AN OVERVIEW OF INCOME-TAX LAW IN INDIA

PRESENTED BY:
SIB SANKAR BANIK, W.B.A&A.S
INTERNAL AUDIT OFFICER,
FINANCE (INTERNAL AUDIT)DEPARTMENT
GOVERNMENT OF WEST BENGAL
MOB:8926225065
E-MAIL ID: [email protected]
 BASIC COMPONENTS
Income-tax is the most significant direct tax. The
income-tax law in India consists of the following
components:
• Income Tax Act
• Annual Finance Acts
• Income Tax Rules
• Circulars/Notifications
• Legal decisions of Courts
Salary Taxation
www.incometa
xindia.gov.in
 D.D.O’s RESPONSIBILITY

• 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 2014-15. The income-
tax is required to be calculated on the basis of the rates
given in this circular, 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/- as the case may be, depending upon the
age of the employee.
 What is TDS
• With holding tax or Tax deduction at source
means, deduction of tax as and when the
transaction takes place i.e, when the
payment is made or payable, which ever is
earlier.
• Since Government needs revenue to function,
it is very important to have a flow of revenue
to meet the expenditure.
 TDS Cycle
• Tax deduction and remittance
• Collection of CIN/BIN (Book Identification
Number)
• Preparation of Quarterly e-TDS returns
• Uploading the e-TDS return through TIN-FC
• Issue of Form No.16/16A
 INCOME TAX ON SALARIES.
1.The levy of income tax in India is at present
governed by two acts.
a)The Income Tax Act,1961
b)The Finance Act passed each year by the
Parliament.
2.Income Tax is leviable annually for each
Financial Year commencing on the 1st day of
April and ending on the 31st day March
following.
3.Income tax on salaries is computed on annual
basis and recovered as TDS on monthly basis
for the sake of our convenience.
 INCOME TAX ON SALARIES
4.For the purpose of computing IT on salaries the
term ‘salary’ includes following elements:
a)Pay as defined in FR 9(21),leave salary and
advance of pay.
b)Bonus
c) Dearness allowance
d)Compensatory allowance
e)House rent allowance-subject to exemption
f) Value of Rent Free quarters
g) Fees retainable by the employees.
h) Honorarium
 INCOME TAX ON SALARIES
i)Reimbursement of tuition fees.
j) Subsistence allowance
k) Interim relief
l) Overtime allowance
m) Government Contribution to the NPS.
5.Following items are not to be taken in to
account for the purpose of computing IT on
salaries :
a)Sumptuary allowance and uniform allowance
b) Reimbursement of cost of medical
treatment subject to limits
 INCOME TAX ON SALARIES
c) Value of LTC
b) cash equivalent of leave salary received at the
time of retirement.
c) TA granted for tour on duty and for transfer
d) Composite hill compensatory allowance
e) Border area /remote area /tribal area
difficult area /disturbed area allowance.
f) Conveyance allowance
g) CEA and hostel subsidy subject to limits
h) Any allowance granted for encouraging the
academic, research and other professional
pursuit
i) Transport allowance up to Rs.1600/- for orthopedically
handicapped persons and Rs.800/- for others (pm)
j) Any payment from GPF
 INCOME TAX ON SALARIES
6. The salary income of a person is calculated on the total salary
due to him / her as per the guidelines provided above.
7. From the total income so arrived at(gross salary) the following
deductions to the extent permissible are to be allowed to get
taxable salary
a) HRA exemption to the extent admissible
b) Accrued interest/interest paid on HBA ,
c) Donation to any recognized charitable trust/
fund such as Prime Minister’s National relief fund
d) Professional tax paid to local bodies.
e) For handicapped employees an amount of Rs.50000 or
Rs.1,00,000/- as the case may be
 INCOME TAX ON SALARIES
8. With this taxable salary if the person is having
any other income from other sources as
informed by him the same is to be added
9. From the taxable salary, following elements
of various forms of savings are to be
deducted to the extent admissible.
a)Subscription to PF,LIC,PLI policies
b) Subscription to any authorized pension
fund
c) Subscription to New pension Scheme
d) Subscription to any medical insurance
10. The total amount of savings is limited to a
maximum of Rs.1,50,000/.
 INCOME TAX ON SALARIES
11.Thus the amount of taxable income is to
arrived as follows.
a)Total salary income -- ________
b)less total of exempted
items( such as HRA exemption) -- ________(-)

