SECTION 192 & 194H OF INCOME TAX ACT, 1961 · PDF fileSECTION 192 & 194H OF INCOME TAX ACT,...

SECTION 192 & 194H OF INCOME TAX ACT, 1961

KALYANIWALLA & MISTRY 1

SONALEE GODBOLE

Definition of Salary under section 17 is inclusive - Salaryinteralia includes wages, annuity or pension, gratuity, anyfees, commission, perquisite or profits in lieu of salary,leave encashment, annual accretion to Provident Fundbalance to the extent it is taxable, transfer of balance fromunrecognised Provident Fund to recognized ProvidentFund, the contribution made by the Central Government orany other employer to the account of an employee under apension scheme referred to in Section 80CCD

The employer is under obligation, at the time of payment todeduct income-tax on the amount payable at the averagerate of income tax


A circular is issued by CBDT every year explaining various

provisions relating to deduction of tax from salaries. For F.Y. 14-15

- Circular No. 17 dated 10 December 2014

Finance Act 2015 introduced section 192(2C) to provide that the

employer is required to obtain from employee evidence or proof

or particulars of prescribed claims made for deduction/exemption

including claim for set-off of loss.


The employee may provide to the subsequent/chosen

employer details in writing duly verified by him and by the

former/other employer about the income received from the

former/other employer and tax deducted therefrom.

Form 16 from the previous employer will be available only at

the end of the year.

If the previous employer has deducted less tax – present

employer to deduct more tax.


If the previous employer has deducted excess tax – can the

employer deduct less tax?


Loss under the head “Income from house property” is allowed to be set off against

income from salary while determining the aggregate amount of TDS from salary.

Declaration from the employee in relation to the computation of loss should be

obtained by the employer. The declaration to include details of Gross annual rent/

value, municipal taxes paid, other deductions claimed, address of the property,

amount of loan and name and address of loan provider.

Gross Annual Value :

if the property is DLOP, Annual value – how to be determined?

if the property is let out to a relative at reduced rent and loss is claimed?


Can the employer rely on the declaration provided by the

employee without any verification?

If loan taken for construction/ acquisition of property –deduction

of interest can be claimed only if construction is completed

within 3 years from the end of the year in which loan is taken. The

employer to obtain completion certificate. If the construction is

not completed within 3 years due to reasons beyond the control

of the employee – can deduction be given by the employer?


Entire amount of interest paid on loan is allowed as a deduction if

the property is LOP/ DLOP – Direct tax Circular No. 7 in para

3.6.1. prescribes the amount of deduction only in the case of

SOP.


The employer should obtain evidence of actual payment of rent

(para 5.3.9 of Circular No. 17):

for administrative purposes, salaried employees drawing HRA upto

Rs. 3,000/- p.m. will be exempted from production of rent receipt to

the employer.

If the annual rent paid by the employee exceeds Rs. 1,00,000/- p.a., it

is mandatory for the employee to report PAN of the landlord. If the

PAN is not available, a self declaration from the landlord along with

the name and address of the landlord should be provided by the

employee.


If an employee owns a house in the same city, which could be

SOP/LOP/DLOP – can HRA exemption be allowed by employer?


Family pension is chargeable to tax under the head “Income from Other Sources”. Therefore provisions of section 192 are not applicable

Exemption of Leave Travel concession is not available for travel outside India

Finance Act 2015 introduced section 192(2C) to provide that theemployer is required to obtain from employee evidence or proofor particulars of prescribed claims made for deduction/exemptionincluding claim for set-off of loss.


Tax on non-monetary perquisites borne by the employer is exempt

from tax u/s 10(10cc).

Tax paid by employer is a non-monetary perquisite and need not

be grossed up –

DIT vs Sedco Forex International Drilling Inc. (210 Taxmann 25)

Yoshio Kubo & Ors – (357 ITR 452 (Delhi))

The employer will have to pay the tax at the time when such tax

was otherwise deductible.


Tax is to be determined at average rate 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 is to paid by the

employer


Salary paid outside India for services rendered in India is taxable in

India. Employer to deduct tax on salary paid outside India.

The first two years of the expat coming to India, he will be a

“Resident but Not Ordinarily Resident” (R but NOR). After that, he

will be a “Resident and Ordinarily Resident” (R & OR). Once he

becomes R & OR, his world income is subject to tax in India.


Once he becomes Resident, he is required to fill ITR-2. Details

of Foreign Assets are required to be filled in the schedule.

Most of the expats are hesitant to furnish their foreign asset

details.

Salary paid in foreign currency – To be converted at the

“telegraphic transfer buying rate” as on the date on which tax

is required to be deducted at source (Rule 26)


When taxes are borne by the employer and any refund becomes

due to the employee after he has already left India and has no

bank account in India, the refund can be issued to the employer as

the tax has been borne by him. (Circular No. 707 dated 11.07.1995)

When taxes are not borne by the employer and any refund

becomes due to the employee after he has already left India and

has no bank account in India, the refund is to be issued to whom?


Section 194H was introduced by Finance (No.2) Act, 1991 w.e.f.

1.10.1991

It was omitted by Finance Act 1999 w.e.f. 1.04.2000

It was reintroduced by Finance Act, 2001 w.e.f. 1.06.2001


The rationale of the new provisions was explained in circular 14/2001 dated 12December, 2001

Insertion of a new provision for deduction of tax at source from payments in the nature

of commission or brokerage – An effective method of widening the tax base is to

enlarge the scope of deduction of income - tax at source. Apart from bringing in

more persons in the tax net, it also helps in the reporting of correct income. An

item of income which needs to be covered within the scope of deduction of income

- tax at source is the income by way of commission (not being insurance

commission referred to in section 194D) and brokerage. The Act has, therefore,

inserted a new section 194H relating to deduction of tax at source from income by

way of commission (not being insurance commission referred to in section 194D)

and brokerage.


Any person, not being an individual or a Hindu undivided family,who is responsible for paying, on or after the 1st day of June 2001,to a resident, any income by way of commission (not beinginsurance commission referred to in section 194D) or brokerage,shall, at the time of credit of such income to the account of thepayee or at the time of payment of such income in cash or byissue of a cheque or draft or by any other mode, whichever isearlier, deduct income – tax thereon at the rate of ten percent.


“Commission or brokerage” includes any payment received orreceivable, directly or indirectly, by a person acting on behalf ofanother person for services rendered (not being professionalservices) or for any services in the course of buying or selling ofgoods or in relation to any transaction relating to any asset,

valuable article or thing, not being securities.


Payment is made directly or indirectly

To a person acting on behalf of another person

For services rendered (not being professional services) or

For any services in the course of buying or selling goods or

In relation to any transaction relating to any asset, valuable article or thing


If amount of commission /brokerage paid/payable to a person isless than Rs.5,000/- during the year.

Amount paid/payable by Individual/HUF, whose accounts are notsubject to Tax Audit in the immediate preceding year.

Commission/Brokerage paid/payable by BSNL & MTNL to theirPCO franchisees.

Brokerage paid/payable for purchase/sale of securities


Amount of agency is a must

Difference between commission and discount

TDS not required to be deducted by RBI on the amount ofturnover commission paid ( Circular No.6 dated 3 September,2003)

Bank guarantee commission payable to Bank – is it coveredby 194H?

Payment of commission by book adjustment – is 194 Happlicable


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