TDS ON SALARY - PART - V

DEDUCTIONS UNDER CHAPTER VI-A

6.1 Introduction : The Income Tax Act provides for allowability of certain deductions from the gross total income of the assessee. These deductions are given in Chapter VIA of the Income Tax Act. For the purpose of TDS, the employer/DDO may allow some of these deductions to the employee on furnishing of the required particulars. The deductions allowable by the DDO/employer are being described below:

6.2 Eligible deductions u/s. 80C as per Section 80C deduction eligible u/s.. 80C (reintroduced w.e.f.-01.04.2006) the following investments/payments are eligible for deduction.

NATURE OF INVESTMENT

Life Insurance Premium

Sum paid under contract for deferred annuity

Sum deducted from salary payable to Govt. Servant for securing deferred annuity for self, spouse or child

Contribution made under Employee’s Provident Fund

Scheme to which Provident Funds Act 1925 (19 of 1925 applies)

REMARKS

For individual, policy must be in self or spouse’s or any child’s name. For HUF, it may be on life of any member of HUF. For individual, on life of self, spouse or any child Payment limited to 20% of salary     

Contribution to PPF Contribution by employee to a Recognised Provident Fund or a superannuation fund

Sum deposited in 10 year/15year account of Post Office Saving Bank

Subscription to any notified securities/notified deposits scheme.

Subscription to any notified savings certificate, Unit Linked Savings certificates.

Contribution to Unit Linked Insurance Plan of LIC Mutual Fund

Contribution to notified deposit scheme/Pension fund set up by the National Housing Scheme.

Certain payments made by way of instalment or part payment of loan taken for purchase/construction of residential house property. For individual, can be in the name of self/spouse, any child & for HUF, it can be in the name of any member of the family. Condition has been laid that in  case the property is transferred before the expiry of 5 years from the end of the financial year in which possession of such property is obtained by him, the aggregate amount of deduction of income so allowed for various years shall be liable to tax in that year.

Contribution to notified annuity Plan of LIC(e.g. Jeevan Dhara) or Units of UTI/notified Mutual Fund.

Subscription to units of a Mutual Fund notified u/s 10(23D)

Subscription to deposit scheme of a public sector company engaged in providing housing finance.

Subscription to equity shares/ debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions.

Tuition fees paid at the time of admission or otherwise to any school, college, university or other educational institution situated within India for the purpose of full time education of any two children. Available in respect of any two children. Any payment towards any development fees or donation or payment of similar nature will not be eligible.

Term of a fixed deposit in State Bank of India, its subsidiary bank, corresponding new bank (constituted u/s 3 of Banking Companies Act, or any other Bank included in Second schedule to RBI Act, 1939. The term of the deposit should not be less than five years and should be in accordance a scheme framed and notified by the Central Government (Notification S.O. No. 1220(E), dated 28-7-2006). 

80CCD

NATURE OF DEDUCTION

Payment of premia for annuity plan of LIC or any other insurer. Deduction is available upto a maximum of Rs.100,000/- Deposit made by a Central government servant in his pension account to the extent of 10% of his salary.

REMARKS

The premium must be deposited to keep in force a contract for an annuity plan of the LIC or any other insurer for receiving pension from the fund. Where the Central Government makes any contribution to the pension account, deduction of such contribution to the extent of 10% of salary shall be allowed. Further, in any year where any amount is received from the pension account such amount shall be charged to tax as income of that previous year.

Subscription to Bonds issued by NABARD as notified by Central Government. Payment made into account under

the Senior Rules, 2004. Payment made as five year time deposit in an account under the Post Office time Deposit Rules, 1981. Applicable w.e.f. 1.4.0 8 from A.Y. 2008-09.  

It should be noted that the aggregate amount of  deduction u/s. 80C, 80CCCand 80CCD should not in any case exceed one Lakh rupees.

