall be exempt from income tax (Circular No. 573 dated 21.08.90).

5.2.3 Commutation of Pension [Sec. 10(10A)]In case of employees of central & state government, local authority, defense services and corporations established under Central or State Acts, the entire commuted value of pension is exempt.

In case of any other employee, if employee receive gratuity, the commuted value of 1/3 of the pension is exempt, otherwise, the commuted value of ½ of the pension is exempt.

Judges of S.C. & H.C. shall be entitled to exemption of commuted value upto ½ of the pension (Circular No. 623 dt.6.1.1992).

5.2.4 Leave Encashment [Sec. 10(10AA)]Leave Encashment during service is fully taxable in all cases. Relief u/s 89(1) if applicable may be claimed the same.

Payment by way of leave encashment received by Central & State Govt. employees at the time of retirement in respect of the period of earned leave at credit is fully exempt. Vide notification no. 10749 dated 27.11.1998, limit on the maximum amount receivable by employees of Central Govt. has been specified at Rs.2.4 lakhs for employees retiring whether on superannuation or otherwise after 1.7.1997.
In case of other employee, the exemption is to be limited to a maximum of 10 months of leave encashment, based on last 10 months average salary. This is further subject to a limit of Rs.2, 40,000 for retirement after 1.7.97.
Leave salary paid to legal heirs of the deceased employee in respect of privilege leave standing to the credit of such employee at the time of death is not taxable.

For the purpose of Section 10(10AA), the term 'superannuation or otherwise' covers resignation (CCT Vs R.J. Shahney 159 ITR 160 (Madras)).

5.2.5 Retrenchment Compensation [Sec. 10(10B]
Retrenchment compensation received by a workman under the industrial Disputes Act, 1974 or any other Act or Rules is exempt subject to following limits:-

Compensation calculated @ fifteen days' average pay for every computed year of continuo's service or part thereon in excess of 6 months.
The above is further subject to an overall limit of Rs.5, 00,000.

5.2.6 Compensation on Voluntary Retirement or "GOLDEN HANDSHAKE"

Payment receives by an employee, of the following at the time of voluntary retirement, or termination of service is exempt to the extent of Rs. 5 lakh.
1. Public sector company
2. Any other company
3. Authority established under State, Central or Provincial Act
4. Local authority
5. Cooperative societies, Universities, IITs and Notified Institutes of Management.
6. Any state government or the Central Government.
The Voluntary Retirement Scheme under which the payment is being made must be framed in accordance with the guidelines prescribes in Rule 2BA of Income Tax Rules. In case of a company other than a public sector company and a cooperative society, such scheme must be approved by the chief Commissioner/Director General of Income tax. However, such approval is not necessary from A.Y. 2001-2002 Onwards.
Where exemption has been allowed under above section for any assessment year, no exemption shall be allowed in relation to any other assessment year.

5.2.7 Payment from provident Fund
Any payment received from a statutory Provident fund, (i.e., to which the Provident fund Act, 1925 applies) is exempt. Any Payment from any other provident fund notified by the Central Government is also exempt. The Public Provident fund (PPF) established under the PPF Scheme, 1968 has been notified for this purpose. Payable to an employee participating in Rule 8 of Part A of the Fourth Schedule of the Income tax Act.

5.2.8 Payment from approved Superannuation Fund
Payment from approves superannuation fund will be exempt provided the payment is made in the circumstances specified in the section viz. death, retirement and incapacitation.

5.2.9 Deposit scheme for retired govt. /Public Sector Company employees
Section 10(15) of the Income Tax Act incorporates a number of investments, the interest income from which is totally exempt from taxation. These investments benefits received as one of the options for investing various benefits received on retirement. One among them, notified u/s 10(15) (iv) (i), is the 'Deposit scheme for retired govt./public sector company employees'. W.e.f. assessment year 1990-91, the interest on deposits made under this scheme by an employee of Central/State Govt. out of the various retirement benefits received is exempt from income tax. This exemption was subsequently extended to employee of public sector companies from assessment year 1991-92 vide notification No. 2/19/89-NS-II dated 12.12.1990.

