Calculation of Income Tax to be Deducted from Salary

Calculation of Income Tax to be Deducted from Salary under Section 192 of Income Tax Act 1961 – Income Tax Circular No. 17/2014 dated 10.12.2014

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Salary income for the purpose of section 192 shall be computed as  follows

(a)   First compute the gross salary as mentioned in para 5.1 (Definition of Salary) of Circular 17/2014 dated 10.12.2014, including all the incomes mentioned in para 5.2 ( Perquisites covered under Income Tax) and excluding the income mentioned in para 5.3 (Income Not included under the head Salaries as per Income Tax Circular 17/2014 dated 10.12.2014

(b)    Allow deductions mentioned in para 5.4 of Income Tax Circular 17/2014 dated 10.12.2014 (Deductions from Salary under Section 16 of Income Tax Act 1961) from the figure arrived at (a) above and compute the amount to arrive at Net salary of the employee

(c)  Add income from all other heads- House property, Profits & gains of Business or Profession, Capital gains and Income from other Sources  to arrive at the Gross Total Income as shown in the form of simple statement mentioned para 3.5. However it may be remembered that no loss under any such head is allowable by DDO other than loss under the Head ―Income from House property

(d) Allow deductions mentioned in para 5.5 of Income Tax Circular 17/2014 dated 10.12.2014 (Deductions allowed under Chapter VI A of Income Tax Act 1961) from the figure   arrived at (c)   above ensuring that the relevant conditions are satisfied. The aggregate of the deductions subject to the threshold limits mentioned in para 5.5 shall not exceed the amount at (b) above and if it exceeds, it should be restricted to that amount.

This will be the amount of total income of the employee on which income tax would be required to be deducted.  This income should be rounded off to the nearest multiple of ten rupees.

Income-tax on such income shall be calculated at the rates given in para 2.1 of Income Tax Circular 17/2014 dated 10.12.2014 keeping in view the age of the employee and subject to the provisions of sec. 206AA, as discussed in para 4.8.

Rebate as per Section 87A upto Rs 2000/- to eligible persons (see para 6 Income Tax Circular 17/2014 dated 10.12.2014) may be given.  Surcharge shall be calculated in cases where applicable (see para 2.2 Income Tax Circular 17/2014 dated 10.12.2014).

The amount of tax  payable  so arrived at shall be increased by education cess as applicable (2% for primary and 1% for secondary education) to arrive at the total tax payable.

SOME ILLUSTRATIONS

Example  1

For Assessment Year 2015-16

(A) Calculation of Income tax in the case of an employee (Male or Female) below the age of sixty years and having gross salary income of:

i)         Rs.2,50,000/- , ii)        Rs.5,00,000/- , iii)       Rs.10,00,000/-

iv)       Rs.20,00,000/-. and v)        Rs. 1,10,00,000/-

(B) What will be the amount of TDS in case of above employees, if PAN is not submitted by them to their DDOs/Offices:

Particulars	Rupees (i)	Rupees (ii)	Rupees (iii)	Rupees (iv)	Rupees (v)
Gross Salary Income(including allowances)	2,50,000	5,00,000	10,00,000	20,00,000	1,10,00,000
Contribution of G.P.F.	45,000	50,000	1,00,000	1,00,000	1,00,000

 

Computation of Total Income and tax payable thereon

Particulars	Rupees (i)	Rupees (ii)	Rupees (iii)	Rupees (iv)	Rupees (v)
Gross Salary	2,50,000	5,00,000	10,00,000	20,00,000	1,10,00,000
Less: Deduction U/s 80C	45,000	50,000	1,00,000	1,00,000	1,00,000
Taxable Income	2,05,000	4,50,000	9,00,000	19,00,000	1,09,00,000
(A)            Tax thereon	Nil	18,000*	1,05,000	3,95,000	3095000
Surcharge					309500
Add:(i) Education Cess @ 2%. (ii) Secondary and Higher Education Cess  @1%	Nil Nil	360 180	2100 1050	7,900 3950	68090 34045
Total tax payable	Nil	18,540	1,08,150	406850	3506635
(B) TDS  under  sec.  206AA  incase    where    PAN    is    not furnished by the employee	Nil	90,000	1,30,000	406850	3506635

* includes Rebate of Rs 2000 u/s 87A

Example – 2

For Assessment Year 2015-16

Calculation of Income Tax in the case of an employee below the age of sixty years having a handicapped dependent (With valid PAN furnished to employer).

