Circular No
:
568
Date of Issue
:
27.7.1990
Section(s) Referred
:
192
Statute
:
Income-Tax Act


Subject: Deduction of tax at source-Income-tax deduction from salaries during the financial year 1990-91 under section 192 of the Income-tax Act, 1961.

Reference is invited to Board's Circular No. 537, dated 12th July, 1989 [F. No. 275/86/89-IT(B)], wherein the rates of income-tax deduction during the year 1989-90 from payment of income chargeable under the head "salaries" under section 192 of the Income-tax Act, 1961, were intimated.

2. Sub-section (1) of section 192 provides that the person responsible for paying any income chargeable under the head "salaries" shall, at the time of making payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee for that financial year. The provisions of sub-section (3) of the said section are intended for making adjustment for excess or shortfall of inadvertent nature and/or due to unforeseen circumstances. The aggregate tax thus calculated on the estimated income divided by 12 and rounded-off to the nearest rupee is required to be deducted from the monthly salary.

3. The Finance Act, 1990, has raised the exemption limit for individuals from Rs. 18,000 to Rs. 22,000. Further, the lowest rate of tax of 20% has been extended from the previous limit of Rs. 25,000 to Rs. 30,000. An extract of sub-paragraph (1) of paragraph A of Part III of the First Schedule to the Finance Act, 1990, giving the tax rates applicable is at annexure I. Some of the other important changes brought out by the Finance Act, 1990, are:

(i) Introduction of a new system of tax rebate on the gross amount of savings under section 88 by replacing the earlier provisions of section 80C relating to tax incentives for promoting savings. Under the new system, a person contributing to provident fund, life insurance, national savings certificate, etc. as earlier, will now be entitled to a tax rebate calculated at the rate of 20% the amount of such savings, etc. The maximum rebate allowance will be Rs. 10,000. However, in the case of authors, playwrights, artists, musicians, actors, sportsmen (including athletes), the maximum tax rebate allowable will be Rs. 14,000.

(ii) Substitution of old section 80CC by a new section 88A to provide for a tax rebate calculated at the rate of 20% of the investment in the eligible issue of capital or units. The maximum amount of investment eligible for tax rebate under section 88A is Rs. 25,000.

(iii) Increase of the limit prescribed under section 80CCA regarding deduction in respect of deposits under the National Savings Scheme, etc. from Rs. 30,000 to Rs. 40,000.

(iv) Insertion of a new section 80CCB relating to deduction in respect of investments made in the units of any plan, framed in accordance with Equity Linked Savings Scheme, of the Mutual Funds specified under section 10(23D) or of the Unit Trust of India. Under this section, the deduction shall be allowed on so much of the amount invested as does not exceed Rs. 10,000. On repurchase of the units by the Mutual Fund or Unit Trust or on the termination of the plan, however, the amount returned to the assessee shall be deemed to be his income for the previous year in which the amount is returned.

(v) Insertion of a new section 80DD in the Income-tax Act relating to deduction in respect of expenditure incurred on medical treatment, training and rehabilitation of a handicapped dependent relative. A sum of Rs. 6,000 will be allowed as deduction under this section, and this will be available to those assessees whose total income before the allowance of this deduction does not exceed Rs. 1,00,000 in a year.

(vi) Surcharge on income-tax at 8 per cent. will be applicable in the case of all persons having a total income exceeding Rs. 75,000 against the earlier limit of Rs. 50,000.

4. The substance of the main provisions of law in so far as they relate to income chargeable under the head "salaries" on which tax is to be deducted at source during the financial year 1990-91 is given hereunder and in the succeeding paragraphs:

(i) No tax will be deducted at source in any case unless the estimated salary income for the financial year exceeds Rs. 22,000. Some typical examples of calculations are at annexure II.

(ii) 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. It also includes the annual accretion to the employees' account in a recognised provident fund to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule to the Income-tax Act. Other items included in salary, profits in lieu of salary and perquisites are described in section 17 of the Income-tax Act.

(iii) The value of perquisites by way of free or concessional residential accommodation, or motor car provided by employers to their employees shall be determined under rule 3 of the Income-tax Rules, 1962. It is, however, clarified that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work or from such office or place to his residence shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purpose.

(iv) Other benefits or amenities provided free of cost or at concessional rates to the employees like supply of gas, electric energy, water for household consumption, educational facilities, etc. should also be taken into account for the purpose of computing the estimated salary income of the employees during the current financial year (Example III at annexure II illustrates computation of some such perquisites). The valuation has to be done in accordance with rule 3 of the Income-tax Rules.

