TaxTMI 
TaxTMI 
Instructions for deduction of tax at source from salary during financial year 1987-88 at the rates specified in Part III of First Schedule to Finance Act, 1987
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....mputed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee for the financial year. The provisions of sub-section (3) of said section are intended for making adjustments for excess or short falls of inadvertent nature and/or due to unforeseen circumstances. Thus, the aggregate tax calculated on the estimated income divided by twelve and rounded off to the nearest rupee is required to be deducted from the monthly salary. 3. There is no change in the rate of tax for the financial year 1987-88. An extract of Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1987, is at Annex I. 4. The substance of the main provisions of law insofar as they relate to income chargeable under the head "Salaries", on which tax is to be deducted at source during the financial year 1987-88, is given hereunder : (1) No tax will be deducted at source in any case unless the estimated salary income for the financial year exceeds Rs. 18,000. Some typical examples of calculations are at Annex II. (2) The value of perquisites by way of free or concessional residential accommodation, or motor ca....
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.... employee from the Additional Dearness Allowance Deposit Account under the provisions of the Additional Emoluments (Compulsory Deposit) Act, 1974, shall be liable to be included in his total income of the previous year in which it is repaid as already explained in the Ministry's Circular No. 182 [F. No. 275/12/75-IT(J)], dated 28-10-1975. The amount repaid will include an element of interest also. While the repayment of the principal sum will be regarded as salary paid during the relevant financial year and assessed to tax accordingly, the interest element qualifies for deduction according to section 80L. (5) Under section 10(10B), the retrenchment compensation received by a workman is exempt from income-tax subject to certain limits. The maximum amount of retrenchment compensation exempt is the sum calculated on the basis provided in section 25F(b) of the Industrial Disputes Act, 1947, or Rs. 50,000, whichever is less. These limits shall not apply in the case where the compensation is paid under any scheme which is approved in this behalf by the Central Government, having regard to the need for extending special protection to the workman in the undertaking to which the scheme a....
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....y 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 house rent allowance from the total income of the employee. (7) (a) Under section 16 the taxable salary is to be computed after making standard deduction. The standard deduction is to be allowed of an amount equal to 30 per cent of the salary subject to a maximum of Rs. 10,000. For this purpose, the term "salary" will include fees, commission, perquisites or profits in lieu of or in addition to salary, but will not include any payment received by the employees which are specifically exempt from tax under clauses (10), (10A), (10AA), (10B), (10C), (11), (12) and (13A) of section 10. Thus, house rent allowance to the extent exempt under section 10(13A) will not be taken into account for the purpose of computing the amount of the standard deduction. It is to be noted that standard deduction on the above basis is to be allowed irrespective of whether any expenditure incidental to employment is actually incurred by the employee or not. This deduction will be available also to persons drawing pensi....
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....nk (Cumulative Time Deposits) Rules, 1959, and subscription to the National Savings Certificate (VI Issue) and the National Savings Certificate (VII Issue). The interest on National Savings Certificate (VI Issue) is deemed to be reinvested and, therefore, the holder thereof is entitled to the benefits of section 80C. (b) In respect of contributions to "recognised provident fund", there is another monetary ceiling limit laid down in clause (d) of sub-section (2) of section 80C, in that the employee's own contribution to the individual account in the fund will not exceed one-fifth of his salary during the financial year or Rs. 10,000, whichever is less. "Salary" for this purpose would include dearness allowance if the terms of the employment so provide, but will exclude all other allowances and perquisites. The expression "recognised provident fund" has been defined in section 2(38) to mean provident fund which has been and continues to be recognised by the Commissioner in accordance with the rules contained in Part A of the Fourth Schedule to the Act and includes a provident fund established under a Scheme framed under the Employees' Provident Funds Act, 1952. (c) The addition....
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....ose of purchase or construction of a residential house property, construction of which is completed after 31-3-1987 and the income from which is chargeable to tax under the head "Income from house property" (or which would, if it had not been used for the assessee's own resident have been chargeable to tax under that head) where such payments are made towards or by way of any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, Housing Board, etc., the deduction will also be allowable in respect of repayment of loans borrowed by the taxpayer from the Government or any bank or Life Insurance Corporation and certain other categories of institutions engaged in the business of providing long-term finance for construction or purchase of house in India. Any repayment of loan borrowed from the employer will also be covered, if the employer happens to be a public company. The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. Payment towards the cost of house property, however, will not include, admission fee or cost of share or initial deposit or the cost of the land ....
