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Calculation of Income Tax for the year 2013-14

Calculation of Income Tax for the year 2013-14 (Assessment year 2014-15) and Computation of income under the head Salaries

CALCULATION OF INCOME-TAX TO BE DEDUCTED:

Salary income for the purpose of section 192 shall be computed  as  follow:-

(a)    First   compute   the gross salary as   mentioned   in para   5.1   including all the incomes mentioned  in para 5.2 and excluding the income mentioned in para 5.3.

(b)  Allow  deductions  mentioned in para 5.4 from  the figure arrived at (a) above and compute the amount to arrive at Net salary of the employee

(c)  Add income from all other heads- House property, Profits & gains of Business or

Profession, capital gains and Income from other Sources   to arrive at the Gross Total  Income  as  shown  in  the  form  of  simple  statement  mentioned  para  3.5. However it may be remembered that no loss under any such head is allowable by DDO other than loss under the Head “Income from House property”.

(d) Allow  deductions  mentioned in para 5.5 from  the figure   arrived  at  (c)   above ensuring that the relevant conditions are satisfied. The aggregate  of the deductions subject to the threshold limits mentioned in para 5.5 shall not  exceed  the  amount at (b) above  and  if  it exceeds,  it should be restricted to that amount.

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

Income-tax on such income shall be calculated at the rates given in para 2.1 of this Circular keeping in view the age of the employee and subject to the provisions of sec. 206AA, as discussed in para 4.8. Rebate as per Section 87A upto Rs 2000/- to eligible persons (see para 6) may be given.  Surcharge shall be calculated in cases where applicable (see para 2.2).

The amount of tax   payable   so arrived at shall be increased by educational cess as applicable (2% for primary and 1% for secondary education) to arrive at the total tax payable.

The amount of tax as arrived at para 9.3 should   be deducted every month in equal installments. 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.

COMPUTATION 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”.

5.2 DEFINITION OF “SALARY”, “PERQUISITE” AND “PROFIT IN LIEU OF SALARY” (SECTION 17):

5.2.1    “Salary”  includes:-

i.      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.

ii.      the portion of the annual   accretion   to the balance at the credit of the employee participating in a recognized provident fund as consists of {Rule   6 of Part A of the Fourth Schedule of  the Act}:

a) contributions   made by the employer to the account of the employee in a recognized provident fund   in    excess  of  12%  of the salary of the  employee, b) interest credited on the balance to the credit of the employee in so far as it is allowed at a rate exceeding such rate as may be fixed by Central Government. [w.e.f. 01-09-2010 rate is fixed at 9.5% – Notification No SO 1046(E) dated 13-

05-2011]

iii.      the contribution made by the Central Government or any other employer to the account of the employee under the New Pension Scheme as notified vide Notification F.N.

5/7/2003- ECB&PR dated 22.12.2003 (enclosed as Annexure VII) referred to in section

80CCD (para 5.5.3 of this Circular).

It may be noted that, since  salary  includes   pension,   tax  at  source would have to  be deducted from pension also, unless otherwise so required. However, no tax is required to be deducted from the commuted portion of pension to the extent  exempt under section 10 (10A).

Family Pension is chargeable to tax under head “Income from other sources” and not under the head “Salaries”. Therefore, provisions of section 192 of the Act are not applicable. Hence no TDS is required to be made on family pension.

5.2.2    Perquisite includes:

I.         The value of rent free accommodation provided to the employee by his employer;

II.        The value of any concession in the matter of rent in respect of any accommodation provided to the employee by his employer;

III.      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/-.

[What constitutes concession in the matter of rent have been prescribed in Explanation 1 to 4 below 17(2)(ii) of the Act]

IV.      Any sum paid by the employer in respect of any obligation which would otherwise have been payable by the assessee.

V.        Any sum payable by the employer, whether directly or through a fund, other than a recognized provident fund or an approved superannuation fund or other specified funds u/s 17, to effect an assurance on the life of an assessee or to effect a contract for an annuity.

VI.      The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the employee and for this purpose, .

(a)       “specified security” means the securities as defined in section 2(h)  of the Securities Contracts (Regulation) Act, 1956 and, where employees’ stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme;

(b)       “sweat equity shares” means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called;

(c)       the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from the assessee in respect of such security or shares;

(d)       “fair market value” means the value determined in accordance with the method as may be prescribed;

(e)       “option” means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price;

VII.      The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and

VIII      The value of any other fringe benefit or amenity as prescribed (in Rule 3).

 

5.2.2A Rules for valuation of such benefit or amenity as given in Rule 3  are as under :  –

I.   Residential Accommodation provided by the employer [Rule 3(1)]:-

“Accommodation” includes a house, flat, farm  house or part thereof , hotel  accommodation, motel,  service  apartment,  guest  house,  a  caravan,    mobile    home,  ship  or  other  floating structure.

A. For valuation  of  the perquisite of rent free unfurnished  accommodation, all employees are divided into two categories:

(i) For  employees of the Central and State governments 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. Employees of autonomous, semi-autonomous institutions, PSUs/PSEs & subsidiaries, Universities, etc. are not covered under this provision.

(ii) 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:

Sl No Cities having population as  per  the  2001 census Perquisite

1

Exceeds 25 lakh

15% of  salary

2

Exceeds 10 lakhs but does not exceed 25 lakhs 10% of salary

3

For  other  places

7.5 % of salary

b) Where the accommodation so provided is taken on lease/ rent by the employer:

The prescribed rate is 15% 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. Meaning of ‘Salary ‘for the purpose of calculation of perquisite in respect of Residential Accommodation :

a. Basic Salary ;

b. Dearness Allowance, or Dearness Pay if it enters into the computation of superannuation or retirement benefit of the employees;

c. Bonus ;

d. Commission ;

e. Fees ;

f. All other taxable allowances (excluding the portion not taxable ); and

g. Any monetary payment which is chargeable to tax (by whatever name called).