DEDUCTION UNDER CHAPTER VI-A

6.1 Introduction
The Income Tax Act provides for allow ability of certain deduction from the gross total income of the assessee. These deductions are given in Chapter VIA of the Income Tax Act. For the Purpose of TDS, the employee on furnishing of these deductions to the employee on furnishing of the required particulars. The deductions allowable by the DDO/employer are being described below:-

As per Finance Act, 2005, Sec. 80C has been reintroduced w.e.f.-01.04.2006. As per this Section the following investment/payments are eligible for deduction.

NATURE OF INVESTMENT	REMARKS
Life Insurance Premium	For individual, policy must be in self or spouse's or any child's name. For HUF, it may be on life of any member of HUF.
Sum paid under contract for deferred annuity	For individual, on life of salt, spouse or any child
Sum deducted from salary payable to Govt. Servant for security deferred annuity for self-spouse or child	Payment limited to 20% of salary
Contribution made under Employee's Provident fund scheme	-
Contribution to PPF	For individual, can be in the name of self/spouse, any child & for HUF, it can be in the name of any member of the family
Contribution by employee to a Recognized Provident Fund.	-
Sum deposited in 10 years/15 year account of Post Office Saving Bank	-
Subscription to any notified securities/notified deposits scheme.	e.g. NSS
Subscription to any notified saving certificate. Unit Linked Insurance Plan of LIC Mutual Fund	e.g. NSC VII issue
Contribution to Unit Linked Insurance Plan of LIC Mutual Fund	e.g. Dhanrakhsa 1989
Contribution to notified deposit scheme/Pension fund set up by the National Housing Scheme.	-
Certain payment made by way of instalment or part payment of loan taken for purchase/construction of residential house property.	Contribution has been in case the property is transferred before the expiry of 5 years from the end of the financial year in which possession of such property is obtained by him, the aggregate amount of deduction of income of income so allowed for various years shall be liable to tax in that year.
Contribution to notified annuity Plan of LIC (e.g. Jeevan Dhara) or Units of UTI/notified Mutual Fund.	If in respect of such contribution, deduction u/s 80CCC has been availed of rebate u/s 88 would not be available.
Subscription to units of a Mutual Fund notified u/s 10(23D)	-
Subscription to deposit scheme of a public sector, company engaged in providing housing finance.	-
Subscription to equity shares/ debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions.	-
Tuition fees paid at the time of admission or otherwise to any school, college, university or other educational institution situated within India for the purpose of full time education of any two children.	Available in respect of any two children.