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....ontributions may be deducted in computing the total income of the employee. The donation to the Prime Minister's National Relief Fund will be eligible for hundred per cent deduction. Thus, deduction in this respect may be allowed while computing the total income for the purpose of deduction of income-tax at source for financial year 1987-88. Deduction will not be admissible where the aggregate of all contributions in the year is less than Rs. 250. (10) Under section 80GG, an assessee is entitled to a deduction in respect of house rent paid by him for his own residence at the places specified under rule 11B of the Income-tax Rules, 1962. Such deduction is permissible subject to the following conditions : (a) The assessee has not been in receipt of any house rent allowance specifically granted to him which qualifies for exemption under section 10(13A); (b) He will be entitled to a deduction in respect of house rent paid by him in excess of 10 per cent of his total income, subject to a ceiling of 25 per cent thereof or Rs. 1,000 per month, whichever is less. The total income for working out these percentages will be computed b....
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....s have been authorised vide Board's Circular No. 196 [F. No. 275/29/76-ITJ], dated 31-3-1976 not to deduct tax at source from conveyance allowance granted to an employee to the extent it is exempt under the said section. It has been stated herein that the employee in receipt of conveyance allowance would have to furnish the necessary certificate before the disbursing authority in support of the fact that the conveyance allowance is only a reimbursement of expenses laid down wholly, necessarily and exclusively in the performance of duties of an office or employment of profit. The satisfaction of the disbursing authorities would still be liable for scrutiny by the Income-tax Officer during regular assessment proceedings before him. The disbursing authority is also required to endorse a certificate in terms of section 10(14) on the tax deduction certificate issued under section 203. In this connection, attention is invited to the Explanation to clause (14) of section 10 which clarifies that any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordi....
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....foreign employer" has been defined in Explanation (b) to section 80RRA to mean (i) the Government of a foreign State or (ii) a foreign enterprise; or (iii) any association or body established outside India. While allowing the deduction under this section, documentary evidence should be obtained on the following points : (i) In the case of an individual who is in the employment of the Central Government or any State Government, the fact of his service having been sponsored by the Central Government. (ii) In the case of any other individual being a technician, the fact of the terms and conditions of his service outside India having been approved in this behalf by the Central Government (Ministry of Finance, Department of Revenue, Foreign Tax Division, New Delhi). [It should also be ensured that the deduction is allowed with reference to the remuneration received in foreign currency in respect of the period of service outside India. The fact that deduction is admissible only in relation to the first 36 months of continuous service outside India should also be kept in view]. The Finance Act has made the following amend....
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....ection 192 with effect from 1-6-1987. According to these sub-sections : (a) Where during the financial year an assessee is employed simultaneously under more than one employer or where he has held successively employment under more than one employer, he may furnish to the person responsible for making the payment referred to in section 192(1), (being one of the said employers, having regard to the circumstances as such employee may choose) details of income under the head "Salaries" due or received by him from the employer or employers in the prescribed form duly verified in the prescribed manner and thereupon the employer shall deduct tax at source from the aggregate salary of the employee. (b) Where an employee who receives salary in arrears or in advance is entitled to relief under section 89(1), he may furnish to the person responsible for making payment referred to in section 192(1) such particulars in the prescribed form and duly verified in the prescribed manner and thereupon the said person shall compute and allow the relief under section 89(1) on the basis of such particulars. (c) New sub-section (2B) in ....
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....cial year and deliver or cause to be delivered to the prescribed income-tax authority, such returns in such form and verified in such manner and setting forth such particulars as may be prescribed." A separate circular will be issued to prescribe the time for filing an application for allotment of tax deduction account number under section 203A, to prescribe the income-tax authority to whom the returns etc., under section 206 are to be submitted and to cover any other incidental matter. In the meantime, the persons deducting tax in accordance with the provisions of section 192 may be advised to apply to the concerned Income-tax Officer immediately for the allotment of tax deduction account number. (17) The total income computed in accordance with the provisions of the Act should be rounded off to the nearest multiple of ten rupees by ignoring the fraction which is less than five rupees and increasing the fraction which amounts to five rupees or more, to ten rupees. The net amount of tax deductible should be similarly rounded off to the nearest rupee. (18) Section 201 provides : "(1) If any such person and in the cases referred to in section 194, the principal officer an....
