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April 9, 2020

How to Calculate TDS on Salary and Declaration to be taken from employee in Form 12BB for deduction claim

Many Employers Fail to Deduct TDS correctly or give extra deduction which are not as per Income Tax Rules. It is very important to deduct TDS correctly and also to take Declaration and proof of investment / expenditure from employee in Form 12BB for all the employees.

How to Calculate Total Salary Income of Employee

INCOME CHARGEABLE UNDER THE HEAD “SALARIES”:

  • The following income shall be chargeable to income-tax under the head “Salaries” :
  • any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;
    • 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.
  • 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.
  • 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”.

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

  • “Salary” includes:-
  • 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.
  • 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}:
  • 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
  • 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]
  • 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.

Perquisite includes:

  • The value of rent free accommodation provided to the employee by his employer;
  • The value of any concession in the matter of rent in respect of any accommodation provided to the employee by his employer;
  • The value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:
  • By a company to an employee who is a director of such company;
    • By a company to an employee who has a substantial interest in the company;
    • 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]

  1. Any sum paid by the employer in respect of any obligation which would otherwise have been payable by the assessee.
  2. 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.
  3. 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,
  • ―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 therefore, includes the securities offered under such plan or scheme;
  • ―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;

  • ―fair  market  value‖  means  the value determined in  accordance  with  the method as may be prescribed (refer Rule 3(9) of the IT Rules);
  • ―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;
  • 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.

  1. A 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:

  • 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.
  • 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:
  1. Where the accommodation provided to the employee is owned by the employer:
Sl NoCities having population as per the 2001 censusPerquisite
1Exceeds 25 lakh15% of salary
2Exceeds 10 lakhs but does not exceed 25 lakhs10% of salary
3For  other places7.5 % of salary
a) 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:

  • Basic Salary;
  • Dearness Allowance, or Dearness Pay if it enters into the computation of superannuation or retirement benefit of the employees;
  • Bonus;
  • Commission;
  • All other taxable allowances (excluding the portion not taxable); and
  • 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.

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

  1. 10% of the cost of furniture, appliances and equipments, or
  2. 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,-

  • the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and
  • 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.
  • Furnished Accommodation in a Hotel: The value of perquisite shall be determined on the basis of lower of the following two:
    • 24% of salary paid or   payable in    respect of period during which the accommodation is provided; or
    • 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.

  • 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:
  • such accommodation is located in a ―remote area‖ or
  • 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.

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

  • If an employer provides motor car facility to his employee, the value of such perquisite shall be :
  • Nil, if the motor car is used by the employee wholly and exclusively in the performance of his official duties. 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.
  • 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).
  • 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.
  • 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. 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:
  1. 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.

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.

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.

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.

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.

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.

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.

III   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 employeeXXXXXX
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.
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.

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

  1. Complete details of such expense, including date and nature of expenditure, is maintained by the employer.
  2. Employer gives a certificate that the same was incurred wholly and exclusively for official purpose.
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

  1. Complete details of such expense, including date and nature of expenditure and its business expediency is maintained by the employer.
  2. 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.

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.

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.

Medical Reimbursement by the employer As per the amendment vide Finance Act, 2018, the total amount of medical re-imbursement is to be taken as perquisite under section 17(2).

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.

‘Profits in lieu of salary’ shall include
  • 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;
  • 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);

  • any amount due to or received, whether in lump sum or otherwise, by any assessee from any person—
    1. before his joining any employment with that person; or
    2. after cessation of his employment with that person.

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 :-

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:

  • the spouse and children of the individual; and
  • 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.

Death-cum-retirement gratuity or any other gratuity is exempt to the extent specified from inclusion in computing the total income under Section 10(10). Any death- cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any  similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the  Pension Code or Regulations applicable to the members of the defence service 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. 20 lakhs w.e.f. 29.03.2018 [Notification No. 16/2019/F. No. 200/8/2018-ITA-I dated 08.03.2019]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).

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.

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.

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/-:

  1. A public sector company;
  2. Any other company;
  3. An Authority established under a Central, State or Provincial Act;
  4. A Local Authority;
  5. A Cooperative Society;
  6. 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;
  7. Any Indian Institute of Technology within the meaning of Section 3 (g) of  the Institute of Technology Act, 1961;
  8. 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.

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):

any sum received under section 80DD(3) or section 80DDA(3); or

Any sum received under a Keyman insurance policy; or

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; orany 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 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

Under section 10 (12A) of the Act, any payment from the National Pension System Trust to an assessee 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 sixty percent from financial year 2019- 20[ as amended by Finance (NO.2 ) Act, 2019] , of the total amount payable to him at the time such closure of his opting out of the scheme shall be exempt.

Under 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 and the regulation made thereunder, to the extent it does not exceed twenty-five percent of the amount of contribution made by him shall be exempt.

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).

