INCOME TAX

Financial year 2005-2006

Income-tax deduction from salaries during the financial year 2005-06 under section 192

Circular No. 747

Dated 2/12/1996

Reference is invited to Circular No. 6/2004, dated 6-12-2004 wherein the rates of deduction of income-tax from the payment of income under the head "Salaries" under section 192 of the Income-tax Act, 1961, during the financial year 2004-05, were intimated. The present Circular contains the rates of deduction of income-tax from the payment of income chargeable under the head "Salaries" during the financial year 2005-06 and explains certain related provisions of the Income-tax Act. The relevant Acts, Rules, Forms and Notifications are available at the website of the Income-tax Department—www.incometaxindia.gov.in.

Finance Act, 2005

2. According to the Finance Act, 2005, income-tax is required to be deducted under section 192 of the Income-tax Act, 1961 from income chargeable under the head "Salaries" for the financial year 2005-06 (i.e. assessment year 2006-07) at the following rates :

RATES OF INCOME-TAX

A.Normal Rates of tax :
1.	Where the total income does not exceed Rs.1,00,000.	Nil
2.  Where the total income exceeds Rs. 1,00,000 but does not exceed Rs. 1,50,000.		10 per cent of the amount by which the total income exceeds Rs. 1,00,000.
3.  Where the total income exceeds Rs. 1,50,000 but does not exceed Rs. 2,50,000.		Rs. 5,000 plus 20 per cent of the amount by which the total income exceeds Rs.1,50,000.
4.  Where the total income exceeds of Rs. 2,50,000.		Rs. 25,000 plus 30 per cent the amount by which the total income exceeds Rs. 2,50,000.
B.Rates of tax for a woman, resident in India and below sixty-five years of age :
1.   Where the total income does not exceed Rs. 1,35,000.		Nil
2.  Where the total income exceeds Rs. 1,35,000 but does not exceed Rs.1,50,000.		10 per cent of the amount by which the total income exceeds Rs. 1,35,000.
3.  Where the total income exceeds Rs.1,50,000 but does not exceed Rs. 2,50,000.		Rs. 1,500 plus 20 per cent of the amount by which the total income exceeds Rs. 1,50,000.
4.  Where the total income exceeds Rs. 2,50,000.		Rs. 21,500 plus 30 per cent of the amount by which the total income exceeds Rs. 2,50,000.
C.Rates of tax for an individual, resident in India and of the age of sixty-five years or more at any time during the financial year :
1.  Where the total income does not exceed Rs.1,85,000.		Nil
2.  Where the total income exceeds Rs. 1,85,000 but does not exceed Rs. 2,50,000.		20 per cent of the amount by which the total income exceeds Rs. 1,85,000.
3.  Where the total income exceeds Rs. 2,50,000.		Rs. 13,000 plus 30 per cent of the amount by which the total income exceeds Rs. 2,50,000.

Surcharge on income-tax

The amount of income-tax computed in accordance with the preceding provisions of this paragraph shall be increased by a surcharge at the rate of ten per cent of such income-tax where the total income exceeds ten lakh rupees.

However, the total amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax on a total income of Rs.10,00,000 by more than the amount of income that exceeds Rs.10,00,000.

The amount of income-tax as increased by surcharge, if any, mentioned above shall be further increased by an additional surcharge ( Education Cess on Income-tax) at the rate of two per cent of the income-tax and surcharge.

Surcharge and Education Cess are payable by both resident and non-resident assessees.

3. Section 192 of the Income-tax Act,1961: Broad Scheme of Tax Deduction at Source from "Salaries".

3.1 Method of tax calculation : Every person who is responsible for paying any income chargeable under the head "Salaries" shall deduct income-tax on the estimated income of the assessee under the head "Salaries" for the financial year 2005-06. The income-tax is required to be calculated on the basis of the rates given above and shall be deducted on average at the time of each payment. No tax will, however, be required to be deducted at source in any case unless the estimated salary income including the value of perquisites, for the financial year exceeds Rs.1,00,000 or Rs.1,35,000 or Rs.1,85,000, as the case may be, depending upon the age and gender of the employee. (Some typical examples of computation of tax are given at Annexure I).

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

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

ILLUSTRATION :

Suppose that the income chargeable under the head 'salary' of a male employee below sixty-five years of age for the year inclusive of all perquisites is Rs. 2,40,000, out of which, Rs. 40,000 is on account of non-monetary perquisites and the employer opts to pay the tax on such perquisites as per the provisions discussed in para 3.2 above.

STEPS :

Income chargeable under the head "Salaries" inclusive of all perquisites :	Rs. 2,40,000
Tax on total salaries :	Rs. 23,000
Average rate of tax [(Rs. 23,000/Rs. 2,40,000) × 100]	9.58%
Tax payable on Rs.40,000 (9.58% of Rs. 40,000)	Rs. 3,833
Amount required to be deposited each month (3,833/12)	Rs. 319

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

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

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

Explanation.—For this purpose "University" means a University established or incorporated by or under a Central, State or Provincial Act, and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be University for the purposes of the Act.

Furnishing of declaration by taxpayer in Form No. 12C.

3.6 (i) Sub-section (2B) of section 192 enables a taxpayer to furnish particulars of income under any head other than "Salaries" and of any tax deducted at source thereon in the prescribed Form No.12C (Annexure II). (Form No. 12C has since been omitted from the Income-tax Rules. However, the particulars may now be furnished in a simple statement, which is properly verified by the taxpayer in the same manner as in Form No. 12C.)

(ii) Such income should not be a loss under any such head other than the loss under the head "Income from house property" for the same financial year. The person responsible for making payment (DDO) shall take such other income and tax, if any, deducted at source from such income, and the loss, if any, under the head "Income from house property" into account for the purpose of computing tax deductible under section 192 of the Income-tax Act. However, this sub-section shall not in any case have the effect of reducing the tax deductible (except where the loss under the head "Income from house property" has been taken into account) from income under the head "Salaries" below the amount that would be so deductible if the other income and the tax deducted thereon had not been taken into account. In other words, the DDO can take into account any loss (negative income) only under the head "Income from house property" and no other head for working out the amount of total tax to be deducted. While taking into the account the loss from house property, the DDO shall ensure that the assessee files the declaration referred to above and encloses therewith a computation of such loss from house property.

(iii) Sub-section (2C) lays down that a person responsible for paying any income chargeable under the head "salaries" shall furnish to the person to whom such payment is made a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof in Form No. 12BA. (Annexure III ). Form No. 12BA along with Form No. 16, as issued by the employer, are required to be filed by the employee along with the return of income for the relevant year.

Conditions for claim of deduction of interest on borrowed capital for computation of Income from house property

3.7 (i) For the purpose of computing income/loss under the head 'Income from house property' in respect of a self-occupied residential house, a normal deduction of Rs. 30,000 is allowable in respect of interest on borrowed capital. However, a deduction on account of interest up to a maximum limit of Rs.1,50,000 is available if such loan has been taken on or after 1-4-1999 for constructing or acquiring the residential house and the construction or acquisition of the residential unit out of such loan has been completed within three years from the end of the financial year in which capital was borrowed. Such higher deduction is not allowable in respect of interest on capital borrowed for the purposes of repairs or renovation of an existing residential house. To claim the higher deduction in respect of interest up to Rs.1,50,000, the employee should furnish a certificate from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by such employee for the purpose of construction or acquisition of the residential house or for conversion of a part or whole of the capital borrowed, which remains to be repaid as a new loan.

(ii) The essential conditions necessary for availing higher deduction of interest of Rs.1,50,000 are that the amount of capital must have been borrowed on or after 1-4-1999 and the acquisition or construction of residential house must have been completed within three years from the end of the financial year in which capital was borrowed. There is no stipulation regarding the date of commencement of construction. Consequently, the construction of the residential house could have commenced before 1-4-1999 but, as long as its construction/acquisition is completed within three years, from the end of the financial year in which capital was borrowed the higher deduction would be available in respect of the capital borrowed after 1-4-1999. It may also be noted that there is no stipulation regarding the construction/acquisition of the residential unit being entirely financed by capital borrowed on or after 1-4-1999.The loan taken prior to 1-4-1999 will carry deduction of interest up to Rs. 30,000 only. However, in any case the total amount of deduction of interest on borrowed capital will not exceed Rs.1,50,000 in a year.

3.8Adjustment for excess or shortfall of deduction : The provisions of sub-section (3) of section 192 allow the deductor to make adjustments for any excess or shortfall in the deduction of tax already made during the financial year, in subsequent deductions for that employee within that financial year itself.

3.9 TDS on Payment of balance under provident fund and superannuation fund : The trustees of a recognized provident fund, or any person authorized by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 of Part A of the Fourth Schedule to the Act applies, at the time when the accumulated balance due to an employee is paid, make therefrom the deduction specified in rule 10 of Part A of the Fourth Schedule.

3.10 Where any contribution made by an employer, including interest on such contributions, if any, in an approved superannuation fund is paid to the employee, tax on the amount so paid shall be deducted by the trustees of the fund to the extent provided in rule 6 of Part B of the Fourth Schedule to the Act.