6.3 Other deductions

The other allowable deductions are briefly described below :-

80D -  Payment of medical insurance premium. Deduction is available upto Rs. 15,000/- for self/family and also upto to Rs 15,000/ - for insurance in respect of parent/parents of the assessee. W.e.f. 1.4.2011 (i.e. for A.Y. 2011-12 & F.Y. 2010-11 onwards). The aforesaid will also include contribution made to the Central Government Health Scheme (not exceeding Rs. 15000/-)

80DD - Deduction of Rs. 50,000 in respect of

a) expenditure incurred on medical treatment, (including nursing), training and rehabilitation of a handicapped dependant relative. Further if the dependent is a person with  severe disability a deduction of Rs. 1,00,000/- shall be

available under this section.

b) Payment or deposit to specified scheme for The premium is to be paid by any mode of payment other than cash and the insurance scheme should be framed by the General Insurance Corporation of India and approved by the

Central Government or Scheme framed by any other insurer and approved by the Insurance Regulatory and Development Authority. The premium should be paid in respect of health insurance of the assessee or his family

members. The Finance Act 2008 has also provided deduction upto Rs, 15,000/- in respect of health insurance premium paid by the assessee towards his parent/ parents. The handicapped dependant should be a dependant relative suffering a permanent disability (including blindness)or mentally retarded, as certified by a specified physician or psychiatrist.

Note : A person with severe disability means a person 80DDB with 80% or more of one or  more disabilities as outlined in Section 56(4) of the Persons with Disabilities (Equal Opportunities Protection of Rights and Full Participation) Act.  Expenditure must be actually incurred by resident assessee on himself or dependant relative for

medical treatment of specified disease or ailment. The diseases have been specified in Rule 11DD. A certificate in form 10I is to be furnished by the assessee from any Registered Doctor

80DDB - maintenance of dependant handicapped relative. Deduction of Rs. 40,000 in respect of medical expenditure actually paid. Further, where the expenditure is incurred in respect of assessee or dependent who is a senior citizen a deduction of Rs. 60,000/- or the amount actually paid, which ever is less, will be available.

80E - Deduction in respect of payment in the previous year of interest on loan taken from a financial institution

or approved charitable institution for higher education of self or higher education of a relative. Higher education means any course of study pursued after senior secondary examination or its equivalent. This provision has been

introduced to provide relief to students taking loans for higher studies. The payment of the interest thereon will be allowed as deduction over a period of upto 8 years. Further, by Finance Act, 2008 deduction under this section shall be available not only in respect of loan for pursuing higher education by self but also by spouse or children of the assessee or a child where assessee is a legal guardian.

80GG –  The conditions are -

1) Assessee or his spouse or minor child should not own residential accommodation at the place of employment

2) He should not be in receipt of house rent allowance.

3) He should not have a self-occupied residential premises in any other place.

Deduction available is the  least of :-

(i) Rent paid less 10% of total income

(ii) Rs.2000 per month

(iii) 25% of total income

80U - Deduction of Rs. 50,000/- to an individual who suffers from a physical disability (including blindness) or

mental retardation. Further in case of individuals with severe disability a deduction of Rs.75,000/- is permissible.

W.e.f. 1.4.2010/- the amount of Rs. 75,000/- shall be enhanced to Rs. 1,00,000/-.

Certificate should be obtained from a Govt. Doctor. The relevant rule is Rule 11D.

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6.4 Deduction u/s. 80-G : In respect of Section 80G, no deduction should be allowed by the employer/DDO, from the salary income in respect of any donations made for charitable purposes. The tax relief on such donations as admissible u/s 80G will have to be claimed by the taxpayer in the return of income. However, DDOs, on due verification, may allow donations to the following bodies to the extent of 50% of the contribution:

a. The Jawaharlal Nehru Memorial Fund,

b. The Prime Minister’s Drought Relief Fund,

c. The National Children’s Fund,

d. The Indira Gandhi Memorial Trust,

e. The Rajiv Gandhi Foundation, and to the following bodies to the extent of 100% of the contribution:

