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Income Tax Act 1961 - Deduction of Tax from Salaries

Income Tax Act 1961 - Deduction of Tax from Salaries

DURING THE FINANCIAL YEAR 2017-18

GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)
CENTRAL BOARD OF DIRECT TAXES

DEDUCTION OF TAX AT SOURCE INCOME-TAX
DEDUCTION FROM SALARIES
UNDER SECTION 192 OF THE INCOME-TAX ACT, 1961

DURING THE FINANCIAL YEAR 2017-18

CIRCULAR NO 29 /2017
NEW DELHI, the 5th December, 2017


CIRCULAR NO : 29 /2017
F.No. 275/192/2017-IT(B)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
******

North Block, New Delhi
Dated the 5th December, 2017

SUBJECT: INCOME-TAX DEDUCTION FROM SALARIES DURING THE FINANCIAL YEAR 2017-18 UNDER SECTION 192 OF THE INCOME-TAX ACT, 1961.

Reference is invited to Circular No. 01/2017 dated 02.01.2017 whereby the rates of deduction of income-tax from the payment of income under the head "Salaries" under Section 192 of the Income-tax Act, 1961 (hereinafter ‘the Act’), during the financial year 2016-17, were intimated. The present Circular contains the rates of deduction of income-tax from the payment of income chargeable under the head "Salaries" during the financial year 2017-18 and explains certain related provisions of the Act and Income-tax Rules, 1962 (hereinafter the Rules). The relevant Acts, Rules, Forms and Notifications are available at the website of the Income Tax Department- www.incometaxindia.gov.in.

2. RATES OF INCOME-TAX AS PER FINANCE ACT, 2017:
As per the Finance Act, 2017, income-tax is required to be deducted under Section 192 of the Act from income chargeable under the head "Salaries" for the financial year 2017-18 (i.e. Assessment Year 2018-19) at the following rates:

2.1 Rates of tax
A. Normal Rates of tax:
B. Rates of tax for every individual, resident in India, who is of the age of sixty years or more but less than eighty years at any time during the financial year:
C. In case of every individual being a resident in India, who is of the age of eighty years or more at any time during the financial year:

2.2 Surcharge on Income tax:
The amount of income-tax computed in accordance with the preceding provisions of this Paragraph, or the provisions of section 111A or section 112 of the Act, shall, in the case of every individual or Hindu undivided family or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Act, will be as under:
(a) having a total income exceeding fifty lakh rupees but not exceeding one crore rupees, at the rate of ten percent of such income-tax and
(b) having a total income exceeding one crore rupees, at the rate of fifteen percent of such income-tax:
Provided that in the case of persons mentioned above having total income exceeding;-
(a) Fifty lakh rupees but not exceeding one crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of fifty lakh rupees by more than the amount of income that exceeds fifty lakh rupees;
(b) one crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees.

2.3.1 Education Cess on Income tax:
The amount of income-tax including the surcharge if any, shall be increased by Education Cess on Income Tax at the rate of two percent of the income-tax.

2.3.2 Secondary and Higher Education Cess on Income-tax:
An additional education cess is chargeable at the rate of one percent of income-tax including the surcharge, if any, but not including the Education Cess on income tax as in 2.3.1.

3. SECTION 192 OF THE INCOME-TAX ACT, 1961: BROAD SCHEME OF TAX DEDUCTION AT SOURCE FROM "SALARIES":
3.1 Method of Tax Calculation:
Every person who is responsible for paying any income chargeable under the head "Salaries" shall deduct income-tax on the estimated income of the assessee under the head "Salaries" for the financial year 2017-18. The income-tax is required to be calculated on the basis of the rates given above, subject to the provisions related to requirement to furnish PAN as per sec 206AA of the Act, and shall be deducted at the time of each payment. No tax, however, will be required to be deducted at source in any case unless the estimated salary income including the value of perquisites, for the financial year exceeds Rs. 2,50,000/- or Rs.3,00,000/- or Rs. 5,00,000/-, as the case may be, depending upon the age of the employee.(Some typical illustrations of computation of tax are given at Annexure-I).

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

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

3.2.2 Illustration:
The income chargeable under the head “salaries” of an employee below sixty years of age for the year inclusive of all perquisites is Rs. 4,50,000/-, out of which, Rs. 50,000/- is on account of non-monetary perquisites and the employer opts to pay the tax on such perquisites as per the provisions discussed in para 3.2 above.

STEPS:
The tax so paid by the employer shall be deemed to be TDS made from the salary of the employee.
3.3 Salary From More Than One Employer:
Section 192(2) deals with situations where an individual is working under more than one employer or has changed from one employer to another. It provides for deduction of tax at source by such employer (as the tax payer may choose) from the aggregate salary of the employee, who is or has been in receipt of salary from more than one employer. The employee is now required to furnish to the present/chosen employer details of the income under the head "Salaries" due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and by the former/other employer. The present/chosen employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from the former or other employer).