3.11 Salary paid in foreign currency : For the purposes of deduction of tax on salary payable in foreign currency, the value in rupees of such salary shall be calculated at the prescribed rate of exchange.

4. Persons responsible for deducting tax and their duties.

4.1 Under clause (i) of section 204 of the Act the "persons responsible for paying" for the purpose of section 192 means the employer himself or if the employer is a company, the company itself including the Principal Officer thereof.

4.2 The tax determined as per para 6 should be deducted from the salary under section 192 of the Act.

4.3 Deduction of tax at lower rate : Section 197 enables the taxpayer to make an application in Form No. 13 to his Assessing Officer, and, if the Assessing Officer is satisfied that the total income of the taxpayer justifies the deduction of income-tax at any lower rate or no deduction of income-tax, he may issue an appropriate certificate to that effect which should be taken into account by the Drawing and Disbursing Officer while deducting tax at source. In the absence of such a certificate furnished by the employee, the employer should deduct income-tax on the salary payable at the normal rates: (Circular No. 147, dated 28-10-1974).

4.4 Deposit of tax deducted : According to the provisions of section 200, any person deducting any sum in accordance with the provisions of section 192 or paying tax on non-monetary perquisites on behalf of the employee under section 192(1A), shall pay the sum so deducted or tax so calculated on the said non-monetary perquisites, as the case may be, to the credit of the Central Government in prescribed manner (vide rule 30 of the Income-tax Rules,1962). In the case of deductions made by, or, on behalf of the Government, the payment has to be made on the day of the tax-deduction itself. In other cases, the payment has to be made within one week from the last day of month in which deduction is made.

4.5 Penalty for failure to deposit tax deducted : If a person fails to deduct the whole or any part of the tax at source, or, after deducting, fails to pay the whole or any part of the tax to the credit of the Central Government within the prescribed time, he shall be liable to action in accordance with the provisions of section 201. Sub-section (1A) of section 201 lays down that such person shall be liable to pay simple interest at twelve per cent per annum with effect from 8-9-2003 on the amount of such tax from the date on which such tax was deductible to the date on which the tax is actually paid. Section 271C lays down that if any person fails to deduct tax at source, he shall be liable to pay, by way of penalty, a sum equal to the amount of tax not deducted by him. Further, section 276B lays down that if a person fails to pay to the credit of the Central Government within the prescribed time the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years, and with fine.

4.6 Furnishing of Certificate for Tax Deducted : According to the provisions of section 203, every person responsible for deducting tax at source is required to furnish a certificate to the payee to the effect that tax has been deducted and to specify therein the amount deducted and 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 the case of employees receiving salary income (including pension), the certificate has to be issued in Form No.16. However, in the case of an employee who is resident in India and whose income from salaries, before allowing standard deduction, does not exceed Rs.1,50,000, the certificate of deduction of tax shall be issued in Form No. 16AA ( Specimen Form No. 16AA enclosed as Annexure IV). It is, however, clarified that there is no obligation to issue the TDS certificate (Form No. 16 or Form No. 16AA) in case tax at source is not deductible/deducted by virtue of claims of exemptions and deductions. As per section 192, the responsibility of providing correct and complete particulars of perquisites or profits in lieu of salary given to an employee is placed on the person responsible for paying such income, i.e., the person responsible for deducting tax at source. The form and manner of such particulars are prescribed in rule 26A, Form No. 12BA, Form No. 16 and Form No. 16AA of the Income-tax Rules.

Information relating to the nature and value of perquisites is to be provided by the employer in Form No. 12BA in case of salary above Rs.1,50,000. In other cases, the information would have to be provided by the employer in Form No. 16 itself. In either case, Form No. 16 with Form No. 12BA or Form No. 16 by itself will have to be furnished within a period of one month from the end of relevant financial year.

An employer, who has paid the tax on perquisites on behalf of the employee as per the provisions discussed in paras 3.2 and 3.3, shall furnish to the employee concerned a certificate to the effect that tax has been paid to the Central Government and specify the amount so paid, the rate at which tax has been paid and certain other particulars in the amended Form No. 16.

The obligation cast on the employer under section 192(2C) for furnishing a statement showing the value of perquisites provided to the employee is a serious responsibility of the employer, which is expected to be discharged in accordance with law and rules of valuation framed thereunder. Any false information, fabricated documentation or suppression of requisite information will entail consequences therefore provided under the law. The certificates in Form No.12BA and Form No. 16 are to be issued on tax-deductor's own stationery within one month from the close of the financial year i.e., by April 30 of every year. If he fails to issue these certificates to the person concerned, as required by section 203, he will be liable to pay, by way of penalty, under section 272A, a sum which shall be Rs.100 for every day during which the failure continues.

4.7 Mandatory quoting of PAN and TAN : According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the Tax Deduction Account No. (TAN) in the Challans, TDS-certificates, returns, etc. Detailed instructions in this regard are available in this Department's Circular No.497 [F. No. 275/118/87-IT(B), dated 9-10-1987]. If a person fails to comply with the provisions of section 203A, he will be liable to pay, by way of penalty, under section 272BB, a sum of ten thousand rupees. Similarly, as per section 139A(5B), it is obligatory for persons deducting tax at source to quote PAN of the persons from whose income-tax has been deducted in the statement furnished under section 192(2C), certificates furnished under section 203 and all returns prepared and delivered as per the provisions of section 206 of the Income-tax Act, 1961.

4.8 Annual return of TDS : According to the provisions of section 206 of the Income-tax Act, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under section 192, from "Salaries" shall, after the end of each financial year, prepare and deliver, by 30th June following the financial year, an annual return of deduction of tax to the designated/concerned Assessing Officer. It is now mandatory for all offices of the Government and all companies to file the annual return of TDS on computer media only in accordance with the "Electronic Filing of Returns of Tax Deducted at Source Scheme, 2003" as notified vide Notification No. S.O. 974(E), dated 26-8-2003. (Annexure V) . Accordingly, the annual TDS return for financial year 2005-06, which would be required to be filed by 30-6-2006, would be filed by the Government deductors in electronic format only with the e-TDS Intermediary at any of the TIN Facilitation Centres, particulars of which are available at www.incometaxindia.gov.in and at http://tin.nsdl.com. If a person fails to furnish the annual return in due time, he shall be liable to pay by way of penalty under section 272A, a sum which shall be Rs.100 for every day during which the failure continues. However, this sum shall not exceed the amount of tax, which was deductible at source.

4.9 A return filed on the prescribed computer readable media shall be deemed to be a return for the purposes of section 206 and the rules made thereunder, and shall be admissible in any proceeding thereunder, without further proof of production of the original, as evidence of any contents of the original.

4.10 Challans for deposit of TDS : While making the payment of tax deducted at source to the credit of the Central Government, it may be ensured that the correct amount of income-tax is recorded in the relevant challan. It may also be ensured that the right type of challan is used. The relevant challan for making payment of tax deducted at source from salaries is challan No. ITNS-281. Where the amount of tax 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.

4.11 TDS on Income from Pension : In the case of pensioners who receive their pension from a nationalized bank, the instructions contained in this circular shall apply in the same manner as they apply to salary income. The deductions from the amount of pension under section 80C on account of contribution to Life Insurance, Provident Fund, NSC etc., if the pensioners furnish the relevant details to the banks, may be allowed. Necessary instructions in this regard were issued by the Reserve Bank of India to the State Bank of India and other Nationalized Banks vide RBI's Pension Circular(Central Series) No.7/C.D.R./1992 (Ref. CO: DGBA: GA (NBS) No.60/GA.64(11CVL)-/92) dated the 27th April, 1992, and, these instructions should be followed by all the branches of the Banks, which have been entrusted with the task of payment of pensions. Further all branches of the banks are bound under section 203 to issue certificate of tax deducted in Form No. 16 to the pensioners also vide CBDT Circular No. 761, dated 13-1-1998.

4.12 Important Circulars : Where non-residents are deputed to work in India and taxes are borne by the employer, if any refund becomes due to the employee after he has already left India and has no bank account in India by the time the assessment orders are passed, the refund can be issued to the employer as the tax has been borne by it : Circular No. 707, dated 11-7-1995.

4.13 TDS certificates issued by Central Government departments which are making payments by book adjustment, should be accepted by the Assessing Officers if they indicate that credit has been effected to the Income-tax Department by book adjustment and the date of such adjustment is given therein. In such cases, the Assessing Officers may not insist on details like challan numbers, dates of payment into Government Account etc., but they should in any case satisfy themselves regarding the genuineness of the certificates produced before them : Circular No. 747, dated 27-12-1996.

4.14 There is a specific procedure laid down for refund of payments made by the deductor in excess of taxes deducted at source, vide Circular No. 285, dated 21-10-1980.

4.15 In respect of non-residents, the salary paid for services rendered in India shall be regarded as income earned in India. It has been specifically provided in the Act that any salary payable for rest period or leave period which is both preceded or succeeded by service in India and forms part of the service contract of employment will also be regarded as income earned in India.

4.16 New procedure for TDS Returns and Quarterly Statements with effect from 1st of April, 2005 :

  (a)  The person deducting the tax (employer in case of salary income), is required to file Quarterly Statements for the periods ending on 30th June, 30th September, 31st December and 31st March of each financial year, duly verified, to the Director General of Income-tax (Systems) or M/s. National Securities Depository Ltd. (NSDL).These statements are required to be filed on or before the 15th July, the 15th October, the 15th January in respect of the first three quarters of the financial year and on or before the 15th Junefollowing the last quarter of the financial year.

