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Sunday, February 18, 2001













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Deductions from salary

T. Banusekar

`Tax Talk', on January 21 2001, discussed some important provisions relating to deduction of tax from income chargeable under the head `Salaries' for the financial year 2000-01, as explained by the Central Board of Direct Taxes in its Circular No. 798 dated October 30, 2000, (246 ITR 68 (St.).

This article, as a continuation, discusses the permissible deductions and the rebates for the purpose of tax deduction at source explained in the circular.

Deductions under Section 16 of I-T Act

Standard deduction

This deduction is explained in Table 1. Where the salary is due from/paid/allowed by more than one employer, the standard deduction shall be computed with reference to the aggregate salary due, paid or allowed to the assessee and the total deduction shall not exceed the amount specified.


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Entertainment allowance

Entertainment allowance is first included in gross salary and then deduction is allowed. For Government employees, the deduction allowable is 20 per cent of basic salary or Rs 5,000, whichever is less. In the case of non-government employees, the deduction is allowable only if:

(a) The employee has been in continuous service with the present employer from a date before April 1, 1955;

(b) He is in receipt of the entertainment allowance from the present employer continuously from a date before April 1, 1995.

The deduction permissible is the least of the following:

(a) Twenty per cent of basic salary.

(b) An amount of Rs 7,500.

(c) Entertainment allowance received for the year 1954-55.

Tax on employment

The tax on employment shall also be allowed as a deduction in computing the income under the head `Salaries'.

Deductions under Chapter VI-A

* Any amount paid or deposited by an assessee out of income chargeable to tax towards any annuity plan of the Life Insurance Corporation of India to receive pension from the fund, shall be allowed as deduction. The quantum of deduction is restricted to Rs 10,000. Tax rebate shall not be allowed in respect of the amount paid/deposited once a deduction is claimed for the amount paid/deposited.

* Where an assessee pays any sum towards `Mediclaim' on the health of himself/the wife or husband/ dependent parents/children, then he shall be allowed a deduction for a sum not exceeding Rs 10,000 per annum (Rs 15,000 per annum in the case of senior citizens). The deduction shall, however, be allowed only to the extent to which the payment is made by cheque or credit card, out of the income chargeable to tax.

* Where an assessee, pays any sum out of his income chargeable to tax.

(a) For the medical treatment (including nursing), training and rehabilitation of a handicapped dependent or;

(b) For a deposit under a scheme framed in this behalf by the Life Insurance Corporation or the Unit Trust of India, he shall be allowed a deduction of Rs 40,000.

Other conditions

* Handicapped dependent means a person who is a relative of an individual and is not dependent on any person other than such individual for his/her support and maintenance, and is suffering from permanent physical disability.

* The deduction will be available to individuals without any restriction with regard to their total income.

* The permanent physical disability or mental retardation of the dependent relative has to be certified by a doctor working in a Government hospital, including a departmental dispensary or a hospital maintained by a local authority.

* The employee may produce a medical certificate from a Government hospital and a declaration in writing, certifying the actual amount of expenditure.

* The Drawing and Disbursing Officers (DDO) may not insist production of vouchers/bills by the employees for having incurred expenditure on medical treatment of their handicapped dependents, to allow the deduction for the purpose of computing tax deductible at source.

* A deduction of Rs 40,000 (Rs 60,000 in the case of senior citizens) shall be allowed in respect of any expenditure actually incurred by the assessee on the medical treatment of specified diseases or ailments. If any sum is received from an insurer towards insurance claim, the amount of deduction shall be reduced by the amount received from the insurer.

The assessee should produce a certificate in Form 10-I certified by any doctor registered with the Indian Medical Association with post-graduate qualifications.

For this purpose, ``dependent'' means someone not dependent for his support or maintenance on any person other than the assessee.

* A deduction up to a maximum of Rs 40,000 will be allowed in respect of repayment of loan made by the assessee, out of his income chargeable to tax. The deduction shall be allowed with respect to the amount of repayment of loan taken from financial institutions/approved charitable institutions for higher education. The repayment of interest shall also qualify for deduction.

The deduction shall be allowed for eight assessment years beginning with the year in which the assessee starts repaying the loan or until the repayment together with interest -- whichever is earlier.

* The DDO should not allow any deduction in respect of donations made to:

(a) Any Zila Saksharata Samiti constituted for the improvement of primary education in villages.

(b) Any fund set up by a State government to provide medical relief to the poor.

(c) Any fund or institution which has the approval under Section 80G (including a public charitable trust).

(d) The Government or any local authority to be utilised for any charitable purpose or for family planning.

(e) Any authority constituted 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.

(f) Any Corporation established by the Central or State government to promote interests of the members of a minority community.

(g) Contributions towards repairs and renovation of temples, mosques, gurudwaras, churches or other notified places.

The relief in respect of the above donations are to be claimed by the tax-payer only in the return of income. However, the DDO on due verification, may allow the donations to certain bodies that may qualify for a deduction, to the extent of 50 per cent or 100 per cent of the contributions.

* An assessee is entitled to a deduction in the house rent paid by him for his own residence. The quantum of deduction shall be the least of the following:

* Rent paid less than 10 per cent of total income.

* Twenty five per cent of total income.

* An amount of Rs 2,000 per month.

The total income for working out these percentages will be computed before making any deduction under this provision.

The deduction is permissible subject to the following conditions:

(a) The assessee has not been in receipt of any house rent allowance.

(b) The assessee files the declaration in form no. 10BA.

(c) The assessee/spouse/minor children, do not own any residential accommodation in the place where the employment is exercised.

The DDO should be convinced that all the conditions mentioned above are satisfied before such deduction is allowed by them to the assessee. They should also insist on production of evidence of actual payment of rent.

(H) A deduction of Rs 40,000 is allowed to a resident individual who is suffering from a permanent physical disability, which should be certified by a doctor working in a Government hospital. The disability should have the effect of reducing the individual's capacity for normal work or engaging in a gainful employment/occupation.

Rebates

An assessee is entitled to tax rebate in respect of certain payments made by him out of his income chargeable to tax (see table 2).


Click here for Table

Quantum of tax rebate

The rebate allowable would be 20 per cent of the rebatable amount (see table 2) in the case of individuals. (Twenty five per cent in the case of authors, playwrights, artists, musicians, actors, or sportsmen, including athletes; provided the income from the exercise of such professions is 25 per cent, or more of their total income).

Tax rebate for senior citizens

For an individual resident in India, aged 65 years or more, at any time during the previous year, he shall be allowed a rebate of Rs 15,000 or the amount of income-tax before giving any rebate, whichever is less.

Rebate for women below 65 years

An assessee being a woman resident in India and aged below 65 years, at any time during the previous year, shall be eligible for a rebate of Rs 5,000.

(The author is a practising Chartered Accountant, Chennai.)

Business Line invites queries on personal taxation issues to this column. They will be answered in the first Sunday's issue of Business Line every month. Queries may be addressed to Tax Talk, Business Line, Kasturi Buildings, 859, Anna Salai, Chennai 600002, or by e-mail to vaidy@thehindu.co.in


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