Method of Tax Calculation – Broad Scheme of Tax Deduction at Source from Salaries : IT Circular 08/2013 Part 3

3. SECTION 192 OF THE INCOME-TAX ACT, 1961: BROAD SCHEME OF
TAX DEDUCTION AT SOURCE FROM “SALARIES”:

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 2013-14. 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. 2,00,000/- or Rs.2,50,000/- or Rs. 5,00,000/-,
as the case may be, depending upon the age of the employee.(Some typical
examples 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 purposes 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:

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.

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

f) Amount of loan, if any; and

g) Name and address of the lender (loan provider)

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:

In case of Serial No. 3 above

(a) The acquisition or constructing of the house should be
completed within3 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 and constructed 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).

Click here to see IT Circular 08/2013

Para 2. Rates of Income-Tax as per Finance Act, 2013 [click here]