  (b)  The Quarterly Statements are to be filed on computer media only in accordance with rule 31A of the Income-tax Rules, 1962. In case of failure in filing of the Quarterly Statement, the person deducting the tax shall be liable for a penalty under section 272A(2)(k) of Rs.100 for each day of default. These Quarterly Statements compulsorily require quoting of the Tax Deduction Account Number (TAN) of the tax deductor and the Permanent Account Number(PAN) of the employees whose tax has been deducted. Therefore, all Drawing and Disbursing Officers of the Central and State Governments/Departments, who have not yet obtained TAN, must immediately apply for and obtain TAN. Similarly, all employees (including non-resident employees) from whose income, tax is to be deducted may be advised to obtain PAN, if not already obtained, and to quote the same correctly, as otherwise the credit for the tax deducted cannot be given. A penalty under section 272B of Rs.10,000 has been prescribed for wilfully intimating a false PAN.

5. Estimation of income under the head "Salaries"

5.1 Income chargeable under the head "Salaries"

(1) The following income shall be chargeable to income-tax under the head "Salaries" :

 (a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him.

(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.

(2) For the removal of doubts, it is clarified that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due. Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as "Salary".

Definition of Salary :

(3) "Salary" includes wages, fees, commissions, perquisites, profits in lieu of, or, in addition to salary, advance of salary, annuity or pension, gratuity, payments in respect of encashment of leave etc. It also includes the annual accretion to the employee's account in a recognized provident fund to the extent it is chargeable to tax under rule 6 of Part A of the Fourth Schedule to the Income-tax Act. Contributions made by the employer to the account of the employee in a recognized provident fund in excess of 12 per cent of the salary of the employee, along with interest applicable, shall be included in the income of the assessee for the previous year. Any contribution made by the Central Government to the account of the employee under the New Pension Scheme as notified vide Notification No. F.N. 5/7/2003- ECB&PR, dated 22-12-2003 (copy enclosed as AnnexureVA) and referred to in section 80CCD (para 5.4(E) of this Circular) shall also be included in the salary income. Other items included in salary, profits in lieu of salary and perquisites are described in section 17 of the Income-tax Act. The scope of the term profit in lieu of salary has been amended so as not to include interest on contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. For the purposes of this sub-clause, the expression Keyman insurance policy shall have the meaning assigned to it in clause (10D) of section 10. It may be noted that, since salary includes pensions, tax at source would have to be deducted from pension also, if otherwise called for. However, no tax is required to be deducted from the commuted portion of pension as explained in clause (3) of para 5.2 of this Circular.

(4) Section 17 defines the terms "salary", "perquisite" and "profits in lieu of salary".

Perquisite includes :

(a) The value of rent free accommodation provided to the employee by his employer;

(b) The value of any concession in the matter of rent in respect of any accommodation provided to the employee by his employer;

(c) The value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:

(i) By a company to an employee who is a director of such company;

(ii) By a company to an employee who has a substantial interest in the company;

(iii) By an employer (including a company) to an employee, who is not covered by (i) or (ii) above and whose income under the head 'Salaries' ( whether due from or paid or allowed by one or more employers), exclusive of the value of all benefits and amenities not provided by way of monetary payment, exceeds Rs.50,000.

The rules relating to valuation of such benefits and amenities have been prescribed in rule 3. It is further provided that 'profits in lieu of salary' shall include amounts received in lump sum or otherwise, prior to employment or after cessation of employment for the purposes of taxation. The rules for valuation of perquisite are as under :—

I.Accommodation :—For purpose of valuation of the perquisite of unfurnished accommodation, all employees are divided into two categories: (i) Government and State Government employees; and (ii) Others.

For employees of the Central and State Government the value of perquisite shall be equal to the licence fee charged for such accommodation as reduced by the rent actually paid by the employee.

For all others, i.e., those salaried taxpayers not in employment of the Central Government and the State Government, the valuation of perquisite in respect of accommodation would be at prescribed rates, as discussed below :

a. Where the accommodation provided to the employee is owned by the employer, the rate is 20 per cent of 'salary' in cities having population exceeding four lakh as per the 2001 Census. For other places, the perquisite value would be 15 per cent of salary.

b. Where the accommodation so provided is taken on lease/rent by the employer, the prescribed rate is 20 per cent of the salary or the actual amount of lease rental payable by the employer, whichever is lower, as reduced by any amount of rent paid by the employee.

For furnished accommodation, the value of perquisite as determined by the above method shall be increased by—

(i) 10 per cent of the cost of furniture, appliances and equipments, or

(ii) where the furniture, appliances and equipments have been taken on hire, by the amount of actual hire charges payable.

- as reduced by any charges paid by the employee himself.

The scope of the word "accommodation" has been widened to include a house, flat, farm house, hotel accommodation, motel, service apartment, guest house, a caravan, mobile home, ship etc. However, the value of any accommodation provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site or a dam site or a power generation site or an off-shore site will not be treated as a perquisite. However, such accommodation should either be located in a "remote area" or where it is not located in a "remote area", the accommodation should be of a temporary nature having plinth area of not more than 800 square feet and should not be located within 8 kilometers of the local limits of any municipality or cantonment board. A project execution site for the purposes of this sub-rule means a site of project up to the stage of its commissioning. A "remote area" means an area located at least 40 kilometers away from a town having a population not exceeding 20,000 as per the latest published All-India Census. Off-shore sites of similar nature do not have to meet any requirement of distance.

If an accommodation is provided by an employer in a hotel the value of the benefit in such a case shall be 24 per cent of the annual salary or the actual charges paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided as reduced by any rent actually paid or payable by the employee. However, where in cases the employee is provided such accommodation for a period not exceeding in aggregate fifteen days on transfer from one place to another, no perquisite value for such accommodation provided in a hotel shall be charged. It may be clarified that while services provided as an integral part of the accommodation, need not be valued separately as perquisite, any other services over and above that for which the employer makes payment or reimburses the employee shall be valued as a perquisite as per the residual clause. In other words, composite tariff for accommodation will be valued as per these Rules and any other charges for other facilities provided by the hotel will be separately valued under the residual clause. Also, if on account of an employee's transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value as per the table prescribed in rule 3 of the Income-tax Rules, for a period up to 90 days. However, after that the value of perquisite shall be charged for both accommodations as prescribed.

II. Personal attendants etc. :—The value of free service of all personal attendants including a sweeper, gardener and a watchman is to be taken at actual cost to the employer. Where the attendant is provided at the residence of the employee, full cost will be taxed as perquisite in the hands of the employee irrespective of the degree of personal service rendered to him. Any amount paid by the employee for such facilities or services shall be reduced from the above amount.

III. Gas, electricity & water :—For free supply of gas, electricity and water for household consumption, the rules provide that the amount paid by the employer to the agency supplying the amenity shall be the value of perquisite. Where the supply is made from the employer's own resources, the manufacturing cost per unit incurred by the employer would be taken for the valuation of perquisite. Any amount paid by the employee for such facilities or services shall be reduced from the above amount.

IV. Free or concessional education:—Perquisite on account of free or concessional education shall be valued in a manner assuming that such expenses are borne by the employee, and would cover cases where an employer is running, maintaining or directly or indirectly financing the educational institution. Any amount paid by the employee for such facilities or services shall be reduced from the above amount. However, where such educational institution itself is maintained and owned by the employer or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality if the cost of such education or such benefit per child exceeds Rs.1000 p.m.

V. Interest-free or concessional loans :—It is common practice, particularly in financial institutions, to provide interest free or concessional loans to employees or any member of his household. The value of perquisite arising from such loans would be the excess of interest payable at prescribed interest rate over interest, if any, actually paid by the employee or any member of his household. The prescribed interest rate would now be the rate charged per annum by the State Bank of India as on the 1st day of the relevant financial year in respect of loans of same type and for the same purpose advanced by it to the general public. Perquisite value would be calculated on the basis of the maximum outstanding monthly balance method. For valuing perquisites under this rule, any other method of calculation and adjustment otherwise adopted by the employer shall not be relevant.

However, small loans up to Rs. 20,000 in the aggregate are exempt. Loans for medical treatment specified in rule 3A are also exempt, provided the amount of loan for medical reimbursement is not reimbursed under any medical insurance scheme. Where any medical insurance reimbursement is received, the perquisite value at the prescribed rate shall be charged from the date of reimbursement on the amount reimbursed, but not repaid against the outstanding loan taken specifically for this purpose.

VI. Use of assets :—It is common practice for an asset owned by the employer to be used by the employee. This perquisite is to be charged at the rate of 10 per cent of the original cost of the asset as reduced by any charges recovered from the employee for such use. However, the use of computers and laptops would not give rise to any perquisite.