(v) The value of any benefit or amenity granted or provided free of cost or at a concessional rate by an employer to an employee (not being a director of the company or a person who has substantial interest in the company) is not regarded as a perquisite received by the employee unless the employees' income under the head "salary" exclusive of the value of any benefit or amenity not provided for by way of monetary payment exceeds Rs. 24,000.

(vi) In cases where salary is received from more than one employer, the aggregate salary from these employers will have to be taken into account for the purpose.

5. Exemptions/deductions in computing total income.-The exemptions/deductions which can be taken into account for computing the total income of an employee are discussed hereunder:

(i) According to clause (5) of section 10, the value of any travel concession or assistance received by or due to an employee,-

(a) from his employer for himself and his family in connection with his proceeding on leave to any place in India;

(b) from his employer or former employer for himself and his family in connection with his proceeding to any place in India after retirement from service or after the termination of his service,

is exempt, subject to the conditions prescribed in rule 2B of the Income-tax Rules, 1962, as amended by the Income-tax (Fifth Amendment) Rules, 1990. It may be noted that the amount exempt under the clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel. For the purpose of this clause, "family" in relation to an individual means-

(1) the spouse and children of the individual; and

(2) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.

(ii) (a) Clause (10) of section 10 provides exemption of death-cum-retirement gratuity from inclusion in computing total income. The Government have by Notification No. 7534, dated 18th September, 1987 [F. No. 178/131/87-IT(AI)], raised the limit of Rs. 36,000 mentioned in sub-clause (iii) of clause (10) of section 10 of the Income-tax Act to Rs. 1,00,000 for all the three purposes for which the said limit has been mentioned in the provisions of the said clause, in relation to the employees who retire or become incapacitated or die on or after 1st January, 1986, or whose employment is terminated on or after the said date.

Vide Notification No. GSR No. 405, dated 28th April, 1988 (F. No. 142/7/88-TPL), the enhanced limit of Rs. 1,00,000 will be applicable for all the three purposes mentioned in the said clause in relation to the employees mentioned therein who retire or become incapacitated prior to such retirement or die on or after the first day of April, 1988, or whose employment is terminated on or after the said date.

(b) Sub-clause (i) of clause (10AA) of section 10 provides for exemption of 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 or superannuation or otherwise.

(c) In the case of other employees, the exemption under section 10(10AA) will be determined with reference to the leave, to his credit at the time of retirement on superannuation or otherwise subject to a maximum of eight months leave. This exemption will be limited to the amount payable for such unutilised leave on the basis of the average salary of the employee for eight months, subject to the limit to be prescribed by the Central Government. Where the cash equivalent of unutilised earned leave is received by an employee from two or more employers in the same year, the maximum amount exempt from tax shall not exceed the limit so specified. The limit has now been specified in the Government of India, Notification No. S.O. 553(E), dated 8th June, 1988 [F. No. 142/11/88-TPL]. According to the said notification, the maximum limit in respect of employees whose retirement takes place from 1st January, 1988, onwards is Rs. 79,920.

(iii) 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 workman in the undertaking to which the Scheme applies and other relevant circumstances.

It may be added that a number of public sector undertakings have formulated voluntary retirement schemes for their employees. Any payment received by an employee, whether a workman or executive of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may approve having regard to the economic viability of the public sector undertaking/company and other relevant circumstances will be exempt under section 10(10C) of the Income-tax Act.

(iv) 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, having regard to the area or place in which such accommodation is situated and other relevant considerations. According to rule 2A of the Income-tax Rules, 1962, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be,-

(a) the actual amount of such allowance received by an employee in respect of the relevant period; or

(b) the actual expenditure incurred in payment of rent in excess of 1/10 of the salary due for the relevant period; or

(c) where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50 per cent. of the salary due to the employee for the relevant period; or

(d) where such accommodation is situated in any other place, 40 per cent. of the salary due to the employee for the relevant period.

whichever is the least.

For this purpose, "salary" includes dearness allowance, i.e. 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. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the house-rent allowance or any portion thereof from the total income of the employee.

Though incurring actual expenditure on payment of rent is a prerequisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that all employees drawing a gross salary (including all allowances) up to Rs. 3,500 per month will be exempted from the requirement of production of rent receipt. It may, however, be noted that the exemption from the requirement of production of rent receipt is only for the purpose of tax deduction at source and in the regular assessment of the employee, the Assessing Officer will be free to make such inquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.

(v) Clause (14) of section 10 provides for exemption of the following allowances :

(i) Any special allowance or benefit granted to an employee to meet the expenses incurred in the performance of his duties, which the Central Government may specify by notification in the Official Gazette.

(ii) Any allowance granted to an assessee either to meet his personal expenses at the place of his posting or at the place he ordinarily resides or to compensate him for the increased cost of living, which the Central Government may specify by notification in the Official Gazette.