(1) The National Defence Fund or the Prime Minister’s National Relief Fund,

(2) The Prime Minister’s Armenia Earthquake Relief Fund,

(3) The Africa (Public Contributions-India) Fund,

(4) The National Foundation for Communal Harmony,

(5) The Chief Minister’s Earthquake Relief Fund, Maharashtra,

(6) The National Blood Transfusion Council,

(7) The State Blood Transfusion Council,

(8) The Army Central Welfare Fund,

(9) The Indian Naval Benevolent Fund,          

(10) The Air Force Central Welfare Fund,

(11) The Andhra Pradesh Chief Minister;s Cyclone Relief Fund, 1996,

(12) The National Illness Assistance Fund,

(13) The Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund, in respect of any State or

Union Territory, as the case may be, subject to certain conditions,

(14) The University or educational institution of national eminence approved by the prescribed authority,

(15) The National Sports Fund to be set up by the Central Government,

(16) The National Cultural Fund set up by the Central Government,

(17) The Fund for Technology Development and Application set up by the Central Government

(18) The national trust for welfare of persons with autism, cerebral palsy, mental retardation and multiple

disabilities.

6.5 Subscription of long term infrastructure bonds : A new Section 80 CCF has been introduced vide Finance Act, 2010. This provides that for F.Y. 2010-11(A.Y. 2011-12) and onwards a further deduction upto Rs. 20,000/- shall be available, for subscription to long term infrastructure bonds, notified by the Central Government.

6.6 Allowability of Deduction by the Employer/DDO : The drawing and Disbursing Officers should satisfy themselves about the actual deposits/subscriptions/payments made by the employees, by calling for such particularly information as they deem necessary before allowing the aforesaid deductions. In case the DDO is not satisfied about the genuineness of the employee's claim regarding any deposit/subscription/payment made by the employee, he should not allow the same, and the employee would be free to claim the deduction/rebate on such amount by filing his return of income and furnishing the necessary proof etc., therewith, to the satisfaction of the Assessing Officer.

6.7 Tax Rebate : The total income of an assessee is determined after deductions from the gross total income are made as discussed in the previous chapter. It is on this total income that the tax payable is computed at the rates in force. The Income Tax Act further provides for rebate from the tax payable as computed above, if certain investments or payments are made. Rebates provided u/s 88 of the Act are distinct and separate from deductions provided in Chapter VIA of the Act. While the latter reduces the gross total income, rebate is a reduction from the tax payable. It is important to note that no tax rebate u/s 88 shall be available from A.Y. 2006-07 onwards. Similarly, sections 88B and 88C providing special rebates to senior citizens and ladies and section 88D stand omitted w.e.f. 01.04.2006.

6.8 RELIEF UNDER SECTION 89(1)

6.8.1 Relief u/s 89(1) is available to an employee when he receives salary in advance or in arrear or when in one financial year, he receives salary of more than 12 months, or receives 'profit in lieu of salary' covered u/s 17(3). Relief u/s 89(1) is also admissible on family pension, as the same has been allowed by

Finance Act 2002 (with retrospective effect from 1/4/96).

6.8.2 W.e.f. 1.6.89, u/s. 89(1) relief can be granted at the time of TDS by employers in the following conditions :

(1) If the employee is a Government Servant.

(2) He is employee in a (a) PSU, (b) Company, (c) Cooperative, (d) Local Authority, (e) 2University, (f)

Institution or Body.

The employee may furnish to the DDO or the person responsible for making payment such particulars in Form 10E (read with Rule 21AA) which should be duly verified by him. Thereupon the DDO/Person responsible for making payment is required to compute the relief u/s 89(1) on the basis of such particulars and take into account this relief while making tax deduction u/s 192. In case of an employee of category ther than the stated above, such relief can only be allowed by the Assessing Officer.

PENALTIES AND PROSECUTION

The various provisions of TDS as discussed in the preceding chapters are statutorily required to be strictly complied with. Any default in compliance can attract, levy of interest, penalty and in certain cases initiation of prosecution proceedings. In this chapter a brief discussion of the possible defaults and the consequential proceedings is being done.