VII. Transfer of assets :—Often an employee or member of his household benefits from the transfer of movable asset (not being shares or securities) at no cost or at a cost less than its market value from the employer. The difference between the original cost of the movable asset(not being shares or securities) and the sum, if any, paid by the employee, shall be taken as the value of perquisite. In case of a movable asset, which has already been put to use, the original cost shall be reduced by a sum of 10 per cent of such original cost for every completed year of use of the asset. Owing to a higher degree of obsolescence, in case of computers and electronic gadgets, however, the value of perquisite shall be worked out by reducing 50 per cent of the actual cost by the reducing balance method for each completed year of use. Electronic gadgets in this case means data storage and handling devices like computer, digital diaries and printers. They do not include household appliance (i.e. white goods) like washing machines, microwave ovens, mixers, hot plates, ovens etc. Similarly, in case of cars, the value of perquisite shall be worked out by reducing 20 per cent of its actual cost by the reducing balance method for each completed year of use.

VIII. Employee Stock Option Plan : —Prior to Finance Act, 2000, stock options were taxed at two stages i.e., as perquisite (on the amount representing the difference between the exercise price and the fair market value on the date of exercise), and as capital gains at the time of transfer of the same. With effect from 1-4-2001 (relevant to assessment year 2001-02) onward, stock options issued as per guidelines of the Central Government are to be taxed only once, at the time of sale, as capital gains. In cases, where perquisite has been assessed with reference to exercise of the option by the employee under section 17(2), the fair market value at the time of exercise of the option shall be the cost of acquisition of share for working out the capital gains. The relevant guidelines of the Central Government have been issued vide Notification No.1021(E), dated 11-10-2001. Stock options not in conformity with the above guidelines (non-qualified stock options) shall continue to be taxed at both the stages.

It is pertinent to mention that benefits specifically exempt under sections 10(13A), 10(5), 10(14), 17 etc. would continue to be exempt. These include benefits like travel on tour and transfer, leave travel, daily allowance to meet tour expenses as prescribed, medical facilities subject to conditions.

5.2 Incomes not included in the head "Salaries"(Exemptions) : Any income falling within any of the following clauses shall not be included in computing the income from salaries for the purpose of section 192 of the Act :—

(1) The value of any travel concession or assistancereceived by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding (a) on leave to any place in India or (b) on retirement from service, or, after termination of service to any place in India is exempt under clause (5) of section 10 subject, however, to the conditions prescribed in rule 2B of the Income-tax Rules, 1962.

For the purpose of this clause, "family" in relation to an individual means :

(i) The spouse and children of the individual; and

(ii) The parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.

It may also be noted that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.

(2) Death-cum-retirement gratuity or any other gratuity which is exempt to the extent specified from inclusion in computing the total income under clause (10) of section 10.

(3) Any payment in commutation of pension received under the Civil Pension (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union, or holders of civil posts/posts connected with defence, under the Union, or civil posts under a State, or to the members of the All India Services/Defence Services, or, to the employees of a local authority or a corporation established by a Central, State or Provincial Act, is exempt under sub-clause (i) of clause (10A) of section 10. As regards payments in commutation of pension received under any scheme of any other employer, exemption will be governed by the provisions of sub-clause (ii) of clause (10A) of section 10.

(4) Any payment received by an employee of the Central Government or a State Government, as cash equivalent of the leave salaryin respect of the period of earned leave at his credit at the time of his retirement on superannuation or otherwise, is exempt under sub-clause (i) of clause (10AA) of section 10. In the case of other employees, this exemption will be determined with reference to the leave to their credit at the time of retirement on superannuation, or otherwise, subject to a maximum of ten months' leave. This exemption will be further limited to the maximum amount specified by the Government of India Notification No. S.O. 588(E), dated 31-5-2002 at Rs. 3,00,000 in relation to such employees who retire, whether on superannuation or otherwise, after 1-4-1998.

(5) Under section 10(10B), the retrenchment compensationreceived 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 any amount not less than Rs.50,000 as the Central Government may by notification specify in the Official Gazette, 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 workmen in the undertaking to which the scheme applies and other relevant circumstances. The maximum limit of such payment is Rs. 5,00,000 where retrenchment is on or after 1-1-1977.

(6) Under section 10(10C), any payment received or receivable (even if received in instalments) by an employee of the following bodies at the time of his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirementor in the case of public sector company, a scheme of voluntary separation, is exempted from income-tax to the extent that such amount does not exceed five lakh rupees:

(a) A public sector company;

(b) Any other company;

(c) An Authority established under a Central, State or Provincial Act;

(d) A Local Authority;

(e) A Co-operative Society;      

(f) A university established or incorporated or under a Central, State or Provincial Act, or, an Institution declared to be a University under section 3 of the University Grants Commission Act, 1956;

(g) Any Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institute of Technology Act, 1961;

(h) Such Institute of Management as the Central Government may by notification in the Official Gazette, specify in this behalf.

It may also be noted that where this exemption has been allowed to any employee for any assessment year, it shall not be allowed to him for any other assessment year. The exemption of amount received under VRS has been extended to employees of the Central Government and State Government employees and employee of notified institutions having importance throughout India or any State or States.

(7) Any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy other than:

(i) any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA or,

(ii) any sum received under Keyman insurance policy or,

(iii) any sum received under an insurance policy issued on or after 1-4-2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20 per cent of the actual capital sum assured. However, any sum received under such policy on the death of a person would still be exempt.

(8) Any payment from a Provident Fund to which the Provident Funds Act, 1925 (19 of 1925), applies ( or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette).

(9) Under section 10(13A) of the Income-tax Act, 1961, any special allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee is exempt from income-tax to the extent as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations. According to rule 2A of the Income-tax Rules, 1962, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be:

(a) The actual amount of such allowance received by an employer in respect of the relevant period; or

(b) The actual expenditure incurred in payment of rent in excess of 1/10 of the salary due for the relevant period; or

(c) Where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50 per cent of the salary due to the employee for the relevant period; or

(d) Where such accommodation is situated in any other place, 40 per cent of the salary due to the employee for the relevant period,

whichever is the least.

For this purpose, "salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

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 from the total income of the employee.

Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance up to Rs. 3,000 per month will be exempted from production of rent receipt. It may, however, be noted that this 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 enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.

(10) Clause (14) of section 10 provides for exemption of the following allowances :—

(i) Any special allowance or benefit granted to an employee to meet the expenses incurred in the performance of his duties as prescribed under rule 2BB subject to the extent to which such expenses are actually incurred for that purpose.

(ii) Any allowance granted to an employee either to meet his personal expenses at the place of his posting or at the place he ordinarily resides or to compensate him for the increased cost of living, which may be prescribed and to the extent as may be prescribed.

However, the allowance referred to in (ii) above should not be in the nature of a personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to his place of posting or residence.

The CBDT has prescribed guidelines for the purpose of clauses (i) and (ii) of section 10(14) vide Notification No. SO 617(E), dated 7th July, 1995 (F.No.142/9/95-TPL) which has been amended vide Notification SO No. 403(E), dated 24-4-2000 (F.No.142/34/99-TPL). The transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of duty is exempt to the extent of Rs. 800 per month vide Notification S.O. No. 395(E), dated 13-5-1998.

(11) Under section 10(15)(iv)(i) of the Income-tax Act, interest payable by the Government on deposits made by an employee of the Central Government or a State Government or a public sector company from out of his retirement benefits, in accordance with such scheme framed in this behalf by the Central Government and notified in the Official Gazette is exempt from income-tax. By Notification No. F.2/14/89-NS-II, dated 7-6-1989, as amended by Notification No. F.2/14/89-NS-II, dated 12-10-1989, the Central Government has notified a scheme called Deposit Scheme for Retiring Government Employees, 1989 for the purpose of the said clause.

(12) Clause (18) of section 10 provides for exemption of any income by way of pension received by an individual or family pension received by any member of the family of an individual who has been in the service of the Central Government or State Government and has been awarded "Param Vir Chakra" or "Maha Vir Chakra" or "Vir Chakra" or such other gallantry award as may be specifically notified by the Central Government. Such notification has been made vide Notification Nos. SO 1948(E), dated 24-11-2000 and 81(E), dated 29-1-2001 which are enclosed as per Annexures VIA & VIB

(13) Under section 17 of the Act, exemption from tax will also be available in respect of :—

(a) the value of any medical treatment provided to an employee or any member of his family, in any hospital maintained by the employer;

(b) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or of any member of his family:

(i) in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees;

(ii) in respect of the prescribed diseases or ailments as provided in rule 3A(2) of Income-tax Rules, 1962 , in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines as provided in rule 3A(1) of Income-tax Rules, 1962 :

In a case falling in sub-clause (ii) above, the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital.

(c) premium paid by the employer in respect of medical insurance taken for his employees (under any scheme approved by the Central Government) or reimbursement of insurance premium to the employees who take medical insurance for themselves or for their family members (under any scheme approved by the Central Government);

(d) reimbursement, by the employer, of the amount spent by an employee in obtaining medical treatment for himself or any member of his family from any doctor, not exceeding in the aggregate Rs.15,000 in a year.

(e) as regards medical treatment abroad, the actual expenditure on stay and treatment abroad of the employee or any member of his family, or, on stay abroad of one attendant who accompanies the patient, in connection with such treatment, will be excluded from perquisites to the extent permitted by the Reserve Bank of India. It may be noted that the expenditure incurred on travel abroad by the patient/attendant, shall be excluded from perquisites only if the employee's gross total income, as computed before including the said expenditure, does not exceed Rs.2 lakhs.