The Direct Tax Laws (Second Amendment) Act, 1989, has inserted the following proviso to the aforesaid clause :

"Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence."

By Notification No. S.O. 143(E), dated 21st February, 1989, S.O. 144(E), dated 21st February, 1989 [as amended by Notification No. S.O. 259(E), dated 27th March, 1990], G.S.R. No. 606(E), dated 9th June, 1989 and S.O. 267(E), dated 29th March, 1990, the Central Government have specified the following allowances as exempt from tax to the extent and subject to the conditions indicated therein:

(a) any allowance granted to meet cost of travel on tour or on transfer including any allowance granted to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;

(b) any special compensatory allowance in the nature of border area allowance or remote area allowance or difficult area allowance or disturbed area allowance;

(c) tribal area allowance;

(d) any allowance granted to an employee working in a transport system to meet his personal expenses during his duty performed in the course of running of such transport from one place to another;

(e) children education allowance;

(f) any allowance granted to an employee to meet the hostel expenditure of his child,

(g) any allowance granted to meet the expenditure incurred on conveyance in the performance of duties of an office or employment of profit.

(h) any special compensatory allowance in the nature of composite hill compensatory allowance or high altitude allowance or uncongenial climate allowance or snowbound area allowance or avalanche allowance;

(i) any allowance granted to meet the expenditure incurred on a helper where such a helper is engaged for the performance of duties of an office or employment of profit; any allowance granted for encouraging academic research and any other professional pursuit; any allowance granted to meet the expenses incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit.

It may be noted that dearness allowance and city compensatory allowance granted to an employee are not covered by the aforesaid notifications; these allowances will clearly be part of income and will have to be taken into account in the computation of income for the purpose of deduction of tax at source.

(vi) Under section 10(15)(iv)(i) of the Income-tax Act, as amended by the Finance Act, 1990, interest payable by the Government on deposits made by an employee of the Central Government or State Government or a public sector company from out of his retirement benefits, in accordance with such scheme framed in this behalf by the Central Government and notified in the Official Gazette is exempt from income-tax. By Notification No. F. 2/14/89-NS-II, dated 7th June, 1989, as amended by Notification No. 2/14/89-NS-II, dated 12th October, 1989, the Central Government has notified a scheme called Deposit Scheme for Retiring Government Employees, 1989, for the purpose of the said clause.

(vii) (a) Under section 16 of the Income-tax Act, the taxable salary is to be computed after making standard deduction of a sum equal to 33-1/3% of the salary or Rs. 12,000 whichever is less. For this purpose the term "salary" will include fees, commissions, perquisites or profits in lieu of or in addition to salary, but will not include any payment received by the employees which are specifically exempt from tax under clauses (10), (10A), (10AA), (10B), (10C), (11), (12) and (13A) of section 10 of the Act. Thus, house-rent allowance to the extent exempt under section 10(13A) of the Act will not be taken into account for the purpose of computing the amount of the standard deduction.

This deduction will be available also to persons drawing pension during the current financial year at the same rate and subject to the same ceiling as to the employees in actual service.

It may be noted that the standard deduction in full will be admissible even to those employees who are entitled to conveyance facilities.

(b) The tax on employment within the meaning of clause (2) of Article 276 of the Constitution of India, leviable by or under any law shall also be allowed as a deduction in computing the income of the salaried tax-payers under the head "salaries".

(c) A limited deduction is also allowed under clause (ii) of section 16 in respect of entertainment allowance. In the case of Government employees, this deduction is limited to one-fifth of the employees' salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less. In the case of other employees deduction will be allowable only if the conditions laid down in the aforesaid clause are fulfilled.

(viii) Under section 80CCA of the Income-tax Act, as amended by the Finance Act, 1990, 100% deduction will be allowed to an individual, a Hindu undivided family, and certain categories of persons or bodies of individuals, subject to a ceiling of Rs. 40,000 in respect of,-

(1) any amount deposited under the National Savings Scheme; and

(2) any amount paid to effect or keep in force a contract for such annuity plan of the LIC, as the Central Government may specify by notification. By Notification No. G.S.R. 903(E), dated 6th September, 1988, the Central Government have specified "Jeevan Dhara" and "Jeevan Akshay" plans of the Life Insurance Corporation of India for the purpose of section 80CCA.

It may be noted that the aforesaid deduction will be allowed only in respect of deposits/payments made out of the employees' income chargeable to tax. Also, such deposits/payments made up to 31st March of the financial year will qualify for deduction.

It should also be noted that where any amount standing to the credit of the employee under the National Savings Scheme in respect of which deduction has already been claimed under section 80CCA, together with interest accrued thereon, is withdrawn in any previous year, or where any amount is received on account of the surrender of the policy or as annuity or bonus in accordance with the deferred annuity plan of the Life Insurance Corporation, in any previous year, the whole of such amount shall be deemed to be the income of the employee of that previous year in which such withdrawal is made or such amount is received, and shall be chargeable to tax as the income of the previous year.

