Section 192

Deduction of tax at source - Salary

n Ship-owners are liable to deduct tax at source  under section 192(1). For the purposes of determining the rate of tax applicable, the total salary of the seaman for the year may be estimated as the amount of wages due for a period of ten months on the basis of the monthly wages fixed as per articles of agreement. In cases, where the agreement itself covers a period of more than ten months, the estimated income of such actual period would have to be taken into account for the purpose of tax deduction. If an agreement starts towards the latter part of the year and any seaman satisfies his employer that his income for the year as a whole would not be above the taxable limit, no tax need be deducted for that financial year.

The return of salaries may be made by the Indian employer or the agent of the foreign employer within the time mentioned in section 206.

Considering that the ships would be on the high seas for weeks, payment of the tax may be made quarterly as provided in rule 30.

In respect of Indian seamen engaged on foreign-owned ships, the agents in India of the foreign principal will be responsible for deduction of the tax at source under section 192(1).—Letter : F. No. 12/71/65-IT(B) (extract), dated 5-3-1966.

n The deductions admissible under section 80CCA in respect of the deposits made by the employees out of their income chargeable to tax in the National Savings Scheme may be allowed by the drawing and disbursing officer while computing the income of employees for the purpose of deduction of tax at source.

It may be noted that the deduction admissible under this section is in addition to the deduction admissible  under section 80C.—Circular : No. 501 [F. No. 275/109/87-IT(B)], dated 20-1-1988.

n The present employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from former or other employer).—Circular : No. 504 [F. No. 275/138/87-IT(B)], dated 8-2-1988.

n The deduction provided under section 80C (now rebate u/s 88) will be available to the assessees in respect of sums paid up to 31st March of the financial year towards purchase of National Savings Certificates, etc.—Circular : No. 483 [F. No. 275/64/86-IT(B)], dated 4/31-3-1987.

n Exemptions/deductions to be allowed by employers while computing total income of employees for the assessment year 2001-2002 (financial year 2000-2001) :

-

leave travel concession/assistance

See section 10(5)

-

death-cum-retirement gratuity

See section 10(10)

-

payment in commutation of pension

See section 10(10A)

-

leave encashment

See section 10(10AA)

-

retrenchment compensation

See section 10(10B)

-

payment received under certain voluntary retirement schemes

See section 10(10C)

-

sum received under LIC policy

See section 10(10D)

-

payment from provident fund

See section 10(13)

-

house rent allowance

See section 10(13A)

-

specified allowances

See section 10(14)

-

Interest on deposit in Deposit Scheme for Retiring Government/Public Sector Employees

See section 10(15)(iv)(i)

-

standard deduction

See section 16(i)

-

gallantary awards

See section 10(18)

-

tax on employment

See section 16(iii)

-

entertainment allowance

See section 16(ii)

-

value of medical treatment in hospital maintained by employer

See section 17(2), proviso

-

reimbursement of expenses on medical treatment in certain hospitals

See section 17(2), proviso

-

payment by employer directly to approved hospitals

See section 17(2), proviso

-

medical insurance premium paid/reimbursed by employer

See section 17(2), proviso

-

other medical reimbursement

See section 17(2), proviso

-

expenditure on medical treatment abroad

See section 17(2), proviso

-

annuity plan of LIC

See section 80CCC

-

health insurance premium (mediclaim)

See section 80D

-

expenditure on medical treatment, etc., of handicapped dependent relative

See section 80DD

-

payments to specified schemes for the benefit of handicapped dependent

See section 80DDA

-

expenditure on medical treatment for self or relative

See section 80DDB

-

repayment of loan taken by higher education

See section 80E

-

contributions to :

 

 

 

Name

Amount allowable

 

National Defence Fund

100%

 

 

Jawaharlal Nehru Memorial Fund

50%

 

 

Prime Minister’s Drought Relief Fund

50%

 

 

National Children’s Fund

50%

 

 

Indira Gandhi Memorial Trust

50%

 

 

Rajiv Gandhi Foundation

50%

 

 

Prime Minister’s National Relief Fund

100%

 

 

Prime Minister’s Armenia Earthquake Relief Fund

100%

 

 

Africa (Public Contributions-India) Fund

100%

See section 80G

 

National Foundation for Communal Harmony

100%

 

 