For the purpose of availing exemption on expenditure incurred on medical treatment, "hospital" includes a dispensary or clinic or nursing home, and "family" in relation to an individual means the spouse and children of the individual. Family also includes parents, brothers and sisters of the individual if they are wholly or mainly dependent on the individual.

5.3 Deductions under section 16 of the Act

Entertainment allowance - A deduction is also allowed under clause (ii) of section 16 in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee, who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary(exclusive of any allowance, benefit or other perquisite) or five thousand rupees whichever is less. The deduction hitherto available to non-Government employees has been withdrawn.

Tax on employment :

The tax on employment (Professional Tax) within the meaning of clause (2) of article 276 of the Constitution of India, leviable by or under any law, shall also be allowed as a deduction in computing the income under the head "Salaries".

It may be clarified that "Standard Deduction" from gross salary income of Rs. 30,000 or Rs. 20,000, depending upon the amount of salaries, which was being allowed up to financial year 2004-05 shall not be allowed from financial year 2005-06 onwards.

5.4 Deductions under Chapter VI-A of the Act - In computing the taxable income of the employee, the following deductions under Chapter VI-A of the Act are to be allowed from his gross total income:

A. As per section 80C, an employee will be entitled to deductions for the whole of amounts paid or deposited in the current financial year in the following schemes, subject to a limit of Rs.1,00,000 :

(1) Payment of insurance premium to effect or to keep in force an insurance on the life of the individual, the spouse or any child of the individual.

(2) Any payment made to effect or to keep in force a contract for a deferred annuity, not being an annuity plan as is referred to in item (7) hereinbelow on the life of the individual, the spouse or any child of the individual, provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity;

(3) Any sum deducted from the salary payable by, or, on behalf of the Government to any individual, being a sum deducted in accordance with the conditions of his service for the purpose of securing to him a deferred annuity or making provision for his spouse or children, insofar as the sum deducted does not exceed 1/5th of the salary;

(4) Any contribution made :

(a) by an individual to any Provident Fund to which the Provident Fund Act, 1925 applies;

(b) to any provident fund set up by the Central Government, and notified by it in this behalf in the Official Gazette, where such contribution is to an account standing in the name of an individual, or spouse or children ;

 [The Central Government has since notified Public Provident Fund vide Notification S.O. No. 1559(E), dated 3-11-2005.]

(c) by an employee to a Recognized Provident Fund;

(d) by an employee to an approved superannuation fund.

It may be noted that "contribution" to any Fund shall not include any sums in repayment of loan;

(5) Any subscription :—

(a) to any such security of the Central Government or any such deposit scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(b) to any such saving certificates as defined under section 2(c) of the Government Saving Certificates Act, 1959 as the Government may, by notification in the Official Gazette, specify in this behalf.

[The Central Government has since notified National Saving Certificate (VIIIth Issue) vide Notification S.O. No. 1560(E), dated 3-11-2005.]

(6) Any sum paid as contribution in the case of an individual, for himself, spouse or any child,

(a) for participation in the Unit Linked Insurance Plan, 1971 of the Unit Trust of India;

(b) for participation in any unit-linked insurance plan of the LIC Mutual Fund notified by the Central Government under clause (23D) of section 10.

[The Central Government has since notified Unit-Linked Insurance Plan (formerly known as Dhanraksha, 1989) of LIC Mutual Fund vide Notification S.O. No. 1561(E), dated 3-11-2005.]

(7) Any subscription made to effect or keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may by notification in the Official Gazette, specify;

[The Central Government has since notified New Jeevan Dhara, New Jeevan Dhara-I, New Jeevan Akshay, New Jeevan Akshay-I and New Jeevan Akshay-II vide Notification S.O. No. 1562(E), dated 3-11-2005.]

(8) Any subscription made to any units of any Mutual Fund, notified under clause(23D) of section 10, or from the Administrator or the specified company referred to in Unit Trust of India (Transfer of Undertaking & Repeal) Act, 2002 under any plan formulated in accordance with any scheme as the Central Government, may, by notification in the Official Gazette, specify in this behalf;

[The Central Government has since notified the Equity Linked Saving Scheme, 2005 for this purpose. The Notification issued in this regard is available at the website of the Income-tax Department at www.incometaxindia.gov.in]

The investments made after 1-4-2005 in plans formulated in accordance with Equity Linked Saving Scheme, 1992 or Equity Linked Saving Scheme, 1998 shall also qualify for deduction under section 80C.

(9) Any contribution made by an individual to any pension fund set up by any Mutual Fundnotified under clause (23D) of section 10, or, by the Administrator or the specified company referred to in Unit Trust of India (Transfer of Undertaking & Repeal) Act, 2002, as the Central Government may, by notification in the Official Gazette, specify in this behalf;

[The Central Government has since notified UTI-Retirement Benefit Pension Fund vide Notification S.O. No. 1564(E), dated 3-11-2005.]

(10) Any subscription made to any such deposit scheme of, or, any contribution made to any such pension fund set up by, the National Housing Bank, as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(11) Any subscription made to any such deposit scheme, as the Central Government may, by notification in the Official Gazette, specify for the purpose of being floated by (a) public sector companies engaged in providing long-term finance for construction or purchase of houses in India for residential purposes, or, (b) any authority constituted in India by, or, under any law, enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both.

(12) Any sums paid by an assessee for the purpose of purchase or construction of a residential house property, the income from which is chargeable to tax under the head "Income from house property" (or which would, if it has not been used for assessee's own residence, 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 an assessee from the Government, or any bank or Life Insurance Corporation, or National Housing Bank, or certain other categories of institutions engaged in the business of providing long-term finance for construction or purchase of houses in India. Any repayment of loan borrowed from the employer will also be covered, if the employer happens to be a public company, or a public sector company, or a university established by law, or a college affiliated to such university, or a local authority, or a co-operative society, or an authority, or a board, or a corporation, or any other body established under a Central or State Act.

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 any addition or alteration to, or, renovation or repair of the house property which is carried out after the issue of the completion certificate by competent authority, or after the occupation of the house by the assessee or after it has been let out. Payments towards any expenditure in respect of which the deduction is allowable under the provisions of section 24 of the Income-tax Act will also not be included in payments towards the cost of purchase or construction of a house property.

Where the house property in respect of which deduction has been allowed under these provisions is transferred by the taxpayer at any time before the expiry of five years from the end of the financial year in which possession of such property is obtained by him or he receives back, by way of refund or otherwise, any sum specified in section 80C(2)(xviii), no deduction under these provisions shall be allowed in respect of such sums paid in such previous year in which the transfer is made and the aggregate amount of deductions of income so allowed in the earlier years shall be added to the total income of the assessee of such previous year and shall be liable to tax accordingly.

(13) Tuition fees, whether at the time of admission or thereafter, paid to any university, college, school or other educational institution situated in India, for the purpose of full-time education of any two children of the employee.

It is clarified that any payment towards any development fees or donation or payment of similar nature does not qualify for deduction under these provisions.

(14) Subscription to equity shares or debentures forming part of any eligible issue of capital made by a public company or by any public finance institution , which is approved by the Board.

(15) Subscription to any units of any mutual fund referred to in clause (23D) of section 10 and approved by the Board for this purpose.

It may be clarified that the amount of premium or other payment made on an insurance policy [other than a contract for deferred annuity mentioned in sub-para (2)] shall be eligible for deduction only to the extent of 20 per cent of the actual capital sum assured. In calculating any such actual capital sum, the following shall not be taken into account:

(i) the value of any premiums agreed to be returned, or

(ii) any benefit by way of bonus or otherwise over and above the sum actually assured which may be received under the policy.

B. As per section 80CCC, where an assessee being an individual has in the previous year paid or deposited any amount out of his income chargeable to tax to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pensionfrom the fund referred to in clause (23AAB) of section 10, he shall, in accordance with, and subject to the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount paid or deposited (excluding interest or bonus accrued or credited to the assessee's account, if any) as does not exceed the amount of ten thousand rupees in the previous year.

Where any amount paid or deposited by the assessee has been taken into account for the purposes of this section, a rebate/deduction with reference to such amount shall not be allowed under section 88 up to assessment year 2005-06 and under section 80C from assessment year 2006-07 onwards.

C.As per the provisions of section 80CCD, where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004, has in the previous year paid or deposited any amount in his account under a pension scheme as notified vide Notification No. F.N. 5/7/2003- ECB&PR, dated 22-12-2003 (Annexure VA), he shall be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed ten per cent of his salary in the previous year.

Where, in the case of such an employee, the Central Government makes any contribution to his account under such pension scheme, the employee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government as does not exceed ten per cent of his salary in the previous year.

Where any amount standing to the credit of the assessee in his account under such pension scheme, in respect of which a deduction has been allowed as per the provisions discussed above, together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any financial year,—

(a) on account of closure or his opting out of such pension scheme; or

(b) as pension received from the annuity plan purchased or taken on such closure or opting out,

the whole of the amount referred to in clause (a) or clause (b) above shall be deemed to be the income of the assessee or his nominee, as the case may be, in the financial year in which such amount is received, and shall accordingly be charged to tax as income of that financial year.