The Drawing and Disbursing Officers should satisfy themselves about the actual deposits or payments made by the employees by calling for such particulars/information as they deem necessary before allowing the deduction. Similarly, the Drawing and Disbursing Officers should ascertain from the employees about the withdrawals made by them from the National Savings Scheme or the amount received on account of the annuity plans of the Life Insurance Corporation, and the said amount shall be included in the computation of the employees' income and charged to tax accordingly. For this purpose, the Drawing and Disbursing Officers should call for such proof/particulars/information as they deem necessary.

(ix) The Finance Act, 1990, has inserted a new section 80CCB relating to deduction in respect of investment made in accordance with Equity Linked Savings Scheme to be notified by the Central Government. Under the new provision, the deduction shall be allowed in the case of an assessee, being an individual, a Hindu undivided family and certain categories of association of persons or bodies of individuals, in relation to the investment made in the units of any plan framed in accordance with Equity Linked Savings Scheme of the Mutual Funds specified under section 10(23D) of the Income-tax Act or of the Unit Trust of India. The deduction shall be allowed on so much of the amount invested as does not exceed Rs. 10,000. When any amount in respect of which deduction has been allowed is returned to the assessee either by way of repurchase of the units by the Funds or Trust or on the termination of the Plan, it shall be deemed to be his income of the previous year in which the amount is returned. Further, where a Hindu undivided family has effected a partition or an association of persons is dissolved after deduction has been allowed to it, such amount on its return shall be deemed to be the income of the recipient.

The Drawing and Disbursing Officers should satisfy themselves about the fact of investment made by the employees by calling for such information/particulars as they may deem necessary before allowing the deduction. Similarly, the Drawing and Disbursing Officers should ascertain from the employees about the return of the investment either by way of repurchase of the units by the Fund, etc. or on the termination of the plan. In the case of such repurchase etc. the amount returned should be included in the computation of the employee's income-charged to tax accordingly.

(x) Under section 80D introduced with effect from 1st April, 1987, in the case of the following categories of persons, a deduction can be allowed for a sum not exceeding Rs. 3,000 per annum to the extent payment is made by cheque out of their income chargeable to tax to keep in force an insurance on the health of the categories of persons mentioned below provided that such insurance is in accordance with the scheme framed by the General Insurance Corporation of India as approved by the Central Government, popularly known as "Mediclaim".

The categories of persons are,-

(a) where the assessee is an individual, any sum paid to effect or to keep in force an insurance on the health of the assessee or on the health of the wife or husband, dependent parents or dependent children of the assessee;

(b) where the assessee is a Hindu undivided family, any sum paid to effect or to keep in force an insurance on the health of any member of the family;

(c) where the assessee is an association of persons or a body of individuals consisting in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and the Union Territories of Dadra and Nagar Haveli and Daman and Diu, any sum paid to effect or to keep in force an insurance on the health of any member of such an association or body or on the health of the dependent children of the members of such an association or body.

(xi) This Finance Act, 1990, has inserted a new section 80DD relating to deduction in respect of expenditure incurred on the handicapped dependent relatives. According to the provision of this section, deduction of a sum of Rs. 6,000 shall be allowed in the case of resident individuals who incur expenditure on the medical treatment (including nursing), training and rehabilitation of a person suffering from a permanent physical disability including blindness) or mental retardation, specified in the rules to be made in this behalf by the Board. The deduction will be available only to those assessees whose total income before the allowance of this deduction does not exceed Rs. 1,00,000 in a year. The deduction will be allowed if the person suffering from permanent physical disability or mental retardation is a relative of the individual. Further, the permanent physical disability or mental retardation of the dependent relative has to be certified by a physician, surgeon, oculist or a psychiatrist, as the case may be, working in a Government hospital or a Government dispensary including a departmental dispensary or a hospital maintained by a local authority as per the explanation thereto. Further, the amount of deduction will be reduced by the amount of income, if any, of the handicapped dependent relative.

The Drawing and Disbursing Officers should, therefore, call for such particulars/certificates/information as they may deem necessary from the employee to verify the genuineness of the claim before allowing the deduction.

