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Tax Deduction at Source | Salaries (Section 192)

 

 

 

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 Here we shall discuss Indian Income Tax Deducted at Source on Salaries as per Section 192 of the Indian Income Tax Act.   

  • Any person responsible for paying any income chargeable under the head “Salary” is required to deduct tax at source on the amount payable.

 

  • Person responsible for paying: the employer himself. If the employer is a company, the company itself including the principal officer thereof. If the employees are of Central/State Governments, the person responsible for paying would be the concerned disbursing officer.


  • Tax is to be calculated on the basis of rates applicable for the financial year in which such payment is made.

 

  • No tax is required to be deducted at source unless the estimated salary exceeds the maximum amount not chargeable to tax for the financial year in which the salary is paid.

 

  • Tax is to be deducted on the estimated income under the head “Salaries” calculated as per the provisions of the Act.

  • Tax is required to be deducted from salary income only when it is actually paid to the employee. No need to deduct tax at the time of making a provision.

 

  • The person responsible for payment may choose to pay the tax on the following non-monetary perquisites instead of deducting tax from the employee: 1. Value of rent-free accommodation provided to the employee by the employer. 2. Value of any concession in rent in respect of any accommodation provided to the employee by the employer.

 
Important Note: As per section 206AA, with effect from 1.4.2010, every person who receives income subject to TDS under chapter XVIIB (covers all TDS cases) shall furnish to the deductor, his PAN. If PAN is not so furnished, the rate of TDS will be at the rates specified in the Act or at the rates currently in force or  at 20% whichever is higher. Please note that this applies to non residents also.

  • If a person is employed by more than one employer during the financial year, tax will be deducted on the aggregate salary by one of the employers chosen by the employee by submitting the information in Form No.12B.

 

  • In respect of salary payments to an employee of the Government, Public Sector Undertaking, company, co-operative society, local authority, university, institution, association or body, tax deduction at source is to be made after allowing relief under section 89, if any. To avail this benefit, the concerned employee should furnish particulars in Form No. 10E to the employer.

 

  • If the employee has income under any other head, he may choose to declare to the employer. He can do so by providing information about his other sources of income on a plain paper to the employer.

 

  • If the employee has declared details of his income under any other head, the employer has to take into account the other incomes also in computation of tax to be deducted from such employee. But, this should not result in reducing the tax deductible from the employee except in the case where loss under the head “Income from House Property” has been taken into account.

 

  • Even if the declaration contains other income and tax deducted at source from such other income, the tax to be deductible at source from salaries should not be reduced from what it would have been if there was no other income and tds for the employee. Except for the loss under the head “Income from house property”, income/loss and TDS under no other head of income shall have the effect of reducing TDS on salaries.
  •  If the employee has not declared details of his other income, the employer cannot take into account such other income even if the quantum of other income is otherwise known to the employer.

 

  • For the purposes of deduction of tax at source on salary payable in foreign currency, the value in rupees of such salary shall be calculated at the prescribed rates of exchange.

 

  • The person responsible for payment should take into consideration the amount deductible under sections 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80GG and 80U. Deduction under section 80G has to be taken into account only in respect of funds specified as per Circular No.11/2006 dt.16/11/2006.  Except for the above, other deductions under Chapter VIA cannot be taken into account by the employer.

 

  • From the tax calculated on the estimated taxable salary, tax rebate under section 88E (in respect of Securities Transaction Tax) should be deducted.

 

  • If tax is deducted at source, TDS certificate in Form No.16 is to be issued to the employee within one month from the close of the financial year. If the income from salaries does not exceed Rs.1,50,000/-, the employer can issue TDS certificate in Form No.16AA.

 

  • If the salary payable during the financial year exceeds Rs.1,50,000/-, the person responsible for payment shall furnish to the employee the complete particulars of perquisites or profits in lieu of salary provided to him in Form No. 12BA. This is in addition to the Form No.16 given to the employee. If the salary does not exceed Rs.1,50,000/-, such information can be provided in Form No.16 itself.

 

  • If Form No.16 and Form No.12BA are not issued within one month from the end of the financial year, the employer shall pay by way of penalty, Rs.100 for every day during which the failure continues. [Section 272A].

 

  • The deductor has an option to issue Form No. 16 in digital form provided that his digital signature is used to authenticate such forms. The employer should maintain control numbers with log of such certificates issued with digital signatures.

 

  • Where an employee claims that his salary is not chargeable to income tax and therefore, no tax should be deducted from his salary, the employer should advise the employee to obtain a certificate under section 197(1) from the concerned Income Tax Officer authorising no deduction or deduction at a lower rate. (Circular No. 147[F.No.275/80/74-ITJ], dt.28/10/1974

 

  • The liability of the employer to deduct and pay tax is absolute. Failure to do so would attract interest and penal provisions under the Act. (F.No.237/4/75-A & PAC dt.23-11-1976).

