Income Tax 2016-17 – Tax Calculation Method as per Section 192 of Income-Tax as per Finance Act, 2016

Income Tax 2016-17 – Tax Calculation Method as per Section 192 of Income-Tax as per Finance Act, 2016

Ministry of Finance has issued a Circular regarding Tax calculation method s per Finance Act, 2016

SECTION 192 OF THE INCOME-TAX ACT, 1961: BROAD SCHEME OF TAX DEDUCTION AT SOURCE FROM “SALARIES”:

Method of Tax Calculation:

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 2016-17. The income-tax is required to be calculated on the basis of the rates   given above, subject to the   provisions related to requirement to furnish PAN as per sec 206AA of the Act, and shall be deducted at  the time of each payment. No tax, however, will 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. 2,50,000/- or Rs.3,00,000/- or Rs.5,00,000/-, as the case may be, depending upon the age of the employee.(Some typical illustrations of computation of tax are given at Annexure-I).

Payment of Tax on Perquisites by Employer:

An option has been given to  the employer to pay the tax  on non-monetary perquisites given to an employee. The employer  may, at its option, make  payment of the tax on such perquisites  himself  without making any TDS from the salary of the  employee. However, the employer will have to pay the 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:

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:

The income chargeable under the head “salaries” of an employee below sixty 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 Salary (including Cess)	Rs.    20,600/-
Average Rate of Tax [(20,600/4,50,000) X 100]	4.57%
Tax payable on Rs.50,000/= (4.57% of 50,000)	Rs. 2285/-
Amount required to be deposited each month	Rs.  190 ((Rs. 190.40) =2285/12)

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:

Section 192(2) 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 therefrom, 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:

Under section 192(2A) 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  Section 89(1)  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.

Here “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 to be a university for the purpose of that Act.

With  effect  from 1/04/2010 (AY 2010-11), 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 section 10(10C)(i) (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 section 10(10C) in respect of such, or any other, assessment year.

Information regarding Income under any other head:

(i) Section 192(2B)  enables a taxpayer to furnish  particulars  of income under any head other  than “Salaries” ( not being a loss under any such head other than the loss under the head “ Income from house property”) received by the taxpayer for the same financial year and of any tax deducted at source thereon. The particulars may now be furnished in a simple statement, which is properly signed and verified by the taxpayer in the  manner as prescribed under Rule 26B(2) of the Rules and shall be annexed to the simple statement. The form of verification is reproduced as under:

I, …………………. (name of the assessee), do declare that what is stated above is true to the best of my information and belief.

It is reiterated that the DDO can take into account any loss only under the head “Income from house  property”.  Loss under any other head cannot be considered by the DDO for calculating the amount  of  tax to be deducted.

Computation of income under the head “ Income from house property”:

While taking into account the loss from House Property, the DDO shall ensure that the employee  files  the declaration referred to above and encloses therewith  a computation of such loss from house property. Following details shall be obtained and kept by the employer in respect of loss claimed under the head “ Income from house property” separately for each house property:

a)           Gross annual rent/value

b)           Municipal Taxes paid, if any

c)           Deduction claimed for interest paid, if any

d)           Other deductions claimed

e)           Address of the property

The DDO shall also ensure furnishing of the evidence or particulars in Form No. 12BB in respect of deduction of interest as specified in Rule 26C read with section 192 (2D).

Conditions for Claim of Deduction of Interest on Borrowed Capital for Computation of Income From House Property [Section 24(b)]:

Section 24(b) of the Act allows deduction from income from houses property on interest on borrowed capital as under:-

(i)          the deduction is allowed only in case of  house property which is owned and is in the occupation of the employee  for his own residence. However, if it is actually not occupied by the employee in view of his place of the employment being at other place, his residence in that other place should not be in a building belonging to him.

(ii) the quantum of deduction allowed as per table below:

Sl No	Purpose of borrowing capital	Date of borrowing capital	Maximum Deduction allowable
1	Repair  or  renewal  or  reconstruction  of  the house	Any time	Rs. 30,000/-
2	Acquisition or construction of the house	Before 01.04.1999	Rs. 30,000/-
3	Acquisition or construction of the house	On or after 01.04.1999	Rs. 1,50,000/- (upto AY 2014-15)
			Rs. 2,00,000/- (w. e. f. AY 2015-16)

In case of Serial No. 3 above

(a)  The acquisition  or construction of the house should be completed within3 years from the end of the FY in which the capital was borrowed. Hence, it is necessary for the DDO to have the completion certificate of the house property against which deduction is claimed either from the builder or through self-declaration from the employee.

(b)  Further any prior period interest for the FYs upto the FY in which the property was acquired or constructed (as reduced by any part of interest allowed as deduction under any other section of the Act) shall be deducted in equal installments for the FY in question and subsequent four FYs.

(c)  The employee has to furnish before the DDO a certificate from the person to whom any interest is payable on the borrowed capital specifying the amount of interest payable. In case a new loan is taken to repay the earlier loan, then the certificate should also show the details of  Principal and Interest of the loan so repaid.

Adjustment for Excess or Shortfall of Deduction:

The provisions of Section 192(3) allow the deductor to make adjustments for any excess  or  shortfall  in the deduction of tax already made during the financial year,  in  subsequent deductions for that employee within  that financial year itself.

Salary Paid in Foreign Currency:

For   the purposes of deduction of tax on salary payable   in   foreign currency, the value in rupees of such   salary   shall   be calculated  at the  “Telegraphic transfer buying rate” of such currency as on the date on which tax is required to be deducted at source ( see Rule 26).

Also read the other provisions of Income Tax 2016-17 for Salaried Class – CBDT Circular dated 02.01.2017

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Click here to Calculate Income Tax 2016-17 (Assessment Year 2017-18)

Click here to Calculate the Income Tax Relief under Section 89 for 7th Pay Commission Arrears

Download CBDT Circular F.No. 275/192/2016-IT(B) dated 02.01.2017