Salary from all employers shall be taken into consideration in respect of the period during which an accommodation is provided. Where on account of the transfer of an employee from one place to another, he 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 for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodation.

B     Valuation of the perquisite of furnished accommodation, the value of perquisite as determined by the above method (in A) shall be increased by-

i)   10% 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.

It is added that where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with any body or undertaking under the control of such Government,-

(i).         the  employer  of  such  an  employee  shall  be  deemed  to  be  that  body  or undertaking where the employee is serving on deputation; and

(ii).        the  value  of  perquisite  of  such  an  accommodation  shall  be  the  amount calculated in accordance with Table in A(ii)(a) above, as if the accommodation is owned by the employer.

C.        Furnished Accommodation in a Hotel: The value of perquisite shall be determined on the basis of lower of the  following two:

1.   24% of salary paid or payable in   respect of period during which the accommodation is provided; or

2.  Actual charges paid or payable by the employer to such hotel,

for the period during which such accommodation is provided as reduced by any rent actually paid or payable by the employee.

However, nothing in C shall be taxable if following two conditions are satisfied :

1. The hotel accommodation is provided for a total period not exceeding in aggregate 15 days in a previous year, and

2.  Such accommodation is provided on an employee’s transfer from one  place to another place.

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 the Rules and any other charges for  other facilities provided by the hotel will be separately valued under  the  residual clause.

D.        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 if:

i)   such accommodation should is located in a “remote area” or

ii)  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 here 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.

II Perquisite on Motor car provided by the Employer [ Rule 3(2)]:

(1)       If an employer provides motor car facility to his employee the value of such perquisite shall be :

a) Nil, if the motor car is used by the employee wholly and exclusively in the performance of his official duties.

b) Actual expenditure incurred by the employer on the running and maintenance of motor car including remuneration to chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use (in case the motor car is exclusively for private or personal purposes of the employee or any member of his household).

c) Rs. 1800/- (plus Rs. 900/-, if chauffeur is also provided) per month (in case the motor car is used partly in performance of duties and partly for private or personal purposes of the employee or any member of his household if the expenses on maintenance and running of motor car are met or reimbursed by the employer). However, the value of perquisite will be Rs. 2400/-(plus Rs. 900/-, if chauffeur is also provided) per month if the cubic capacity of engine of the motor car exceeds 1.6 litres.

d) Rs. 600/- (plus Rs. 900/-, if chauffeur is also provided) per month (In case the motor car is used partly in performance of duties and partly for private or personal purposes of the employee or any member of his household if the expenses on maintenance and running of motor car for such private or personal use are fully met by the employee). However, the value of perquisite will be Rs. 900/- (plus Rs. 900/-, if chauffeur is also provided) per month if the cubic capacity of engine of the motor car exceeds 1.6 litres.

(2)       If the motor car or any other automotive conveyance is owned by the employee but the actual running and maintenance charges are met or reimbursed by the employer, the method of valuation of perquisite value is different and as below:

a) where the motor car or any other automotive conveyance is owned by the employee but actual maintenance & running expenses (including chauffeur salary, if any) are met or reimbursed by the employer, no perquisite shall not be chargeable to tax if the car is used wholly and exclusively for official purposes. However following compliances are necessary:

¾  The employer has maintained complete details of the journey undertaken for official purposes;

¾  The  employer  gives  a  certificate  that  the  expenditure  was  incurred  wholly  for official duties.

However if the motor car is used partly for official or partly for private purposes then the amount of perquisite shall be the actual expenditure incurred by the employer as reduced by the amounts in c) & d) referred to in (1) above, as the case may be.

Normal wear and tear of the motor shall be taken at 10 % per annum of the actual cost of the motor car.

III    Personal    attendants  etc.  [Rule  3(3)]:    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.

IV Gas, electricity & water for household consumption [Rule 3(4)]: The value of perquisite in the nature of gas, electricity and  water shall be the amount paid or payable by the 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 perquisite value.

V Free or concessional education [Rule 3(5)]:  Perquisite on account of free or concessional education for any member of the employee’s household shall be determined as the sum equal to the amount of   expenditure incurred by the employer in that behalf.   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.   The value of perquisite shall be reduced by the amount, if any, paid or recovered from the employee.

VI Carriage of Passenger  Goods [Rule 3(6)]:  The value of any benefit or amenity resulting from the provision by an employer, who is engaged in the carriage of passengers or goods, to any employee or to any member of his household for personal or private journey free of cost or at concessional fare, in any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity. This will not apply to the employees of any airline or the railways.

VII  Interest  free or concessional loans [Rule 3(7)(i)]: 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 of diseases  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.

VIII  Perquisite on account of travelling, touring, accommodation and any other expenses paid for or reimbursed by the employer for any holiday availed [Rule 3(7)(ii)]:

The  value  of  perquisite  on  account  of  travelling,  touring,  accommodation  and  any  other expenses paid for or reimbursed by the employer for any holiday availed of by the employee or any member of his household, other than leave travel concession (as per section 10(5) ), shall be the amount of the expenditure incurred by the employer in that behalf.

Where  such facility  is  maintained  by  the  employer,  and  is  not  available  uniformly  to all employees, the value of benefit shall be taken to be the value at which such facilities are offered by other agencies to the public. If a holiday facility is maintained by the employer and is available uniformly to all employees, the value of such benefit would be exempt.

Where the employee is on official tour and the expenses are incurred in respect of any member of his household accompanying him, the amount of expenditure with respect to the member of the household shall be a perquisite.