(xii) No deduction should be made from the salary income in respect of any donations for charitable purposes. The tax relief on such donations as admissible under section 80G of the Act will have to be claimed by the tax-payer separately at the time of finalisation of the assessment. However, in cases where contributions to the National Defence Fund, Jawaharlal Nehru Memorial Fund, the Prime Minister's Drought Relief Fund, the National Children's Fund or the Indira Gandhi Memorial Trust are made, 50 per cent. of such contributions may be deducted in computing the total income of the employee. The donation to the Prime Minister's National Relief Fund and the Prime Minister's Armenia Earthquake Relief Fund will be eligible for hundred per cent. deduction. Thus, deduction in this respect may be allowed while computing the total income for the purpose of deduction of income-tax at source for the financial year 1990-91. Deduction will not be admissible where the aggregate of all contributions for the year is less than Rs. 250.

(xiii) Under section 80GG of the Act, an assessee is entitled to a deduction in respect of house-rent paid by him for his own residence at the places specified under rule 11B of the Income-tax Rules, 1962. Such deduction is permissible subject to the following conditions,-

(a) the assessee has not been in receipt of any house-rent allowance specifically granted to him which qualifies for exemption under section 10(13A) of the Act;

(b) he will be entitled to a deduction in respect of house-rent paid by him in excess of 10 per cent. of his total income, subject to a ceiling of 25 per cent. thereof or Rs. 1,000 per month, whichever is less. The total income for working out these percentages will be computed before making any deductions under section 80GG;

(c) the assessee does not own:

(i) any residential accommodation himself or by his spouse or minor child or where such assessee is a member of a Hindu undivided family, by such family, at the place where he ordinarily resides or performs duties of his office or carries on his business or profession; or

(ii) at any other place, any residential accommodation being accommodation in the occupation of the assessee, the value of which is to be determined under sub-clause (i) of clause (a), or, as the case may be, clause (b) of sub-section (2) of section 23.

(d) The accommodation occupied by him for the purpose of his own residence is situated in any of the following places, namely :

(i) Agra, Ahmedabad, Allahabad, Amritsar, Bangalore, Bhopal, Calcutta, Coimbatore, Delhi, Faridabad, Gwalior (Lashkar), Hyderabad, Indore, Jabalpore, Jaipur, Kanpur, Lucknow, Ludhiana City, Madurai, Nagpur, Patna, Pune, Srinagar, Surat, Vadodra (Baroda) or Varanasi (Banaras) or the urban agglomeration of each of such places; or

(ii) Bombay, Calicut, Cochin, Ghaziabad, Hubli, Dharwar, Madras, Solapur, Trivandrum or Vishakhapatnam.

Explanation :

"Urban Agglomeration" in relation to a place means the area for the time being included in the urban agglomeration of such place for the purpose of grant of house-rent allowance by the Central Government to its employees under the orders issued by it from time to time in this regard.

The disbursing authorities should satisfy themselves that all the conditions mentioned above are satisfied before such deduction is allowed by them to the assessees. They should also satisfy themselves in this regard by insisting on production of evidence of actual payment of rent.

(xiv) Section 80RRA, as amended by the Finance Act, 1990, provides that where the gross total income of an individual who is a citizen of India, includes any remuneration received by him in foreign currency from any employer (i.e. a foreign employer or an Indian concern) for any services rendered by him outside India, an amount equal to the following shall be allowed as deduction in computing the total income of the individual,-

(i) fifty per cent. of the remuneration; or

(ii) seventy-five per cent. of such remuneration as is brought into India, by, or on behalf of, the assessee in accordance with the Foreign Exchange Regulation Act, 1973, and any rules made thereunder. whichever is higher.

In the case of an employee of the Central Government or any State Government, or a person who was immediately before taking up the service outside India, in the employment of the Central Government or any State Government, the deduction will be allowed only if the service of the employee is sponsored by the Central Government. In the case of any other individual, the deduction will be allowed only if he is a "technician" and the terms and conditions of his service outside India are approved for the purpose of the said Section by the Central Government or the prescribed authority. It is pertinent to note that the deduction is to be allowed with reference to the remuneration received by the individual in foreign currency for services rendered outside India. Thus, if the remuneration is paid to the Indian technician, etc. partly in Indian currency and partly in foreign currency, the amount paid in Indian currency, will not be taken into account for the purpose of deduction under section 80RRA. Likewise, if a part of the remuneration, although paid in foreign currency relates to services rendered in India, then such part of the remuneration will also not qualify for deduction under section 80RRA. The expression "foreign employer" has been defined in explanation (b) to section 80RRA to mean (i) the Government of a foreign State; or (ii) a foreign enterprise; or (iii) any association or body established outside India. While allowing the deduction under this section, documentary evidence should be obtained on the following points,-

(a) in the case of an individual who is in the employment of the Central Government or any State Government, the fact of his service having been sponsored by the Central Government;

(b) in the case of any other individual being a technician, the fact of the terms and conditions of his service outside India having been approved in this behalf by the Central Government (Ministry of Finance, Department of Revenue, Foreign Tax Division, New Delhi).