3.4 Relief When Salary Paid in Arrear or Advance:

3.4.1 Under section 192(2A) where the assessee, being a Government servant or an employee in a company, co-operative society, local authority, university, institution, association or body is entitled to the relief under Section 89(1) he may furnish to the person responsible for making the payment referred to in Para (3.1), such particulars in Form No. 10E duly verified by him, and thereupon the person responsible, as aforesaid, shall compute the relief on the basis of such particulars and take the same into account in making the deduction under Para(3.1) above. Here “university” means a university established or incorporated by or under a Central, State or Provincial Act, and includes an institution declared under Section 3 of the University Grants Commission Act, 1956 to be a university for the purpose of that Act.

3.4.2 With effect from 1/04/2010 (AY 2010-11), no such relief shall be granted in respect of any amount received or receivable by an assessee on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in section 10(10C)(i) (read with Rule 2BA), a scheme of voluntary separation, if an exemption in respect of any amount received or receivable on such voluntary retirement or termination of his service or voluntary separation has been claimed by the assessee under section 10(10C) in respect of such, or any other, assessment year.

3.5 Information regarding Income under any other head:
(i) Section 192(2B) enables a taxpayer to furnish particulars of income under any head other than "Salaries" ( not being a loss under any such head other than the loss under the head “ Income from house property”) received by the taxpayer for the same financial year and of any tax deducted at source thereon. The particulars may now be furnished in a simple statement, which is properly signed and verified by the taxpayer in the manner as prescribed under Rule 26B(2) of the Rules and shall be annexed to the simple statement. The form of verification is reproduced as under:
I, …………………. (name of the assessee), do declare that what is stated above is true to the best of my information and belief.
It is reiterated that the DDO can take into account any loss only under the head “Income from house property”. Loss under any other head cannot be considered by the DDO for calculating the amount of tax to be deducted. It may be noted that loss under the head “Income from house property” can be set off only up to Rs. 2.00 lakh with the income under any other head of income in view of the amendment to section 71 of the Act vide Finance Act, 2017. Hence, loss under the head “Income from house property” in excess of Rs. 2.00 lakh is to be ignored for calculating the amount of tax deduction.

3.6 Computation of income under the head “ Income from house property”:
While taking into account the loss from House Property, the DDO shall ensure that the employee files the declaration referred to above and encloses therewith a computation of such loss from house property. Following details shall be obtained and kept by the employer in respect of loss claimed under the head “ Income from house property” separately for each house property:
a) Gross annual rent/value
b) Municipal Taxes paid, if any
c) Deduction claimed for interest paid, if any
d) Other deductions claimed
e) Address of the property
The DDO shall also ensure furnishing of the evidence or particulars in Form No. 12BB
in respect of deduction of interest as specified in Rule 26C read with section 192 (2D).

3.6.1 Conditions for Claim of Deduction of Interest on Borrowed Capital for Computation of Income From House Property [Section 24(b)]:
Section 24(b) of the Act allows deduction from income from houses property on interest on borrowed capital as under:-
(i) the deduction is allowed only in case of house property which is owned and is in the occupation of the employee for his own residence. However, if it is actually not occupied by the employee in view of his place of the employment being at other place, his residence in that other place should not be in a building belonging to him.
(ii) the quantum of deduction allowed as per table below:
(a) The acquisition or construction of the house should be completed within 5 years from the end of the FY in which the capital was borrowed. Hence, it is necessary for the DDO to have the completion certificate of the house property against which deduction is claimed either from the builder or through self-declaration from the employee.
(b) Further any prior period interest for the FYs upto the FY in which the property was acquired or constructed (as reduced by any part of interest allowed as deduction under any other section of the Act) shall be deducted in equal installments for the FY in question and subsequent four FYs.
(c) The employee has to furnish before the DDO a certificate from the person to whom any interest is payable on the borrowed capital specifying the amount of interest payable. In case a new loan is taken to repay the earlier loan, then the certificate should also show the details of Principal and Interest of the loan so repaid.

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

3.8 Salary Paid in Foreign Currency:
For the purposes of deduction of tax on salary payable in foreign currency, the value in rupees of such salary shall be calculated at the “Telegraphic transfer buying rate” of such currency as on the date on which tax is required to be deducted at source ( see Rule 26).

4. PERSONS RESPONSIBLE FOR DEDUCTING TAX AND THEIR DUTIES:
4.1. As per section 204(i) of the Act, in the context of payments other than payments by the
Central Government or the State Government the "person responsible for paying" for the
purpose of Section 192 means the employer himself or if the employer is a Company, the
Company itself including the Principal Officer thereof. Further, as per Section 204(iv), in
case the credit, or as the case may be, the payment is made by or on behalf of Central
Government or State Government, the DDO or any other person by whatever name called,
responsible for crediting, or as the case may be, paying such sum is the "person responsible
for paying" for the purpose of Section 192.

4.2. The tax determined as per para 9 should be deducted from the salary u/s 192 of the Act.

4.3. Deduction of Tax at Lower Rate:
If the jurisdictional TDS officer of the Taxpayer issues a certificate of No Deduction or
Lower Deduction of Tax under section 197 of the Act, in response to the application filed
before him in Form No 13 by the Taxpayer; then the DDO should take into account such
certificate and deduct tax on the salary payable at the rates mentioned therein.(see Rule
28AA). The Unique Identification Number of the certificate is required to be reported in
Quarterly Statement of TDS (Form 24Q).

4.4. Deposit of Tax Deducted:
Rule 30 prescribes time and mode of payment of tax deducted at source to the account of Central Government.