c ) Gross Taxable income -- _______

d) less savings(limited to maximum) _________(-)

e) Net taxable salary ---------- __________

 Deduction on House Rent allowance
House rent allowance granted to the employee is
exempt u/s 10(13A) to the following extent;
Provided expenditure on rent is actually incurred,
the amount of exemption granted is the least of
• (1) HRA received
• (2) Rent paid Less 10% of salary
• (3) 40% of salary, (50% in case of Mumbai,
Chennai, Kolkata & Delhi). Salary includes bonus
+ Dearness allowance, where provided by terms
of employment.
 Section 80CCC: Deduction in respect of
Premium Paid for Annuity Plan of LIC or
Other Insurer
• This section provides deduction to an Individual for
any amount paid or deposited in any annuity plan
of LIC or any other insurer for receiving pension
from a fund referred to in Section 10(23AAB).
• In case the annuity is surrendered before the date
of its maturity, the surrender value is taxable in the
year of receipt.
 Deductions on Section 80C, 80CCC &
80CCD
• Total Deduction under section 80C,
80CCC and 80CCD (1) together cannot
exceed Rs 1,50,000 for the financial year
2014-15 (assessment year 2015-16). The
limit for financial year 2015-16 is also Rs
1,50,000.
 New Inclusion - 80 CCD(1B)
• A new section 80CCD(1B) has been introduced to
provide for additional deduction for amount
contributed to NPS of up to Rs. 50,000.
• Therefore for financial year 2015-16, Total
Deduction under Section 80C, 80CCC, 80CCD(1)
and 80 CCD(1B) cannot exceed Rs 2,00,000.
• From assessment year 2012-13, employer's
contribution under section 80CCD(2) towards
NPS is outside the monetary ceiling mentioned
above.
 Deduction from gross total income:
Section 80 TTA
• Deduction from gross total income with respect
to any Income by way of Interest on Savings
account
• Deduction from gross total income of an
individual or HUF, up to a maximum of Rs.
10,000/-, in respect of interest on deposits in
savings account with a bank, co-operative society
or post office. Section 80TTA deduction is not
available on interest income from fixed deposits.
DEDUCTIONS FROM TOTAL INCOME
(Section 80D):
For financial year 2015-16 – Deduction is
raised from Rs 15,000 to Rs 25,000. The
deduction for senior citizens is raised from Rs
20,000 to Rs 30,000. For financial year 2015-
16 – Deduction is raised from Rs 15,000 to Rs
25,000. The deduction for senior citizens is
raised from Rs 20,000 to Rs 30,000.
 DEDUCTIONS FROM TOTAL INCOME
(Section 80DD):
• Section 80DD: Deduction in respect of Rehabilitation
of Handicapped Dependent Relative
• Where disability is 40% or more but less than 80% -
fixed deduction of Rs 50,000.
• Where there is severe disability (disability is 80% or
more) – fixed deduction of Rs 1,00,000.
• A certificate of disability is required from prescribed
medical authority.
• For financial year 2015-16 – The deduction limit of Rs
50,000 has been raised to Rs 75,000 and Rs 1,00,000
has been raised to Rs 1,25,000.
 DEDUCTIONS FROM TOTAL INCOME
(Section 80DDB):
• Deduction in respect of Medical Expenditure on Self or
Dependent Relative .
• A deduction to the extent of Rs. 40,000/- or the amount
actually paid, whichever is less is available for expenditure
actually incurred by resident assessee on himself or
dependent relative for medical treatment of specified
disease or ailment. The diseases have been specified in
Rule 11DD. A certificate in form 10 I is to be furnished by
the assessee from any Registered Doctor.
• In case of senior citizen the deduction can be claimed up to
Rs 60,000 or amount actually paid, whichever is less.
• For financial year 2015-16 – for very senior citizens Rs
80,000 is the maximum deduction that can be claimed.
 Section 80E: Deduction with respect
to Interest on Loan for Higher Studies
• Deduction in respect of interest on loan taken
for pursuing higher education. This loan is
taken for higher education for the assessee,
spouse or children or for a student for whom
the assessee is a legal guardian.
 Deduction for First Time Home
Owners (Section 80EE):
This section provided deduction on the Home
Loan Interest paid and is valid for financial years
2014-15 (Assessment year 2015-16) only.
The deduction under this section is available only
to Individuals for first house purchased where the
value of the house is Rs 40lakhs or less and loan
taken for the house is Rs 25lakhs or less. And the
Loan has been sanctioned between 01.04.2013 to
31.03.2014. The total deduction allowed under
this section is Rs 1,00,000.
 Section 80U: Deduction with respect to
Person suffering from Physical Disability
• Deduction of Rs. 50,000/- to an individual who
suffers from a physical disability (including
blindness) or mental retardation. Further, if the
individual is a person with severe disability,
deduction of Rs. 100,000/- shall be available u/s
80U. Certificate should be obtained from a Govt.
Doctor. The relevant rule is Rule 11D.
• For financial year 2015-16 – The deduction limit
of Rs 50,000 has been raised to Rs 75,000 and Rs
1,00,000 has been raised to Rs 1,25,000.
 INCOME TAX ON SALARIES
12. After arriving the net taxable income IT has to be calculated
as follows. Education cess @3% of IT is to levied in all cases.