IX Value of Subsidized / Free food / non-alcoholic beverages  provided by employer to an employee[Rule 3(7)(iii)]:

Value of taxable perquisite is calculated as under:

Expenditure incurred by the employer on the value  of food / non-alcoholic beverages including

‘paid vouchers which are not transferable and usable only at eating joints’ XXX

Less: Fixed value of a sum of Rs. 50/- per meal                                                        XXX Less: Amount recovered from the employee                                                             XXX XXX

Balance amount is the taxable non- monetary perquisites on the  value of food provided to the employees

XXX

Note : Exemption is given in following situations :

1. Tea / snacks provided in working hours.

2. Food & non-alcoholic beverages provided in working hours in remote area or in an offshore installation.

X Membership fees and Annual Fees [Rule 3(7)(v)]: Any membership fees and annual fees incurred by the employee (or any member of his household), which is charged to a credit card (including any add-on card)  provided by the employer, or otherwise, paid for or reimbursed by the employer is taxable on the following basis:

Amount of expenditure incurred by the employer                                        XXX Less : Expenditure on use for official purposes                                XXX

Less : Amount, if any, recovered from the employee                       XXX   XXX Amount taxable as non- monetary perquisite                                            XXX

However if the amount is incurred wholly and exclusively for official purposes it will be exempt if the following conditions are fulfilled

i)          Complete  details  of  such  expense,  including  date  and  nature  of expenditure is maintained by the employer.

ii)         Employer  gives  a  certificate  that  the  same  was  incurred  wholly  and exclusively for official purpose.

XI Club Expenditure [Rule 3(7)(vi)]:

Any annual or periodical fee for Club  facility and any expenditure in a club   by the employee

(or any member of his household), which is paid or reimbursed by the employer is taxable on the following basis:

Amount of expenditure incurred by the employer                                        XXX Less : Expenditure on use for official purposes                                XXX

Less : Amount, if any, recovered from the employee                       XXX   XXX Amount taxable as non- monetary perquisite                                                XXX

However if the amount is incurred wholly and exclusively for official purposes it will   be exempt if the following conditions are fulfilled

i)          Complete  details  of  such  expense,  including  date  and  nature  of expenditure is maintained by the employer.

ii)         Employer  gives  a  certificate  that  the  same  was  incurred  wholly  and exclusively for official purpose.

Note: 1) Health club, sport facilities etc. provided uniformly to all classes of employee by the employer at the employer’s premises and expenditure incurred on them are exempt.

2) The initial one-time deposits or fees for corporate or institutional membership, where benefit does not remain with a particular employee after cessation of employment are exempt. Initial fees / deposits, in such case, is not included.

XII     Use  of  assets [Rule 3(7)(vii)]:  It is common practice for a movable  asset (other than those referred in other sub rules of rule 3) owned by   the   employer   to be used by the employee or any member of his household. This perquisite  is  to  be  charged at the rate of

10%   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.

XIII   Transfer  of assets [Rule 3(7)(viii)]:  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% 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% 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%  of its actual cost by the reducing  balance  method for each completed year of use.

XIV Gifts [Rule 3(7)(iv)]:

The value of any gift or vouchers or token in lieu of which such gift may be received, given by the employer to the employee or member of his household, is taxable as perquisite. However gift, etc  less than Rs. 5,000 in aggregate per annum would be exempt.

XV   Transfer Grant Allowance:

In this connection it is to be noted that as per sec.10(14) read with rule 2BB any allowance granted to meet the cost of travel on tour or on transfer includes any sum paid in connection with transfer, packing and transportation of personal effects on such transfer shall be exempt. Also any allowance, whether, granted for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty shall be exempt.

XVI  Leave Travel Concession (LTC):

The following are the important points, to be taken into consideration, for claiming exemption u/s 10(5) of the Act read with Rule 2B of the Rules:

1. Definition – Value of LTC received by or due to an individual from his present or previous employer, as the case may be, for himself and his family in connection with his proceeding  on

leave  to any place in India or to any place in India after retirement or termination from/of service.

2. Number of Trips – The exemption shall be available in respect of 2 journeys performed in the block of 4 calendar years.

• Without performing any journey and incurring expenses thereon, no exemption can be claimed.

• The quantum of exemption will be subject to the following maximum limits for journeys performed on or after 01.10.1997:

Sl

No

Journey Performed by

Exemption Limit

1 Air Air Economy fare of the national carrier (Air India) bythe shortest route to the place of destination
2 Places  connected  by  railand journey performed by any mode other than by air. First Class Air conditioned rail fare by the shortest routeto the place of destination
3 Place     of     origin     anddestination or part

thereof  not  connected  by rail.

a)  Where  public  transport  system  exists,  first  class  ordeluxe class fare on such transport by the shortest route to the place of destination.

b) Where no public transport system exists, first class A/C rail fare, for the distance of the journey by the shortest route, as if the journey has been performed by rail

o This exemption is limited to the  actual expenses incurred on the journey which in turn is strictly limited to expenses on air fare, rail fare and bus fare only. No other expenses like

local conveyance, sight-seeing expense etc., shall qualify for exemption.

o Where the journey is performed in a circuitous route, the exemption is limited to what is admissible by the shortest   route. Likewise, where the journey is performed in a circular form touching different places, the exemption is limited to what is admissible for the journey from the place of origin to the farthest point reached in India, by the shortest route.

•    Restriction on children – The exemption will not be   available to more than 2 surviving children of an individual born after 01.10.1998. This restriction shall not apply in respect of children born before 01.10.1998 and also in case of multiple births after one child. It may be noted that section 2 (15B) of the Act defines a child as includes a step child and an adopted child of the individual.

•   Definition of Family – As per the provisions of the Rules, family means:

o Spouse and children of the individual.

o Parents,  brothers  and  sisters  who  are  wholly  or  mainly

dependent on the individual.