For the purposes of deduction under section 80CCD, "salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

The aggregate amount of deduction under sections 80C, 80CCC and 80CCD shall not exceed Rs.1,00,000 (Section 80CCE)

D.Under section 80D, in the case of the following categories of persons, a deduction can be allowed for a sum not exceeding Rs.10,000 per annum to the extent payment is made by cheque out of their income chargeable to tax to keep in force an insurance on the health of the categories of persons mentioned below provided that such insurance shall be in accordance with a scheme framed in this behalf by—

(a) the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalization) Act, 1972 and approved by the Central Government in this behalf; or

(b) any other insurer and approved by the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999.

The categories of persons are :

(i) where the assessee is an individual, any sum paid to effect or to keep in force an insurance on the health of the assessee or on the health of the wife or husband, dependent parents or dependent children of the assessee.

(ii) where the assessee is a Hindu undivided family, any sum paid to effect or to keep in force an insurance on the health of any member of the family.

However, the deduction can be allowed for a sum not exceeding Rs. 15,000 per annum where the assessee or his wife or husband, or dependent parents or any member of the family (in case the assessee is a Hindu undivided family) is a senior citizen which means an individual resident in India who is of the age of sixty-five years or more at any time during the relevant previous year.

E. Under section 80DD, where an assessee, who is a resident in India, has, during the previous year,—

(a) incurred any expenditure for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability; or

(b) paid or deposited any amount under a scheme framed in this behalf by the Life Insurance Corporation or any other insurer or the Administrator or the specified company subject to the conditions specified in this regard and approved by the Board in this behalf for the maintenance of a dependant, being a person with disability,

the assessee shall be allowed a deduction of a sum of fifty thousand rupees from his gross total income of that year, subject to the conditions listed below :

However, where such dependant is a person with severe disability, an amount of seventy-five thousand rupees shall be allowed as deduction subject to the specified conditions.

The deduction under this section shall be allowed only if the following conditions are fulfilled:—

A.       (i) the scheme referred to in clause (b) above provides for payment of annuity or lump sum amount for the benefit of a dependant, being a person with disability, in the event of the death of the individual in whose name subscription to the scheme has been made;

(ii) the assessee nominates either the dependant, being a person with disability, or any other person or a trust to receive the payment on his behalf, for the benefit of the dependant, being a person with disability.

However, if the dependant, being a person with disability, predeceases the assessee, an amount equal to the amount paid or deposited under sub-para (3)(b) above shall be deemed to be the income of the assessee of the previous year in which such amount is received by the assessee and shall accordingly be chargeable to tax as the income of that previous year.

B. The assessee, claiming a deduction under this section, shall furnish a copy of the certificate issued by the medical authority in the prescribed form and manner, along with the return of income under section 139, in respect of the assessment year for which the deduction is claimed:

In cases where the condition of disability requires reassessment of its extent after a period stipulated in the aforesaid certificate, no deduction under this section shall be allowed for any subsequent period unless a new certificate is obtained from the medical authority in the prescribed form and manner and a copy thereof is furnished along with the return of income.

For the purposes of section 80DD,—

(a) "Administrator" means the Administrator as referred to in clause (a) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) ;

(b) "dependant" means—

(i) in the case of an individual, the spouse, children, parents, brothers and sisters of the individual or any of them;

(ii) in the case of a Hindu undivided family, a member of the Hindu undivided family,

dependant wholly or mainly on such individual or Hindu undivided family for his support and maintenance, and who has not claimed any deduction under section 80U in computing his total income for the assessment year relating to the previous year;

(c) "disability" shall have the meaning assigned to it in clause (i) of section 2 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996) and includes "autism", "cerebral palsy" and "multiple disability" referred to in clauses (a), (c) and (h) of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);

(d) "Life Insurance Corporation" shall have the same meaning as in clause (iii) of sub-section (8) of section 88;

(e) "medical authority" means the medical authority as referred to in clause (p) of section 2 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996) or such other medical authority as may, by notification, be specified by the Central Government for certifying "autism", "cerebral palsy", "multiple disabilities", "person with disability" and "severe disability" referred to in clauses (a), (c), (h), (j) and (o) of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);

(f) "person with disability" means a person as referred to in clause (t) of section 2 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996) or clause (j) of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);

(g) "person with severe disability" means—

(i) a person with eighty per cent or more of one or more disabilities, as referred to in sub-section (4) of section 56 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996); or

(ii) a person with severe disability referred to in clause (o) of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);

(h) "specified company" means a company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002).

F. Under section 80E of the Act a deduction will be allowed in respect of repayment of interest on loan taken for higher education, subject to the following conditions :

(i) In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of interest on loan, taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education.

(ii) The deduction specified above shall be allowed in computing the total income in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest referred to above is paid in full by the assessee , whichever is earlier.

For this purpose—

(a) "approved charitable institution" means an institution established for charitable purposes and notified by the Central Government under clause (2C) of section 10, or, an institution referred to in clause (a) of sub-section (2) of section 80G.

(b) "financial institution" means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf;

(c) "higher education" means full-time studies for any graduate or post-graduate courses in engineering, medicine, management, or, for post-graduate course in applied sciences or pure sciences, including mathematics and statistics;

(d) "initial assessment year" means the assessment year relevant to the previous year, in which the assessee starts paying the interest on the loan.

G. No deduction should be allowed by the D.D.O. from the salary income in respect of any donations made for charitable purposes. The tax relief on such donations as admissible under section 80G of the Act, will have to be claimed by the taxpayer in the return of income. However, D.D.O. on due verification may allow donations to following bodies to the extent of 50 per cent of the contribution:

      (i)         Jawaharlal Nehru Memorial Fund.

      (ii)        The Prime Minister's Drought Relief Fund.

      (iii)       The National Children's Fund.

      (iv)       The Indira Gandhi Memorial Trust.

      (v)        The Rajiv Gandhi Foundation,

and to the following bodies to the extent of 100 per cent of the contribution:

    i.  National Defence Fund or The Prime Minister's National Relief Fund.

   ii.  The Prime Minister's Armenia Earthquake Relief Fund.

 iii.  The Africa (Public Contributions - India) Fund.

  iv.  The National Foundation for Communal Harmony.

   v.  Chief Minister's Earthquake Relief Fund - Maharashtra.

  vi.  National Blood Transfusion Council.

vii.  State Blood Transfusion Council.

viii.  Army Central Welfare Fund.

  ix.  Indian Naval Benevolent Fund.

   x.  Air Force Central Welfare Fund.

  xi.  The Andhra Pradesh Chief Minister's Cyclone Relief Fund - 1996.

xii.  The National Illness Assistance Fund.

xiii.  The Chief Minister's Relief Fund or Lieutenant Governor's Relief Fund in respect of any State or Union Territory as the case may be, subject to certain conditions.

xiv.  The University or Educational Institution of national eminence approved by the Prescribed Authority.

xv. The National Sports Fund to be set up by Central Government.

xvi.  The National Cultural Fund set up by the Central Government.

xvii. The Fund for Technology Development and Application set by the Central Government.

xviii.        The National Trust for Welfare of persons with Autism, Cerebral Palsy, Mental Retardation and Multiple disabilities.

H. Under section 80GG of the Act an assessee is entitled to a deduction in respect of house rent paid by him for his own residence. 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) of the Act;

(b) the assessee files the declaration in Form No.10BA. (Annexure VII )

(c) 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. 2,000 per month, whichever is less. The total income for working out these percentages will be computed before making any deduction under section 80GG.

(d) The assessee does not own :

(i) any residential accommodation himself or by his spouse or minor child or where such assessee is a member of a Hindu Undivided Family, by such family, at the place where he ordinarily resides or performs duties of his office or carries on his business or profession; or

(ii) at any other place, any residential accommodation being accommodation in the occupation of the assessee, the value of which is to be determined under clause (a) of sub-section (2) or, as the case may be, clause (a) of sub-section (4) of section 23:

The Drawing and Disbursing Authorities should satisfy themselves that all the conditions mentioned above are satisfied before such deduction is allowed by them to the assessee. They should also satisfy themselves in this regard by insisting on production of evidence of actual payment of rent.

I. Under section 80U, in computing the total income of an individual, being a resident, who, at any time during the previous year, is certified by the medical authority to be a person with disability, there shall be allowed a deduction of a sum of fifty thousand rupees.

However, where such individual is a person with severe disability, a higher deduction of seventy-five thousand rupees shall be allowable.

Every individual claiming a deduction under this section shall furnish a copy of the certificate issued by the medical authority in the prescribed form and manner along with the return of income, in respect of the assessment year for which the deduction is claimed.

In cases where the condition of disability requires reassessment of its extent after a period stipulated in the aforesaid certificate, no deduction under this section shall be allowed for any subsequent period unless a new certificate is obtained from the medical authority in the prescribed form and manner and a copy thereof is furnished along with the return of income.

For the purposes of this section, the expressions "disability", "medical authority", "person with disability" and "person with severe disability" shall have the same meaning as given in section 80DD (sub-para E of para 5.4 of this Circular).