S.No.	Particulars	Rupees
1	Gross Salary	4,00,000
2	Amount spent on treatment of a dependant, being person withdisability (but not severe disability)	7000
3	Amount paid to LIC with regard to annuity for the maintenance ofa  dependant,   being   person  with   disability(  but  not   severe disability)	60,000
4	GPF Contribution	25,000
5	LIP Paid	10,000
6	Interest Income on Savings Account	12,000

Computation of Tax

S.No.	Particulars	Rupees
1	Gross Salary	4,00,000
2	Add: Income from Other SourcesInterest Income on Savings Account	Rs 12,000
3	Gross Total Income	4,12,000
4	Less: Deduction U/s 80DD (Restricted to Rs.50,000/- only)	50,000
5	Less:  Deduction U/s 80C (i) GPF  Rs.25,000/-(ii) LIP  Rs.10,000/-     = Rs.35,000/-	35,000
6	Less: Deduction u/s 80TTA on Interest Income on savings account(restricted to Rs 10000/-)	10000
7	Total Income	3,17,000
8	Income Tax thereon/payable(includes Rebate of Rs 2000 as per Section 87A)	4,700
9	Add:(i).  Education Cess @2% (ii).  Secondary and Higher Education Cess @1%	94 47
10	Total Income Tax payable	4,841
11	Rounded off to	4,840

 

Example -3

Calculation of Income Tax in the case of an employee below age of sixty years where medical treatment expenditure was borne by the employer (With valid PAN furnished to employer).

S.No.	Particulars	Rupees
1	Gross Salary	5,20,000
2	Medical Reimbursement by employer on the treatment of self anddependent family member	35,000
3	Contribution of GPF	20,000
4	LIC Premium	20,000
5	Repayment of House Building Advance	25,000
6	Tuition fees for two children	60,000
7	Investment in Unit-Linked Insurance Plan	30,000
8	Interest Income on Savings Account	8,000
9	Interest Income on Time Deposit	15,000

 

 

Computation of Tax

S.No.	Particulars	Rupees
1	Gross Salary	5,20,000
2	Add: Perquisite in respect of reimbursement of Medical ExpensesIn excess of Rs.15,000/- in view of Section 17(2)(v)	20,000
3	Income from Other Sourcesi)          Interest Income on Savings Account        Rs   8,000 ii)         Interest Income on Savings Account        Rs 15,000	23,000
4	Gross Total Income	5,63,000
5	a.Less:  Deduction U/s 80C(i) GPF                                                                  Rs.20,000/- (ii) LIC                                                                  Rs.20,000/- (iii) Repayment of House Building Advance      Rs.25,000/- (iv) Tuition fees for two children                        Rs.60,000/- (v) Investment in Unit-Linked Insurance Plan     Rs.30,000/- Total           =Rs.1,55,000/- Restricted to Rs. 1,50,000/- b. Less: Deduction u/s 80TTA on  Interest Income on savings account (restricted to Rs 8000/- available only on Savings account interest)                                                                    Rs     8,000/- Total deduction available Rs 1,58,000/-	1,58,000
6	Total Income	4,05,000
7	Income Tax thereon/payable(includes Rebate of Rs 2000 as per Section 87A)	13,500
8	Add:(i).  Education Cess @2% (ii).  Secondary and Higher Education Cess @1%	270 135
9	Total Income Tax payable	13,905
10	Rounded off to	13,910

 

Example – 4

Illustrative calculation of House Rent Allowance U/s 10 (13A) in respect of residential accommodation situated in Delhi in case of an   employee below the age of sixty years (With valid PAN furnished to employer).

S.No.	Particulars	Rupees
1	Salary	3,50,000
2	Dearness Allowance	2,00,000
3	House Rent Allowance	1,40,000
4	House rent paid	1,44,000
5	General Provident Fund	60,000
6	Life Insurance Premium	4,000
7	Subscription to Unit-Linked Insurance Plan	50,000

Computation of total income and tax payable thereon

S.No.	Particulars	Rupees
1	Salary + Dearness Allowance + House Rent Allowance3,50,000+2,00,000+1,40,000 = 6,90,000	6,90,000
2	Total Salary Income	6,90,000
3	Less: House Rent allowance exempt U/s 10(13A):Least of: (a). Actual amount of HRA received=                            1,40,000 (b). Expenditure of rent in excess of 10% of salary (including D.A. presuming that D.A. is taken for retirement benefit) (1,44,000-55,000)  =              89,000 (c). 50% of Salary(Basic+ DA)                           =          2,75,000	89,000
4	Gross Total Income	6,01,000
5	Less:  Deduction U/s 80C(i). GPF                                                                  Rs.60,000/- (ii). LIC                                                                  Rs.  4,000/- (iii). Investment in Unit-Linked Insurance Plan    Rs.50,000/- Total           =Rs.1,14,000/-	1,14,000
6	Total Income	4,87,000
7	Tax payable on total income(includes Rebate of Rs 2000 as per Section 87A)	21700
8	Add:(i).  Education Cess @2% (ii).  Secondary and Higher Education Cess @1%	434 217
9	Total Income Tax payable	22351
10	Rounded off to	22350

Example – 5

Illustrating valuation of perquisite and calculation of tax in the case of an employee below age of sixty years of a private company in Mumbai who was provided accommodation in a flat at concessional rate for ten months and in a hotel for two months ( With valid PAN furnished to employer).

