1.7.7.

       DEDUCTION OUT OF GROSS SALARY [ Section 16]

 
1.7.7.1.       Entertainment Allowance [ U/s 16(ii)]
 
Some  employees are required to incur expenditure on the entertainment ( tea etc.) of
customers, clients etc. who came to meet them in connection with their official or business
work. In case employee is given a fixed amount every month to meet this type of expenditure
then it is fully added in salary and out of Gross total Salary , a deduction u/s 16(ii) shall be
allowed only to Govt. employees.
 
This means that in case this allowance is given to employee working in private sector, it is
fully taxable.
 
But in case any amount is reimbursed against any expenditure incurred by employer , it shall
be fully exempted.
 
Deduction u/s 16(ii) admission to govt. employee shall be an amount equal to least of
following :

1. Statutory Limit of Rs.5,000 p.a.

2. 1/5 th of Basic Salary
3. Actual amount of entertainment allowance received during the previous year.

1.7.7.2.       Tax on Employment u/s 16(iii)

 
In case any amount of professional tax is paid by the employee or by his employer on his
behalf it is fully allowed as deduction.
 
1.7.7.3.       DEDUCTION U/S 80C OUT OF GROSS TOTAL INCOME
 
Savings play a vital role in the fast economic development of nay country . To encourage
savings, an incentive in the form of a deduction out of one’s taxable income has been allowed
. To channelise those savings, various schemes have been framed and if the assessee deposits
those savings in these approved saving schemes, a deduction shall be allowed.
 
Section 80C has been inserted from the assessment year 2006-2007 onwards. Section 80C provides
deduction i8n respect of specified qualifying amounts paid deposited by the assessee in the previous
year.
The following are the main provisions of the newly inserted Section 80C. :

1. Under Section 80C , deduction would be available from Gross Total

Income.
2. Deduction under section 80C is available only to individual or HUF.
3. Deduction is available on the basis of specified qualifying investments /
contributions / deposits / payments made by the taxpayer during the
previous year.
4. The maximum amount deduction under section 80C , 80CCC, and 80CCD
can not exceed  Rs.1 lakh.

Deduction u/s 80C shall be allowed only to the following assessee :

 1. An Individual
2. A Hindu Undivided Family (HUF)

The Deduction is calculated as per the following steps –

Step-1  : Gross qualifying Amount which is the aggregate of the following…

1. Life Insurance Premium

2. Payment in respect of non-commutable deferred annuity.
3. Any sum deducted form salary payable to Govt. employee for the
purpose of securing him a deferred annuity.
4. Contribution towards Statutory Provident Fund and Recognised
Provident Fund.
5. Contribution towards 15-year Public Provident Fund
6. Contribution towards an Approved Superannuation Fund.
7. Subscription to National Saving Certificates, VIII Issue.
8. Contribution for participating in the Unit-linked Insurance Plan
(ULIP) of UTI.
9. Contribution for participating in the Unit-linked Insurance Plan
(ULIP) of LIC Mutual Fund.
10. Payment to notified annuity plan of LIC
11. Subscription towards notified Units of Mutual Fund or UTI.
12. Contribution to notified Pension Fund set up by Mutual Fund or UTI.
13. Any sum paid as subscription to Home Loan Account Scheme of the
National Housing Bank.
14. Any sum paid as Tuition Fees for full time education of any 2
children of an individual.
15. Any payment towards the cost of purchase / construction of a
residential Property.
16. Amount invested in approved Debenture of , and equity shares in,
public company engaged in infrastructure.
17. Amount deposited in as Term Deposit for a period of 5 years or
more in accordance with a scheme framed by the Government.
18. Subscription to any notified Bonds of National Bank for Agriculture
and Rural Development ( NABARD)
19. Amount deposited under Senior Citizens Saving Scheme.
20. Amount deposited in 5 Year Time Deposit in Post Office.

