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CBDT has issued a Circular on TDS from Salary under 192 for AY 2020-21 vide Circular No. 04/2020 detailing the procedure to be followed by an employer for deducting TDS from the salary income of employees paid during FY 2019-20 or assessment year (AY) 2020-21.
The circular further prescribes what documentary evidence or proof of investments is required to be taken from the employees by the employer for computing the income from the salary of the employees and what rate the tax should be deducted.
Like every year, the CBDT has issued a circular in this year also prescribing the guidelines to be followed by the employers while deducting the income tax or TDS from the salary income paid to the employees during the FY 2019-20 relevant for the AY 2020-21.
The CBDT's 86-page Circular No. 04/2020 dated 16-01-2020 which is titled as 'DEDUCTION OF TAX AT SOURCE- INCOME-TAX DEDUCTION FROM SALARIES UNDER SECTION 192 OF THE INCOME-TAX ACT, 1961 ' contains the gist of all the procedures that an employer is required to be followed while deducting the TDS from the salary income.
It may be reiterated that the instructions contained in the aforesaid CBDT Circular on Salary TDS for FY 2019-20, are not exhaustive and are issued by the CBDT only with a view to guiding the employers to understand the various provisions relating to deduction of tax from salaries.
Wherever there is any doubt, reference may be made to the provisions of the Income-tax Act, 1961, the Income-tax Rules, 1962, the relevant Finance Acts, the relevant circulars/ notifications, etc.
This note presents a summary of the circular briefing of the detailed contents of the circular instead of repeating the circular itself. Anyone interested to read the entire 86-page Circular, he may download the circular from here.
For easy reference to the detailed Circular, references to the main circular are given to each note.
The Index of the contents of the Circular is reproduced below.
Index
Para No.
1. General
2. RATES OF INCOME-TAX AS PER FINANCE ACT, 2019
2.1 Rates of tax
2.2 Surcharge of Income tax
2.3.1 Health and Education Cess
3. BROAD SCHEME OF TAX DEDUCTION AT SOURCE FROM SALARIES
3.1 Method of Tax Calculation
3.2 Payment of Tax on Non monetary Perquisites by Employer
3.2.1 Computation of Average Income Tax
3.3 Salary From More Than One Employer
3.4 Relief When Salary Paid in Arrear or Advance
3.5 Information regarding Income under any Other head
3.6 Computation of Income under the head – Income from house property
3.7 Adjustment for Excess or Shortfall of Deduction
3.8 Salary Paid in Foreign Currency
4. PERSONS RESPONSIBLE FOR DEDUCTION OF TAX AND THEIR DUTIES
4.1 Stipulation of section 204 of the Act
4.2 Tax determined to be deducted from Salary u/s 192
4.3 Deduction of Tax at Lower Rate
4.4 Deposit of Tax Deducted
4.4.1 Due dates for payment of TDS
4.4.2 Mode of payment of TDS
4.5 Interest, Fee, Penalty& Prosecution for Failure to Deposit Tax Deducted
4.6 Furnishing of Certificate for Tax Deducted (Section 203)
4.7 Mandatory Quoting of PAN and TAN
4.8 Compulsory Requirement to furnish PAN by employee (Section 206AA)
4.9 Statement of Deduction of tax under of section 200 (3) [Quarterly Statement of TDS]
4.10 TDS on Income from Pension
4.11 Matters pertaining to the TDS made in case of Non Resident
5. COMPUTATION OF INCOME UNDER THE HEAD ―SALARIES
5.1 Income chargeable under the head ―Salaries
5.2 Definition of ―Salary‖, ―perquisite‖ and ―profit in lieu of salary (Section 17)
5.3 Income not included under the Head ―Salaries‖ (Exemptions)
5.4 Deduction u/s 16 of the Act form the Income from Salaries
5.5 Deductions under Chapter VI-A of the Act
6. REBATE OF RS. 12500 FOR INDIVIDUAL HAVING TOTAL INCOME UPTO RS. 5 LAKH (SECTION 87A)
7. TDS ON PAYMENT OF ACCUMULATED BALANCE UNDER RECOGNISED PROVIDENT FUND AND CONTRIBUTION FROM APPROVED SUPERANNUATION FUND
8. DDOS TO SATISFY THEMSELVES OF THE GENUINENESS OF CLAIM
9. CALCULATION OF INCOME-TAX TO BE DEDUCTED
10. MISCELLANEOUS
ANNEXURE
I. SOME ILLUSTRATIONS
II. FORM NO 12BA
IIa. FORM NO 12BB
III. REVISED PROCEDURE FOR FURNISHING QTLY E-TDS/ TCS STATEMENT BY DEDUCTORS/COLLECTORS
IV. THE PROCEDURE OF FURNISHING FORM 24G
V. PERSON RESPONSIBLE FOR FILING FORM 24G IN CASE OF STATE GOVT DEPARTMENTS/ CENTRAL GOVT DEPARTMENTS
VI. PROCEDURE OF PREPARATION OF QUARTERLY STATEMENT OF DEDUCTION OF TAX u/s 200(3)
VII. DEPTT. OF ECO. AFFAIRS NOTIFICATION DATED 22.12.2013
VIII. BOARD‘S NOTIFICATION DATED 24.11.2000
IX. BOARD‘S NOTIFICATION DATED 29.01.2001
X. FORM NO. 10BA
The Circular is divided into 10 paras and contains 10 annexures.