 

  • The tax deducted shall be remitted within 7 days from the last day of the month in which the tax is deducted.

 

  • If there is delay in remitting or deducting or shortfall in remitting or deducting, interest of 1 percent per month or part thereof shall be paid from the date on which tax is deductible to the date on which the tax is actually deducted as per Section 201(1A). From the date of deduction till the date of payment, interest shall be leviable at the rate of 1.5 percent per month or part thereof. Hence, for delay in remittance also, interest is payable from the date of tax deduction. Such interest has to be paid before furnishing the quarterly TDS return.

 

  • The TDS return in Form 24Q has to be furnished quarterly on or before 15th July(I quarter), 15th Oct(II quarter), 15th Jan(III quarter), 15th June(IV quarter). There is no requirement of filing annual TDS return. The quarterly return filed for the March quarter shall be treated as the annual return. If the TDS return is not filed in time, a penalty of Rs.100 shall be payable for every day during which the default continues.

 

  • The TDS returns should be filed in the electronic format by Govt. departments, companies and persons who are required to get their accounts audited u/s 44AB in the immediately preceding financial year. For other deductors, electronic filing is compulsory if the number of deductees in any quarter of the immediately preceding financial year is equal to or exceeds 50.

 

  • The quarterly return should contain at least 95% of correct PAN data.

 

  • Failure to deduct tax at source would also attract penalty u/s 271C of an amount equal to the amount of tax not deducted.

 

  • Failure to remit the tax deducted at source would attract imprisonment and fine as per section 276B.

Important Circulars:

1. Ship owner required to deduct tax at source from seamens salaries
Ship-owners are liable to deduct tax at source under section 192(1) of the Act. There is no bar in the Merchant Shipping Act, for such a deduction. Under section 125 of the Merchant Shipping Act, the master of every ship has to deliver to the seaman a full account of seamans wages and of all deductions to be made therefrom on any account whatsoever. The deduction of tax from the wages of seaman may be shown in a separate column in the statement to be given to the seaman by the master of the ship to comply with the section.

For the purpose of determining the rate of tax applicable, the total salary of the seamen 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 later part of the year and any seaman satisfies his employer that his income for the year as a whole would not be above that 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 of the Act.

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 of the IT Rules, 1962. However, the employer will have to ensure that before wages are paid to the seaman at the time of discharge, the tax liabilities are properly calculated and final recovery effective from such wages paid at the time of discharge.

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

2. Deductibility of TDS on conveyance payments--Clarification regarding
If the disbursing authority is satisfied that the conveyance allowance granted to the employees are covered by section 10(14), then the obligation to deduct tax thereon may not arise. In such contingency tax is not liable to be deducted at source from this allowance. However, at the same time it will have to be ensured that a certificate in terms of section 10(14) is endorsed on the tax deduction bills, by the disbursing authority. The employees who are in receipt of conveyance allowance would also 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. Such satisfaction of the disbursing authority would still be liable for scrutiny by the ITO during regular assessment proceedings before him.--Vide Circular No. 196, dt. 31-3-1976.

3. Requirement of obtaining no deduction or deduction at lower rate certificate under section 197(1)
In any case 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 m ay be prescribed in the said certificate. In the absence of such a certificate from the employee, the employer should deduct income-tax on the salary payable at the normal rates.--Vide Circular No. 147, dt. 28-10-1974.

4. Relief under section 80U
An employer would give a deduction of Rs. 5,000 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 from the ITO authorising such deduction. The certificate will be issued by the ITO in the name of the employer on a request made by the resident individual entitled to this deduction in the course of his assessment for the first assessment year or laterule The certificate will be issued on completing the first years assessment if such an individual is held entitled to the deduction of Rs. 5,000 under section 80U of the Act.

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.--Vide Circular No. 272, dt. 27-5-1980.

5. Refund of amount paid in excess of tax deducted and/or deductible--Procedure to regulate the same
Excess payment can be refunded, independently of the Act, to the person responsible for making such payment subject to necessary administrative safeguards.

The excess payment would be the difference between the actual payment made by the deductor and the tax deducted at source or that deductible, whichever is more. 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.

