SALARY TDS CA Chandrashekhar V. Chitale Chairman, Direct Taxation Committee of the MCCIA Preliminary: As per the Finance Act, 2012, income tax is required to be deducted under Section 192 of the Income tax Act 1961 from income chargeable under the head "Salaries" for the financial year 2012 2013 (i.e. Assessment Year 2013 2014) at the rates prescribed under the Act. 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 2012 2013. The income tax is required to be calculated on the basis of the rates given above subject to provisions of sec 206AA of the Income tax Act and shall be deducted at the time of each payment. Salary TDS: For the purpose of making the payment of salary TDS 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. In order to determine the average rate, the other information furnished by the assessee is also required to be considered. Information from Employee: Sub section (2B) of section 192 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 assessee for the same financial year and of any tax deducted at source thereon. Form no. 12C, which was earlier prescribed for furnishing such particulars, has since been omitted from the Income Tax Rules by the IT (24th amendment) Rules, 2003, w.e.f. 01.10.2003. However, the particulars may now be furnished in a simple statement, which is properly verified by the taxpayer in the manner as prescribed under Rule 26B(2 ) of the Income Tax Rules,1962 and shall be annexed to the simple statement. The form of verification is reproduced as under: I,. (name of the assesse), do declare that what is stated above is true to the best of my information and belief. Chandrashekhar V. Chitale, Chartered Accountant Page 1
Such income should not be a loss under any such head other than the loss under the head "Income from House Property" for the same financial year. The person responsible for making payment (DDO) shall take such other income and tax deducted at source, if any, on such income and the loss, if any, under the head "Income from House Property" into account for the purpose of computing tax deductible in terms of section 192(2B) of the Income tax Act. However, this sub section shall not in any case have the effect of reducing the tax deductible (except where the loss under the head "Income from House Property" has been taken into account) from income under the head "Salaries" below the amount that would be so deductible if the other income and the tax deducted thereon had not been taken into account'. In other words, the DDO can take into account any loss (negative income) only under the head income from House Property and no other head for working out the amount of total tax to be deducted.` While taking into account the loss from House Property, the DDO shall ensure that the assessee files the declaration referred to above and encloses therewith a computation of such loss from House Property. Requisite 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. Income Computation: Under the scheme of the Income tax Act, 1961 (the Act) incomes are computed under the following heads, viz. (i) Income from Salary, (ii) Income from House property, (iii) Income from Business or Profession, (iv) Capital gains and (v) Income from Other Sources. In this seminar, we shall come to know computation of income from Salary. Some other important provisions that are relevant for employee community are also discussed. Salary: Any person employed gets compensated by way of remuneration for services rendered. This is called Salary. The law lists out which emoluments are treated as salary, how to value salary received in kind I.e. perquisites, which components of emoluments are tax free and what deductions are available. Meaning of the term salary for purposes of income tax is much wider than what is normally understood. Every payment made by an employer to his employee for service rendered would be chargeable to tax as income from salaries. The term salary for the purposes of Income Tax Act will include both monetary payments (e.g. basic salary, bonus, commission, allowances etc.) as well as non monetary facilities (e.g. housing accommodation, medical facility, interest free loans etc). Chandrashekhar V. Chitale, Chartered Accountant Page 2
Important Concepts: (1) Employer employee relationship : In order to tax income under the head salaries, it is vital that there should exist between the payer and the payee, the relationship of an employer and an employee or a maser and a servant. A servant acts under the direct control and supervision of his master. An agent on the other hand, in the exercise of his work, is not subject to the direct control or supervision of the principal. Condition of employer employee relationship is a must. (2) Full time or part time employment: It does not matter whether the employee is a fulltime employee or a part time one. Once the relationship of employer and employee exists, the income is to be charged under the head salaries. If, for example, an employee works with more than one employer, salaries received from all the employers should be clubbed and brought to charge for the relevant previous years. (3) Voluntary payments : Whether the payment from an employer is based on a contract or not, it constitutes salary in the hands of the employee. (4) Salary Computation: Computation of income under the head Salaries provides that all the income described in law as salary shall be chargeable to tax. It includes salary from the employer or former employer or proposed employer. Definition of "salary" is inclusive which, along with other items, includes "perquisite" and "profits in lieu of salary" and these terms are separately defined. Certain elements of salary are specifically made tax free. Salary is first required to be computed by aggregating all the amounts which come in the comprehensive inclusive definition of the expression "salary" and from such a total amount, the specified deductions are required to be made and the net amount so arrived at is assessable under the head "Salaries". PROVISIONS RELATING TO INCOME UNDER THE HEAD SALARIES For those who desire to read text of law, the relevant provisions and rules for computation of income under the head "Salaries" are tabulated as under : Chargeability Sec. 15 Deductions Sec. 16 Definitions Sec. 17 Chandrashekhar V. Chitale, Chartered Accountant Page 3
