Income Tax Circular No: 1/2010 (11-Jan-10) Deduction Tax at Source - Income-Tax Deduction from Salareis Under Section 192 of the Income-Tax Act, 1961 During the Financial Year 2009-2010

 
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Index

Para No.  Page Nos. 
1. General  03 
2. Finance Act, 2009  3-5 
3. Section 192 of Income-tax Act 1961  5-9 
4. Persons responsible for deducting tax and their duties  9-14 
5. Estimation of income under the head "Salaries"  14 
5.1 Income chargeable under the head "Salaries"  14-20 
5.2 Incomes not included in the head "Salaries" (Exemptions)  20-26 
5.3 Deductions u/s 16 of the Act (Standard Deduction)  26 
5.4 Deductions under Chapter VI-A of the Act  26-37 
6. Calculation of Income-tax to be deducted  37 
7. Clarification on TDS on arrears of salary  38 
8. Miscellaneous  39-44 
Annexures   
I. Examples  45-51 
II. Board's Notification dated 4.10.2002 {Form No. 12BA (as amended)}  52-53 
III. Board's Notification dated 12.1.2004 (Form No. 16AA)  54-58 
IV. Board's Notification dated 26.8.2003  59-61 
IVA. Deptt. of Eco. Affairs Notification dated 22.12.2003  62 
VA. Board's Notification dated 24.11.2000  63 
VB. Board's Notification dated 29.1.2001  64 
VII. Form No. 10 B A  65 

Circular No: 1/2010

F. No. 275/192/2009-IT(B)

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

New Delhi, dated the 11th January, 2010

Subject: Income-Tax Deduction From Salaries During The Financial Year 2009-2010 Under Section 192 Of The Income-Tax Act, 1961.

Reference is invited to Circular No. 08/2007 dated 5.12.2007 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, during the financial year 2008-2009, 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 2009-2010 and explains certain related provisions of the Income-tax Act. The relevant Acts, Rules, Forms and Notifications are available at the website of the Income Tax Department-

www.incometaxindia.gov.in.

2. Finance Act, 2009

As per the Finance Act, 2009, 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 2009-2010 (i.e. Assessment Year 2010-2011) at the following rates:

Rates Of Income-Tax

A. Normal Rates of tax:

1. Where the total income does not exceed Rs.1,60,000/-.  Nil 
2. Where the total income exceeds Rs.1,60,000 but does not exceed Rs.3,00,000/-.  10 per cent, of the amount by which the total income exceeds Rs.1,60,000/- 
3. Where the total income exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/-.  Rs.14,000/- plus 20 per cent of the amount by which the total income exceeds Rs.3,00,000/-. 
4. Where the total income exceeds Rs.5,00,000/-.  Rs.54,000/- plus 30 per cent of the amount by which the total income exceeds Rs.5,00,000/-. 

B. Rates of tax for a woman, resident in India and below sixty-five years of age at any time during the financial year:

1. Where the total income does not exceed Rs.1,90,000/-.  Nil 
2. Where the total income exceeds Rs.1,90,000 but does not exceed Rs.3,00,000/-.  10 per cent, of the amount by which the total income exceeds Rs.1,90,000/- 
3. Where the total income exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/-.  Rs. 11,000/- plus 20 per cent of the amount by which the total income exceeds Rs.3,00,000/-. 
4. Where the total income exceeds Rs.5,00,000/-.  Rs.51,000/- plus 30 per cent of the amount by which the total income exceeds Rs.5,00,000/-. 

C. Rates of tax for an individual, resident in India and of the age of sixty-five years or more at any time during the financial year:

1. Where the total income does not exceed Rs.2,40,000/-.  Nil 
2. Where the total income exceeds Rs.2,40,000 but does not exceed Rs.3,00,000/-.  10 per cent, of the amount by which the total income exceeds Rs.2,40,000/- 
3. Where the total income exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/-.  Rs.6,000/- plus 20 per cent of the amount by which the total income exceeds Rs.3,00,000/-. 
4. Where the total income exceeds Rs.5,00,000/-.  Rs.46,000/- plus 30 per cent of the amount By which the total income exceeds Rs.5,00,000/-. 

Surcharge on Income tax:

There will be no surcharge on income tax payments by individual taxpayers during FY 2009-10 (AY 2010-11).

Education Cess on Income tax:

The amount of income-tax shall be further increased by an additional surcharge (Education Cess on Income Tax) at the rate of two percent of the income-tax.

Additional surcharge on Income Tax (Secondary and Higher Education Cess on Income-tax):

From Financial Year 2007-08 onwards, an additional surcharge is chargeable at the rate of one percent of income-tax (not including the Education Cess on income tax).

Education Cess, and Secondary and Higher Education Cess are payable by both resident and non-resident assessees.

3. Section 192 Of The Income-Tax Act, 1961: Broad Scheme Of Tax Deduction At Source From "Salaries".

Method of Tax Calculation:

3.1 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 2009-2010. The income-tax is required to be calculated on the basis of the rates given above and shall be deducted on average at the time of each payment. No tax will, however, 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.1,60,000/- or Rs.1,90,000/- or Rs.2,40,000/-, as the case may be, depending upon the age and gender of the employee.(Some typical examples of computation of tax are given at Annexure-I).

Payment of Tax on Non-monetary Perquisites by Employer:

3.2 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 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.

Computation of Average Income Tax:

3.3 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.

Illustration:

Suppose that the income chargeable under the head ''salary'' of a male employee below sixty-five 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:

Income Chargeable under the head "Salaries" inclusive of all perquisites:  Rs. 4,50,000 
Tax on Total Salaries(including Cess):  Rs. 45,320 
Average Rate of Tax [(45,320/4,50,000) X 100]:  10.07% 
Tax payable on Rs.50,000/- (10.07% of 50,000):  Rs. 5,035 
Amount required to be deposited each month: (5,035/12)  Rs. 420 

The tax so paid by the employer shall be deemed to be TDS made from the salary of the employee.

Salary From More Than One Employer:

3.4 Sub- section (2) of section 192 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 there from, 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).

Relief When Salary Paid in Arrear or Advance:

3.5 Under sub-section (2A)of section 192 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 Sub-section (1) of Section 89, 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.

Explanation:- For this purpose "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(3 of 1956), to be University for the purposes of the Act.

However with effect from 1/04/2010 (AY 2010-11) that 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 sub-clause (i) of clause (10C) of section 10 (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 clause (10C) of section 10 in respect of such, or any other, assessment year [Form 12C has been omitted by the IT(24th Amendment)...

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