Where the tax is deducted at source and paid by the branch office of the assessee and the quarterly statement/annual return (in case of salaries) of tax deduction at source is filed by the branch, such branch office would be treated as a separate unit independent of the head office. After meeting any existing tax liability of such a branch, which would normally be in relation to the deduction of tax at source, the balance amount may be refunded to the said branch office. The ITO, who will refund the amount, would be the one who receives the quarterly statement/ annual return (in case of salaries) of tax deduction at source from that branch office and keeps record of the payments of TDS made by that branch.--Vide Circular No. 285, dt. 21-10-1980.

6. No actual rent receipt to be demanded in rent payment does not exceed Rs. 3000 per month
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. 3,000 per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the assessing officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.--Vide Circular No. 1/2010, dt. 11-1-2010.

7. Clarification regarding tax deduction at source on arrears of salary paid to Government Servants on Account of implementation of the recommendations of Sixth Central Pay Commission
The Implementation Cell of the Department of Expenditure, Ministry of Finance vide its Office Order F.No. 1/1/2008-IC, dt. 30-8-2008 has stated at para 2(v) "Bills may be drawn separately in respect of the arrears of pay and allowances for the period from 1-1-2006 to 31-8-2008. The aggregate arrears, computed after deduction of subscription at enhanced rates of GPF and NPS with reference to the revised pay, may be paid in two installments, the first installment being restricted to 40% of the aggregate arrears. DDOs/PAOs will ensure that action is taken simultaneously in regard to Governments contribution towards enhanced subscription. Orders in regard to the payment of the second installment of arrears will be issued separately."

2. A number of representations have been received by Central Board of Direct Taxes (CBDT) seeking clarification as to whether TDS need to be deducted on 40% of arrear to be paid during 2008-09 or on the entire arrear payable to the government servant. The matter has been examined by the CBDT and the issue is clarified as under :

Salary is as defined under section 15 of Income Tax Act, 1961 :

(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, if not charged to income-tax for any earlier previous year.

3. It is clear from the Office Memorandum issued by the Department of Expenditure that 60% of the pay arrears neither fall in the category of due nor are allowed. Moreover, section 192 of Income Tax Act, 1961, inter alia, requires any person responsible for paying any income chargeable under the head "Salaries" to deduct income-tax on the amount payable at the stipulated rate at the time of payment. Therefore it is clarified that income tax at source would be deducted under section 192 only from the arrears of salary actually paid during financial year 2008-09. On the balance, tax would be deducted during the financial year in which these pay arrears are actually paid.--Vide Press Release No. 402/92/2006-MC (46 of 2008), dt. 30-9-2008.

8. TDS from payment of second installment of arrears to Government employees on account of implementation of Sixth Central Pay Commissions recommendations
Under the provisions of Section 192 of the Income-tax Act, an employer is required to deduct tax at source from any payments in the nature of salary, which inter alia also includes any arrear payments. The Implementation Cell of the Department of Expenditure, Govt of India, vide its Office Order dated 30th Aug 08 had stated that 40% of the aggregate arrear (first installment of arrears) would be payable during FY 2008-09. In Circular No. 09/2008 dated 29th Sept. 2008 issued from this office it was stated that during 2008-09 the tax has to be deducted at source on this 40% of aggregate arrear during FY 2008-09. The OM,F.No-1//1/2008-IC, of the Implementation Cell of the Department of Expenditure, Govt of India, vide its order dated 25th August, 2009 has stated that the remaining 60% of the aggregate arrear ( second installment of arrears) would be paid to the concerned Government servants during FY 2009-10. Such arrangements could be followed by State Governments also.

In this regard, all the DDOs and PAOs as the case may be, in the Central/State Government and various organizations under them are advised to compute the correct tax liability of every employee on second installment of arrears drawn by him and immediately recover the full tax liability along with education cess thereon at the rates in force. The deduction of tax at source on such arrear payment should not be deferred in any circumstance. They should further ensure that the tax so recovered is paid to the account of Central Government account immediately as per the Income Tax Rules, 1962. The DDOs/PAOs are further advised that they should ensure that the PAN details of the deductees (recipient of arrears) are correctly quoted in the relevant quarterly e-TDS returns filed by them so that the Government Servants get proper credit of their tax deducted in their respective income tax returns.

DDOs/PAOs who fail to comply with the provisions of Section 192 of the of the Income-tax Act, 1961 would be liable to pay interest under section 201(1)/(1A) of Income Tax Act along with other penal consequences.--Vide Circular No. 6/2009, dt. 31-8-2009.


Disclaimer: All the information provided above is for informative purposes only. You are advised to consult your tax consultant before you act upon any of the above information. In spite of this, if any person acts upon this information and suffers any loss, we are not to be held liable.

 

     Though all efforts have been made to provide latest information, you are advised to check latest circulars, latest changes in law etc from the Indian Income Tax Department.


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