The other allowable deductions are briefly described below:-

SECTION	NATURE OF DEDUCTION	REMARKS
80CCC	Payment of premia for annuity plan of LIC or any other insurer Deduction is Available upto a maximum of Rs.10, 000/-	The premium must be dep osited to keep in force a contract for any other insurer for receiving pension from the fund.
80CCD	Deposit made by a Central government Servant in his pension account to the extent of 10% of his salary	where the Central Government makes any contribution to the pensionaccount, deduction of such Contribution to the extent of 10% of the salary shall be allowed. Further, in any year received from the amount is received from the pension account such amount is received from the pension be charged to tax as income be charged to tax as income of that previous year.
80D	Payment of medical insurance premia. Deduction is available upto Rs.10, 000	The premium is to be paid by cherub and the insurance scheme should be framed by the General Insurance corporation of India & approved by the Central Govt. or by the Insurance Regulatory & Development authority. The premium should be paid in premium should be paid in respect of health insurance of the assessee or his family member.
80DD	Deduction of Rs.40, 000 in respect of Expenditure incurred on medical treatment, (including nursing), Training and rehabilitation of a Handicapped dependant relative. W.e.f.01.04.2004 deduction underthis section has been enhanced to Rs.50, 000/- Further if he depended is a pension with severe disability a deduction of Rs.75,000/- shall be available under this section. Payment or deposit to specified scheme for maintenance of dependant handicapped relative.	The handicapped dependent should be a dependent relative suffering apermanent disability (Including blindness) or mentally retarded,or mentally retarded,as certified by a specific physician or psychiatrist. Note- A person with severedisability means a person with 80 % or more of one or more disabilities as outlined in Section 56(4) of the persons with disabilities (equal opportunities protection of rights and full participarion) Act.
80DDB	Deduction of Rs.40, 000 in respect of medical expenditure incurred. W.e.f. 01.04.2003 deduction under this section shall be available to the extent of Rs.40,000/- as the amount actually paidwhichever is less? Further, where the expenditure is increased in respect of assessee or dependent who is a senior is a senior citizen a deduction Rs.60,000/- certificate or the amount actually paid which ever is less will be available.	Expenditure must be actually incurred by resident assessee on Himself or dependent relative for medical treatment of specified decease or ailment. The disease have been specified in Rule 11DD. A in form 10I is to be furnished by the assessee from any Registered Doctor.
80E	Deduction in respect of repayment of loan taken for higher studies upto Rs.40,000 per year.	This provision has been introduced to provide relief to students talking loans for higher studies. The repayment of the principal amount of loan and interest thereon will be allowed as deduction upto Rs. 3.2 lakhs over a period of 8 years. This section has been amended by the Finance Act 2005. w.e.f. from 1.4.2006 the limit of Rs.40,000/- has been removed. However the deduction is to be only allowed in the first and seven subsequent assessment years, on interest paid on loan taken for higher education.
80G	Donations to certain funds, charitable institutions etc.	The various donations specified in sec.80G are eligible for deduction upto either 100% or 50% with or without restriction as provided in Sec.80G.
80GG	Deduction available is the least of :- Rent paid less 10% of total income Rs.2000 per month 25% of total income	assessee or his spouse or minor child should not own residential accommodation of employment he should not be in receipt of house rent allowance. He should not have a self-occupied residential premises in any other place.
80L	Interest/Dividend/income from Any Govt. security Central or state NSC,VI,VII & VII issue Notified debentures of public sector undertakings, cooperative societies/land mortgage bank or land development bank. Notified national deposit scheme Any other deposit scheme framed by Central Govt. and notified Deposit under Post Office Monthly Income Account rules, 1987. Deposits with banking companies, banking co-op. Societies, land mortgage or land development bank. Deposits with banks established under any low made by parliament. Deposits with financial corporations approved by Central Government Deposits with any authority constituted in India. Under any low for planning, development or improvement of cities towns and villages etc. Deposits with co-op. societies. Deposits with any public companies providing long term finance for construction or purchase of houses.	Rs.12, 000 plus an addition deduction of 3,000 allowed in respect of interest on any Central/State Govt. Securities. W.e.f.01.04.2004 no deduction u/s 80L shall be available in respect of dividend from an Indian company, income received from units of UTI and units of Mutual Fund specified u/s 10(23D). This section has been omitted by the Finance Act, 2005. Thus no deduction under the section shall be available w.e.f.01.04.2006 (A.Y. 2006 -07)
80U	Deduction of Rs.40, 000/- to an individual who suffers from physical disability (including blindness) or mental retardation. W.e.f.01.04.2004the permissible deduction under this section has been enhanced to Rs.50, 000/-. Further in case of individuals with revere disability a deduction of Rs.75,000/- permissible.	Certificate should be obtained from a Govt. Doctor. The relevant rule is Rule 11D.

It should be noted that the aggregate amount of deduction u/s 80C, 80CCC and 80CCD should not in any case excess one lakh rupees.