4.4.1. Due dates for payment of TDS:
Prescribed time of payment/deposit of TDS to the credit of Central Government account is
as under:

4.4.2 Mode of Payment of TDS

4.4.2.1 Compulsory filing of Statement by PAO, Treasury Officer, etc in case of
payment of TDS by Book Entry u/ s 200 (2A):
In the case of an office of the Government, where tax has been paid to the credit of the
Central Government without the production of a challan [Book Entry], the Pay and
Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer or
any other person by whatever name called to whom the deductor reports about the tax
deducted and who is responsible for crediting such sum to the credit of the Central
Government, shall‐
(a) submit a statement in Form No. 24G under section 200 (2A) on or before the
30th day of April where statement relates to the month of March; and in any other
case, on or before 15 days from the end of relevant month to the agency authorized
by the Director General of Income‐tax (Systems) [TIN Facilitation Centres currently
managed by M/s National Securities Depository Ltd] in respect of tax deducted by
the deductors and reported to him for that month; and
(b) intimate the number (hereinafter referred to as the Book Identification Number or
BIN) generated by the agency to each of the deductors in respect of whom the sum
deducted has been credited. BIN consist of receipt number of Form 24G, DDO
sequence number in Form No. 24G and date on which tax is deposited.
If the PAO/CDDO/TO etc, as stated above, fails to deliver the statement as required u/s
200(2A), he will be liable to pay, by way of penalty, under section 272A(2)(m), a sum
which shall be Rs.100/- for every day during which the failure continues. However, the 
amount of such penalty shall not exceed the amount of tax which is deductable at
source.
The procedure of furnishing Form 24G is detailed in Annexure III. PAOs/DDOs should go
through the FAQs in Annexure IV to understand the correct process to be followed. The
ZAO / PAO of Central Government Ministries is responsible for filing of Form No. 24G on
monthly basis. The person responsible for filing Form No. 24G in case of State Govt.
Departments is shown at Annexure V.
The procedure of furnishing Form 24G is detailed in Annexure IV. PAOs/DDOs should go
through the FAQs therein to understand the correct process to be followed.

4.4.2.2 Payment by an Income Tax Challan:
(i) In case the payment is made by an income-tax challan, the amount of tax so deducted
shall be deposited to the credit of the Central Government by remitting it, within the time
specified in Table in para 4.4.1 above, into any office of the Reserve Bank of India or
branches of the State Bank of India or of any authorized bank;
(ii) In case of a company and a person (other than a company), to whom provisions of
section 44AB are applicable, the amount deducted shall be electronically remitted into the
Reserve Bank of India or the State Bank of India or any authorised bank accompanied by an
electronic income-tax challan (Rule125).
The amount shall be construed as electronically remitted to the Reserve Bank of India or to
the State Bank of India or to any authorized bank, if the amount is remitted by way of:
(a) internet banking facility of the Reserve Bank of India or of the State
Bank of India or of any authorized bank; or
(b) debit card. {Notification No.41/2010 dated 31st May 2010}

4.5 Interest, Penalty & Prosecution for Failure to Deposit Tax Deducted:
4.5.1 If a person fails to deduct the whole or any part of the tax at source, or, after
deducting, fails to pay the whole or any part of the tax to the credit of the Central
Government within the prescribed time, he shall be liable to action in accordance with the
provisions of section 201 and shall be deemed to be an assessee-in-default in respect of
such tax and liable for penal action u/s 221 of the Act. Further Section 201(1A) provides
that such person shall be liable to pay simple interest
(i) at the rate of 1% for every month or part of the month on the amount of such tax
from the date on which such tax was deductible to the date on which such tax is
deducted; and
(ii) at the rate of one and one-half percent for every month or part of a month on the
amount of such tax from the date on which such tax was deducted to the date on
which such tax is actually paid.
Such interest, if chargeable, is mandatory in nature and has to be paid before furnishing of
quarterly statement of TDS for respective quarter.

4.5.2 Section 271C inter alia lays down that if any person fails to deduct whole or any
part of tax at source or fails to pay the whole or part of tax under the second proviso to
section 194B, he shall be liable to pay, by way of penalty, a sum equal to the amount of
tax not deducted or paid by him.

4.5.3 Further, section 276B lays down that if a person fails to pay to the credit of the
Central Government within the prescribed time, as above, the tax deducted at source 
by him or tax payable by him under the second proviso to Section 194B, he shall be
punishable with rigorous imprisonment for a term which shall be between 3 months and 7
years, along with fine.