(It should also be ensured that the deduction is allowed with reference to the remuneration received in foreign currency in respect of the period of service outside India.)

(xv) Under section 80U, in computing the total income of a resident individual who is totally blind or suffers from any of the permanent physical disabilities or is subject to mental retardation to the extent specified by the Board, a deduction of Rs. 15,000 is allowed. The Board has by Notification S.O. 529(E), dated 17th July, 1985, specified the physical disabilities which will be reckoned as permanent physical disabilities for purposes of deduction under this section. According to the said notification, a permanent physical disability shall be regarded as a permanent physical disability for the purpose of clause (ii) of sub-section (1) of section 80U, if it falls in any one of the categories specified below, namely,-

(a) permanent physical disability of more than 50 per cent. in one limb; or

(b) permanent physical disability of more than 60 per cent. in two or more limbs;

(c) permanent deafness with hearing impairment of 71 decibels and above; and

(d) permanent and total loss of voice.

The deduction of Rs. 15,000 from the total income can be allowed by the employer on the basis of a certificate from a Registered Medical Practitioner as to the employee's total blindness or permanent physical disability. In the case of employees suffering from mental retardation, the certificate as to the mental retardation should be from a psychiatrist, working in a Government hospital.

6. The total income on account of salary income thus computed is liable to income-tax during the financial year 1990-91 at the rates of tax prescribed in Part III (paragraph A, sub-paragraph I) of the First Schedule to the Finance Act, 1990-vide annexure I. After having worked out the tax liability on the total income, the tax rebates provided for in sections 88 and 88A as explained in paragraphs 7 and 8 below should be allowed as a deduction from the tax on total income. It may, however, be noted that the aggregate of the deductions under section 88 or section 88A shall not, in any case, exceed the amount of income-tax (as computed before allowing the deduction under Chapter VIII of the Income-tax Act of the total income of the assessee with which he is chargeable for any assessment year. The balance amount is the tax payable by the assessee. However, in the case of every person having a total income exceeding Rs. 75,000, the amount of income-tax thus computed, as reduced by the rebate of income-tax calculated under Chapter VIIIA, shall be increased by a surcharge for the purpose of the Union, calculated at eight per cent. of such income-tax. The surcharge, however, shall not be payable by a non-resident.

It may be noted that the total income computed in accordance with the provisions of the Act should be rounded-off to the nearest multiple of ten rupees by ignoring the fraction which is less than five rupees and increasing the fraction which amounts to five rupees or more, to ten rupees. The net amount of tax deductible should similarly be rounded-off to the nearest rupee.

7. According to section 88, an assessee will be entitled to a deduction of 20% of the amount invested or deposited in the following items during the previous year from the income-tax payable by him on his total income:

(i) Payment of insurance premium to effect or to keep in force an insurance on the life of the individual, the wife or husband or any child of the individual. It may be noted that any premium or other payments made on a policy which is not in excess of 10% of the actual capital sum assured, will alone qualify for deduction.

(ii) Any payment made to effect or to keep in force a contract for a deferred annuity, not being an annuity plan as has been referred to in section 80CCA(1)(ii), on the life of the individual, the wife or husband 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.

(iii) 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 wife or children, in so far as the sum deducted does not exceed one-fifth of the salary.

(iv) Any contribution made,-

(a) by an individual to any provident fund to which the Provident Funds Act, 1925, applies;

(b) 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 a minor of whom he is the guardian;

(c) by an employee to a recognised provident fund;

(d) by an employee to an approved superannuation fund; it may be noted that "contribution" to any fund shall not include any sums in repayment of loan.

(v) Any deposit in a ten-year account or a fifteen-year account under the Post Office Savings Bank (Cumulative Time Deposit) Rules, 1959, as amended from time to time, where such sums are deposited in an account standing in the name of an individual, or a minor of whom he is the guardian.

(vi) Any subscription,-

(a) to any such security of the Central Government as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(b) to any such savings certificate as defined under section 2(c) of the Government Savings Certificates Act, 1959, as the Government may, by notification in the Official Gazette, specify in this behalf. Interest on NSC (VI Issue) which is deemed investment also qualifies for deduction.

(vii) Any sum paid as contribution,-

(a) for participation in the Unit Linked Insurance Plan, 1971, of the Unit Trust of India;

(b) for participation in any unit-linked insurance plan of the Life Insurance Corporation Mutual Fund notified by the Central Government under clause (23D) of section 10.

(viii) Any subscription made to any such deposit scheme of the National Housing Bank as the Central Government may, by notification in the Official Gazette, specify in this behalf.

