CIRCULAR NO: 01/2017
F.No. 275/192/2016-IT(B)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
North Block, New Delhi
Dated the 2nd January 2017
SUBJECT: INCOME-TAX DEDUCTION FROM SALARIES DURING THE FINANCIAL YEAR 2016-17 UNDER SECTION 192 OF THE INCOME-TAX ACT, 1961.
Reference is invited to Circular No.20/2015 dated 02.12.2015 whereby the rates of deduction of income-tax from the payment of income under the head "Salaries" under Section 192 of the Income-tax Act, 1961 (hereinafter ‘the Act’), during the financial year 2015-16, were intimated. The present Circular contains the rates of deduction of income-tax from the payment of income chargeable under the head "Salaries" during the financial year 2016-17 and explains certain related provisions of the Act and Income-tax Rules, 1962 (hereinafter the Rules). The relevant Acts, Rules, Forms and Notifications are available at the website of the Income Tax Department- www.incometaxindia.gov.in.
DEDUCTIONS U/S 16 OF THE ACT FROM THE INCOME FROM SALARIES
Entertainment Allowance [Section 16(ii)]:
the deduction is also allowed under section 16(ii) in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee, who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary(exclusive of any allowance, benefit or another prerequisite) or five thousand rupees whichever is less. No deduction on account of entertainment allowance is available to non-government employees.
Download Automated Income Tax Form 16 Part B for F.Y.2020-21 which can prepare at a time 100 employees Form 16 Part B for F.Y. as per Income tax guideline.
Tax on Employment [Section 16(iii)]:
The tax on employment (Professional Tax) within the meaning of Article 276(2) of the Constitution of India, leviable by or under any law, shall also be allowed as a deduction in computing the income under the head "Salaries".
It may be clarified that “Standard Deduction” from gross salary income, which was being allowed up to the financial year 2004-05 is not allowable from the financial year 2005-06 onwards.
DEDUCTIONS UNDER CHAPTER VI-A OF THE ACT
In computing the taxable income of the employee, the following deductions under Chapter VI-A of the Act are to be allowed from his gross total income:
Deduction in respect of Life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc. (section 80C)
A. Section 80C entitles an employee to deductions for the whole of amounts paid or deposited in the current financial year in the following schemes, subject to a limit of Rs.1,50,000/-:
(1) Payment of insurance premium to effect or to keep in force an insurance on the life of the individual, the spouse or any child of the individual.
(2) Any payment made to effect or to keep in force a contract for a deferred annuity, not being an annuity plan as is referred to in item (7) hereinbelow on the life of the individual, the spouse or any child of the individual, provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the
payment of the annuity;
(3) Any sum deducted from the salary payable by, or, on behalf of the Government to any individual, being a sum deducted in
accordance with the conditions of his service for the purpose of securing to him a deferred annuity or making provision for his spouse or children, in so far as the sum deducted does not exceed 1/5th of the salary;
(4) Any contribution made:
(a) by an individual to any Provident Fund to which the Provident Fund Act, 1925 applies;
(b) to any provident fund set up by the Central Government, and notified by it in this behalf in the Official Gazette where such contribution is to an account standing in the name of an individual, or spouse or children;
(c) by an employee to a Recognized Provident Fund;
(d) by an employee to an approved superannuation fund
(6) Any sum paid as contribution in the case of an individual, for himself, spouse or any child,
a. for participation in the Unit Linked Insurance Plan, 1971 of the Unit Trust of India;
b. for participation in any unit-linked insurance plan of the LIC Mutual Fund referred to section 10
(23D) and as notified by the Central Government.