4.6 Furnishing of Certificate for Tax Deducted (Section 203):
4.6.1 Section 203 requires the DDO to furnish to the employee a certificate in Form 16
detailing the amount of TDS and certain other particulars. Rule 31 prescribes that Form 16
should be furnished to the employee by 15th June (w.e.f. 02.06.2017) after the end of the
financial year in which the income was paid and tax deducted. Even the banks deducting tax
at the time of payment of pension are required to issue such certificates. Revised Form 16
annexed to Notification No 11 dated 19-02-2013 is enclosed. The certificate in Form 16
shall specify
(a) Valid permanent account number (PAN) of the deductee;
(b) Valid tax deduction and collection account number (TAN) of the deductor;
(c) (i) Book identification number or numbers (BIN) where deposit of tax
deducted is without production of challan in case of an office of the
Government;
(ii) Challan identification number or numbers (CIN*) in case of payment
through bank.
(*Challan identification number (CIN) means the number comprising the Basic Statistical
Returns (BSR) Code of the Bank branch where the tax has been deposited, the date on which
the tax has been deposited and challan serial number given by the bank.)
(d) Receipt numbers of all the relevant quarterly statements of TDS (24Q). The
receipt number of the quarterly statement is of 8 digit.
Further as per Circular 04/2013 dated 17-04-2013 all deductors (including Government
deductors who deposit TDS in the Central Government Account through book entry) shall
issue the Part A of Form No. 16, by generating and subsequently downloading it through
TRACES Portal and after duly authenticating and verifying it, in respect of all sums
deducted on or after the 1st day of April, 2012 under the provisions of section 192 of
Chapter XVII-B. Part A of Form No 16 shall have a unique TDS certificate number. 'Part B
(Annexure)' of Form No. 16 shall be prepared by the deductor manually and issued to the
deductee after due authentication and verification along with the Part A of the Form No. 16.
It may be noted that under the new TDS procedure, TAN of deductee/ PAN of the deductee
and receipt number of TDS statement filed by the deductor act as unique identifier for
granting online credit of TDS to the decutee. Hence due care should be taken in filling these
particulars. Due care should also be taken in indicating correct CIN/ BIN in TDS statement.
If the DDO fails to issue these certificates to the person concerned, as required by section
203, he will be liable to pay, by way of penalty, under section 272A(2)(g), a sum which shall
be Rs.100/- for every day during which the failure continues.
It is, however, clarified that there is no obligation to issue the TDS certificate in case tax at
source is not deductible/deducted by virtue of claims of exemptions and deductions.
[Note: TRACES is a web-based application of the Income - tax Department that
provides an interface to all stakeholders associated with TDS administration. It enables
viewing of challan status, downloading of NSDL Conso File, Justification Report and
Form 16 / 16A as well as viewing of annual tax credit statements (Form 26AS). Each 
deductor is required to Register in the Traces portal. Form 16/16A issued to deductees
should mandatorily be generated and downloaded from the TRACES portal].
Certain essential points regarding the filing of the Statement and obtaining TDS
certificates are mentioned below:
(a) TDS certificate (Form16) would be generated for the deductee only if Valid PAN is
correctly mentioned in the Annexure II of Form 24Q in Quarter 4 filed by the deductor.
Moreover, employers are advised to ensure in Form 16 that the status of “matching” with
respect to “Form 24G/OLTAS” is ‘F’. If the status of matching other than ‘F’, kindly take
necessary action promptly to rectify the same. It is pertinent to mention here that certain
facilities have been provided to the deductors at website www.tdscpc.gov.in/ including
online correction of statements (Form 24Q).
(b) The employer should quote the gross amount of salary (including any amount
exempt under section 10 and the deductions under chapter VI A) in column 321 (Amount
paid/credited) of Annexure I of Form 24Q as per NSDL RPU (hereafter Return Preparation
Utility).
(c) The employer should quote the amount of salary excluding any amount exempt
under section 10 in column 333 (Total amount of salary) of Annexure II of Form 24Q as per
NSDL RPU.
(d) TDS on Income (including loss from House Property) under any Head other than the
head ‘Salaries’ offered for TDS (shown in column 339) can be shown in column 350
(Reported amount of TDS by previous employer, as per NSDL RPU.
(e) Employer is advised to quote Total Taxable Income (Column 346) in Annexure II
without rounding-off and TDS should be deducted and reported accordingly i.e. without
rounding-off of TDS also.
Example:

4.6.2. If an assessee is employed by more than one employer during the year, each of the
employers shall issue Part A of the certificate in Form No. 16 pertaining to the period for
which such assessee was employed with each of the employers and Part B may be issued by
each of the employers or the last employer at the option of the assessee.

4.6.3. Authentication by Digital Signatures:
(i) Where a certificate is to be furnished in Form No. 16, the deductor may, at his
option, use digital signatures to authenticate such certificates.
(ii) In case of certificates issued under clause (i), the deductor shall ensure that
(a) the conditions prescribed in para 4.6.1 above are complied with;
(b) once the certificate is digitally signed, the contents of the certificates are
not amenable to change; and
(c) the certificates have a control number and a log of such certificates is
maintained by the deductor.
❖ The digital signature is being used to authenticate most of the e-transactions on the
internet as transmission of information using digital signature is failsafe. It saves
time specially in organisations having large number of employees where issuance of
certificate of deduction of tax with manual signature is time consuming (Circular no 2 of 2007 dated 21.05.2007)

4.6.4. Furnishing of particulars pertaining to perquisites, etc (Section 192(2C):
4.6.4.1 As per section 192(2C), the responsibility of providing correct and complete
particulars of perquisites or profits in lieu of salary given to an employee is placed on the
person responsible for paying such income i.e., the person responsible for deducting tax at
source. The form and manner of such particulars are prescribed in Rule 26A, Form 12BA
(Annexure II) and Form 16 of the Rules. Information relating to the nature and value of
perquisites is to be provided by the employer in Form 12BA in case salary paid or payable is
above Rs.1,50,000/-. In other cases, the information would have to be provided by the
employer in Form 16 itself.