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.... deducted at source is credited to the Central Government through book adjustment, care should be taken to ensure that the correct amount of income-tax is reflected therein. 6. These instructions are not exhaustive and are issued only with a view to helping the employers to understand the various relevant provisions. Wherever there is a difference of opinion, reference should always be made to the provisions of the Income-tax Act and the relevant Finance Act through which the changes in the tax structure are made. Circular : No. 489 [F.No. 275/51/87-IT(B)], dated 25-6-1987. ANNEX I - EXTRACT FROM THE FINANCE ACT, 1987, PART III OF THE FIRST SCHEDULE Paragraph A Sub-Paragraph I In the case of every individual or Hindu undivided family or unregistered firm or other association of persons or both of individuals, whether incorporated or not or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, not being a case to which Sub-Paragraph II of this Paragraph or any other Paragraph of this Part applies. Rates of income-tax (1) Where the total income does not exceed Rs. 18,000 Nil; (2) Where ....
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.... 5. Subscription to National Savings Certificates (VI & VII Issues) 10,000 6. Interest accrued for the first year on NSC VI Issue @ Rs. 12.40 for every Rs. 100 on say Rs. 5,000 620 7. Free gas, electricity, water, etc. (actual bills paid by the company) 2,400 8. Furniture at cost (including television set, radio set, refrigerator, other household appliances and an air-conditioner) belonging to the company 40,000 9. (i) Furnished flat provided to the employee for which actual rent paid by the company (actual rent assumed to be equal to the fair rental value) 42,000 (ii) Rent recovered from the employee 12,000 Computation of total income Rs. Rs. 1. Salary 48,000 2. Bonus 9,600 3. Valuation of perquisites 57,600 (a) Furnished flat at concessional rent under section 17(2) read with clauses (a) and (b) of rule 3 of the Income-tax Rules, 1962, ....
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....lary is required to be made works out to Rs. 494 for 11 months and Rs, 489 in the last month] Notes : (1) In the case of Government servants, the value of perquisites of unfurnished accommodation provided free is determined in accordance with the rules framed by the Government for allotment of residence to its employees. For determining the perquisite value of free furniture, it is taken, as in other cases, at 10% per annum of the original cost of the furniture, or if it is hired from a third party, the actual hire charges payable. (2) Where unfurnished accommodation is provided to its employee by the Reserve Bank of India or any other public sector body specified in sub-clause (2) of clause (a) of rule (3) of the Income-tax Rules, say, a nationalised bank, State Trading Corporation, etc., it is taken as 10 per cent of the salary due to the employee and where the accommodation is furnished as in other cases, an additional 10 per cent of the original cost of furniture, or if it is hired from a third party, the actual hire charges payable therefor. (3) In the case of unfurnished accommodation, where the assessee can satisfy the income-tax authority that the value of the p....
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....000, whichever is less, i.e., 9,760 - Life insurance premia 1,000 - Contribution to participation in Unit-linked Insurance Plan, 1971, made under section 19(i)(cc) of the Unit Trust of India Act, 1963 1,500 - Deposit in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposit) Rules, 1959 1,000 - Refund of house purchase/construction loan, limited to Rs. 10,000 10,000 23,260 Deduction admissible on Rs. 23,260: - On the first Rs. 6,000 (100%) 6,000 - On the next Rs. 6,000 (50%) 3,000 - On the balance Rs. 11,260 (40%) 4,504 13,504 11. Total income 25,....
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.... 106 for the last month] 1,250 Clarification 2 1. I am directed to refer to this Ministry's Circular No. 489 [F.No. 275/51/87-IT(B)], dated 25-6-1987 [Clarification 1] wherein the rates of income-tax deduction during the year 1987-88 from the payment of income chargeable under the head 'Salaries' under section 192 were intimated. 2. The Central Government has promulgated an Ordinance (No. 6 of 1987) on 19-9-1987. By this Ordinance, Part III of the First Schedule to the Finance Act, 1987 has been amended. Accordingly, where the income of a person chargeable to tax under the head "Salaries" exceeds Rs. 50,000, the amount of income-tax computed for the purpose of deduction of tax at source shall be increased by a surcharge for the purpose of the Union calculated at the rate of 5 per cent on the amount of income-tax so computed. An illustration is given in Annex I. These instructions may be brought to the notice of all Drawing and Disbursing Officers and State Undertakings under the control of the State Governments. Circular: No. 499 [F.No. 275/51/87-IT(B)], dated 1-12-1987. ANNEX I - EXAMPLE OF INCOME-TAX AND SURCHARGE CALCULATION IN THE CASE OF A....