Chief Minister’s Earthquake Relief Fund, Maharashtra

100%

 

 

National Blood Transfusion Council

100%

 

 

State Blood Transfusion Council

100%

 

 

Army Central Welfare Fund

100%

 

 

Indian Naval Benevolent Fund

100%

 

 

Air Force Central Welfare Fund

100%

 

 

APCM Cyclone Relief Fund, 1996

   100%

 

 

National Illness Assistance Fund

100%

 

 

Chief Minister's Relief Fund

100%

 

 

University/Educational Institutions approved by prescribed authority

100%

 

-

National Sports Fund

100%

 

-

National Cultural Fund

100%

 

-

Technology Development Fund

100%

 

-

rent paid

 

See section 80GG

-

remuneration received in foreign currency

 

See  section 80RRA

-

deduction where employee suffers from permanent physical  isability/mental retardation

 

See  section 80U

 

Tax rebates allowed in computing tax deductible at source from salaries:

 

 

-

Amount of tax rebate is 20 per cent qualifying amount (maximum Rs. 60,000) (Rs. 70,000 in case of authors, playwrights, artistes, musicians, actors or sportsmen) of deposits

-

rebate  under section 88B in case of senior citizens.

 

 

-

rebate  under section 88C to senior women

 

 

 

Circular : No. 798, dated 30-10-2000.

 

 

 

n Deduction of income-tax at source from salaries under section 192 of the Income-tax Act, 1961 during the financial year 2000-01 - The Taxation Laws (Amendment) Ordinance, 2001 - An additional surcharge of 2% has been levied vide the Taxation Laws (Amendment) Ordinance, 2001 for the purpose of Deduction of Tax at Source. In view of this, the amount of income-tax computed at the prescribed rates shall be reduced by the amount of rebate of income-tax calculated under Chapter VIIIA and the Income-tax so reduced shall be increased by a surcharge :

    (a)   @ 12% of such income-tax where the total income exceeds sixty thousand rupees but does not exceed one lakh fifty thousand rupees;

    (b)   @ 17% of such income-tax where the total income exceeds one lakh fifty thousand rupees.

Surcharge is payable by both resident and non-resident assessees.

In view of this, Drawing and Disbursing Officers are required to take into account the revised rates of surcharge of 12% or 17%, as the case may be, while computing the tax deductible at source under section 192 of the Act during the financial year 2000-01 - Circular No. 4/2001, dated 12-2-2001.

n Where an employee claims that his salary is not chargeable to income-tax and therefore, no income-tax should be deducted at source from the salary receivable by him, the employer should require the employee to obtain from the concerned ITO a certificate under section 197(1) authorising no deduction or deduction at such lower rates as may be prescribed in the said certificate.—Circular : No. 147 [F.No. 275/80/74-ITJ], dated 28-10-1974.

n The liability of the employer to deduct and pay tax under section 192(1) is absolute. Failure to do so would attract liability to pay interest  under section 201(1A) as well as other penal provisions under the Act.—Letter : F. No. 237/4/75-A & PAC, dated 23-11-1976.

n For the purposes of calculating the house rent allowance that would be exempt under rule 2A the term ‘salary’ includes ‘dearness pay’ also—Circular : No. 90 [F. No. 275/79/72-ITJ], dated 26-6-1972.

n An employer should give a deduction of Rs. 5,000 (now Rs. 40,000) under section 80U from the income assessable under the head ‘Salaries’ while deducting the tax at source thereon in any financial year on the production of a certificate issued by the ITO in the name of the employer. A certificate once issued will continue to be in force till it is withdrawn by the ITO or till the resident individual leaves the employment of the employer in whose favour the certificate is issued.— Circular : No. 272 [F. No. 275/16/80-IT(B)], dated 27-5-1980.

n Excess payment (difference between the actual payment made by the deductor and the tax deducted at source or that deductible, whichever is more) can be refunded, independently of the Income-tax Act, to the person responsible for making such payment subject to necessary administrative safeguards. This amount should be adjusted against the existing tax liability under any of the Direct Tax Acts. After meeting such liability the balance amount, if any, should be refunded to the assessee.—Circular : No. 285 [F. No. 275/77/79-IT(B)], dated 21-10-1980.