(ix) Any sums paid by an assessee for the purpose of purchase or construction of a residential house property, construction of which is completed after the 31st day of March, 1987, and 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 the assessee's own residence, have been chargeable to tax under that head) where such payments are made towards or by way of any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board, etc. The deduction will also be allowable in respect of repayment of loans borrowed by an assessee from the Government, or any bank or Life Insurance Corporation, or National Housing Bank, or certain other categories of institutions engaged in the business of providing long-term finance for construction or purchase of houses in India. Any repayment of loan borrowed from the employer will also be covered, if the employer happens to be a public company, public sector company or a university established by law or a college affiliated to such university, or a local authority. The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. Payment towards the cost of house property, however, will not include, admission fee or cost of share or initial deposit or the cost of the land (except where the consideration for the purchase of house property is a composite amount the cost of land cannot be separately ascertained) or the cost of any addition or alteration to or renovation or repair of the house property which is carried out after the issue of the completion certificate by competent authority, or after the occupation of the house by the assessee or after it has been let out. Payments towards any expenditure in respect of which the deduction is allowable under the provisions of section 24 of the Income-tax Act will also not be included in payments towards the cost of purchase or construction of a house property. Where the house property in respect of which deduction has been allowed under these provisions is transferred by the tax-payer at any time before the expiry of five years from the end of the financial year in which possession of such property is obtained by him or he receives back by way of refund or otherwise, any sum specified in section 88(2)(xv), no deduction under these provisions shall be allowed in respect of such sums paid in such previous year in which the transfer is made and the aggregate amount of deduction of income-tax so allowed in the earlier years shall be added to the tax on the total income of the assessee with which he is chargeable for such assessment year. It may be noted that the amount which will qualify for tax rebate in respect of this item will not exceed Rs. 10,000. In respect of repayment of loans taken for the purchase of construction of a new residential house property the construction of which does not get completed by the end of the financial year 1990-91, no tax rebate in respect of these items shall be admissible to the employees in the assessment of the income for the assessment year 1991-92.

It may also be noted that repayment of loans made in respect of houses/flats the construction of which had been completed before 31st March, 1987, will not qualify for tax rebate.

Subject to the limits mentioned for various items, the entitlement to tax rebate will be calculated at 20 per cent. of the total amount of the aforesaid savings, etc. The maximum tax rebate allowable will be Rs. 10,000 generally, and Rs. 14,000 in the case of authors, playwrights, artists, musicians, actors, sportsmen and athletes.

The Drawing and Disbursing Officers should satisfy themselves about the actual deposits/subscriptions/payments made by the employees by calling for such particulars/information as they deem necessary before allowing the aforesaid rebate. It may also be mentioned that the payment towards items qualifying for the tax rebate should be made out of employee's income chargeable to tax.

8. According to the newly inserted section 88A, which has replaced the earlier section 80CC, a tax rebate calculated at 20 per cent. of the investment in the eligible issue of capital or units specified in the new section will be allowed as deduction from the amount of income-tax (as computed before allowing the deduction under Chapter VIII of the Income-tax Act) on his total income with which he is chargeable for any assessment year. The maximum amount of investment eligible for such tax rebate is Rs. 25,000. The said section further provides :

(1) That the funds mobilised under the scheme of the Mutual Fund or of the Unit Trust of India must be invested in the eligible issue of capital within six months from the close of the subscription to the scheme. Further, pending investment in the eligible issue of capital, the Mutual Funds or the Unit Trust of India would be allowed to invest the funds in such Government securities as may be approved by the Board in this behalf.

(2) That the tax concession under the new section 88A will not be available to any scheme floated by any Mutual Fund or the Unit Trust of India, the subscription to which closes after the 30th September, 1990.

For the purpose of this section "eligible issue of capital" means an issue of equity shares which satisfies the following conditions, namely :

(a) The issue is made by a public company formed and registered in India and the issue is wholly and is exclusively for the purpose of carrying on the business of,

(i) construction, manufacture or production of any article or a thing not being an article or a thing specified in the list in the Eleventh Schedule; or

(ii) providing a long-term finance for construction or purchase of houses in India for residential purpose, provided that in the case of a public company carrying-on such activities, such company is approved by the Central Government for the purpose of the said section; or

(iii) a hospital;

(iv) a hotel approved by the prescribed authority;

(v) operation of ships.

(b) The issue is an issue of capital made by the company for the first time. However, this will not apply in the case of issue of equity shares made by a public company formed and registered in India with the main objective of carrying on the business of operation of ships.

(c) The shares forming a part of the issue are offered for subscription to the public and such offer for subscription is made by the company before the first day of April, 1991.

(d) Such other conditions as may be prescribed, etc.; etc.

While allowing the tax-rebate under section 88A, the Drawing and Disbursing Officers should satisfy themselves that the conditions mentioned in section 88A of the Income-tax Act are fulfilled.