Exemptions Sec. 10(5) to10(14) Tax Relief for Arrears, etc. Section 89 Mahratta Chamber of Commerce, Industries and Agriculture WHAT CONSTITUTES SALARY INCOME? "Salary" is the remuneration received by or accruing periodically to an individual for service rendered as a result of expressed or implied contract. Compensation or remuneration even in the following circumstances is chargeable to Incometax under the head 'Salaries': a) When due from the former employer or present employer in the previous year, whether paid or not. b) When paid or allowed in the previous year, by or on behalf of a former employer or present employer, though not due or before it becomes due. c) When arrears of salary are paid in the previous year by or on behalf of a former employer or present employer, if not charged to tax in the period to which it relates. It is, therefore, clear that apart from current year s salary, even advance salary and/or arrears of salary may be taxed in the year of receipt. More specifically and elaborately, the Income tax Act has stipulated that salary includes : a) Salary, including advance/arrears of salary; b) Wages; c) Fees; d) Commission; e) Pension; f) Annuity; g) Perquisite; Chandrashekhar V. Chitale, Chartered Accountant Page 4
Receipts from Provident Fund chargeable to tax; Profit in lieu of or in addition to salary or wages; Gratuity; Contribution of employer to Recognised Provident Fund in excess of prescribed limit; Interest on credit balance of Recognised Provident Fund in excess of notified rates; Encashment of leave. Definition of 'salary' is inclusive and not exclusive. However, it is not true that every income received by an employee from his employer is taxable. Any income falling within any of the following paragraphs shall not be included in computing the income from salaries: (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) on retirement from service, or, after termination of service to any place in India is exempt under clause (5) of Section 10 subject, however, to the conditions prescribed in rule 2B of the I.T. Rules, 1962. (2) Death cum retirement gratuity or any other gratuity which is exempt to the extent specified from inclusion in computing the total income. (3) Any payment in commutation of pension received under the Civil Pension (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the Civil / Defense services under the Union / State / Local Authority or a Corporation established by a Central, State or Provincial Act. 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). (4) Any payment received by an employee of the Central /State Government, as cashequivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement on superannuation or otherwise, is exempt. In the case of other employees it is subject to a maximum of ten month's leave. This exemption has an overall max limit of Rs. 3,00,000 [S.0.588 (E) dated 31 05 2002). (5) Under Section 10(10B), the retrenchment compensation received by a workman is exempt from income tax subject to certain limits. This exemption has an overall max limit of Rs. 5,00,000. Chandrashekhar V. Chitale, Chartered Accountant Page 5
(6) Under Section 10(10C), any payment received by an employee of the notified 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 exempted to the extent that such amount does not exceed five lakh rupees (7) Any sum received under a Life Insurance Policy, including the sum allotted by way of bonus on such policy other than any sum received under sub section (3) of Section 80DDA. (8) Any payment from a Provident Fund to which the Provident Funds Act, 1925 (19 of 1925), applies. (9) Under Section 10(13A) of the Income tax Act, 1961, any special allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee is exempt from Income tax to the extent as may be prescribed. (10) Under section 10(14) exemption of notified allowances is provided. The CBDT has prescribed guidelines for the purpose of classes (i) and (ii) of Section 10(14) vide Notification No.SO617(E) dated 7th July/ 1995 (F.No.142/9/95TPL)which has been amended vide Notification SO No.403(E) dated 24.4.2000 (F,No.142/34/99 TPL). (11) Under Section 10(15)(iv)(i) of the Income tax Act, interest payable by the Government on deposits made by an employee of the Central Government or a State Government or a public sector company from out of his retirement benefits, in a notified scheme, is exempt. (12) Under Section 17 of the Act, exemption from tax will also be available, under prescribed conditions, in respect of any medical treatment provided to an employee or any member of his family or premium paid by the employer in respect of approved medical insurance taken for his employees or reimbursement of insurance premium to the employees for such medical insurance for the employee or his family members. WHAT ARE PERQUISITES? A 'perquisite' is defined in the Oxford as 'any casual emolument, or profit attached to an office or position in addition to the salaries or wages'. In sunlit words, perquisites are the benefits in addition to normal salary to which the employee has a right to by virtue his employment. In simple language, 'perquisites 1 are benefits or amenities provided in kind by the employer free of cost or at a concessional rate. Their value, to the extent these go to reduce expenditure that the employee normally would have otherwise incurred in obtaining these benefits and Chandrashekhar V. Chitale, Chartered Accountant Page 6
amenities, is regarded as part of taxable salary. As a golden rule, the taxable value of perquisites in the hands of the employee is its cost to the employer. However, there are specific rules for valuation of certain perquisites. WHO IS A SPECIFIED EMPLOYEE AND WHAT PERQUISITES ARE TAXABLE IN HIS HANDS? The specified employees include the following: a) Director employee, whether full time or part time. b) Employee who is beneficial owner of equity in the employer's company carrying 20% or more voting power. c) The employees other than those mentioned above, drawing salary in excess of Rs. 50,000. The value of any benefit or amenity granted or provided free of cost or at concessional rates to these specified persons would be a 'perquisite' taxable in their hands. WHAT ARE THE OTHER TAXABLE PERQUISITES? The other taxable perquisites which are taxable in a prescribed manner include the following: 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 constitute concession in the matter of rent have been prescribed in Explanation 1 to 4 below 17(2)(ii) of the Income Tax Act, 1961. Chandrashekhar V. Chitale, Chartered Accountant Page 7