 COMPUTATION OF TOTAL INCOME AND TAX PAID THEREON:

Example – 6

Illustrating Valuation of perquisite and calculation of tax in the case of an employee below the age of 60 years of a Private Company posted at Delhi and repaying House Building Loan ( With valid PAN furnished to employer).

S.No.	Particulars	Rupees
1	Salary	4,00,000
2	Dearness Allowance	1,00,000
3	House Rent Allowance	1,80,000
4	Special Duties Allowance	12,000
5	Provident Fund	60,000
6	LIP	10,000
7	Deposit in NSC VIII issue	30,000
8	Rent Paid by the employee for house hired by her	1,20,000
9	Repayment of House Building Loan (Principal)	60,000
10	Tuition Fees for three children (Rs.10,000 per child)	30,000

Computation of total income and tax payable thereon

S.No.	Particulars	Rupees
1	Gross Salary (Basic+DA+HRA+SDA)	6,92,000
	Less: House rent allowance exempt U/s 10 (13A)Least of: (a). Actual amount of HRA received.                        :Rs.  1,80,000 (b). Expenditure on rent in excess of 10% of salary (Including D.A.)assuming D.A. is included for retirement benefits (1,20,000- 50,000)                 :Rs.    70,000 (c). 50% of salary (including D.A)                            :Rs. 2,00,000	70,000
2	Gross Total Taxable Income	6,22,000
	Less:  Deduction U/s 80C(i).    Provident Fund                                            : Rs.     60,000 (ii).   LIP                                                               : Rs.     10,000 (iii).  NSC VIII Issue                                            : Rs.     30,000 (iv).  Repayment of HBA                                     : Rs.     60,000 (v).   Tuition Fees (Restricted to two children)    : Rs.     20,000 Total        : Rs.   1,80,000 Restricted to Rs.  1,50,000	1,50,000
	Total Income	4,72,000
	Income Tax thereon/payable(includes Rebate of Rs 2000 as per Section 87A)	20,200
	Add:(i).  Education Cess @2% (ii).  Secondary and Higher Education Cess @1%	404 202
	Total Income Tax payable	20,806
	Rounded off to	20,810

Example – 7

A.        Calculation of Income tax in the case of a retired employee above the age of sixty years but below the age of 80 years and having gross pension of:

Particulars	Rupees (i)	Rupees (ii)	Rupees (iii)
Gross Pension	4,50,000	8,00,000	12,50,000
Contribution of P.P.F.	70,000	1,00,000	1,50,000

B         What will be the amount of TDS in case of above employees, if PAN is not submitted by them to their DDOs/Offices:

Computation of Total Income and tax payable thereon

Particulars	Rupees (i)	Rupees (ii)	Rupees (iii)
Gross Pension	4,50,000	8,00,000	12,50,000
Less: Deduction U/s 80C	70,000	1,00,000	1,50,000
Taxable Income	3,80,000	7,00,000	11,00,000
Tax thereon (A)	6,000	60,000	1,50,000
Add:(i) Education Cess @ 2%. (ii) Secondary and Higher Education Cess  @1%	120 60	1200 600	3000 1500
Total tax payable	6,180*	61,800	1,54,500
B. TDS under sec. 206AA in case where PAN is not furnished by the employee	16,000	80,000	1,60,000

*includes Rebate of Rs 2000 as per Section 87A

Example  8

For Assessment Year 2015-16

A.        Calculation of Income tax in the case of a retired employee above the age of 80 years and having gross pension of:

Particulars	Rupees (i)	Rupees (ii)	Rupees (iii)
Gross Pension	5,00,000	8,00,000	12,50,000
Contribution of P.P.F.	80,000	1,20,000	1,50,000

B         What will be the amount of TDS in case of above employees, if PAN is not submitted by them to their DDOs/Offices:

Computation of Total Income and tax payable thereon

Particulars	Rupees (i)	Rupees (ii)	Rupees (iii)
Gross Pension	5,00,000	8,00,000	12,50,000
Less: Deduction u/s 80C	80,000	1,20,000	1,50,000
Taxable Income	4,20,000	6,80,000	11,00,000
Tax thereon (A)	Nil	36,000	1,30,000
Add:(i) Education Cess @ 2%. (ii) Secondary and Higher Education Cess  @1%		720 360	2600 1300
Total tax payable	Nil	37,080	1,33,900
B. TDS under sec. 206AA in case where PAN isnot furnished by the employee	Nil	37,080	1,33,900

Click here to download Circular No: 17 / 2014 dated 10.12.2014 issued by Income Tax Department

Check the links below for more Details on Income Tax Circular No. 17/2014 dated 10.12.2014

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