In respect of section 80G, no deduction should be allowed by the employer/DDO, from the salary income in respect of any donations made for charitable purposes. The tax relief on such donations as admissible u/s 80G will have to be claimed by the taxpayers in the return of income. However, DDOs, on due verification, may allow donations to the following bodies to the extent of 50% of the contribution:-

The Jawaharlal Nehru Memorial Fund,
The Prime Minister's Drought Relief Fund,
The National Children's Fund.
The Indira Gandhi Memorial Trust,
The Rajiv Gandhi Foundation, and to the following bodies to the extent of 10% of the contribution:-
1. The National Defense Fund or the Prime Minister's National Relief Fund,
2. The prime Minister's Armenia Earthquake Relief Fund,
3. The Africa (Public Contribution-India) Fund,
4. The National Foundation for Communal Harmony,
5. The Chief Minister's Earthquake Relief Fund, Maharastra.
6. The National Blood Transfusion Council,
7. The State Blood Transfusion Council,
8. The Army Central Welfare Fund,
9. The Indian Naval Benevolent Fund,
10. The Air Force Central Welfare Fund,
11. The Andhara Pradesh Chief Minister's Cyclone Relief Fund, 1996,
12. The National Illness Assistance Fund,
13. The Chief Minister's Relief Fund or Lieutenant Governor's Relief Funs, in respect of any State or Union Territory, as the case may be, subject to certain conditions,
14. The University & educational institution of natural eminence approved by the prescribed authority,
15. The National Sports Funds to be set up by the central Government,
16. The National Cultural Fund set up by the Central Government,
17. The Fund for Technology Development and Application set up by the Central Government,
18. The National trust for welfare of persons with austism, cerebral palsy mental retardation and multiple disabilities

TAX REBATE & RELIEF

7.1 Introduction:
The total income of an assessee is determined after as discussed in previous chapter. It is on this total income that the tax payable is computed at the rates in force. The Income Tax Act further provides for rebate from the tax payable as computed above, if certain investments or payments are made. Rebates provided u/s 88 of the act must be distinguished from deductions provided in chapter via of the act. While the latter reduces the gross total income, rebate is a reduction from the tax payable.

It is important to note no tax rebate u/s 88 shall be available from A.Y.2006-07 onwards. Similarly, Sections 88B and 88C providing special rebates to senior citizens and ladies and Section 88D stand w.e.f.01.04.2006.

However the relevant provision of Sec.88 prior to its omission is being described below:-

A graded system of tax rebate u/s 88 has been introduced w.e.f.01.04.2003. The tax rebate on the qualifying amount is now to be computed at the following rates.

Sl No.	Nature and level of Income	%age of sums invested to be allowed as rebate
1.	Where the gross total income does not exceeds Rs.1,50,000/-	20%
2	Where the gross total income exceeds Rs.1,50,000/- does not exceeds Rs.5,00,000/-	15%
3.	Where the gross total income exceeds Rs.5,00,000/-	Nil
4.	In case of an individual, where the income under the head 'salaries' does not exceeds Rs.1,00,000/- (before allowing standard deduction) and is at least 90% of his gross total income.	30%

A higher rebate of 25% available earlier to authors, playwright, artist, musician, actors, sportsman etc. has been withdrawn by the Finance Act 2002.
Tax rebate of 25% available of investment qualifying for rebate u/s 88 has been increased to Rs.70, 000/- (from Rs.60, 000/-) by Finance Act 2002. An additional rebate on investment upto Rs.30, 000/- (Increased from Rs.20, 000/-) is also available in respect of subscription to specified infrastructural equity shares/debentures.

Section 88B: An assessee, being an individual resident in India, who is of the age of 65 years or more at any time during the previous year, shall be entitled to a deduction from the author this chapter (viii) on his total income, of fifteen thousand rupees, whichever is less. However, w.e.f.01.04.2003 these maximums permissible rebate u/s 88 B has been increased to Rs.20, 000/- by Finance Act 2003.

With Finance Act 2002, the earlier requirement, of the investment qualifying for rebate u/s 88 being out of income chargeable to tax has been removed (applicable w.e.f.01.04.2003).