Step-2  : Net Qualifying Amount :

Deduction u/s 80C is available on the basis of Net Qualifying Amount which is determined as under
…

1. Gross Qualifying Amount ; or

2. Rs. 1,00,000

Whichever is LESS.
Step-3  : Amount of Deduction :
Amount Deduction u/s 80C is computed as under :

1. Net Qualifying Amount ; or

2. Rs. 1,00,000
Whichever is LESS.
The aggregate deduction u/s 80C, 80CCC, and 80 CCD can not exceed Rs. 1,00,000.
 
17.7.4.        DEDUCTION OF TAX FROM THE ‘SALARY’ [SECTION-
192]
 
The summarized provisions of Sec. 192 are given below :
 
Who is the taxpayer Employer
Who is the recipient Employee
Payment covered Taxable salary of the employee
At what time tax has to be deducted at source At the time of payment
The amount of exemption limit ( i.e.
Maximum amount which can be paid without
Rs.1,80,000 / Rs.2,25,000/Rs.1,50,000 for the
Tax Deduction
assessment year 2009-10.)
Rate of tax deducted at source Normal Rates applicable to an individual
The employee can make an application in Form
Is it possible to get the payment without tax No.-13 to the Assessing Officer to get a
deduction or with lower tax deduction certificate of lower tax deduction or no tax
deduction.
 
Note:      -               Rs. 1,80,000 is for Resident Women below 65 years
                -               Rs. 2,25,000 is for Senior Citizen 65 years or more.
 
How to deduct Tax When a Person is employed by more than one Employer :
Where, during the financial year, an assessee is employed simultaneously under more than one
employer, In such case,  Tax will be deducted on the aggregate Salary by one of the employers  
( being the employer as the employee may choose, having regard to the circumstances of his case, by
submitting the information in Form No.12B.
 
Relief U/s 89 :
If the employee furnishes information in Form No- 10E to the employer, relief under section 89
should be given to the concerned employee while deducting Tax at Source u/s 192. However,  this
facility is available only if the employer is Government or Public Sector undertaking or company , co-
operative society, local authority, University, Institutions or association or Body.
Can the Employer Deduct Tax in Respect of Other Incomes of Employee :
The Provisions are given below :-

1. The employer may or may not declare his other incomes to the employer.
2. If  the employee wants to declare his othe incomes to the employer, then
such  information should be given on a plain paper to the employer.
3. The employee may declare details of his other incomes ( including loss
under the head “Income from House Property” but not any other loss )
and tax deducted thereon by others. If such information is not submitted
by the employee to the employer, then employer cannot take into
consideration other incomes of the employee.
17.7.5.   RELIEF IN RESPECT OF SALARY IN ARREARS, ADVANCE,
ETC.
If an individual receives any portion of his salary in arrears or in advance or receives profit in
lieu of salary, he can claim relief in terms of Sec.89 read with rule 2A as under.

A. Computation of relief when salary has been received in

arrears or in advance :

The relief of salary received in arrears or in advance is computed in the manner laid down as
under ..

1. Calculate the tax  payable on the total income, including the additional salary , of
the relevant previous year in which the same is received.
2. Calculate the tax payable on the total income, excluding the additional salary, of
the relevant previous year in which the additional salary is received.
3. Find out the difference between the tax at (1) and (2)
4. Compute the tax on the total income after including the additional salary in the
previous year to which such salary relates.
5. Compute the tax on the total income after excluding the additional salary in the
previous year to which such salary relates.
6. Find out the difference between tax at (4) and (5)
7. The excess of tax computed at (3) over tax computed at (6) is the amount of relief
admissible u/s 89. No relief is, however, admissible if tax computed at (3) is less
than tax computed at (6). In such case, the assessee-employee need not apply for
relief

B. Computation of relief in respect of Gratuity :

U/s 89, a relief can be claimed if Gratuity is received in excess of limits specified in
Sec.10(10). However, no relied is admissible if taxable gratuity is in respect of services
rendered for less than 5 years.
 
Case in which the relief is admissible may be divided into tow categories namely …
(a)        where the Gratuity payable in respect of past service of 15 years or more, and
(b)        Where such period is 5 years or more but less than 15 years. Relief in a case
belonging to the first category is worked out as under :
 
1. Computer the average rate of tax on the total income including the gratuity in the year
of receipt
2. Find out the tax on gratuity at the average rate of tax computed at (1) above.
3. Computer the average rate of tax by adding 1/3 rd. of the gratuity to the other income
of each of three preceding years.
4. Find out the average of the three average rates computed in the manner specified in
(3) above and compute the tax on gratuity at that rate.
5. The difference between the tax on gratuity computed at (2) and that at (4) will be the
relief admissible u/s 89.

C. Computation of relief in respect of payment in

commutation of  Pension

A relief can be claimed in respect of payment  in commutation of Pension received in excess

of the limits specified in Sec. 10(10A). Such relief in computed in the same manner as if the
Gratuity was paid to the employee in respect of service rendered for a period of 15 years  or
more.