7.1 Failure to deduct tax - Where the employer has failed to deduct tax or when short deduction of tax has been done, following statutory provisions are attracted:-

a) Charging of interest u/s 201(1A) - The deductor is treated to be ‘assessee in default’ in respect of the short deduction/ non deduction of tax. Under Section 201(1A) he is liable to pay simple interest @ 1% for every month or part of a month on the amount of tax in arrear from the date on which such tax was

deductible to the date on which such tax is actually deducted. Further such interest shall be paid before furnishing the quarterly statement of each quarter. Charging of interest u/s 201(1A) is mandatory and there is no provision for its waiver.

Procedure for interest calculation : The calculation of interest is to be done as per Rule 119A and is summarized below:

(i) Where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be full month and interest shall be so calculated.

(ii) The amount of tax in respect of which interest is to be calculated is to be rounded off to nearest multiple of Rs. 100 ignoring any fraction of Rs. 100.

b) Penalty u/s 221- The assessee in default is liable to imposition of penalty where the assessing officer is satisfied that the defaulter has failed to deduct tax as required without good and sufficient

reason. The quantum of penalty is not to exceed the amount of tax in arrear. Besides, a reasonable opportunity of being heard is to be given to the assessee.

c) Penalty u/s 271C- A penalty equivalent to the amount of tax the deductor has failed to deduct, is leviable u/s 271C. Such penalty is however only leviable by a Joint Commissioner of Income Tax.

7.2 Failure to deposit tax in govt. account after deduction: Where the employee has deducted the tax at source but failed to deposit wholly or partly, the tax so deducted in government account, the following statutory provisions are attracted:-

a) Interest u/s 201(1A)- The deductor is treated as an assessee in default and interest u/s 201(1A) is leviable @1.5% for every month or part of the nonth on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid. Further, the tax along with the simple interest u/s 201(1A) becomes a charge upon all the assets of the deductor.

b) Penalty u/s 221- Penalty to the extent of tax not deposited is leviable by the A.O. as discussed earlier.

c) Prosecution proceedings u/s 276 B- Where the deductor has failed to deposit tax deducted at source, in govt. a/c without a reasonable cause then he is punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years and with fine.

7.3 Failure to apply for T.A.N or to quote T.A.N.

Where a person who is responsible to deduct tax at source has failed, without reasonable cause:-

a) To apply for T.A.N. within prescribed period or b) After allotment, failed to quote such TAN in challans for payment of tax or TDS certificate or returns of TDS (as required u/s 206) - then a penalty u/s 272BB of a sum of Rs.10,000 may be imposed by the assessing officer. However a reasonable opportunity of hearing must be given to the employer/deductor.

7.4 Failure to furnish TDS certificate or returns/statement of tax deduction at source- (penalty u/s. 272A(2)) Where the employer has failed to issue TDS certificate (form 16) within one month of the end of financial year (by 31st of May of the next F.Y. for F.Y. 2010-11 onwards) or has failed to furnish the quarterly statement of tax in form 24Q, within the time prescribed u/s 200(3) (rule 31A), then a penalty of Rs. 100 is leviable for each day during the period for which default continues. The

quantum of penalty is not to exceed the tax deductible and it is to be levied only by a Joint Commissioner or Joint D.I.T. after giving the assessee an opportunity of being heard.

7.5 Prosecution u/s 277- Where a person, who is required to furnish statement u/s 200(3) (quarterly statements) makes a false statement in verification or, delivers an account or statement which is false and which the person knows or believes to be false or does not believe to be true, then he is punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years along with fine. Where the amount of tax, which would have been evaded if the statement or account had been accepted as true, is 1 lakh rupeesor less, then rigorous imprisonment may be from 3 months to three

years and with fine.

7.6 The Finance Act, 2008 has introduced amendment in section 201 (w.e.f. 1.6.2002) which clarifies, that in case any employer, or any principal officer of a company;

(a) does not deduct,or

(b) does not pay,

(c) or after so deducting fails to pay the whole or any part of the tax, then such person shall be deemed to be an assessee in default. Further penalty to be charged u/s. 221 shall not be levied by the assessing officer unless he is satisfied that such failure to deduct and pay tax was without good and sufficient

reasons.