November 29, 2013

CA-CS-ICWA-TAX PROFESSIONALS PORTAL- TDS on Salary – Full Concept – With Example Part Two:- How to calculate salary and total Income for the purpose of tax deduction


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TDS on salary – full concept – with example

Part Two:-  How to calculate salary and total Income for the purpose of tax deduction. -


1)     Income from Salary head and other head of income.

As per Section 192(2B) :- The employer can consider income from any other head based on a declaration statement duly verified and filled by the employee but should not consider  any loss other than loss under the head “House Property”

In simple meaning:-

a.   Employee may by declaration provide details of any income/loss other  than salary head to employer.
b. Employer will add such income/loss to the salary income of the  employee and deduct tax
c.  Employer should consider only one loss i.e. Loss from House Property while calculating total income for the purpose of tax deduction and no other loss will be considered.

For example:-

Particulars
Details
Salary Income
Rs 7,00,000 per annum
Loss from house property
(Rs 3,00,000 per annum)
Interest Income
Rs 6,50,000 per annum
Loss from Securities
(Rs 50,000 per annum)

Solution:-

Particulars
Details
Amount
Salary Income
---
7,00,000
Loss from House Property
Only House Property loss should be considered
(3,00,000)
Interest Income
Employee can provide details of other heads of income
6,50,000
Loss from Securities
Employee can provide details of other heads of income
But Loss from House property should only be considered
---
Total Income

10,50,000
Tax Calculation
Particulars
Details
Tax
Exceeds Rs 10,00,000
Rs 1,30,000 + 30% of income Exceeding Rs 10,00,000

10,50,000 – 10,00,000 = 50,000
Hence 1,30,000 + 50,000*30%

1,45,000
Less: Tax Credit
Only if total income is below Rs 5,00,000
0
Income Tax
1,45,000
Add: Surcharge @10%
Only if total income exceeds Rs 1 Crore

0
Income Tax + Net Surcharge
1,45,000
Add: Education Cess @ 2%
1,45,000*2%
2,900
Add: Senior Higher Education Cess @ 1%
1,45,000*1%
1,450
Gross Tax Liability
149350


2)     Salary Income from more than 1 Employer

Where, during the financial year, an assessee is employed simultaneously under more than one employer, or where he has held successively employment under more than one employer, he may furnish to the person responsible for making the payment referred to in sub-section (1) (being one of the said employers as the assessee may, having regard to the circumstances of his case, choose), such details of the income under the head "Salaries" due or received by him from the other employer or employers, the tax deducted at source there from and such other particulars, in such form and verified in such manner as may be prescribed, and thereupon the person responsible for making the payment referred to above shall take into account the details so furnished for the purposes of making the deduction under sub-section (1).]


Applicability:-

a.    Employee is employed under two or more employers simultaneously.
b.    Employee previously employed under other employer during the same financial year

Meaning:-

a.    Employee may furnish the details of salary income of one employer to other employer (to whom he wants to deduct tax)
b.    The other employer will add such salary income to the salary income which he is provided and deduct tax.


For example:-

Particulars
Details
Salary Income From employer  -  1
Rs 5,00,000 per annum
Salary Income From employer  -  2
Rs 2,00,000 per annum
Loss from house property
(Rs 3,00,000 per annum)
Interest Income
Rs 6,50,000 per annum
Loss from Securities
(Rs 50,000 per annum)

Employee provides the details of salary income of employer 2 to employer 1

Solution:-

Particulars
Details
Amount
Salary Income
---
5,00,000
Salary Income
From other Employer
2,00,000
Total Salary Income
7,00,000
Loss from House Property
Only House Property loss should be considered
(3,00,000)
Interest Income
Employee can provide details of other heads of income
6,50,000
Loss from Securities
Employee can provide details of other heads of income
But Loss from House property should only be considered
---
Total Salary Income

10,50,000
Tax Calculation
Particulars
Details
Tax
Exceeds Rs 10,00,000
Rs 1,30,000 + 30% of income Exceeding Rs 10,00,000

10,50,000 – 10,00,000 = 50,000
Hence 1,30,000 + 50,000*30%

1,45,000
Less: Tax Credit
Only if total income is below Rs 5,00,000
0
Income Tax
1,45,000
Add: Surcharge @10%
Only if total income exceeds Rs 1 Crore

0
Income Tax + Net Surcharge
1,45,000
Add: Education Cess @ 2%
1,45,000*2%
2,900
Add: Senior Higher Education Cess @ 1%
1,45,000*1%
1,450
Gross Tax Liability
149350


3)     Relief from salary – when salary received in advance or arrears

As per Section 192 (2A) :- Where the employee is entitled to relief under section 89(1) he may furnish the particulars to the employer in prescribed format in prescribed manner to compute the relief on the basis of such particular and take into account to make deductions while calculating the income for the purpose of tax deduction.

Meaning:-

a.    Employee received any salary in advance or salary in arrears.( if employee is in receipt of salary of more than 12 months due to arrears or advance during any financial year)
b.    He is entitled to relief under section 89(1)
c.     He provide his particulars in prescribed format ( Form 10 E)
d.    Employer will give him relief (calculated as per law) from taxable salary income calculated for the purpose of tax deduction

Some points on relief:-

a.    Employer is duty bound to allow relief once true particulars are furnished in prescribed format by the employee
b.    When an assesse claims exemption under section 10(10C) under voluntary retirement scheme for VRS compensation, he is not eligible for relief under section 89(1)


For example:-

Financial Year
Salary Income without arrear
Arrear Received
2011-12
215000

2012-13
245000

2013-14
513000
 37000

(18000 out of Rs 37000 belongs to year 2011-12)

(19000 out of Rs 37000 belongs to year 2012-13)


Solution: -    For financial year 2013-14

S.no
Particular
Amount
1
Total Income (without arrear)
513000
2
Salary received in arrear
37000
3
Total Income (1+2) (including arrear)
550000

4
Tax on total income (including arrear)
41200
5
Tax on total income (without arrear)
33578

6
Tax on salary received in advance
(difference of 4 – 5)
7622
7
Tax computed as table A (below)
3811
8
Relief under section 89(1)
3811

Table 1

Previous
Year



Total income (without arrears)

Arrears of Advance salary

Total income (including arrears)

Tax on total income (without arrears)
Tax on total income (including arrears)
Difference
2011-12
220000
18000
238000
4120
5974
1854
2012-13
260000
19000
279000
6180
8137
1957
Total
480000
37000
517000
10300
14111
3811


4)     Claim of Deduction of Interest on Borrowed Capital for Computation of income From House Property Section 24(b): -


As per Section 24(b): - where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital shall be allowed as deduction while calculating income from house property subject to provisions as prescribed under the law.

Applicability: -
a.    An employee owned a house property (let out or self occupied)
b.    The property is not in use for any business activity by the employee 
c.     An employee has taken loan for the purpose of acquisition, construction, repairment, renewal or reconstruction of such owned house property

Limits of maximum interest allowed as deduction under section 24(b): -

Loan Taken
Self Occupied
Let Out
For Repair or Renewal
Rs 30,000 p.a
Rs 30,000 p.a
For Acquisition or construction of the house
Before 1.4.99 – Rs 30,000 p.a

After 1.4.99 – Rs 1,50,000
No maximum limit is provide under the law

Note: -

a) The acquisition or constructing of the house should be completed within 3 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 and constructed 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.


5)     Adjustment of Excess or shortfall 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.




By CA Ashish Barthwal

For any query: - feel free to contact ca_ashishbarthwal@yahoo.com

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