•    Foreign Travel – As per the provisions of the Rules, exemption is not allowable in case of travel abroad.

•    Obligation of the employer –The employer has to satisfy the obligation that leave travel (fare) concession is not taxable in view of section 10(5) the employer is not only required to be satisfied about the provisions of the said clause but also to keep and preserve evidence in support thereof.

Some important points to be considered are as under:

1. It is uniform for all employees

2. Where an employee does not avail LTC, either one or on both the occasions during the block of 4 calendar years, the value of LTC first availed during the first calendar year of the immediately succeeding block shall be eligible for exemption in lieu of exemption not availed during the preceding block Only one trip can be carried forward to be availed in the immediately succeeding block.

3. Quantum of Exemption – The basic rule is that quantum of exemption will be limited to the actual expense incurred on the journey.

Any Leave encashed for the purpose of Leave travel or home travel concession is  taxable.

XVII Medical Reimbursement by the employer exceeding Rs. 15,000/- p.a. u/s 17(2) is to be taken as perquisite.

It is further clarified that the rule position regarding valuation of perquisites are given at section

17(2) of the Act and in rule 3 of the Rules. The deductors may look into the above provisions carefully before they determine the perquisite value for deduction purposes.

It is pertinent to mention that benefits specifically exempt u/s 10(13A), 10(5), 10(14), 17 etc. of the Act would continue to be exempt. These include benefits   like house rent allowance, leave travel concession, travel on tour and transfer, daily allowance to meet tour expenses as prescribed, medical facilities  subject to conditions.

5.2.3 ‘Profits in lieu  of salary’ shall include

 

I.              the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;

II.            any payment (other than any payment referred to in clauses (10), (10A), (10B), (11), (12) (13) or (13A) of section 10due to or received by an assessee from an employer or a former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.

“Keyman insurance policy” shall have the same meaning as assigned to it in section

10(10D);

III.  any amount due to or received, whether in lump sum or otherwise, by any assessee from any person—

(A)  before his joining any employment with that person; or

(B)  after cessation of his employment with that person.

5.3 INCOMES NOT INCLUDED UNDER 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 :-

5.3.1 The value of any travel  concession   or  assistance  received 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) after retirement from service, or, after termination  of  service  to any place in India is exempt under Section 10(5) subject, however, to the  conditions prescribed in Rule 2B of the Rules.

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.

5.3.2 Death-cum-retirement  gratuity or any other gratuity is exempt to the extent  specified from inclusion in computing the total income under Section 10(10). Any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence service. Gratuity received in cases other than those mentioned above, on retirement, termination etc is exempt up to the limit as prescribed by the Board. Presently the limit is Rs. 10 lakhs w.e.f. 24.05.2010 [Notification no. 43/2010 S.O. 1414(E) F.No. 200/33/2009-ITA-1 dated 11th June 2010].

5.3.3  Any payment in commutation of pension received under   the Civil Pensions (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 posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all- India services or to the members of the defence services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority] or a corporation established by a Central, State or Provincial Act, is exempt under Section10(10A)(i). As regards payments in commutation   of   pension received under any scheme   of   any other employer, exemption   will   be   governed by the provisions of section 10(10A)(ii). Also, any payment in commutation of pension from a fund referred to in Section 10(23AAB) is exempt under Section 10(10A)(iii).

5.3.4  Any payment received by an employee of the Central Government or a State Government, as cash-equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement, whether on superannuation or otherwise, is exempt under Section 10(10AA)(i).  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 31.05.2002 at Rs. 3,00,000/- in relation to such employees who retire, whether on superannuation or otherwise, after 1.4.1998.

5.3.5     Under Section 10(10B), the retrenchment compensation  received by a workman is exempt from income-tax   subject to certain limits. The maximum amount of retrenchment compensation exempt is the sum calculated on the basis provided   in section 25F(b) of the Industrial Disputes Act, 1947 or   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 1.1.1997 as specified in Notification No. 1096 of 25-06-1999.

5.3.6   Under Section 10(10C), any payment received or receivable (even if received in installments) 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 retirement or in the case of public sector company, a scheme of voluntary separation, is exempt from income-tax to the  extent  that such amount does not exceed Rs.

5,00,000/-:

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 Cooperative 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 Section 3 (g) 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.

The exemption  of  amount  received  under  VRS  has been extended  to  employees  of  the Central Government and   State   Government and employees of notified institutions having importance throughout India or any State or States. 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. Further, if relief has been allowed under section 89 for any assessment year in respect of amount received on voluntary retirement or superannuation, no exemption under section 10(10C) shall be available.

5.3.7 Any sum received under a Life Insurance Policy (Sec 10(10D), including   the   sum allocated by way of bonus on such policy other  than the following is exempt under section

10(10D):

i)         any  sum received under   section 80DD(3)   or section 80DDA(3);  or ii)        any sum received under a Keyman insurance policy; or

iii)        any sum received under an insurance policy issued on or after 1.4.2003, but on or before 31-03-2012, in respect of which the premium payable for any of the years during the term of the policy exceeds 20 percent of the actual capital sum assured; or

iv)        any sum received under an insurance policy issued on or after 1.4.2012 in respect of which the premium payable for any of the years during the term of the policy exceeds 10 percent of the actual capital sum assured; or

iv)       any sum received under an insurance policy issued on or after 1.4.2013. In cases of persons with disability or person with severe disability as per Sec 80 U or suffering from disease or ailment as specified in Sec 80DDB, in respect of which the premium payable for any of the years during the term of the policy exceeds 15 percent of the actual capital sum assured

However, any sum received under such policy referred to in (iii), (iv) and (v) above, on the death of a person would be exempt.