DDOs to satisfy themselves of the genuineness of claim:

(21) The Drawing and Disbursing Officers should satisfy themselves about the actual deposits/subscriptions/payments made by the employees, by calling for such particulars/information as they deem necessary before allowing the aforesaid deductions. 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 deduction/rebate on such amount by filing his return of income and furnishing the necessary proof etc., therewith, to the satisfaction of the Assessing Officer.

6. Calculation of income-tax to be deducted

6.1 Salary income for the purpose of section 192 shall be computed as follows:—

(a) First compute the gross salary as mentioned in para 5.1 excluding all the incomes mentioned in para 5.2;

(b) Allow deductions mentioned in para 5.3 from the figure arrived at (a) above.

(c) Allow deductions mentioned in para 5.4 from the figure arrived at (b) above ensuring that aggregate of the deductions mentioned in para 5.4 does not exceed the figure of (b) and if it exceeds, it should be restricted to that amount.

This will be the amount of income from salaries on which income-tax would be required to be deducted. This income should be rounded off to the nearest multiple of ten rupees.

6.2 Income-tax on such income shall be calculated at the rates given in para 2 of this Circular keeping in view the age and gender of the employee.

6.3 The amount of tax payable so arrived at shall be increased by surcharge (if applicable) and additional surcharge (Education Cess) at the prescribed rate to arrive at the total tax payable.

6.4 The amount of tax as arrived at para 6.3 should be deducted every month in equal instalments. Any excess or deficit arising out of any previous deduction can be adjusted by increasing or decreasing the amount of subsequent deductions during the same financial year.

7. Miscellaneous

7.1 These instructions are not exhaustive and are issued only with a view to helping the employers to understand the various provisions relating to deduction of tax from salaries. Wherever there is any doubt, reference may be made to the provisions of the Income-tax Act, 1961, the Income-tax Rules, 1962 and the Finance Act, 2005.

ANNEXURE I

Assessment Year 2006-07

Example 1

Calculation of Income-tax in the case of a male employee having gross salary income of :
(i)  Rs. 2,00,000,
(ii)  Rs. 5,00,000, and
(iii)  Rs. 10,00,000
Particulars	(Rs.)	(Rs.)	(Rs.)
	(i)	(ii)	(iii)
Gross Salary Income	2,00,000	5,00,000	10,00,000
(Including allowances)
Contribution to G.P.F.	20,000	50,000	1,00,000
Computation of Total Income and tax payable thereon
Gross Salary	2,00,000	5,00,000	10,00,000
Less : Deduction u/s 80C	20,000	50,000	1,00,000
Taxable Income	1,80,000	4,50,000	9,00,000
Tax thereon	11,000	85,000	2,20,000
Add : Surcharge	Nil	Nil	Nil
Add : Education Cess @2%	220	1,700	4,400
Total tax payable	11,220	86,700	2,24,400

Note : Surcharge at the rate of 10% of the tax payable is to be charged only if taxable income exceeds Rs.10,00,000

Example 2

Calculation of Income-tax in the case of a male employee having handicapped dependant.

Particulars :

1.  Gross Salary		Rs.  3,20,000
2.  Amount spent on treatment of a dependant, being person with disability (but not severe disability)		Rs.       7,000
3.  Amount paid to LIC with regard to annuity for the maintenance of a dependant, being person with disability (but not severe disability)		Rs.     50,000
4.  GPF Contribution		Rs.     25,000
5.  LIP Paid		Rs.       0,000
Computation of Tax
Gross Salary			Rs.   3,20,000
Less : Deduction u/s 80DD
(Restricted to Rs. 50,000 only)			Rs.      50,000
Taxable Income			Rs.   2,70,000
Less : Deduction u/s 80C :	Rs.
GPF	25,000
LIP	10,000
Total	35,000			35,000
Total income				Rs. 2,35,000
Income-tax thereon			Rs. 22,000
Add : Surcharge			Nil
Add : Education Cess @2%:			Rs. 440
Total tax Payable			Rs. 22,400

Example 3

Calculation of Income-tax in the case of a male employee where medical treatment expenditure was borne by the employer.

Particulars :
1.  Gross Salary		Rs.	3,00,000
2.  Medical Reimbursement by employer on the treatment of self and dependant family member		Rs.	30,000
3.  Contribution of GPF		Rs.	20,000
4.  LIP premium		Rs.	20,000
5.  Repayment of House Building Advance		Rs.	25,000
6.  Tuition fees for two children		Rs.	30,000
7.  Investment in infrastructure bonds		Rs.	20,000
Computation of Tax
Gross Salary		Rs.	3,00,000
Add: Perquisite in respect of reimbursement of Medical expenses in excess of Rest.15,000 in view of section 17(2)(v)		Rs.	15,000
Taxable Income		Rs.	3,15,000
Less : Deduction u/s 80C:	Rs.
GPF	20,000
LIC	20,000
Repayment of HBA	25,000
Tuition Fees	30,000
Investment in infrastructure bonds	20,000
Total	1,15,000
Restricted to Rs. 1,00,000		Rs.	1,00,000
Total Income:		Rs.	2,15,000
Tax Payable		Rs.	18,000
Add : Surcharge			Nil
Add : Education Cess @ 2%		Rs.	360
Total Tax Payable		Rs.	18,360

Example 4

Illustrative calculation of House Rent Allowance u/s 10 (13A)in respect of residential accommodation situated in Delhi in case of a female employee:

Particulars :
1.  Salary			Rs.	2,00,000
2.  Dearness Allowance			Rs.	1,00,000
3.  House Rent Allowance			Rs.	1,20,000
4.  C.C.A.			Rs.	6,000
5.  House rent paid			Rs.	1,44,000
6.  General Provident Fund			Rs.	36,000
7.  Life Insurance Premium			Rs.	4,000
8.  Subscription to Infrastructure Bonds			Rs.	20,000
Computation of total income and tax payable thereon
1.  Salary + D.A. + C.C.A.			Rs.	3,06,000
House Rent Allowance			Rs.	1,20,000
2.  Total Salary income			Rs.	4,26,000
3.  Less: House Rent allowance exempt u/s 10(13A):
Least of:
a.  Actual amount of HRA received = Rs. 1,20,000
b.  Expenditure of rent in excess of 10% of salary (including D.A. presuming that D.A. is taken for retirement benefit) (Rs. 1,44,000-Rs. 30,000) = Rs. 1,14,000
c.  50% of Salary(Basic+ DA)= Rs.1,50,000			Rs.	1,14,000
Gross Total Income    :			Rs.	3,12,000
Less : Deduction u/s 80C:		Rs.
GPF	:	36,000
LIC	:	4,500
Subscription to	:
infrastructure		Rs.
bonds	:	20,000
Total	:	60,000	Rs.	60,000
Total Income:			Rs.	2,52,000
Tax on total income			Rs.	21,900
Surcharge :				Nil
Education Cess @ 2%			Rs.	438
Total Tax Payable			Rs.	22,338

Example 5

Illustrating valuation of perquisites and calculation of tax in the case of a male employee of a private company in Mumbai who was provided accommodation in a flat at concessional rate for ten months and in a hotel for two months.

Particulars
1.  Salary		:	Rs.	5,00,000
2.  Bonus		:	Rs.	76,000
3.  Free gas, electricity, water etc.
Actual bills paid by company)		:	Rs.	24,000
4.  (a) Furnished flat provided to the employee for which actual rent paid by the company per annum		:	Rs.	1,20,000
(b)  Hotel rent paid by employer (for two months)		:	Rs.	50,000
(c)  Rent recovered from employee		:	Rs.	10,000
(d)  Cost of furniture		:	Rs.	1,00,000
5.  Subscription to infrastructure bonds		:	Rs.	30,000
6.  Life Insurance Premium		:	Rs.	5,000
7.  Subscription to NSC (VIII) Issue		:	Rs.	20,000
10.  Contribution to recognized P.F.		:	Rs.	36,000
COMPUTATION OF TOTAL INCOME AND TAX PAID THEREON
1.  Salary		:	Rs.	5,00,000
2.  Bonus		:	Rs.	76,000
Total Salary for Valuation of Perquisite i.e., Rs. 48,000 per month		:	Rs.	5,76,000
Valuation of perquisites
(a)  Perquisite for flat :
Lower of (20% of salary for ten months=Rs. 96,000) and (actual rent paid=Rs. 1,00,000)		:	Rs.	96,000
(b)  Perquisite for hotel Lower of (24% of salary of 2 months = Rs. 23,040) and (actual payment = Rs. 50,000)		:	Rs.	23,040
(c)  Perquisite for furniture @ 10% of cost		:	Rs.	10,000
			Rs.	1,29,040
Less : Rent recovered from employee		:	Rs.	10,000
			Rs.	1,19,040
(d)  Add : Perq. for free gas, electricity and water		:	Rs.	24,000
Total perquisites:		:	Rs.	1,43,040
Gross Total Income			Rs.	7,19,040
(Rs. 5,76,000+Rs. 1,43,040)
Less : Deduction u/s 80C :		Rs.
Provident Fund	:	36,000
Subscription to NSC VIII
Issue	:	20,000
LIC	:	5,000
Infrastructure Bonds	:	30,000
Total:		91,000	Rs.	91,000
Total Income			Rs.	6,28,040
Tax Payable			Rs.	1,38,412
Surcharge :				Nil
Education Cess @ 2%			Rs.	2,768
Total Tax Payable			Rs.	1,41,180

Example 6

Illustrating Valuation of perquisite and calculation of tax in the case of a female employee of a Private Company posted at Delhi and repaying HouseBuilding Loan.