NET TAXABLE INCOME RATE OF INCOME TAX

UP TO AGE OF 60 YRS.
Up to Rs.2,50,000 NIL
Rs.2,50,000 – Rs.5,00,000 10% of income exceeding Rs.2,50,000/-

Rs.5,00,001-Rs.10,00,000 Rs.25,000/- plus 20% of income exceeding Rs.5,00,000

Rs.10,00,001 – and above Rs1,25,000/- + 30% of income exceeding Rs.10,00,000

Education Cess and Secondary & Higher Education Cess = 3%

on Tax
 INCOME TAX ON SALARIES
12 (b) .After arriving the net taxable income IT has to be
calculated as follows. Education cess @3% of IT is to levied in
all cases.
NET TAXABLE INCOME RATE OF INCOME TAX
Above 60 Yrs. at any time in Prev. Year
Up to Rs.3,00,000 NIL
Rs.3,00,000 – Rs.5,00,000 10% of income exceeding Rs. 3,00,000/-

Rs.5,00,001-Rs.10,00,000 Rs.20,000/- plus 20% of income exceeding Rs.5,00,000

Rs.10,00,001 – and above Rs1,20,000/- + 30% of income exceeding Rs.10,00,000

Education Cess and Secondary & Higher Education Cess = 3%

on Tax
 INCOME TAX ON SALARIES
12 (c) .After arriving the net taxable income IT has to be
calculated as follows. Education cess @3% of IT is to levied in
all cases.
NET TAXABLE INCOME RATE OF INCOME TAX
Above 80 Yrs. at any time in Prev. Year
Up to Rs.5,00,000 NIL
Rs.5,00,001-Rs.10,00,000 20% of income exceeding Rs5,00,000/-

Rs.10,00,001 – and above Rs1,00,000/- + 30% of income exceeding Rs.10,00,000

Education Cess and Secondary & Higher Education Cess = 3%

on Tax
 INCOME TAX ON SALARIES
13. The IT and education cess so arrived at is to
be dived by 12 and the same is to be
recovered on monthly basis.
 Average rate of deduction
The statute enjoins the employer to compute the tax liability of
the employee on the basis of the rates in force and to deduct the
tax at the average rate computed on the basis of the same. Thus,
the employer is required to compute at the beginning of the
financial year, the total salary income payable to an employee
during the financial year. Further, the employer should also take
into account any other income as reported by the employee.
After considering the incomes exempt, deductions and relief,
the tax liability of the employee should be determined on the
basis of the rates in force for the financial year. Every month,
1/12 of this net tax liability as computed above is required to
be deducted.
 Tax deduction and remittance
• It is the duty of the deductor (who is responsible of signing the
bills or the paying authority) to deduct income tax at the time of
payment as per the prevailing rates and make sure correctness
of the details of PAN which is submitted by the deductee/payee.
• Remittance:
• 1. By Challan (No.281, for the TDS payments)
• 2. By Book-adjustment (through Treasury or PAO)
• Time Limit:
• 1. If the tax is to be paid by challan – 7th of the following month
• 2. If the tax adjusted through Book-adjustment – same day
 Mode of Payment of TDS
• Compulsory filing of Statement by PAO, Treasury
Officer, etc in case of payment of TDS by Book Entry.
* Office of the State Government, where tax has been
paid to the credit of the Central Government without
the production of a challan [Book Entry], the Pay and
Accounts Officer or the Treasury Officer submit a
statement in Form No. 24G within ten days from the
end of the month to M/s National Securities
Depository Ltd in respect of tax deducted by the
deductors intimate the number (Book Identification
Number or BIN) generated by the agency.
 Mode of Payment of TDS
The deposition of TDS may be made through
challan No. ITNS 281. The deductor must
ensure that the details like employer’s name
and address, PAN, TAN, the Assessing Officer
having jurisdiction, the amount of tax and
surcharge and cess, the date of payment, the
salary from which TDS has been done and the
tax which is being paid, are correctly filled.
Interest, Penalty & Prosecution for Failure
to Deposit Tax Deducted.
• Interest at the rate of 1.5% p.m, or part of
the month, from the date of deduction to the
date of actual payment, u/s 201(1A) of IT
Act,1961.