IV. Any sum paid by the employer in respect of any obligation which would have been paid 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. With effect from 1/04/2010 (AY 2010 11) it is further clarified that 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 assessee, shall constitute a perquisite in the hand of employees. Explanation. For the purposes of this sub clause, (a) specified security means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and, where employees stock option has been granted under any plan or scheme therefore, includes the securities offered under such plan or scheme; (b) sweat equity shares means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know how or making available rights in the nature of intellectual property rights or value additions, by whatever name called; (c) the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from the assessee in respect of such security or shares; (d) fair market value means the value determined in accordance with the method as may be prescribed; (e) option means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price; VII. The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and VIII. The value of any other fringe benefit or amenity as may be prescribed. It is further provided that 'profits in lieu of salary' shall include amounts received in lump sum or otherwise, prior to employment or after cessation of employment for the purposes of taxation. An option has been given to the employer to pay the tax on non monetary perquisites given to an employee. The employer may, at his option make payment of the tax on such perquisites Chandrashekhar V. Chitale, Chartered Accountant Page 8
himself without making any TDS from the salary of the employee. The employer will have to pay such tax at the time when such tax was otherwise deductible i.e. at the time of payment of income chargeable under the head salaries to the employee. Section 206AA. The Finance Act (No. 2) 2009, w.e.f. 01/04/2010 has inserted sec. 206AA in the Income tax Act which makes furnishing of PAN by the employee compulsory in case of payments liable to TDS. If employee (deductee) fails to furnish his/her PAN to the deductor, the deductor shall make TDS at a 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. This section applies to any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVII B of Income Tax Act. As chapter XVII B covers all Payments including Salaries, Salaries are also covered by Section 206AA. In case of salaries there can be following situations a) Where the income of the employee computed for TDS u/s 192 is below taxable limit. b) Where the income of the employee computed for TDS u/s 192 is above taxable limit. In first situation, as the tax is not liable to be deducted no tax will be deducted. In the second case, if PAN is not furnished by the employee, the deductor will calculate the average rate of income tax 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 deducted at the average rate. Education cess@ 2% and Secondary and Higher Education Cess @ 1% is not to be deducted, in case the TDS is deducted at 20% u/s 206AA of the Income tax Act. Statement of deduction of tax It is now mandatory for all Govt. deductors or companies or other deductors who are required to get their accounts audited under section 44AB of the Income Tax Act or where the number of deductee s records in a statement for any quarter of the financial year are twenty or more to file, quarterly statements of TDS on computer media only in accordance with the Chandrashekhar V. Chitale, Chartered Accountant Page 9
Electronic Filing of Returns of Tax Deducted at Source Scheme, 2003 as notified vide Notification No. S.O. 974 (E) dated 26.8.2003 read with Notification No. SO 1261(E) dated 31.05.2010. The quarterly statements are to be filed by such deductors in electronic format with the e TDS Intermediary at any of the TIN Facilitation Centres, particulars of which are available at www.incometaxindia.gov.in and at http://tin nsdl.com. If a person fails to furnish the quarterly statements in due time, he shall be liable to pay by way of penalty under section 272A(2)(k), a sum which shall be Rs.100/ for every day during which the failure continues. However, this sum shall not exceed the amount of tax which was deductible at source. Mail : shekhar@cvchitale.com Tel. : 020 24475425 Chandrashekhar V. Chitale, Chartered Accountant Page 10
TDS RATES ON SALARY FY 2012-13 PROVISION SECTION 192 TDS on Salary (Section 192) Any person responsible for paying any income (employer) chargeable under the head Salaries shall, at the time of payment, deduct income-tax on the amount payable at the rates applicable to the estimated income of the assessee (employee) under this head for that financial year. It is not the total income that is subject to deduction of tax at source but the estimated income under the head Salaries that is important. W.e.f. August 1, 1998, an assessee having an income under the head salaries may furnish in the prescribed manner(now on plain paper) giving the details of the losses under the head Income from House Property to the person responsible for making the payment who shall taking into account such loss for the purposes of computing the tax deductible from salaries, which may be reduced in such a case. Only where the loss under the head Income from House Property has been taken into account TDS deductible from the head salaries may be reduceddue to such loss taken into account. For this purpose the salary shall be computed as under the head Salaries. From such salary the following deductions shall be made: o o (a) amount deductible Sections 80C, 80CCC,80D, 80DD and 80E (b) deduction under Section 80G, in respect of donations made to the National Defence Fund, Jawahar Lal Nehru Memorial Fund, the Prime Minister s Drought Relief Fund etc. subject to conditions laid down under Section 80G; o o o (c) deduction under Section 80GG in respect of rent paid; (d) deduction under Section 80RRA in respect of remuneration received in foreign currency; (e) deduction under Section 80U on production of a certificate by the employee from the Assessing Officer authorising such deduction. (ii) The employer may, at the time of making any deduction, increase or reduce the amount to be deducted for the purpose of adjusting any excess or deficiency arising out of any previous deductions or failure to deduct during the financial year. (iii) The trustees of a recognised provident fund or an approved superannuation fund shall deduct the tax at the time of the accumulated balance due to an employee is paid provided it is not exempted.