4.6.4.2 An employer, who has paid the tax on perquisites on behalf of the employee as per
the provisions discussed in para 3.2 of this circular, shall furnish to the employee
concerned, a certificate to the effect that tax has been paid to the Central Government and
specify the amount so paid, the rate at which tax has been paid and certain other particulars
in the amended Form 16.
4.6.4.3 The obligation cast on the employer under Section 192(2C) for furnishing a
statement showing the value of perquisites provided to the employee is a crucial
responsibility of the employer, which is expected to be discharged in accordance with law
and rules of valuation framed there under. Any false information, fabricated
documentation or suppression of requisite information will entail consequences thereof
provided under the law. The certificates in Forms 16 and/or Form 12BA specified above,
shall be furnished to the employee by 31st May of the financial year immediately following
the financial year in which the income was paid and tax deducted. If he fails to issue these
certificates to the person concerned, as required by section 192(2C), he will be liable to pay,
by way of penalty, under section 272A(2)(i), a sum which shall be Rs.100/- for every day
during which the failure continues.
As per Section 139C of the Act, the Assessing Officer can require the taxpayer to produce
Form 12BA along with Form 16, as issued by the employer.
4.6.5 DDOs empowered to obtain evidence of proof or particulars of the prescribed
claim (including claim for set-off of loss) under the section 192(2D):
DDOs have been authorized u/s 192 to allow certain deductions, exemptions or allowances
or set-off of certain loss as per the provisions of the Act for the purpose of estimating the
income of the assessee or computing the amount of tax deductible under the said section.
The evidence /proof /particulars for some of the deductions/exemptions/allowances/set-off
of loss claimed by the employee such as rent receipt for claiming deduction in HRA,
evidence of interest payments for claiming loss from self-occupied house property, etc is not
available to the DDO. To bring certainity and uniformity in this matter, section 192(2D)
provides that person responsible for paying (DDOs) shall obtain from the assessee evidence
or proof or particular of claims such as House rent Allowance (where aggregate annual rent
exceeds one lakh rupees); Leave Travel Concession or Assistance; Deduction of interest
under the head “Income from house property” and deduction under Chapter VI-A as per the
prescribed form 12BB laid down by Rule 26C of the Rules. Form 12BB is enclosed as
Annexure IIa.
4.7 Mandatory Quoting of PAN and TAN:
4.7.1 Section 203A of the Act makes it obligatory for all persons responsible for
deducting tax at source to obtain and quote the Tax deduction and collection Account No
(TAN) in the challans, TDS-certificates, statements and other documents. Detailed
instructions in this regard are available in this Department's Circular No.497
[F.No.275/118/ 87-IT(B) dated 9.10.1987]. If a person fails to comply with the provisions
of section 203A, he will be liable to pay, by way of penalty, under section 272BB, a sum
of ten thousand rupees. Similarly, as per Section 139A(5B), it is obligatory for persons
deducting tax at source to quote PAN of the persons from whose income tax has been
deducted in the statement furnished u/s 192(2C), certificates furnished u/s 203 and all
statements prepared and delivered as per the provisions of section 200(3) of the Act.
4.7.2 All tax deductors are required to file the TDS statements in Form No.24Q (for tax
deducted from salaries). As the requirement of filing TDS certificates alongwith the return
of income has been done away with, the lack of PAN of deductees is creating difficulties in
giving credit for the tax deducted. Tax deductors are, therefore, advised to procure and quote
correct PAN details of all deductees in the TDS statements for salaries in Form 24Q.
Taxpayers are also liable to furnish their correct PAN to their deductors. Non-furnishing of
PAN by the deductee (employee) to the deductor (employer) will result in deduction of TDS
at higher rates u/s 206AA of the Act mentioned in para 4.8 below.
4.8 Compulsory Requirement to furnish PAN by employee (Section 206AA):
4.8.1 Section 206AA in the Act makes furnishing of PAN by the employee compulsory in
case of receipt of any sum or income or amount, on which tax is deductible. If employee
(deductee) fails to furnish his/her PAN to the deductor , the deductor has been made
responsible to make TDS at higher of the following rates:
i) at the rate specified in the relevant provision of this Act; or
ii) at the rate or rates in force; or
iii) at the rate of twenty per cent.
The deductor has to determine the tax amount in all the three conditions and apply the higher
rate of TDS. However, where the income of the employee computed for TDS u/s 192 is below
taxable limit, no tax will be deducted. But where the income of the employee computed for
TDS u/s 192 is above taxable limit, the deductor will calculate the average rate of incometax
based on rates in force as provided in sec 192. If the tax so calculated is below 20%,
deduction of tax will be made at the rate of 20% and in case the average rate exceeds 20%,
tax is to be deducted at the average rate. Education cess @ 2% and Secondary and Higher
Education Cess @ 1% is not to be deducted, in case the tax is deducted at 20% u/s 206AA of
the Act.
4.9 Statement of deduction of tax under section 200(3) [Quarterly Statement of TDS]:
4.9.1 The person deducting the tax (employer in case of salary income), is required to file