Particulars :
1.  Salary		:		Rs.		3,00,000
2.  Dearness Allowance		:		Rs.		1,00,000
3.  House Rent Allowance		:		Rs.		1,80,000
4.  Special Duties Allowance		:		Rs.		12,000
5.  Provident Fund		:		Rs.		60,000
6.  LIP		:		Rs.		10,000
7.  Deposit in NSC VIII issue		:		Rs.		30,000
8.  Rent Paid by the employee for house hired by her		:		Rs.		1,20,000
9.  Repayment of House Building Loan (Principal)		:		Rs.		60,000
10.  Tuition Fees for three children		:		Rs.		30,000
(Rs.10,000 per child)
Computation of total income and tax payable thereon
1.  Gross salary			:		Rs. 5,92,000
(Basic+DA+HRA+SDA)
Less : House rent allowance exempt
u/s 10 (13A)
Least of :
a.  Actual amount of HRA received	:		Rs. 1,80,000
b.  Expenditure on rent in excess of 10% of salary (Including D.A.) assuming D.A. is including for retirement benefits (1,20,000 - 40,000)	:		Rs. 80,000
c.  50% of salary (including D.A.)	:		Rs. 2,00,000		Rs. (-) 80,000
Gross Total Taxable Income	:				Rs. 5,12,000
Less : Deduction u/s 80C
i.  Provident Fund	:		Rs. 60,000
ii.  LIP	:		Rs. 10,000
iii.  NSC VIII Issue	:		Rs. 30,000
iv.  Repayment of HBA	:		Rs. 60,000
v.  Tuition Fees
(Restricted to two children)	:		Rs. 20,000
Total	:		Rs. 1,80,000
Restricted to					Rs. 1,00,000
Total Income	:				Rs. 4,12,000
Tax Payable					Rs. 70,100
Surcharge :					Nil
Education Cess @ 2%					Rs. 1,402
Total Tax Payable					Rs. 71,502

Note : Part of the dearness allowance merged with the basic pay and shown as 'Dearness Pay' is also included in the definition of 'salary' for working out the amount of exemption under section 10(13A).

Example 7

Income-tax calculation in the case of a male employee who claims loss under the head 'income from self-occupied house property'.

Particulars :
1.  Gross salary			:	Rs.	4,00,000
2.  Housing Loan repaid (Principal)			:	Rs.	50,000
3.  Interest payable on housing loan (Loan taken after 1-4-1999)			:	Rs.	1,60,000
4.  Donation paid to National Children's Fund			:	Rs.	5,000
5.  NSC Purchased			:	Rs.	10,000
6.  GPF			:	Rs.	30,000
Computation of taxable income and tax thereon
1.  Salary Income			:	Rs.	4,00,000
2.  Income from house property
Annual value			Nil
Interest payable on loan u/s 24			1,50,000
(Maximum allowable)			:	(-) Rs.	1,50,000
Gross total income			:	Rs.	2,50,000
Less : Deduction u/s 80G 50% of Rs. 5,000			Rs. 2,500
Less : Deduction u/s 80C:
GPF	:		30,000
NSC	:		10,000
Housing Loan repaid	:		50,000
Total		Rs.	90,000
Total Deductions under Chapter VI-A				Rs.	92,500
Total Income			:	Rs.	1,57,500
Tax Payable			:	Rs.	6,500
Add : Surcharge					Nil
Add : Education Cess			:	Rs.	130
Total tax payable			:	Rs.	6,630

Example 8

Income-tax calculation in the case of a male employee who claims loss under the head 'Income from self-occupied house property', and has taken house building loan before 1-4-1999.

Particulars :
1.  Gross Salary		Rs.	4,00,000
2.  Housing Loan repaid (Principal)		Rs.	30,000
3.  Interest payable on housing loan (Loan taken before 1-4-1999)		Rs.	1,00,000
4.  Donation paid to National Children's Fund		Rs.	6,000
5.  N.S.C. purchased		Rs.	10,000
6.  G.P.F.		Rs.	20,000
Computation of Taxable Income and tax thereon
1.  Salary Income		Rs.	4,00,000
2.  Income from House Property
Annual value :	Nil
Interest payable on loan u/s 24 :	30,000
(Maximum allowable		(-) Rs.	30,000
for loans taken before 1-4-1999)
Gross total income		Rs.	3,70,000
Less : Deduction u/s 80G 50% of Rs. 6,000		Rs.	3,000
Less : Deduction u/s 80C :
G.P.F.	20,000
N.S.C.	10,000
Housing Loan repaid	30,000
Total:	60,000
Total Deductions under Chapter VI-A		Rs.	63,000
Total Income		Rs.	3,07,000
Tax payable		Rs.	42,100
Add : Surcharge			Nil
Add : Education Cess @ 2%		Rs.	842
Total Tax payable		Rs.	42,942

Example 9

Income-tax calculation in the case of a male pensioner who is more than 65 years of age.

		(Rs.)
Particulars
Service Pension		1,80,000
Infrastructure bonds		30,000
N.S.C. purchased		20,000
Computation of Taxable Income and Tax thereon
Income from Salary (Pension)		1,80,000
Less : Deduction u/s 80C
G.P.F.	30,000
N.S.C.	20,000
Total	50,000
Total Income			1,30,000
Tax payable		Nil

Note: Taxpayers of sixty five years of age or above do not have to pay tax up to a total income of Rs.1,85,000.

Annexure II

Form for sending particulars of income under section 192(2B) for the year ending 31st March, 2002

[Not reproduced]

Annexure III

Form No. 12BA

[See rule 26A(2)(b)]

Statement showing particulars of perquisites, other fringe benefits or amenities and profits in lieu of salary with value thereof - See [2002] 124 Taxman 64 (St.).

[Not reproduced]

Annexure IV

Form No. 16AA

[See third proviso to rule 12(1)(b) and rule 31(1)(a)]

Certificate for tax deducted at source from Income chargeable under the head "Salaries"-cum-Return of Income - See [2004] 134 Taxman 124 (St.)

[Not reproduced]

Annexure V

Government of India, Ministry of Finance (Department of Revenue) (Central Board of Direct Taxes) Part II, Section 3, Sub-section (ii)

Notification No. SO 974(e) dated 26-8-2003 - See [2003] 131 Taxman 34 (St.)

[Not reproduced]

Annexure VA

Notification [F.No. 5/7/2003-ECB & PR], dated 22-12-2003

The Government approved on 23rd August, 2003 the proposal to implement the Budget announcement of 2003-04 relating to introducing a new restructured defined contribution pension system for new entrants to Central Government service, except to Armed Forces, in the first stage, replacing the existing system of defined benefit pension system :

(i) The system would be mandatory for all new recruits to the Central Government service from 1st of January, 2004 (except the Armed Forces in the first stage). The monthly contribution would be 10 per cent of the salary and DA to be paid by the employee and matched by the Central Government. However, there will be no contribution from the Government in respect of individuals who are not Government employees. The contribution and investment returns would be deposited in a non-withdrawable pension tier-I account. The existing provisions of defined benefit pension and GPF would not be available to the new recruits in the Central Government service.

(ii) In addition to the above pension account, each individual may also have a voluntary tier-II withdrawable account at his option. This option is given as GPF will be withdrawn for new recruits in Central Government service. The Government will make no contribution into this account. These assets would be managed through exactly the above procedures. However, the employee would be free to withdraw part or all of the 'second tier' of his money any time. This withdrawable account does not constitute pension investment, and would attract no special tax treatment.

(iii) Individuals can normally exit at or after age 60 years for tier-I of the pension system. At the exit the individual would be mandatorily required to invest 40 per cent of pension wealth to purchase an annuity (from an IRDA-regulated life insurance company). In case of Government employees the annuity should provide for pension for the lifetime of the employee and his dependent parents and his spouse at the time of retirement. The individual would receive a lump sum of the remaining pension wealth, which he would be free to utilize in any manner. Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case, the mandatory annuitisation would be 80 per cent of the pension wealth.

Architecture of the new pension system

(iv) It will have a Central Record-keeping and Accounting (CRA) infrastructure, several Pension Fund Managers (PFMs) to offer three categories of schemes viz., options A, B and C.

(v) The participating entities (PFMs and CRA) would give out easily understood information about past performance, so that the individual would be able to make informed choices about which scheme to choose.

2. The effective date for operationalisation of the new pension system shall be from 1st of January, 2004.

Annexure VIA

Notification No. SO 1048(E), dated 24-11-2000 : See [2000] 113 Taxman 52 (St.)

Annexure VIB

Notification No. SO 81(E), dated 29-1-2001 : See [2001] 115 Taxman 183 (St.)

Annexure VII

Form No. 10BA : Declaration to be filed by the assessee claiming deduction under section 80GG - Income-tax (Nineteenth Amendment) Rules, 1998 - See [1998] 100 Taxman 110 (St.).