With effect from assessment year 2001-02 onwards a new section 88C has been inserted. It provides that in case of an assessee being a woman resident in India and below 65 years of age, tax rebate of an amount of 5,000 or 100% of tax, whichever is less, shall be available. The above rebate is to be allowed from the amount of income tax computed before allowing for tax rebate u/s as discussed below:-

The drawing and disbursing officer should satisfy himself about the actual deposits/subscriptions/payments made by the employees, by calling for such particulars/information as they deem necessary before allowing the aforesaid rebate. In case the DDO is not satisfied about the genuineness of the employee's claim regarding any deposit/subscription/payment made by the employee, he should not allow the same, and the employee would be free to claim the rebate on such amount by filling his return of income and furnishing the necessary proof etc. therewith to the satisfaction of the Assessing Officer.

The details of investments qualifying for rebate are being given blew:-

NATURE OF INVESTMENT	REMARKS
Life Insurance Premium	For individual, policy must be in self or spouse's or any child's name.
Sum paid under contract for a deferred annuity	For individual, on life of self, spouse or any child.
Sum deducted from salary payable to Govt. Servant for securing deferred annuity for Self/spouse or child.	Payment limited to 20% of salary
Contribution made under Employee'sProvident Fund Scheme.	---
Contribution to PPF	For individual, it can be in the name of self/spouse, any child and for HUF, it can be in the name of any member of the family.
Contribution by employee to a Recognized Provident Fund	---
Sum deposited in 10 year/15 year account of Post Office Saving Bank	---
Subscription to any notified securities/notified deposits scheme.	---
Subscription to any notified savings certificate, Unit Linked Saving certificates. Also Contribution to Unit Linked Insurance Plan-of UTI.	e.g., NSS
Contribution to any notified deposit Scheme/pension	e.g. pension fund set up by mutual set up the National Housing fund notified u/s 10(23D), pension fund set up by UTI or of National Housing Bank
Certain payments made by way of loan taken for purchase/construction of residentialfinance house property. The income from which is chargeable to tax under the head income from house property.	Qualifying amount limited to Rs. 20,000. Repayment of loan should be towards self finance scheme of development authority housing board etc or towards loan borrowedfrom Govt., any Bank, LIC, NationalHousing Bank or loan from the employer which a public sector company university local authority etc.
Contribution to notified annuity PlanLIC (e.g. Jeevan Dhara) or units of UTI/notified Mutual Fund.	If in respect of such contribution deduction u/s 80CCC has been availed of, rebate u/s 88 would then not be allowable.
Subscription to units of a Mutual Fund notified u/s 10(23D).	---
Subscription to deposit scheme of a Public Sector Company/Authorized Authority providing long term house financing.	---
Subscription to equity shares/debentures forming part of any approved eligible issue of capital made by a public financial institutions.	In respect of it, a higher limit of qualifying investment of Rs.70, 000 (Rs.80,000/- w.e.f. A.Y. 2001-2002) is available as against Rs.60, 000/- in case of other investments.
w.e.f.01.04.2003, tuition fees paid at the time of admission or otherwise (other than donation or payment of a similar nature), to any school college, University or other educational institution situated within India.	Payment is restricted for full time education of any two children and the qualifying amount is to be limited to Rs.12,000/- in respect of each child

RELIEF UNDER SECTION 89(1)

7.2 Relief u/s 89(1) is available to an employee when he receives salary in advance or in arrear or when in one financial year, he receives salary of more than 12 months, or receives 'profit in lieu of salary' covered u/s 17(3). Relief u/s 89(1) is also admissible on family pension, as the same has been allowed by Finance Act, 2002 (with retrospective effect from 1/4/96).

7.3 W.e.f. 1.6.89, 89(1) relief can be granted at the time of TDS by employers in the following conditions:

If the employee is a Government Servant.
He is employee in a (a) PSU, (b) Company, (c) Cooperative Society, (d) Local Authority, (e) University, (f) Institution or Body.

The employee may furnish to the DDO or the person responsible for making payment such particulars in Form 10E (read with rule 21 AA) which should be duly verified by him. Thereupon the DDO/Person responsible for making payment is required to compute the relief u/s 89(1) on the basis of such particulars and take into account this relief while making tax deduction u/s 192. In case of an employee of category other than the stated above, such relief can only be allowed by the Assessing Officer.