• if fail to deduct TDS, interest at the rate of 1%

p.m or part of the month, from the date on
which tax deductable to the date of actual
payment u/s 201(1) of the IT Act,1961.
Failure to pay tax deducted at source
prosecution u/s 276B fo IT Act, 1961
• Punishable with fine and rigorous
imprisonment – minimum 03 months,
maximum 07 years.
Furnishing of Certificate for Tax Deducted
• Section 203 requires the DDO to furnish to
the employee a certificate in Form 16
detailing the amount of TDS and certain
other particulars :
• Valid permanent account number (PAN) of the
deductee;
• Valid tax deduction and collection account
number (TAN) of the deductor;
• Book identification number or numbers (BIN)
 TRACES
• TRACES is a web-based application of the
Income - tax Department that provides an
interface to all stakeholders associated with TDS
administration. It enables viewing of challan
status, downloading of NSDL File, Justification
Report and Form 16 / 16A as well as viewing of
annual tax credit statements (Form 26AS). Each
deductor is required to Register in the Traces
portal. Form 16/16A issued to deductees should
mandatorily be generated and downloaded from
the TRACES portal.
 POINTS TO BE REMEMBERED..
• An assessee, being an individual resident in India,
whose total income does not exceed five hundred
thousand Rs. 5 lakh shall be entitled to a
deduction, from the amount of income-tax (as
computed before allowing the deductions under
this Chapter) on his / her total income with which
he/she is chargeable for any assessment year, of
an amount equal to hundred per cent of such
income-tax or an amount of two thousand rupees
(2000/-), whichever is less.
 POINTS TO BE REMEMBERED
• E-filing of income tax return is must for
assessee with annual income above Rs. 5 lakh.
• Tax payers with salary income of up to Rs. 5
lakh and interest from savings bank accounts
up to `10,000 is required to file income tax
returns in either mode manually or through E-
filing.
 Deduction at Source from payments to Contractors and
Subcontractors under section 194C.

*Person responsible for paying any sum for

carrying any work to any resident contractor
should deduct tax at source.

* Tax should be deducted at source only if the

contract is between the contractor and the
following specified persons:
 Deduction at Source from payments to Contractors and
Subcontractors under section 194C .
1. The Central Government or any State Government.
2. Any local authority.
3. Any corporation established by or under a Central, State or Provincial Act
4. A company
5. Any Co-operative Society.
6. Any authority, constituted in India by or under any law, engaged either for the
purpose of dealing with and satisfying the need for housing accommodation
or for the purpose of planning development or improvement of cities, towns
and villages,.
7. Any Society registered under the Societies Registration Act, 1960 or any law
corresponding to that Act in any part of India.
8. Any Trust.
9. Any University established by or under any Central, State or Provincial Act or
any institution declared to be a University under the University Grants
Commission Act.
 Deduction at Source from payments to Contractors and
Subcontractors under section 194C.
10. Any firm.
11. Any individual or Hindu Undivided Family whose books are required to be
audited under section 44AB during the immediately preceding financial year.
[The turnover from business/professional exceeds the limits specified u/s
44AB during the immediately preceding financial year].
12. Association of persons or Body of Individuals, whether incorporated or not,
whose books are required to be audited under section 44AB during the
immediately preceding financial year.
􀁺 Income Tax should be deducted at the time of payment or
credit to the account of the contractor whichever is earlier.
􀁺 Income Tax is to be deducted at source @ 1% if the
contractor/sub contractor payee is an individual or HUF.
Payment of amounts to person other than Individual/HUF
would attract TDS rate of 2%.
 Deduction at Source from payments to Contractors and
Subcontractors under section 194C.