5.3.8    Any   payment from a Provident Fund to   which   the Provident   Funds Act, 1925, applies or from any other  provident fund set up by the Central  Government and notified by it in the Official Gazette is exempt under section 10(11).

5.3.9    Under section 10(13A) of the Act, 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  Rules,  the  quantum  of exemption   allowable  on  account  of  grant of special allowance to meet expenditure on payment of rent shall be the least of the following:

(a)        The actual amount of such allowance received by the assessee in respect of the relevant period i. e. the period during which the accommodation was occupied by the assesse during the financial year;  or

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

(i) Where  such  accommodation is situated in  Bombay, Calcutta,  Delhi or

Madras, 50% of the salary  due to the employee for the relevant period;  or

(ii) Where  such accommodation is situated in any other places,  40% of the salary due to the employee  for the relevant period,

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  upto Rs.3000/-  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.

Further if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report PAN of the landlord to the employer. In case the landlord does not have a PAN, a declaration to this effect from the landlord along with  the name and address of the landlord should be filed by the employee.

5.3.10   Section 10(14)  provides for exemption of the following allowances :-

(i)  Any special  allowance  or benefit granted  to  an employee  to  meet  the expenses wholly, necessarily and exclusively 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 Section 10(14) (i) & 10 (14) (ii)  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)      dt  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 p. m. or Rs1600 p.m (for a blind person) vide  notification  S.O.No. 395(E) dated  13.5.98.

5.3.11   Under Section 10(15)(iv)(i) of the 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  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 7.6.89, as amended by notification No.F.2/14/89-NS-II dated 12.10.89, the Central Government   has notified a scheme called Deposit Scheme for Retiring Government Employees, 1989 for the purpose of the   said clause.

5.3.12   Any scholarship granted to meet the cost of education is not to be included in total income as per provisions of section 10(16) of the Act.

5.3.13   Section 10(18) provides for exemption of any income by way of pension received by 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. Family pension received by any member of the family of such individual is also exempt [Notifications No.S.O.1948(E) dated 24.11.2000 and 81(E) dated 29.1.2001, which are enclosed as per Annexure VIII & IX]. “Family” for this purpose shall have the meaning assigned to it in Section 10(5) of the Act.

DDO may not deduct any tax in the case of recipients of such awards after satisfying himself about the veracity of the claim.

5.3.14   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 the Rules  in any hospital  approved  by  the  Chief Commissioner having  regard  to  the prescribed guidelines as provided in Rule 3(A)(1)of the Rules.

(c)  premium  paid  by the employer in respect  of  medical insurance taken for his employees (under any   scheme approved by the Central Government or Insurance Regulatory and Development Authority) 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 or Insurance Regulatory and Development Authority);

(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 an 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.

5.4 DEDUCTIONS U/S 16 OF THE ACT FROM THE INCOME FROM SALARIES

5.4.1    Entertainment Allowance [Section 16(ii)]:

A deduction is  also  allowed under  section  16(ii)   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. No deduction  on account of entertainment allowance is available to non-government  employees.

5.4.2    Tax on Employment [Section 16(iii)]:

The tax on employment (Professional Tax) within the meaning of article 276(2)   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, which was being allowed  up  to  financial  year  2004-05  is  not  allowable  from  financial  year  2005-06 onwards.

 

5.5  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:

5.5.1  Deduction in respect of Life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc. (section 80C)

A.        Section 80C, entitles an employee 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) herein below 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, in so far 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 3.11.05]

(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 or advance;

(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 Certificate 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 3.11.05and National Saving Certificate (IXth Issue) vide Notification . G.S.R. 848 (E), dated the

29th   November, 2011, publishing the National Savings Certificates (IX-Issue) Rules, 2011 G.S.R.  868 (E),  dated  the  7th  December,  2011,  specifying  the National Savings Certificates IX Issue as the class of Savings   CertificatesF No1-13/2011-NS-II r/w amendent Notification No.GSR 319(E), dated 25-4-2012

]

(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  referred  to  section  10  (23D)  and  as  notified    by    the  Central Government.

[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

3.11.05.]

(7)  Any subscription made to effect or keep in force a contract for such annuity plan of  the Life Insurance Corporation   or any other insurer 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 3.11.05 and Jeevan Akshay-III vide Notification S.O. No. 847(E) dated 1.6.2006 ]

(8) Any subscription made to any units of any Mutual Fund, of section 10(23D), 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 vide Notification S.O. No. 1563(E) dated 3.11.2005]

The investments made after 1.4.2006 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 Fund  referred to in  section 10(23D), or, by the Administrator or the specified company defined 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 the Equity Linked Saving Scheme, 2005 for this purpose vide Notification S.O. No. 1563(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.

[The Central Government has since notified the Public Deposit Scheme of HUDCO vide

Notification   S.O.   No.37(E),   dated   11.01.2007,   for   the   purposes   of   Section

80C(2)(xvi)(a)].

(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   re-payment 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    cooperative   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 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 tax-payer 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.

Full-time education includes any educational course offered by any university, college, school or other educational institution to a student who is enrolled full-time for the said course.   It is also clarified that full-time education includes play-school activities, pre- nursery and nursery classes.

It is clarified that the amount allowable as tuition fees shall include any payment of fee to any university, college, school or other educational institution in India except the amount representing   payment in the nature of development fees or donation or capitation fees or payment of similar nature.

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

(15)  Subscription  to  any units of  any  mutual  fund referred  to in clause (23D) of Section 10 and approved  by the Board, if the amount of subscription to such units is subscribed only in eligible issue of capital of any company.

(16)   Investment as a term deposit for a fixed period of not less than five years with a scheduled bank, which is in accordance with a scheme framed and notified by the Central Government, in the Official Gazette for these purposes.