9. Miscellaneous.-

The scope of deduction of tax at source from "salaries" was modified by the Finance Act 1987, by the insertion of sub-sections (2), (2A) and (2B) in section 192 of the income-tax Act. The salient features of these provisions as modified by the Finance Act, 1989, are given below :

(a) 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 "salary" 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 employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from the former or other employer).

(b) Sub-section (2A) of section 192 provides that in respect of salary payment of employees of Government, company, co-operative society, local authority, university, institution, association or body, deduction of tax at source may be made after allowing relief under section 89(1). Retired Government servants can also avail of this facility of section 89(1) relief through their Drawing and Disbursing Officer/disbursing banks.

(c) Sub-section (2B) enables a tax-payer to furnish particulars of income other than salaries to his employer who shall deduct out of the salary payment, the tax due on the total income subject to the condition that the total amount of tax deducted shall not be less than the amount deductible from income from salaries only. To meet the requirements of these provisions the Central Government have notified necessary amendments in the Income-tax Rules, 1962, vide Notification No. S.O. 963(E), dated 29th October 1987. Detailed instructions in this regard were issued by the Department, vide Circular No. 504, dated 8th February, 1988 [F. No. 275/138/87-IT(B)].

10. (a) According to the provisions of section 203 of the Income-tax Act, every person responsible for deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia, the amount deducted and other particulars that may be prescribed. The certificate has to be furnished within the prescribed period of one month to the person to whose account credit is given or to whom payment is made or the cheque or warrant is issued, as the case may be. By Notification No. S.O. 937(E), dated 10th October, 1988, the old rule 31 of the Income-tax Rules, 1962, has been substituted by a new rule which provides for a unified form of certificate to be issued in Form No. 16. Detailed instructions regarding the issue of certificates for tax deducted at source have been issued in Board's Circular No. 529, dated 13th February, 1989 [F. No. 275/3/89-IT(B)]. If a person fails to furnish a certificate as required by section 203, he shall, on an order passed by any income-tax authority under section 272A of the Income-tax Act, pay, by way of penalty, a sum which shall not be less than Rs. 100, but which may extend to Rs. 200 for every day during which the failure continues.

(b) According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to quote the tax-deduction account number (TAN) in the challans, TDS certificates, periodical returns, etc. Detailed instructions in this regard are available in this Department's Circular No. 497, dated 9th October, 1987 [F. No. 275/118/87- IT(B)]. If a person fails to comply with the provisions of section 203A, he shall on an order passed by the Assessing Officer under section 272BB pay, by way of penalty, a sum which may extend to Rs. 5,000.

(c) According to the provisions of section 206 of the Income-tax Act, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under the provisions of Chapter XVII of the Income-tax Act shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered by the 30th April, following the financial year to the designated Income-tax Officer the annual return of deduction of tax under section 192 from "salaries" in Form No. 24 prescribed under rule 37 of the Income-tax Rules. It may be noted that the third copy of the TDS Certificate issued to the employees should be enclosed with the annual return. If a person fails to furnish in due time the annual return, he shall, on an order passed by the income-tax authority, pay, by way of penalty, a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees for every day during which the failure continues.

(d) According to the provisions of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of section 192 shall pay, within the prescribed time the sum so deducted to the credit of the Central Government. If he fails to deduct tax at source or after deducting fails to pay the tax to the credit of the Government, he shall be liable to action in accordance with the provisions of section 201. In this connection, attention is also invited to the provisions of section 276B of the Income-tax Act, according to which if a person fails to pay to the credit of the Central Government the tax deducted at source by him he shall be punishable with rigorous imprisonment for a term which shall be between three months and seven years and with fine.

11. While making the payment of tax deducted at source to the credit of the Central Government it may kindly be ensured that the correct amount of income-tax is recorded in the relevant challan. It may also be ensured that the right type of challan is used. The relevant challan for making payment of tax deducted at source from salaries is No. 9 with "Blue Colour Band". Where the amount of tax deducted at source is credited to the Central Government through book adjustment, care should be taken to ensure that the correct amount of income-tax is reflected therein.

12. These instructions are not exhaustive and are issued only with a view to helping the employers to understand the various relevant provisions. Wherever, there is a difference of opinion, a reference should always be made to the provisions of the Income-tax Act and the relevant Finance Act through which the changes in the tax structure are made.

13. These instructions may please be brought to the notice of all disbursing officers and undertakings under the control of state Govts. etc.

14. In case any assistance is required the Assessing Officer / the Local Public Relations Officer may be approached for the same, who will, if necessary obtain the orders of higher authorities in the matter.

[F. No. 275/57/90-IT(B) dt. 27-07-1990 from CBDT]