(iv) Where the salary is payable to an assessee outside India in foreign currency its value in rupees shall be the telegraphic transfer buying rate of such currency as on the date on which the tax is required to be deducted at source. Telegraphic transfer buying rate means the rate of exchange adopted by the State Bank of India for buying such currency as made available to the bank through a telegraphic transfer. (V) The tax deducted at source must be paid to the credit of the Central Government through the prescribed Challan within 7 days from the end of the month in which tax is deductible. Tax rates at a Glance. Limit Female/ Male/ Other Sr Citzen Very sr Citizen Exemption 200000 250000 500000 10% Slab 200000-500000 250000-500000 0 20% slab 500000-1000000 500000-1000000 500000-1000000 30% slab above 1000000 above 1000000 above 1000000 RATES OF INCOME-TAX after Budget 2012 presented on 16.03.2012 A. Normal Rates of tax: income does not exceed Rs. 2,00,000/-. incomeexceeds Rs. 2,00,000 but does not exceed Rs. 5,00,000/- Nil 10 per cent of the amount by which the total income exceeds Rs.2,00,000/- Rs. 30,000/- plus 20 per cent of the amount by which the total incomeexceeds Rs. 5,00,000/- income exceeds Rs. 5,00,000/-. but does not exceed Rs. 10,00,000/-.
incomeexceeds Rs. 10,00,000/-. Rs. 130,000/- plus 30 per cent of the amount by which the total income exceeds Rs. 10,00,000/-. B. Rates of tax for a woman, resident in India and below sixty years of age at any time during the financial year: income does not exceed Rs.2,00,000/-. incomeexceeds Rs. 2,00,000 but does not exceed Rs. 5,00,000/-. Nil 10 per cent, of the amount by which the total income exceeds Rs. 2,00,000/- Rs. 30,000/- plus 20 per cent of the amount by which the total incomeexceeds Rs. 5,00,000/- income exceeds Rs. 5,00,000/-. but does not exceed Rs. 10,00,000/-. incomeexceeds Rs. 10,00,000/-. Rs. 130,000/- plus 30 per cent of the amount by which the total income exceeds Rs. 10,00,000/-. C. Rates of tax for an individual, resident in India and of the age of sixty years or more but less than eighty years at any time during the financial year: income does not exceed Rs. 2,50,000/-. incomeexceeds Rs. 2,50,000 but does not exceed Rs. 5,00,000/-. Nil 10 per cent, of the amount by which the total income exceeds Rs. 2,50,000/- Rs. 25,000/- plus 20 per cent of the amount by which the total incomeexceeds Rs. 5,00,000/- income exceeds Rs. 5,00,000/-. but does not exceed Rs. 10,00,000/-. incomeexceeds Rs. 10,00,000/-. Rs. 125,000/- plus 30 per cent of the amount by which the total income exceeds Rs. 10,00,000/-. D. 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:
income does not exceed Rs. 5,00,000/- Nil 20 per cent of the amount by which the total income exceeds Rs. incomeexceeds Rs. 5,00,000/- 5,00,000/- but does not exceed Rs. 10,00,000/- incomeexceeds Rs.10,00,000/- Rs. 1,00,000/- plus 30 per cent of the amount by which the total income exceeds Rs.10,00,000/- 1. Surcharge on Income tax: There will be no surcharge on income tax payments by individual taxpayers during FY 2012-13 (AY 2013-14). Read more: http://www.simpletaxindia.net/2012/09/tds-rates-on-salary-fy-2012-13.html#ixzz2k81cwkkk