[The Central Government has since notified the Bank Term Deposit Scheme, 2006 for this purpose vide Notification S.O. No. 1220(E) dated 28.7.2006]

(17)      Subscription      to      such      bonds      issued      by      the      National      Bank      for Agriculture and Rural Development, as the Central Government may, by such notification in the Official Gazette, specify in this behalf.

(18) Any investment in an account under the Senior Citizens Savings Scheme Rules, 2004.

(19) Any investment as five year time deposit in an account under the Post Office Time Deposit

Rules, 1981.

B.        Section 80C(3) & 80C(3A) states that in case of Insurance Policy other than contract for a deferred annuity the amount of any premium or other payment made is restricted to:

Policy issued before 1st April 2012 20% of the actual capital sum assured
Policy issued on or after 1st April 2012 10% of the actual capital sum assured
Policy issued on or after 1st April 2013 * – In cases ofpersons with disability or person with severe disability as per Sec 80 U or suffering from disease or ailment as specified in Sec 80DDB 15% of the actual capital sum assured

*Introduced by Finance Act 2013

Actual capital sum assured in relation to a life insurance policy means the minimum  amount assured under the policy on happening of the insured event at any time during the term of the policy, not taking into account –

i.      the value of any premium 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 by any person.

5.5.2 Deduction in respect of contribution to certain pension funds (Section 80CCC)

Section 80CCC allows an employee deduction of an amount paid or deposited   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  pension  from  the Fund referred   to   in   section 10(23AAB). However, the deduction shall exclude interest or bonus accrued or credited to the employee’s account, if any and shall not exceed Rs. 1 lakh.

However, if any amount is standing to the credit of the employee in the fund referred to above and deduction has been allowed as stated above and the employee or his nominee receives this amount together with the interest or bonus accrued or credited to this account due to the reason of

(i)     Surrender of annuity plan whether in whole or part

(ii)    Pension received from the annuity plan

then the amount so received during the Financial Year shall be the income of the employee or his nominee for that Financial Year and accordingly will be charged to tax.

Where any amount paid or deposited by the employee has been taken into account for the purposes of this section, a deduction  with reference to such amount shall not be  allowed under section 80C.

5.5.3 Deduction in respect of contribution to pension scheme of Central Government

(Section 80CCD):

Section 80CCD(1) allows an   employee, being an individual employed by the Central Government  or any other employer, on or after the 01.01.2004, a  deduction of an amount paid or deposited   out   of his income chargeable to tax under a pension scheme as notified   vide Notification F. N. 5/7/2003- ECB&PR dated 22.12.2003 or as may be notifed by the Central Government. However, the deduction shall not exceed an amount equal to 10% of his salary(includes Dearness Allowance but excludes all other allowance and perquisites).

As per Section 80CCD(2), where an employee receives any contribution in the said pension scheme  from the  Central  Government  or  any  other  employer  then  the  employee  shall  be allowed a deduction from his total income of the whole amount contributed by the Central Government or any other employer subject to limit of 10% of his salary of the previous year.

However, if any amount is standing to the credit of the employee in the pension scheme referred  above  and  deduction  has  been  allowed  as  stated  above  and  the  employee  or  his nominee receives this amount together with the amount  accrued thereon, due to the reason of

(i)     Closure or opting out of the pension scheme or

(ii)    Pension received from the annuity plan purchased and taken on such closure or opting out

then the amount so received during the FYs shall be the income of   the employee or his nominee for that Financial Year and accordingly will be charged to tax.

Where   any amount paid or deposited by the employee has been taken into account for the purposes of this section, a deduction  with reference to such amount shall not be  allowed under section 80C.

Further it has been specified that w.e.f 01.04.09 that any amount received by the employee from the new pension scheme shall be deemed not to have received in the previous year if such amount is used for purchasing an annuity plan in the previous year.

 

It is emphasized that as per the section 80CCE the aggregate amount of deduction under sections 80C, 80CCC and Section 80CCD(1) shall not exceed Rs.1,00,000/-. However the contribution made by the Central Government or any other employer to a pension scheme u/s

80CCD(2) shall be excluded from the limit of Rs.1,00,000/- provided under this Section.

5.5.4    Deduction in respect of investment made under an equity savings scheme (Section

80 CCG):

Newly inserted Section 80CCG provides deduction wef assessment year 2013-14 in respect of investment made under notified equity saving scheme. Rajiv Gandhi Equity Savings Scheme

2012 has been notified vide SO No 2777  dated 23.11.2012 as a scheme under this section. The deduction under this section is available if following conditions are satisfied:

(a) The assessee is a resident individual

(b)  His gross total income does not exceed Rs. 12 lakhs;

(c)  He has acquired listed shares in accordance with a notified scheme or listed units of an equity oriented fund as defined in section 10(38);

(d)  The assessee is a new retail investor;

(e)  The investment is locked-in for a period of 3 years from the date of acquisition in accordance with the above scheme;

(f) The assessee satisfies any other condition as may be prescribed.

Amount of deduction –The amount of deduction is at 50% of amount invested in equity shares/units. However, the amount of deduction under this provision cannot exceed Rs. 25,000.

Withdrawal of deduction – If the assessee, after claiming the aforesaid deduction, fails to satisfy the above conditions, the deduction originally allowed shall be deemed to be the income of the assessee of the year in which default is committed.

This deduction is now allowed for three consecutive assessment years beginning with the AY in which the listed equity shares or units were first acquired. If any deduction is claimed by a taxpayer under this section in any year, he shall not be entitled to any deduction under this section for any other year.