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:

  • 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
  • the actual expenditure incurred in payment of rent in excess of one-tenth of the salary due for the relevant period; or
    • where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50% of the salary due to the employee for the relevant period; or
    • 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.

DEDUCTIONS U/S 16 OF THE ACT

Standard deduction under section 16 (ia):

From financial year 2019-20, a deduction of fifty thousand rupees or the amount of salary whichever is less shall be allowed as standard deduction.

Entertainment Allowance [Section 16(ii)]:

A deduction is also allowed under  section  16(ii)  in respect of any allowance in the nature of an entertainment allowance specifically  granted by an employer to the assessee, who is  in receipt of a salary from the Government, a sum equal to  one-fifth  of  his  salary(exclusive of any allowance, benefit or other perquisite) or five thousand rupees whichever is less. No deduction on account of entertainment allowance is available to non- government employees.

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”.

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:

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

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/-:

  • 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.
  • 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;
  • 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;
  • Any contribution made : by an individual to any Provident Fund to which the Provident Fund Act, 1925 applies;
    • 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]

  • by an employee to a Recognized Provident Fund;
    • by an employee to an approved superannuation fund;

Any sum paid or deposited during the year as a The Central Government has since notified the scheme ―Sukanya Samriddhi Account

Any sum paid as contribution in the case of an individual, for himself, spouse or any child, for participation in the Unit Linked Insurance Plan

Any subscription made to effect or keep in force a contract for such annuity plan of the Life Insurance Corporation

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

Any contribution made by an individual to any pension fund set  up by any Mutual  Fund referred to in section 10(23D),

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;

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 installment or part payment of the amount due under any self- financing or other scheme of any Development Authority, Housing Board etc. The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. 

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.

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.

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.

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.

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.

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

Any investment as five year time deposit in an account under the Post Office Time

And all other dedcution in 80D, 80DD, 80U, 80DDB, 80E, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80TTA, 80TTB, shall be given

REBATE OF Rs 12500 FOR INDIVIDUALS HAVING TOTAL INCOME UPTO Rs 5 LAKH [SECTION 87A]

Finance Act, 2019( No.7 of 2019) provided relief in the form of rebate to individual taxpayers, resident in India, who are in lower income bracket, i. e. having total income not exceeding Rs 5,00,000/-. The amount of rebate available under section 87A is Rs 12,500/- orthe amount of tax payable, whichever is less from financial year 2019-20.

DDOs TO OBTAIN EVIDENCE/PROOF OF CLAIMS:

For the purpose of estimating income of the assesse or computing tax deductions, 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); 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.

Further, as per section 192 (2D) read with the rule 26C, it is mandatory for the DDOs to obtain details/evidence in respect of claim of exemption for leave travel concession or assistance before allowing the said exemption. The relevant form for furnishing details by employee is Form 12BB.

FORM NO.12BB (See rule 26C) Statement showing particulars of claims by an employee for deduction of tax under section 192

1. Name and address of the employee:   
2. Permanent Account Number or Aadhaar number, as the case may be,of the employee:   
3. Financial year: 
 
Details of claims and evidence thereof
Sl No.Nature of claimAmount (Rs.)Evidence / particulars
(1)(2)(3)(4)
1House Rent Allowance:  
 (i) Rent paid to the landlord  
 (ii) Name of the landlord  
 (iii) Address of the landlord  
 (iv) Permanent Account Number or Aadhaar number, as the case may be,of the landlord  
 Note: Permanent Account Number or Aadhaar number, as the case may be,shall be furnished if the aggregate rent paid during the previous year exceeds one lakh rupees  
2Leave travel concessions or assistance  
3Deduction of interest on borrowing:  
 (i) Interest payable/paid to the lender  
 (ii) Name of the lender  
 (iii) Address of the lender  
 (iv) Permanent Account Number or Aadhaar number, as the case may be,of the lender  
 (a) Financial Institutions(if available)  
 (b) Employer(if available)  
 (c)    Others  
4Deduction under Chapter VI-A  
 (A) Section 80C,80CCC and 80CCD  
 (i) Section 80C  
 (a)  …………… …..  
 (b)  …………… …..  
 (c)  …………… …..  
 (d)   
 …………… …..   
(e)  …………… …..   
(f)  …………… …..   
(g)  …………… …..   
(ii) Section 80CCC   
(iii) Section 80CCD   
(B) Other sections (e.g. 80E, 80G, 80TTA, etc.) under Chapter VI-A.   
(i) section……………….   
(ii) section……………….   
(iii) section……………….   
(iv) section……………….   
(v) section……………….   
Verification
I,…………………..,son/daughter of……………………………….. do hereby certify that the information given above is complete and correct.
Place……………………………………………… 
  Date……………………………………………….(Signature of the employee)
Designation ……………………………….….Full Name

Make Sure to Take Signature of Employees and take all relevant proof of investment and tax payment