duly verified Quarterly Statements of TDS in Form 24Q for the periods [details in Table
below] of each financial year, to the TIN Facilitation Centres authorized by DGIT
(System’s) which is currently managed by M/s National Securities Depository Ltd (NSDL)
or at www.incometaxindiaefiling.gov.in after registering as Deductor. Particulars of e-TDS
Intermediary at any of the TIN Facilitation Centres are available at
http://www.incometaxindia.gov.in and http://tin-nsdl.com portals. The requirement of filing
an annual return of TDS has been done away with w.e.f. 1.4.2006. The quarterly statement
for the last quarter filed in Form 24Q (as amended by Notification No. S.O.704(E) dated 
12.5.2006) shall be treated as the annual return of TDS. Due dates of filing this statement
quarterwise is as in the Table below.
TABLE: Due dates of filing Quarterly Statements in Form 24Q
Sl. No. Date of ending of
quarter of financial
year
Due date
1 30th
 June 31st July of the financial year
2 30th
 September 31st
 October of the financial year
3 31st
 December 31st
 January of the financial year
4 31st
 March 31st
 May of the financial year immediately
following the financial year in which the
deduction is made
4.9.2 The statements referred above may be furnished in paper form or electronically
under digital signature or along with verification of the statement in Form 27A of verified
through an electronic process in accordance with the procedures, formats and standards
specified by the Director General of Income‐tax (Systems). The procedure for furnishing the
e-TDS/TCS statement is detailed at Annexure VI.
4.9.3 All Returns in Form 24Q are required to be furnished in electronically except in case
where the number of deductee records is less than 20 and deductor is not an office of
Government, or a company or a person who is required to get his accounts audited under
section 44AB of the Act. [Notification No. 11 dated 19.02.2013].
4.9.4 Fee for default in furnishing statements (Section 234E):
If a person fails to deliver or caused to be delivered a statement within the time prescribed in
section 200(3) in respect of tax deducted at source on or after 1.07.2012 he shall be liable to
pay, by way of fee a sum of Rs. 200 for every day during which the failure continues.
However, the amount of such fee shall not exceed the amount of tax which was deductible at
source. This fee is mandatory in nature and to be paid before furnishing of such statement.
4.9.5 Rectification of mistake in filing TDS Statement:
A DDO can also file a correction statement for rectification of any mistake or to add, delete
or update the information furnished in the statement delivered earlier.
4.9.6 Penalty for failure in furnishing statements or furnishing incorrect information
(section 271H):
If a person fails to deliver or caused to be delivered a statement within the time prescribed in
section 200(3) or furnishes an incorrect statement, in respect of tax deducted at source on or
after 1.07.2012, he shall be liable to pay, by way of penalty a sum which shall not be less
than Rs. 10,000/- but which may extend to Rs 1,00,000/-. However, the penalty shall not be
levied if the person proves that after paying TDS with the fee and interest, if any, to the
credit of Central Government, he had delivered such statement before the expiry of one year
from the time prescribed for delivering the statement.
4.9.7 At the time of preparing statements of tax deducted, the deductor is required to:
(i) mandatory quote his tax deduction and collection account number (TAN) in
the statement;
(ii) mandatory quote his permanent account number (PAN) in the statement
except in the case where the deductor is an office of the Government(
including State Government). In case of Government deductors
“PANNOTREQD” to be quoted in the e-TDS statement;
(iii) mandatory quote of permanent account number PAN of all deductees;
(iv)furnish particulars of the tax paid to the Central Government including book
identification number or challan identification number, as the case may be.
(v) furnish particular of amounts paid or credited on which tax was not deducted
in view of the issue of certificate of no deduction of tax u/s 197 by the
assessing officer of the payee.
4.10 TDS on Income from Pension:
In the case of pensioners who receive their pension (not being family pension paid to a
spouse) from a nationalized bank, the instructions contained in this circular shall apply in
the same manner as they apply to salary-income. The deductions from the amount of
pension under section 80C on account of contribution to Life Insurance, Provident Fund,
NSC etc., if the pensioner furnishes the relevant details to the banks, may be allowed.
Necessary instructions in this regard were issued by the Reserve Bank of India to the
State Bank of India and other nationalized Banks vide RBI's Pension
Circular(Central Series) No.7/C.D.R./1992 (Ref. CO: DGBA: GA (NBS) No.60/GA.64
(11CVL)-/92) dated the 27th April 1992, and, these instructions should be followed
by all the branches of the Banks, which have been entrusted with the task of
payment of pensions. Further all branches of the banks are bound u/s 203 to issue
certificate of tax deducted in Form 16 to the pensioners also vide CBDT circular no. 761
dated 13.1.98.
4.11. Matters pertaining to the TDS made in case of Non Resident:
4.11.1 Where Non-Residents are deputed to work in India and taxes are borne by the
employer, if any refund becomes due to the employee after he has already left India and has
no bank account in India by the time the assessment orders are passed, the refund can be
issued to the employer as the tax has been borne by it [Circular No. 707 dated
11.07.1995].