5.5.6   Deduction in respect of health insurance premia paid, etc. (Section 80D)

Section 80D provides for deduction available for health insurance premia paid, etc. which is calculated as under:

 

SlNo

Persons for

whom payment made

Nature of payment Mode ofpayment

Allowable

Deduction

(in Rs)

1

Employee

or his family

™  the whole of the amount paid to effect or tokeep in force an insurance on the health of the employee or his family or

™  any contribution made to the CGHS or such other scheme as may be notified by Central

Government (Finance Act 2013)

™  any   payment   on   account   of   preventive health check-up of the employee or family,

[restricted   to   Rs   5000/-;   cash   payment allowed here]

any

mode other than cash

Aggregate

allowable is

Rs 15,000/

{For Senior Citizens it is Rs 20000/-

}.

2

Parent orParents of employee ™  the whole of the amount paid to effect orkeep in force an insurance on the health of the parent or parents of the employee or

™  any payment made on account of preventive health check-up of the parent or parents of the employee [restricted to Rs 5000/-; cash

payment allowed here]

any

mode other than cash

Aggregateallowable is

Rs 15,000/

{For Senior Citizens it is Rs 20000/-}

Here

i) “family” means the spouse and dependent children of the employee.

ii) Senior citizen” means an individual  resident in India who is of the age of sixty years

[For AY 2013-14 onwards] or more at any time during the relevant previous year.

 

The DDO must ensure that the medical insurance referred to above shall be in accordance with a scheme made 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.

5.5.7 Deductions in respect of expenditure on persons or dependants with disability

5.5.7.1 Deductions in respect of maintenance including medical treatment of a dependent who is a person with disability (section 80DD):

Under section 80DD, where an employee, 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 employee shall be allowed a deduction of a sum of fifty thousand rupees from his gross total income of that year.

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

The deduction under (b) above shall be allowed only if the following conditions are fulfilled:-

(i) the scheme referred to in (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 employee 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  employee,  an amount equal to the amount paid or deposited under sub-para(b) above shall be deemed to be the income of the employee of the previous year in which such amount is received by the employee and shall accordingly be chargeable to tax as the income of that previous year.

5.5.7.2 Deductions in respect of a person with disability (section 80U):

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 one lakh rupees shall be allowable.

DDOs should note that 80DD deduction is in case of the dependent of the employee whereas

80U deduction is in case of the employee himself. However under both the Sections the employee shall furnish to the DDO following:

1.     A copy of the certificate issued by the medical authority as defined in Rule 11A(1) in the prescribed form as per Rule 11A(2) of the Rules.  The DDO has to allow deduction only after seeing that the Certificate furnished is from the Medical Authority defined in this Rule and the same is in the form as mentioned therein.

2.     Further in cases where the condition of disability is temporary and 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  as in 1 above and furnished before the DDO.

3.         For the purposes of section 80DD and 80 U some of the terms defined are as under:-

(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, 200 ; (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 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;

(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 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;

(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 Participa- tion) Act, 1995 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;

(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; 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;

(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.

 

5.5.8.   Deduction in respect of medical treatment, etc. (Section 80DDB):

Section 80DDB allows a deduction in case of employee,  who is resident in India, during the previous year, of any amount actually paid for the medical treatment of such disease or ailment as may be specified in the rules 11DD (1) for himself or a dependant.  The deduction allowed is equal to the amount actually paid or Rs. 40,000 whichever is less. Further the amount paid should also be reduced by the amount received if any under insurance from an insurerer or reimbursed by an employer. I case of a  senior citizen (an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year) the amount of deduction allowed is Rs. 60,000/-.

DDO must ensure that the employee furnishes a certificate in Form 10-I from a neurologist, an oncologist, a urologist, nephrologist,  a haematologist, an immunologist or such other specialist, as mentioned in Rule 11DD.

For the purpose of this section in the case of an employee “dependant” means individual, the spouse, children, parents, brothers and sisters of the employee or any of them, dependant wholly or mainly on the employee for his support and maintenance.

5.5.9    Deduction in respect of interest on loan taken for higher education (Section 80E):

 

Section 80E allows deduction   in   respect of payment of interest on loan taken from any financial institution or any approved charitable institution for  higher education for the purpose of pursuing his higher education or for the purpose of higher education of his spouse or his children or the student for whom he is the legal guardian.

The  deduction  shall be  allowed  in computing  the total income for the Financial    year in which the employee starts paying the  interest on the loan taken and immediately succeeding seven Financial years or until  the  Financial year in which  the interest  is paid in  full by the employee, whichever is earlier.

For the purpose of this section –

(a) “approved      charitable      institution”      means     an institution   established for charitable purposes  and  approved  by the prescribed authority  section  10(23C),  or an institution referred  to  in section 80G(2)(a);

(b) “financial  institution”  means a banking company  to which  the Banking Regulation Act, 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 any course of study pursued after passing the Senior Secondary  Examination  or  its  equivalent  from  any  school,  board  or  university recognized by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so;

5.5.10     Deduction in respect of interest on loan taken for residential house property

(Section 80EE):

Vide Finance Act 2013, an individual is allowed a deduction upto a limit of Rs 1,00,000 being paid as interest on a loan taken from a Financial Institution, sanctioned during the period 01-04-

2013 to 31-03-2014 (loan not to exceed Rs 25 lakhs) for acquisition of a residential house whose value does not exceed Rs 40 lakhs. However the deduction is available if the assessee does not own any residential house property on the date of sanction of the loan.

