Any person responsible for paying any income chargeable under the head “Salaries” is required to deduct tax at source on the amount payable. Tax is to be calculated at the rates prescribed for the financial year in which payment to employees is made. The person responsible for paying the salary may, at the time of deducting tax at source, increase or decrease the amount to be deducted for the purpose of adjusting any previous deficiency or excess deduction.
Computation of salary and tax thereon- Tax deducted at source from salary payable in foreign currency is to be calculated in accordance with rule 26. At the time of deducting tax at source during the FY 2014-15, the person responsible for paying salary should keep the following points in view:
Exemption Limit – No tax is required to be deducted at source unless the estimated salary exceeds the amount not chargeable to tax. This rule is applicable even if the employee does not have PAN.
Leave Encashment – The amount received on account of encashment of leave due to an employee on retirement is eligible for exemption under section 10(10AA).
House Rent Exemption – Exemption pertaining to house rent allowance shall be calculated by the employer on the basis of specified limits provided by Section 10(13A). This exemption depends upon rent paid by the employee. The concerned employee should submit the employer a written statement pinpointing rent paid, name of landlord, address of property and PAN of landlord (PAN is required only if rent paid is more than Rs. 1 Lac per annum) alongwith rent receipt given by the landlord.
Though incurring actual expenditure on payment of rent is prerequisite for claiming deduction under section 10(13A), the Board has been decided as an administrative measure that salaried employees drawing house rent allowance up to Rs. 3000 per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax deduction at source and , in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.
Perquisites – The value of the perquisites by the way of free residential accommodation and amenities provided by the employers to their employees are determined under rule 3 and should be taken into account for computing taxable salary.
Donation by employees deductible u/s 80G – Section 80G provides for deductions o account of donation made to various funds, charitable organizations etc. In cases where employees make donations to the Prime Ministers National Relief Fund, The Chief Ministers Relief Fund or the Lieutenant governor’s Relief Fund through their respective employers, it is not possible for such funds to issue seperate certificate to every such employee in respect of donations made to such funds as contributions made to these funds are in the form of a consolidated cheque. An Employee who makes donations towards these funds is eligible to claim deduction under section 80G. CBDT has clarified that the claim in respect of such donations as indicated above will be admissible under section 80G on the basis of the certificate issued by the Drawing and Disbursing Officer (DDO)/ Employer in this behalf. Moreover, no deduction under this section is allowable in case of amount of donation if exceeds Rs. 10,000 unless the amount is paid by any mode other than case.
Other deductions – The person responsible for making payment of salary should also take into consideration other admissible deductions under sections 80C, 80CCC, 80CCD, 80CCG, 80D, 80DD, 80DDB, 80E, 80EE, 80GG, 80GGA, 80TTA, 80U
Relief U/s 89 – If the employee furnishes inforation in Form No. 10E to the employer, relief under section 89 should be given to the concerned employee while deducting tax at source under section 192. However, this facility is available only if the employer is Government or Pyublic sector undertaking or company, co-operative society, local authority, university, institution or association of body.