4.11.2 In respect of non-residents, the salary paid for services rendered in India shall be
regarded as income earned in India. It has been specifically provided in the Act that any
salary payable for rest period or leave period which is both preceded or succeeded by
service in India and forms part of the service contract of employment will also be
regarded as income earned in India.
5. 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, and
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, DDOs are not required to deduct TDS on family pension paid to person.

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 Explanations 1 to
4 below section 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 (refer Rule 3(9) of the IT Rules);
(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 and fifty
thousand rupees (w.e.f. 01.04.2017); 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
method of valuation.
(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. All other taxable allowances (excluding the portion not taxable ); and
f. 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 byi)
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
and the value so arrived at shall be 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 is located in a “remote area” or
ii) where it is not located in a “remote area”, the accommodation is 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 be chargeable to tax if the car is used
wholly and exclusively for official purposes. However following compliances are
necessary:
➢ The employer has maintained complete details of the journey undertaken for
official purposes;
➢ 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) referred to in (1) above.
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 by the
employer. 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. However,
any amount recovered from or paid by the employee shall be reduced from the perquisite
value so determined.
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 as 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 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 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 and its business expediency 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 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 method regarding valuation of perquisites are given in 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.
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 10 due 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 deathcum-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 is exempt.
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. 10969
dated 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
v) 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 80U
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.
As per Section 10 (12A) of the Act, any payment from the National Pension System Trust to
an employee on closure of his account or on his opting out of the pension scheme referred to
in section 80CCD to the extent it does not exceed forty percent , of the total amount payable
to him at the time such closure of his opting out of the scheme.
As per section 10 (12B) of the Act, any payment from the National Pension System Trust to
an employee under the pension scheme referred to in section 80CCD, on partial withdrawal
made out of his account in accordance with the terms and conditions, specified under the
Pension Fund regulatory and Development Authority Act, 2013 (23 of 2013) and the
regulation made thereunder, to the extent it does not exceed twenty-five percent of the
amount of contribution made by him

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 one-tenth 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. 1600 p. m. or Rs 3200 p.m. (for a person who is blind or deaf and dumb or is
orthopaedically handicapped with disabilities of lower extremes) vide notification S.O.No.
395(E) dated 13.05.98 r/w S.O. No. 1002 (E) dated 13.04.2015 & S.O. No. 2604 (E) dated
23.09.2015.

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.
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 expense allowance on tour and transfer, daily allowance to
meet tour expenses as prescribed, medical facilities subject to conditions.
5.3.15 In this connection it is to be noted that as per sec. 10 (14) read wit rule 2BBany
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 o 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 form his normal place of duty shall be exempt.
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 nongovernment
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.1,50,000/-:

(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 sum paid or deposited during the year as a subscription :-
(a) in the name of employee or a girl child of that employee including a girl child
for whom the employee is the legal guardian in 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;
[The Central Government has since notified the scheme ‘Sukanya Samriddhi
Account’ vide Notification GSR No. 863(E) dated 02.12.2014]
(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 (IXIssue) Rules, 2011 G.S.R. 868 (E), dated the 7th December, 2011,
specifying the National Savings Certificates IX Issue as the class of
Savings Certificates F No1-13/2011-NS-II r/w amendment 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 selffinancing
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 of
persons with disability or person with severe
disability as per Sec 80 U or suffering from disease
or ailment as specified in rules made under 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.
1,50,000.
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 on or after 01.01.2004 or being an individual employed by any other employer,
or any other assessee being an individual, 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 National Pension System-NPS 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(1B), an assessee referred to in 80CCD(1) shall be allowed an
deduction in computation of his income, of the whole of the amount paid or deposited in the
previous year in his account under the pension scheme notified or as may be notified by the
Central Government, which shall not exceed Rs. 50,000. The deduction of Rs. 50,000 shall
be allowed whether or not any deduction is allowed under sub-section(1). However, the
same amount cannot be claimed both under sub-section (1) and sub-section (1B) of section
80CCD.
As per Section 80CCD(2), where any contribution in the said pension scheme is made by 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.
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.
Provided that the amount received by the nominee, on the death of the assessee, under the
circumstances referred to in clause (i) above, shall not be deemed to be the income of the
nominee.
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 any amount received by the employee from
the New Pension Scheme shall be deemed not to have been received in the previous year if
such amount is used for purchasing an annuity plan in the same 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.1,50,000/-. The
deduction allowed under section 80 CCD(1B) is an additional deduction in respect of
any amount paid in the NPS upto Rs. 50,000/-. 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.1,50,000/- provided under this section.

5.5.4 Deduction in respect of investment made under an equity savings scheme
(Section 80 CCG):
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 E, dated 23.11.2012 (subsequent corrigendum SO NO.
2835E dated 05.12.2012) and amended vide notification SO No. 3693E dated 18.12.2013 as
a scheme under this section. The scheme was modified in December 2013 vide notification
SO 3693 dated 18.12.13 ( RGESS, 2013). The deduction under this section in accordance
with RGESS 2013 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 the 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 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.
The deduction under this section shall only be allowed in respect of investment made only
up to 31st March, 2017. Therefore, no deduction under this section is allowed for investment
made on, or after 1st April, 2017.

5.5.5 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:

*Aggregate of the sum allowable as deduction under Sl No 1, 2 & 3 and 4, 5 &6 above
shall not exceed Rs 30000/-
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
or more at any time during the relevant previous year.
iii) Very senior citizen means an individual resident in India who is of the age of
eighty years 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.

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

5.5.6.1 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 Rs 75,000/- from his gross total income of that year.
However, where such dependant is a person with severe disability, an amount Rs 1,25,000/-
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.