• Provisions of Section 194C are applicable only where the contract is either a
“contract for carrying out any work” or a “contract for supply of labour for
works contract”. Hence, these provisions are not applicable for payments
made under the contract of sale of goods.
• For the purpose of this section, the following contracts are also included in
the scope of “Work”:
• 1. Advertising.
• 2. Broadcasting and telecasting including production of programs for
• broadcasting and telecasting.
• 3. Carriage of goods and passengers by any mode of transport other than
• Railways.

• 4. Catering.
 Deduction at Source from payments to Contractors and
Subcontractors under section 194C.

• No deduction of tax at source shall be made under this section

in the following circumstances:
If the amount paid/payable or credited/likely to be credited to the
contractor/sub-contractor does not exceed Rs.30,000/- in a single instance.
However, the total of amounts paid or credited during the financial year should
not exceed Rs.75,000/-. If the said amount exceeds Rs.75,000/-, then, the
liability for payment arises on the whole of amount paid or credited and not on
the amount in excess of Rs.75,000/-.
• In a case where advance payments are made in pursuance of contract be
adjusted against work to be done, tax has to be deducted at the time of the
advance payments.
 RATE OF T.D.S
• 194 C (1) - 1% (for Payment individual) & 2% (for
Payment others) - on Rs. 30000/- for single
payment / on Rs. 75000/- for aggregate payment
during Financial Year.

• 194 C (2) - Payment to Sub-Contractors / for

Advertisements (as per rate above).

• 194 I - Rent of Land, Building or Furniture - Rs.

180000/- (annually) -10%
Filing of Income Tax.
 TDS/ Filing of
Annual
Information and
Return to Income
Tax Authority
 Who can file?

Compulsory for all Deductors to file electronically.

 IMPORTANT ISSUES
• TAN :- TAN or Tax Deduction and
Collection Account Number is a 10
digit alpha numeric number required
to be obtained by all persons who
are responsible for deducting or
collecting tax. It is compulsory to
quote TAN in TDS/TCS return
(including any e-TDS/TCS return),
any TDS/TCS payment challan and
TDS/TCS certificates.
Example : CALP02845D
 IMPORTANT ISSUES
• Why is it necessary to have TAN ?
TAN is required to be quoted in all TDS/TCS
returns, all TDS/TCS payment challans and all
TDS/TCS certificates to be issued. TDS/TCS
returns will not be received if TAN is not quoted
and challans for TDS/TCS payments will not be
accepted by banks. Failure to apply for TAN or
not quoting the same in the specified
documents attracts a penalty of Rs. 10,000/-.
 Other points

If any employee does not furnish his PAN to the

employer, tax will be deducted (with effect from
April1, 2010) either at the normal rates or at the
rate of 20%, whichever is higher . PAN of the
employee should be mentioned on any
correspondence and document which is
exchanged between the employer and the
employee.
 Types of e-Filing

• There are three ways to file returns

electronically
• Option 1: Use digital signature in which case no
paper return is required to be submitted
• Option 2: File without digital signature in which
case ITR-V form is to filed with the department.
This is a single page receipt cum verification
form.
• Option 3: File through an e-return intermediary
who would do e-Filing and also assist the
Assessee file the ITR V Form .
 Forms for e-filing
• Form 24Q- All tax deductors are required to
file the TDS statements in Form No.24Q (for
tax deducted from salaries). Tax deductors
are, therefore, advised to procure and quote
correct PAN details of all deductees in the
TDS statements for salaries in Form 24Q.
Taxpayers are also liable to furnish their
correct PAN to their deductors.
• Form 26Q
 Dates of filing Quarterly Statements
E-TDS Return 24Q
Sl. No. Return for the period Last date of
Submission
1. 30th June 31st July
2. 30th September 31st October

3. 31st December 31st January

4. 31st March 15th May

 Fee for default in furnishing 24Q
statements
• If a person fails to deliver a 24Q statement within the
time prescribed in section 200(3) in respect of tax
deducted at source he shall be liable to pay, by way of
fee a sum of Rs. 200 for every day during which the
failure continues. However, the amount of such fee
shall not exceed the amount of tax which was
deductible at source. This fee is mandatory in nature
and to be paid before furnishing of such statement.
• A DDO can also file a correction statement for
rectification of any mistake or to add, delete or
update the information furnished in the statement
delivered earlier.
D.D.O. SHOULD TO SATISFY THEMSELVES
ABOUT THE GENUINENESS OF CLAIM
• 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 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.
 Relief U/S 89(1)
• Relief is available when Salary is available in
arrears or advance. Benefit is available
through application of form 10 (E).
Thank you