(7) Any subscription made to effect or keep in force a contract for such annuity plan of the Life Insurance Corporation or any other insurer as the Central Government may, by notification in the Official Gazette, specify;
(8) Any subscription made to any units of any Mutual Fund, of section 10(23D), or from the Administrator or the specified company referred to in Unit Trust of India (Transfer of Undertaking & Repeal) Act, 2002 under any plan formulated in accordance with any scheme as the Central Government, may, by notification in the Official Gazette, specify in this behalf; The investments made after 1.4.2006 in plans formulated in accordance with Equity Linked Saving Scheme, 1992 or Equity Linked Saving Scheme, 1998 shall also qualify for deduction under section 80C.
(9) Any contribution made by an individual to any pension fund set up by any Mutual Fund referred to in section 10(23D),or, by the Administrator or the specified company defined in Unit Trust of India (Transfer of Undertaking & Repeal) Act, 2002, as the Central Government may, by notification in the Official Gazette, specify in this behalf;
(10) Any subscription made to any such deposit scheme of, or, any contribution made to any such pension fund set up by, the National Housing Bank, as the Central Government may, by notification in the Official Gazette, specify in this behalf;
(11) Any subscription made to any such deposit scheme, as the Central Government may, by notification in the Official Gazette, specify for the purpose of being floated by (a) public sector companies engaged in providing long-term finance for construction or purchase of houses in India for residential purposes, or, (b) any authority constituted in India by, or, under any law, enacted
either 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, or for both.
(12) Any sums paid by an assessee for the purpose of purchase or construction of a residential house property, the income from which is chargeable to tax under the head "Income from house property" (or which would, if it has not been used for assessee's own residence, have been chargeable to tax under that head) where such payments are made towards or by way of any instalment or part payment of the amount due under any self-financing or another scheme of any Development Authority, Housing Board etc.
Download Income Tax Form 16 Part A&B for F.Y.2020-21 which can prepare at a time 100 employees Form 16 Part A&B as per the latest amended Income Tax Section.
The deduction will also be allowable in respect of repayment of loans borrowed by an assessee from the Government, or any bank or Life Insurance Corporation, or National Housing Bank, or certain other categories of institutions engaged in the business of providing long-term finance for construction or purchase of houses in India. Any repayment of loan borrowed from the employer will also be covered, if the employer happens to be a public company, or a public sector company, or a university established by law, or a college affiliated to such university, or a local authority, or cooperative society, or authority, or a board, or a corporation, or any other body established under a Central or State Act.
The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. Payment towards the cost of house property, however, will not include, admission fee or cost of share or initial deposit or the cost of any addition or alteration to, or, renovation or repair of the house property which is carried out after the issue of the
completion certificate by a competent authority, or after the occupation of the house by the assessee or after it has been let out. Payments towards any expenditure in respect of which the deduction is allowable under the provisions of section 24 of the Act will also not be included in payments towards the cost of purchase or construction of a house property.
Where the house property in respect of which deduction has been allowed under these provisions is transferred by the taxpayer at any time before the expiry of five years from the end of the financial year in which possession of such property is obtained by him or he receives back, by way of refund or otherwise, any sum specified in section 80C(2)(xviii), no deduction under
these provisions shall be allowed in respect of such sums paid in such previous year in which the transfer is made and the aggregate amount of deductions of income so allowed in the earlier years shall be added to the total income of the assessee of such previous year and shall be liable to tax accordingly.
(13) Tuition fees, whether at the time of admission or thereafter, paid to any university, college, school or other educational institution situated in India, for the purpose of full-time education of any two children of the employee.
It is clarified that the amount allowable as tuition fees shall include any payment of the fee to any university, college, school or other educational institution in India except the amount representing payment in the nature of development fees or donation or capitation fees or payment of similar nature.
Download Automated Income Tax Form 16 Part B for F.Y.2020-21 which can prepare at a time 50 employees Form 16 Part B for F.Y.2020-21
Deduction in respect of contribution to certain pension funds (Section 80CCC)
Section 80CCC allows an employee deduction of an amount paid or deposited out of his income chargeable to tax to effect or keep in force a contract for an annuity plan of Life Insurance Corporation of India or any other insurer for receiving the pension from the Fund referred to in section 10(23AAB). However, the deduction shall exclude interest or bonus accrued or credited to the employee's account if any and shall not exceed Rs. 1,50,000.