5.5.6.2 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 Rs 75,000/-. However, where
such individual is a person with severe disability, a higher deduction of Rs 1,25,000/- 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 the 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 sections 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, 2002 ;
(b) “dependant” means—
(i) in the case of an individual, the spouse, children, parents, brothers
and sisters of the individual or any of them;
(ii) in the case of a Hindu undivided family, a member of the Hindu
undivided family, dependant wholly or mainly on such individual or
Hindu undivided family for his support and maintenance, and who has
not claimed any deduction under section 80U in computing his total
income for the assessment year relating to the previous year;
(c) “disability” shall have the meaning assigned to it in clause (i) of section 2 of the
Persons with Disabilities (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 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 subsection
(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
Participation) 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.

5.5.7. 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 is in respect of the employee or his dependant
or Rs. 40,000 whichever is less.
Now the deduction can be allowed on the basis of a prescription from an oncologist, a
urologist, nephrologist, a haematologist, an immunologist or such other specialist, as
mentioned in Rule 11DD. However, the amount of the claim shall be reduced by the amount
if any received from the insurer or reimbursed by the employer. Further in case of the person
against whom such claim is made is a senior citizen (60 age years or more) then the
deduction up to Rs 60,000/- is allowed and in case of very senior citizen (80 age years or
more) the deduction up to Rs 80,000/- is allowed.
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.
Vide Notification SO No. 2791(E) dated 12.10.2015, Rules 11DD has been amended to do
away with the requirement of furnishing a certificate in Form 10-I. A prescription from a
specialist as specified in the Rules containing the name and age the patient, name of the
disease/ailment along with the name, address, registration number & qualification of the
specialist issuing the prescription would now be required.

5.5.8 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;

5.5.9 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 the amount of donation exceeds Rs
2000/- unless the amount is paid by any mode other than cash.

5.5.10 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. 5,000/- 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.

5.5.11 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:

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".

5.5.12 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. 2500 FOR INDIVIDUALS HAVING TOTAL INCOME UPTO
Rs 3.5 LAKH [SECTION 87A]
Finance Act 2017 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 
3,50,000/-. The amount of rebate available under section 87A is Rs 2,500/- or the amount of
tax payable, whichever is less from AY 2018-19.

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.

7.3 As per section 192A of the Act, w. e. f. 01.06.2015 the trustees of the EPF Scheme
1952 framed under section 5 of the EPF & Misc. Provisions Act, 1952 or any person
authorized under the scheme to make payment of accumulated balance due to employees,
shall, in a case where the accumulated balance due to an employee participating in a
recognized provident fund is includible in his total income owing to the provisions of Rule 8
of Part A of Fourth Schedule not being applicable at the time of payment of accumulated
balance due to the employee, deduct income tax thereon @ 10% if the amount of such
payment or aggregate of such payment exceeds Rs 50,000/-. In case the employee does not
provide his/her PAN or provides an invalid PAN then the deduction will have to be made at
maximum marginal rate.
The Rule-8 of Part-A of fourth schedule excludes the following accumulated balance due
and becoming payable to the employee from the total income;
(i) If, he has rendered continuous service with his employer for a period of five years
or more, or
(ii) If, though he has not rendered such continuous service, the service has been
terminated by reason of -
• the employees ill health, or
• by the contraction or discontinuance of the employer’s business or
• other cause beyond the control of employee, or
(iii) if, on cessation of his employment, the employee obtains employment with any
other employer, to the extent amount of such accumulated balance is transferred 
to his individual account in any recognized provident fund maintained by such
other employer, or
(iv) if the entire balance standing to the credit of employee is transferred to his
account under a pension scheme referred to in section 80 CCD and notified by
the central Government.
When the accumulated balance due and becoming payable to an employee includes
any amount transferred from his individual account in any other recognized
provident fund(s) maintained by his former employer(s), then in computing the
period of continuous service the period or periods of continuous services rendered
under former employer(s) shall be counted for the purposes of (i) and (ii) above.
Under the above four situations at (i) to (iv), the accumulated balance due and
payable to the employee is not liable for TDS under section 192 A.

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.

9. CALCULATION OF INCOME-TAX TO BE DEDUCTED:
9.1 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” to the extent of Rs. 2.00 lakh.
(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.


9.2 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 up to Rs 2500/- to eligible
persons (see para 6) may be given. Surcharge shall be calculated in cases where applicable
(see para 2.2).

9.3 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.

9.4 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.

10. MISCELLANEOUS:
10.1 These instructions are not exhaustive and are issued only with a view to guide
the employers to understand the various provisions relating to deduction of tax from
salaries. Wherever there is any doubt, reference may be made to the provisions of the
Income-tax Act, 1961, the Income-tax Rules, 1962, the Finance Act 2017, the relevant
circulars / notifications, etc.
10.2 In case any assistance is required, the Assessing Officer/the Local Public Relation
Officer of the Income-tax Department may be contacted.
10.3 These instructions may be brought to the notice of all Disbursing Officers and
Undertakings including those under the control of the Central/ State Governments.
10.4 Copies of this Circular are available at the following websites:
www.finmin.nic.in & www.incometaxindia.gov.in
Hindi version will follow.

(Sandeep Singh)
Under Secretary to the Govt. of India

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