n Where non-residents are deputed to work in India and the taxes are borne by their employers, and an employee to whom refund is due has already left India by the time assessment order is passed and he has no bank account in India, there may be no objection to giving the refund to the employer if the non-resident assessee duly gives an authorisation in this regard. In such cases, the procedure laid down in Circular No. 285, dated 21-10-1980 needs to be followed—Circular : No. 707, dated 11-7-1995.

n In the case of  Government servants, the disbursing officers should see that the value of rent-free accommodation occupied by persons, in their payment, is taken into account for the computation of tax to be deducted at source at the time of payment of salary.—Circular : No. 38-D(LXIII-1) [F.No. 35(16)/IT/50], dated 9-7-1951.

n Since, in the case of members of crew of foreign-going Indian ships, who are not likely to be in India for a period or periods exceeding 182 days in a year, income which accrues or arises outside India and is also received outside India is not liable to tax in India, the shipping companies and other persons responsible for paying salary to such members of crew may take these factors into account while computing the amount to be deducted as tax and deduct only so much of tax as would be chargeable on the estimated income liable to tax in India. If the shipping company or other person responsible for paying to such members of crew subsequently finds that any person who was earlier considered as not likely to be resident in India, and deduction of tax at source was made on that basis is now likely to be resident in India, the shipping company or the other person responsible for making the payment, may increase the deduction so as to adjust any deficiency arising out of an earlier short deduction or non-deduction during the same financial year - Circular : No. 586, dated 28-11-1990.

n If the disbursing authority is satisfied that the conveyance allowance granted to the employees is covered by section 10(14) then the obligation to deduct tax thereon may not arise. The employees who are in receipt of conveyance allowance would have to furnish the necessary certificate before the assessing authorities in support of the fact that conveyance allowance is only a reimbursement of expenses laid out wholly, necessarily and exclusively for the performance of the duties of an office—Circular : No. 196 [F. No. 275/29/76-ITJ], dated 31-3-1976.

n An ITO shall not require an employer to deduct tax at source from the salary of his employee in respect of that part of conveyance allowance which is equal to the amount that had been treated by the ITO as exempt u/s 10(14) in the last completed assessment of the employee—Order : F.No. 35/68-IT(A-I), dated 15-11-1972.

n Please see Circular No. 678, dated 10-2-1994  under section 80G.

n The Central Government has recently notified new scales of pay and allowances for different categories of Government employees based on the recommendations of the 5th Pay Commission. In addition, the employee will be entitled to substantial amounts of arrears. As a result of this increase, many employees whose incomes according to the old pay scales were below the taxable limit would now enter the tax net. Many other employees would move to higher brackets for application of the tax rates. As per section 192, the person responsible for paying any income under the head ‘Salaries’ is required, at the time of payment, to deduct income-tax on the amount payable, at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee for that financial year. All DDOs must, therefore, ensure that proper and adequate tax is deducted from the disbursement to employees of not only additional pay and allowances but also of arrears payable to Central Government employees as a result of the implementation of the revised pay scales - Circular No. 756, dated 10-10-1997.

Vide Circular No. 758, dated 7-11-1997 it is clarified that a large number of Drawing and Disbursing Officers have not deducted the full quantum of the tax liability on the arrears paid to Central Government employees as a consequence of the recently announced revision of the pay-scales. The deductions have been made in an ad hoc manner. This is in gross violation of the provisions of the Income-tax Act and is liable to attract penal consequences including prosecution.  All Drawing and Disbursing Officers in the Central Government and various organisations under it are advised to recompute the correct tax liability of every employee, on the arrears drawn by him and immediately recover the full tax liability thereon. They should further ensure that the tax so recovered is paid to the account of the Central Government by 20th November, 1997. Drawing and Disbursing Officers who fail to comply with the provisions of section 192 of the Income-tax Act, read with the above-referred Circulars, would be liable to pay interest under sub-section (1A) of section 201 and to other penal consequences under the said law - Circular No. 758, dated 7-11-1997.

n Once tax has been deducted under section 192, the tax-deductor is bound by section 203 to issue the certificate of tax deducted in Form 16. No employee-employer relationship is necessary for this purpose.  The certificate in Form No. 16 cannot be denied on the ground that the tax deductor, i.e., banks, are unaware of the other income of payees (i.e., pensioners drawing their pensions through banks) - Circular No. 761, dated 13-1-1998.