Deduction in respect of contribution to pension scheme of Central Government (Section 80CCD):
Section 80CCD(1) allows an employee, being an individual employed by the Central Government on or after 01.01.2004 or being an individual employed by any other employer, or any other assessee being an individual, a deduction of an amount paid or deposited out of his income chargeable to tax under a pension scheme as notified vide Notification F. N. 5/7/2003- ECB&PR dated 22.12.2003 National Pension System-NPS or as may be notified by the Central government. However, the deduction shall not exceed an amount equal to 10% of his salary (includes Dearness Allowance but excludes all other allowance and perquisites).
As per section 80CCD(1B), an assessee referred to in 80CCD(1) shall be allowed a deduction in the computation of his income, of the whole of the amount paid or deposited in the previous year in his account under the pension scheme notified or as may be notified by the Central Government, which shall not exceed Rs. 50,000. The deduction of Rs. 50,000 shall be allowed whether or not any deduction is allowed under sub-section(1). However, the same amount cannot be claimed both under sub-section (1) and sub-section (1B) of section 80CCD.
Download Automated Income Tax Form 16 Part B for F.Y.2016-17 which can prepare at a time 100 employees Form 16 Part B for F.Y.2016-17 with all modification made by the CBDT
As per Section 80CCD(2), where any contribution in the said pension scheme is made by the Central Government or any other employer then the employee shall be allowed a deduction from his total income of the whole amount contributed by the Central Government or any other employer subject to a limit of 10% of his salary of the previous year.
It is emphasized that as per section 80CCE the aggregate amount of deduction under sections 80C, 80CCC and Section 80CCD(1) shall not exceed Rs.1,50,000/-. The deduction allowed under section 80 CCD(1B) is an additional deduction in respect of any amount paid in the NPS up to Rs. 50,000/-. However, the contribution made by the Central Government or any other employer to a pension scheme u/s 80CCD(2) shall be excluded from the limit of Rs.1,50,000/- provided under this section.
Deduction in respect of investment made under an equity savings scheme (Section 80 CCG):
Section 80CCG provides deduction we assessment year 2013-14 in respect of investment made under notified equity saving scheme. Rajiv Gandhi Equity Savings Scheme 2012 has been notified vide SO No 2777 E, dated 23.11.2012 (subsequent corrigendum SO NO. 2835E dated 05.12.2012) and amended vide notification SO No. 3693E dated 18.12.2013 as a scheme under this section. The scheme was modified in December 2013 vide notification SO 3693 dated 18.12.13 ( RGESS, 2013). The deduction under this section in accordance with RGESS 2013 is available if the following conditions are satisfied:
(a) The assessee is a resident individual
(b) His gross total income does not exceed Rs. 12 lakhs;
(c) He has acquired listed shares in accordance with a notified scheme or listed units of an equity-oriented fund as defined in section 10(38);
(d) The assessee is a new retail investor;
(e) The investment is locked-in for a period of 3 years from the date of acquisition in accordance with the above scheme;
(f) The assessee satisfies any other condition as may be prescribed
The amount of deduction –The amount of deduction is at 50% of the amount invested in equity shares/units. However, the amount of deduction under this provision cannot exceed Rs. 25,000
Deduction in respect of health insurance premia paid, etc. (Section 80D)
Section 80D provides for deduction available for health insurance premia paid, etc. which is calculated as under:
For General Rs. 25,000/- & Sr.Citizen Rs. 30,000
Senior citizen” means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.
Deductions in respect of maintenance including medical treatment of a dependent who is a person with the disability (section 80DD):
Under section 80DD, where an employee, who is a resident in India, has, during the previous year-
(a) Incurred any expenditure for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with a disability; or
(b) paid or deposited any amount under a scheme framed in this behalf by the Life Insurance Corporation or any other insurer or the Administrator or the specified company subject to the conditions specified in this regard and approved by the Board on this behalf for the maintenance of a dependant, being a person with a disability, the employee shall be allowed a deduction of a sum of Rs 75,000/- from his gross total income of that year.
