SECTION 192 & 194H OF INCOME TAX ACT, 1961

Transcription

1 SECTION 192 & 194H OF INCOME TAX ACT, 1961 SONALEE GODBOLE KALYANIWALLA & MISTRY 1

2 KALYANIWALLA & MISTRY 2

3 Definition of Salary under section 17 is inclusive - Salary interalia includes wages, annuity or pension, gratuity, any fees, commission, perquisite or profits in lieu of salary, leave encashment, annual accretion to Provident Fund balance to the extent it is taxable, transfer of balance from unrecognised Provident Fund to recognized Provident Fund, the contribution made by the Central Government or any other employer to the account of an employee under a pension scheme referred to in Section 80CCD The employer is under obligation, at the time of payment to deduct income-tax on the amount payable at the average rate of income tax KALYANIWALLA & MISTRY 3

4 A circular is issued by CBDT every year explaining various provisions relating to deduction of tax from salaries. For F.Y 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. KALYANIWALLA & MISTRY 4

5 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. KALYANIWALLA & MISTRY 5

6 If the previous employer has deducted excess tax can the employer deduct less tax? KALYANIWALLA & MISTRY 6

7 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? KALYANIWALLA & MISTRY 7

8 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? KALYANIWALLA & MISTRY 8

9 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 prescribes the amount of deduction only in the case of SOP. KALYANIWALLA & MISTRY 9

10 The employer should obtain evidence of actual payment of rent (para 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. KALYANIWALLA & MISTRY 10

11 If an employee owns a house in the same city, which could be SOP/LOP/DLOP can HRA exemption be allowed by employer? KALYANIWALLA & MISTRY 11

12 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 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. KALYANIWALLA & MISTRY 12

13 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. KALYANIWALLA & MISTRY 13

14 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 KALYANIWALLA & MISTRY 14

15 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. KALYANIWALLA & MISTRY 15

16 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) KALYANIWALLA & MISTRY 16

17 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 ) 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? KALYANIWALLA & MISTRY 17

18 KALYANIWALLA & MISTRY 18

19 Section 194H was introduced by Finance (No.2) Act, 1991 w.e.f It was omitted by Finance Act 1999 w.e.f It was reintroduced by Finance Act, 2001 w.e.f KALYANIWALLA & MISTRY 19

20 The rationale of the new provisions was explained in circular 14/2001 dated 12 December, 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. KALYANIWALLA & MISTRY 20

21 Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1 st day of June 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate of ten percent. KALYANIWALLA & MISTRY 21

22 Commission or brokerage includes any payment received or receivable, directly or indirectly, by 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 of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities. KALYANIWALLA & MISTRY 22

23 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 KALYANIWALLA & MISTRY 23

24 If amount of commission /brokerage paid/payable to a person is less than Rs.5,000/- during the year. Amount paid/payable by Individual/HUF, whose accounts are not subject to Tax Audit in the immediate preceding year. Commission/Brokerage paid/payable by BSNL & MTNL to their PCO franchisees. Brokerage paid/payable for purchase/sale of securities KALYANIWALLA & MISTRY 24

25 Amount of agency is a must Difference between commission and discount TDS not required to be deducted by RBI on the amount of turnover commission paid ( Circular No.6 dated 3 September, 2003) Bank guarantee commission payable to Bank is it covered by 194H? Payment of commission by book adjustment is 194 H applicable KALYANIWALLA & MISTRY 25

26 KALYANIWALLA & MISTRY 26