Rates of tax
It begins with the rate of tax to be applied for the deduction of TDS from the salary income of the employees. Since employees are individuals, the circular mentions the tax rates for individuals only.
On the income-tax amount, applicable surcharge and Health and Education Cess need to be applied.
The relevant tax rates for AY 2020-21 is prescribed in the Finance (No. 2) act, 2019. [Para 1 and 2]
The income tax slabs for FY 2019-20 are mentioned in this article.
Estimation of Income:
The circular requires every employer paying any income chargeable under the head "Salaries" to deduct income-tax on the estimated income of the assessee under the head "Salaries" for the financial year 2019-20. Hence, every employer is required to estimate the salary income of every employee and on such an estimated income, income-tax deduction is required.
Interchangeability of PAN and Aadhaar
The Union Budget 2019 has made the PAN and Aadhaar interchangeable. It means, if a person does not hold PAN, he can intimate his Aadhaar Number instead of PAN.
In line with the budget announcement, CBDT has issued a notification to give the effect of the same in the income tax law. Vide Notification No. 95/2019 dated 6-11-2019, amendments in Income Tax Rules, 1962 has been made. One of the amendments is that the employer can quote PAN or Aadhaar Number of the employee in Form 16 (TDS certificate for deduction of tax from salary income) as well as in Form 24Q (Quarterly e-TDS return filed by the employer for deduction of tax from salary income).
In the line of the amendment in the Rules, the aforesaid circular also prescribes the employer accept the PAN or Aadhaar Number of the employee.
For calculating the income-tax on estimated salary income for FY 2019-20 applicable income tax rates, the same is subject to the provisions related to the requirement to furnish PAN or Aadhaar number, as the case may be, as per section 206AA of the Income Tax Act.
The tax shall be deducted at the applicable rates at the time of payment of salary to the employee.
No tax shall be required to be deducted if the estimated salary income including the value of perquisites for FY 2019-20 does not exceed Rs. 2,50,000 or Rs.3,00,000 or Rs. 5,00,000, as the case may be, depending upon the age of the employee.
Certain illustrations are given at Annexure-I of the circular.
[Para 3]
Salary From More Than One Employer
The current employer is under obligation to obtain details of the income under the head "Salaries" due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and by the former/other employers.
Relief to be given When Salary Paid in Arrear or Advance
If the employee is eligible to claim relief u/s 89, then the employer shall obtain Form 10E duly verified by the employee.
Reporting of Income under other heads of income by the employee
If the employee reports any other income, the employer shall consider the same before deducting the income-tax. In case of reporting of loss under any head of income, an employer shall consider only 'Loss from House Property'. Any other loss reported under any other heads of income shall not be considered by the employer.
In the case of income from house property or loss from house property, the employer shall obtain a computation of such income or loss from house property from the employee and the evidence of interest payment in Form 12BB. Further, the employer shall obtain the 'completion certificate' of the house property from the employee. [Para 3.6]
Note: Though the circular allows the employer to consider income under the other heads, however, Form 16 as amended by Notification No. 36/2019 dated 12.04.2019 allows an employer to report only the income under the following heads of income-
1. Income or Loss from House Property
2. Income from Other Sources
Hence, an employer cannot consider income chargeable under the head ‘Income from business or profession’ or Income chargeable under the head ‘Capital Gains’.
Read more on New Form 16:
Adjustment of excess or short deduction
The employer can adjust the excess or short deduction of income tax from the payment of salary of the subsequent months. It is not necessary to deduct income tax equally over the 12 months period.
Deduction of income-tax at a lower rate
As stated above, the employer shall deduct the income-tax from the payment of salary at the applicable rates. However, if the employee furnishes any lower TDS certificate u/s 197, then the employer shall deduct income tax at such a lower rate.