5.5.11   Deductions on respect of donations to certain funds, charitable institutions, etc. (Section 80G):

Section 80G provides for deductions on account of donation made to various funds , charitable organizations etc. In cases where employees make donations to the Prime Minister’s National Relief  Fund,  the  Chief  Minister’s  Relief  Fund  or  the  Lieutenant  Governor’s  Relief  Fund through their respective employers, it is not possible for such funds to issue separate certificate

to every such employee in respect of donations made to such funds as contributions made to these funds are in the form of a consolidated cheque. An employee who makes donations towards these funds is eligible to claim deduction under section 80G. It is, hereby, clarified that the claim in respect of such donations as indicated above will be admissible under section 80G on the basis of the certificate issued by the Drawing and Disbursing Officer (DDO)/Employer in this behalf – Circular No. 2/2005, dated 12-1-2005.

No deduction under this section is allowable in case of amount of donation if exceeds Rs

10000/- unless the amount is paid by any mode other than cash.

5.5.12  Deductions is respect of rents paid (Section 80GG):

Section  80GG  allows the employee  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    employee  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  employee  files the declaration in Form No.10BA. (Annexure X)

(c) The employee does not own:

(i)        any residential accommodation himself or by his spouse  or minor child or where such employee 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 which is in the occupation of   the   employee,   the   value of which   is   to   be determined under section 23(2)(a) or section 23(4)(a), as the case may be.

(d)  He  will  be entitled to a deduction in respect  of house  rent paid by him in excess of 10% of his  total income. The deduction shall be equal to 25% of total income 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.

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 employee. They should  also satisfy themselves  in  this regard  by  insisting on production of evidence  of actual  payment of rent.

5.5.13 Deductions in respect of certain donations for scientific research or rural development (Section 80 GGA):

 

Section 80GGA allows deduction from total income of employee in respect of donations  of any sum as given in the Table below:

SlNo Donations made to persons

Approval /

Notification under Section

Authority granting

approval/ Notification

1

To a research association which has as its objectthe undertaking of scientific research or to a University, college or other institution to be used for scientific research u/s 35(1)(ii) Central Government

2

To a research association which has as its object u/s 35(1)(iii) Central Government
the undertaking of research in social science orstatistical research or to a University, college or other institution to be used for research in social science or statistical research

3

To an association or institution, which has as itsobject the undertaking of any programme of rural development, to be used for carrying out any programme  of rural development approved for the purposes of section 35CCA furnishes thecertificate u/s

35CCA (2)

Prescribed Authority

under Rule 6AAA

4

an  association  or  institution  which  has  as  itsobject the training of persons for implementing programmes of rural development. furnishes thecertificate u/s

35CCA (2A)

Prescribed Authority

under Rule 6AAA

5

To a public sector company or a local authorityor to an association or institution approved by the National Committee, for carrying out any eligible project or scheme. furnishes thecertificate u/s

35AC(2)(a)

National Committee

for Promotion of Social & Economic Welfare

7

To a rural development fund

notified u/s

35CCA (1)(c)

set up and notified by

the Central

Government

8

To National Urban Poverty Eradication Fund

notified u/s

35CCA (1)(d)

set up and notified by

the Central

Government

No deduction under this section is allowable in case:

i)   The employee has gross total income which includes income which is chargeable under the head “Profits and gains of business or profession”.

ii)  The amount of donation exceeds Rs 10000 and is paid in cash.

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 employee. They should  also satisfy themselves  in  this regard  by  insisting on production of evidence  of actual  payment of donation and a receipt from the person to whom donation has been made and ensure that the approval/notification has been issued by the right authority. DDO must ensure a self-declaration from the employee that he has no income from “Profits and gains of business or profession”.

5.5.14   Deduction in respect of interest on deposits in savings account (Section 80TTA): Section 80TTA has been introduced from the Financial Year 2012-13 and it allows to an

employee from his gross total income if it includes any income by way of interest on deposits

(not being time deposits) in a savings account, a deduction amounting to:

(i) in a case where the amount of such income does not exceed in the aggregate ten thousand rupees, the whole of such amount; and

(ii) in any other case, ten thousand rupees.

The deduction is available, if such savings account is maintained in a

(a) banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in section 51 of that Act);

(b) co-operative society engaged in carrying on the business of banking (including a co- operative land mortgage bank or a co-operative land development bank); or

(c) Post Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898,

For this section, “time deposits” means the deposits repayable on expiry of fixed periods.

6.         REBATE OF RS 2000 FOR INDIVIDUALS HAVING TOTAL INCOME UPTO RS 5 LAKH [SECTION 87A]

Finance Act 2013 has provided relief in the form of rebate to individual taxpayers, resident in India, who are in lower income bracket, i. e. having total income  not exceeding Rs 5,00,000/-. The amount of rebate is Rs 2000/- or the amount of tax payable, whichever is lower.

7          TDS ON PAYMENT OF ACCUMULATED BALANCE UNDER RECOGNISED PROVIDENT  FUND  AND  CONTRIBUTION  FROM  APPROVED SUPERANNUATION FUND:

7.1       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 to the Act.

The accumulated balance is treated as income chargeable under the head “Salaries”

7.2       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. TDS should be at the average rate of tax at which, the employee was liable to be taxed during the preceding three years or during the period, if that period is less than three years, when he was member of the fund.

The deductor shall remain liable to deduct tax on any sum paid on account of returned contributions (including interest, if any) even if a fund or part of a fund ceases to be an approved Superannuation fund.

8.         DDOS TO SATISFY THEMSELVES ABOUT THE GENUINENESS OF CLAIM:

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.

 

Download Income Tax Circular No: 8/2013 dated 10.10.2013 for instructions on Calculation of Income Tax for Salaried Employees

Click here for online GConnect Income Tax Calculator 2013-14 (Assessment Year 2014-15)

Important Sections in Income Tax Circular 08/2013 dated 10.10.2013
Rates of Income Tax for the year 2013-14 (Assessment Year 2014-15)
Method of Income Tax Calculation for the year 2013-14
Income from house property – Exemption for Interest paid on Housing Loan
Calculation of Income Tax for the year 2013-14
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