However, where a such dependant is a person with severe disability, an amount of Rs 1,25,000/- shall be allowed as a deduction subject to the specified conditions.
Deductions in respect of a person with the disability (section 80U):
Under section 80U, in computing the total income of an individual, being a resident, who, at any time during the previous year, is certified by the medical authority to be a person with the disability, there shall be allowed a deduction of a sum of Rs 75,000/-. However, where such individual is a person with a severe disability, a higher deduction of Rs 1,25,000/- shall be allowable.
Deduction in respect of medical treatment, etc. (Section 80DDB):
Section 80DDB allows a deduction in case of an employee, who is resident in India, during the previous year, of any amount actually paid for the medical treatment of such disease or ailment as may be specified in the rules 11DD (1) for himself or a dependant. The deduction allowed is equal to the amount actually paid is in respect of the employee or his dependent or Rs.40,000 whichever is less.
Now the deduction can be allowed on the basis of a prescription from an oncologist, a urologist, nephrologist, a haematologist, an immunologist or such other specialist, as mentioned in Rule 11DD. However, the amount of the claim shall be reduced by the amount if any received from the insurer or reimbursed by the employer. Further in case of the person against whom such claim is made is a senior citizen (60 age years or more) then the deduction up to Rs 60,000/- is allowed and in the case of a very senior citizen (80 age years or more) the deduction up to Rs 80,000/- is allowed.
For the purpose of this section, in the case of an employee, "dependent" means an individual, the spouse, children, parents, brothers and sisters of the employee or any of them, dependant wholly or mainly on the employee for his support and maintenance.
Deduction in respect of interest on the loan is taken for higher education (Section 80E):
Section 80E allows deduction in respect of payment of interest on loan taken from any financial institution or any approved charitable institution for higher education for the purpose of pursuing his higher education or for the purpose of higher education of his spouse or his children or the student for whom he is the legal guardian.
Deductions in respect of donations to certain funds, charitable institutions, etc. (Section 80G):
Section 80G provides for deductions on account of donation made to various funds, charitable organizations etc. In cases where employees make donations to the Prime Minister’s National Relief Fund, the Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund through their respective employers, it is not possible for such funds to issue a separate 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. It is, hereby, 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 on this behalf - Circular No. 2/2005, dated 12-1-2005.
No deduction under this section is allowable in case the amount of donation exceeds Rs 10000/- unless the amount is paid by any mode other than cash.
Deductions is respect of rents paid (Section 80GG):
Section 80GG allows the employee to a deduction in respect of house rent paid by him for his own residence. Such deduction is permissible subject to the following conditions:-
will be entitled to a deduction in respect of house rent paid by him in excess of 10% of his total income. The deduction shall be equal to 25% of the total income of Rs. 5,000/- per month, whichever is less. The total income for working out these percentages will be computed before making any deduction under section 80GG.
Deduction in respect of interest on deposits in a savings account (Section 80TTA):
Section 80TTA has been introduced from the Financial Year 2012-13 and it allows to an employee from his gross total income if it includes any income by way of interest on deposits (not being time deposits) in a savings account, a deduction amounting to:
(i) in a case where the amount of such income does not exceed in the aggregate ten thousand rupees, the whole of such amount; and
(ii) in any other case, ten thousand rupees.
REBATE OF Rs 50000 FOR INDIVIDUALS HAVING TOTAL INCOME UPTO Rs 5 LAKH [SECTION 87A]
Finance Act 2013 provided relief in the form of the rebate to individual taxpayers, resident in India, who are in the lower-income bracket, i. e. having total income not exceeding Rs 5,00,000/-. The amount of rebate available under section 87A is Rs 12,500/- or the amount of tax payable, whichever is less from AY 2021-22.
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