The various provisions of TDS as discussed in the preceding default in compliance can attract, levy of interest, penalty and in certain cases initiation of prosecution proceedings. In this chapter a brief discussion of the possible defaults and the consequential proceedings is being done.

8.1 Failure to deduct tax
Where the employer has failed to deduct tax or when short deduction of tax has been done, following statutory provisions are attracted :-

Charging of interest u/s 201(1A)
The deductor is treated to be assessee in default' in respect of the short deduction/non deduction of tax. Under Section 201(1A) he is liable to pay simple interest @ 12% per annum on the amount of tax in arrear from the date on which such tax was deductible to the date on which such tax is actually paid, to the credit of Central Govt. Charging of interest u/s 201(1A) is mandatory and there is no provision for its waiver.

Procedure for the interest calculation
The calculation of interest is to be done as per Rule 119A and is summarized below:

The period for which such interest is to be calculated is to be rounded off to a whole month or months and any fraction of month is to be ignored.
The amount of tax in respect of which interest is to be calculated is to be rounded off to nearest multiple of 100 ignoring any fraction of Rs.100.

Penalty u/s 221
The assessee in default is liable to impossible of penalty where the assessing officer is satisfied that the defaulter has failed to deduct tax as required without good and sufficient reason. The quantum of penalty is not to exceed the amount of tax in arrear.

Penalty u/s 271C
A penalty equivalent to the amount of tax the deductor has failed to deduct, is leviable u/s 271C. Such penalty is however any leviable by a joint Commissioner of Income Tax.

8.2 Failure to deposit tax in govt. account after deduction
Where the employee has deducted the tax at source but failed to deduct wholly or partly, the tax so deducted in government account, the following statutory provisions are attracted.

Interest u/s 201(1A) - The deductor is treated as an assessee in default and interest u/s 201(1A) @ 15% as explained above is leviable. Further, the tax along with the simple interest u/s 201(1A) becomes a charges upon all the assets of the deductor.
Penalty u/s 221 - Penalty to the extent of the tax not deposited is leviable by the A.O. as discussed earlier.
Penalty u/S 271C - W.e.f 1.6.97 penalty u/s 271C as described above is leviable by joint Commissioner of Income tax in case of failure of deposition of tax in Govt. Account.
Prosecution Proceedings u/s 276B - Where the deductor has failed to deposit tax at source, in Govt. account without a reasonable cause then he is punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extent to 7 years and with fine.

8.3 Failure to apply for T.A.N. or to quote T.A.N.
Where a person who is responsible to deduct tax at source has failed, without reasonable cause:-

To apply for T.A.N. within prescribed period or
After allotment, failed to quote such TAN is challans for payment of tax or TDS certificate or returns of TDS (as required u/s 206) - then a penalty u/s 272BB of a sum of Rs.10,000 and is imposable by the assessing officer.

8.4 Failure to furnish TDS certificate or returns/statement of tax deduction at source
Where the employer has failed to issue TDS certificate (from 16) within one month of the end of financial year or has failed to file the return of tax deducted in form No. 24 by 30th June or has failed to furnish the quarterly statement of tax in form 27Q, within the time prescribed u/s 200(3) (Rule 31A) then a penalty of Rs.100 is leviable for each day during the period for which default continues. The quantum of penalty is not to exceed the tax deductible and it is to be levied only by a joint Commissioner or Joint D.I.T. after giving the assessee an opportunity of being heard.

8.5 Prosecution u/s 277
Where a person, who is required to make a statement in verification in return furnished u/s 206 (Annual return of TDS) makes a false statement in verification or, delivers an account or statement which is false and which the person know or believes to be false or does not believe to be true, then he is punishable with rigorous imprisonment from a term which shall not be less than 3 months but which may extent to 7 years along with fine.

9.1 Introduction
As per section 192 of the IT Act, any person responsible for paying any amount under the head salaries is required to deduct tax at source at the time of payment. This section unlike some other provisions does not distinguish between payments of salary, to a residents, non resident or expatriate. Thus all payments which are taxable under the head salaries, are also covered by the provisions of TDS, irrespective of the residen