Duties of Employer
The circular has reminded the employer about his duties with respect to the deduction of income tax from the salary payment. These include deduction of TDS, timely deposit of TDS to the credit of the central government, payment by proper challan, filing of TDS return within the due dates, issue of TDS certificates to the employees in time.
The circular also reiterates the penal consequences in case of default in any of the above duties prescribed in the Act.
The circular also mentions certain guidelines for the proper filing of e-TDS return in Form 24Q. [Para 4.6]
Proof of deduction claimed
Deductions shall be allowed only after obtaining the necessary proof or evidence of investments and expenditure as claimed by the employee in Form 12BB. Form 12BB is enclosed in the circular. No deduction shall be allowed if any employee fails to submit any proof of investment, etc. [Para 4.6.5]
The circular has reproduced the provisions of Income Tax Act and Income Tax Rules for computation of Income from Salary for the employees.
Proof of evidence for LTA exemption claim
The Hon'ble Supreme Court by a judgment dated 21-01-2009 in the case of CIT vs Larsen & Toubro Ltd. in Civil Appeal No. 993 OF 2005 With Civil Appeal No. 992 OF 2005 held that employers while assessing the conveyance and leave & travel allowance (LTA) claims of their staff, are under no statutory obligation to collect supporting evidence and furnish them to tax authorities.
However, after the introduction of Form 12BB, employers have been made obliged to obtain details/evidence in respect of the claim of exemption for leave travel concession or assistance before allowing the said exemption the relevant form for furnishing details by the employee in Form 12BB. [Para 5.3.1]
Exemption for Rent Payment against House Rent Allowance
While allowing the claim of rent paid from the HRA of the employee, the employer shall ensure to collect the prescribed information in Form 12BB.
From this year, if the PAN of the landlord is not available then the employee can furnish the Aadhaar Number of the land where aggregate rent paid by the employee during the financial year 2019-20 exceeds Rs. 1,00,000.
Please note that the PAN or Aadhaar number of the landlord is required to be furnished to the employer only. No such requirement is contained in ITR forms notified in ITR-1 or ITR-4 for AY 2020-21.
The employer is required to report the PAN or Aadhaar Number of the landlord in the quarterly e-TDS return filed in Form 24Q.
Read more on HRA Exemption:
In this context, it should be noted that the requirement to furnish the PAN or Aadhaar Number of the landlord is required only when the exemption for rent payment is given under section 10(13A) against receipt of House Rent Allowance or HRA.
When such deduction is allowed u/s 80GG the Circular is silent on the requirement of the PAN or Aadhaar Number of the landlord if the aggregate rent payment exceeds Rs. 1,00,000. In this case, only Form 10BA is required. The Form 10BA also requires to mention the name and address of the landlord and not the PAN or Aadhaar Number of the landlord. Form 10BA is mandatory even if the aggregate rent payment does not exceed Rs. 1,00,000 in a financial year.
Exemptions and Deductions
The circular discusses all the exemptions and deductions under chapter VI-A which is available to an employee and can be allowed by the employer.
Deduction under section 80TTA or 80TTB shall be allowed by the employer only if the interest income is reported to the employer by the employee in Form 12BB.
For detailed reading, the Circular 4/2020 dated 16-01-2020 may be accessed from here.
Update on 05.03.2020
CBDT has issued a Corrigendum to Circular No. 4/2020 on 'Income-Tax Deduction from Salaries during the Financial Year 2019-2020 under Section 192 of the Income-Tax Act, 1961' on 05.03.2020. The text of the corrigendum reads as follows-
New Delhi the 5th March, 2020
CORRIGENDUM TO CIRCULAR NO.4 OF 2020 DATED 16.01.2020
Subject: Income-Tax Deduction from Salaries during the Financial Year 2019- 2020 under Section 192 of the Income-Tax Act, 1961 - regarding.
In Circular No.04/2020 dated 16th January, 2020 on the above mentioned subject, it is to state that Para 3.1 under heading "Method of Tax Collection" is modified as below:
For sentence 3 of Para 3.1:
No tax, however, will be required to be deducted at source in a case unless the estimated salary income including the value of perquisites, for the Financial Year exceeds Rs 2,50,0001- or Rs 3,00,0001- or Rs 5,00,0001-, as the case may be, depending upon the age of the employee.
May be read as:
No tax, however, will be required to be deducted at source in a case unless the estimated salary income including the value of perquisites is taxable after giving effect to the exemptions, deductions and relief as applicable.
2. In view of the above, Circular No.04/2020 may accordingly be treated as modified to this extent.
(Naveen Kapoor)
Under Secretary to the Govt. of India
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