The Hindu Business Line : Checks on the pay cheque

SRIRAM, a retired railway employee (presently aged 67 years), draws pension through SBI. After inclusion of other income, he is in the 30 per cent tax bracket.

he requests the bank to deduct tax at source from the pension disbursed. The bank declines to deduct TDS on pension on the ground that there is no employer-employee relationship and it is only a disbursing agent.

Issues: Should the bank deduct TDS on pension disbursements? Would it make any difference if Sriram drew his pension from post office?

Solution: i) Paragraph 4.11 of Circular No. 15 (December 12, 2001) clarifies the procedure in the above case: In the case of those who receive pension from a nationalised bank, the instructions in this circular shall apply to them as they would to the salaried.

The deductions allowable by banks are:

a) standard deduction;

b) rebate under Section 88B, in the case of senior citizens who are 65 years or more; and

c) rebate under Section 88, if the pensioners furnish the relevant details to the banks.

The RBI has also issued instructions to SBI and other nationalised banks in this regard (CO:DGBA:GA (NBS) No.60/GA.64 (11CVL) - 91/92 dated April 27, 1992).

All bank branches are duty bound under Section 203 to issue TDS certificate in Form 16 to the pensioners — vide Circular No. 761 of January 13, 1998.

ii) The above Circular (No.15/2001) is applicable only to nationalised banks. It does not extend to post offices, from where pension can still be drawn without attracting TDS.

Case 7: Ashok is employed as a technician in Specialist Solutions Ltd (SSL). For the financial year 2000-01, Rs 9,000 was deducted as TDS from his salary. Ashok asked for a TDS certificate for filing his return. But till June 30, 2001, he had not received the certificate. What will be the consequence in this case?

Solution: i) TDS certificates under Section 203 are to be issued on the tax-deductor's own stationery within one month from the close of the financial year, that is, by April 30 of every year.

ii) If the certificates are not so issued under Section 272A of the I-T Act, the tax-deductor will be liable to pay a penalty of Rs 100 for every day during which the failure continues.

iii) Hence, non-issue of TDS certificate before April 30 will mean that SSL is liable to pay penalty for the default, at the rate of Rs 100 per day, till the date of actual issue.

Case 8: Kalidas is a senior Central Government officer. He is entitled to house rent allowance (HRA) exemption under Section 10(13A).

For HRA purposes, salary means basic salary and dearness allowance if treated as salary for retirement benefits. Since basic salary only is reckoned for PF contribution purposes, Kalidas feels that "dearness pay" received by him need not be included in "salary" while computing exemption under Section 10(13A). Is Kalidas' claim valid?

Solution: a) Under Section 10(13A), HRA is exempt to the least of the following: i) 50/40 per cent of salary, ii) excess of rent paid over 10 per cent of salary; and iii) actual HRA received.

b) For allowing HRA exemption, salary includes dearness allowance if the terms of employment so provide, but excludes all other allowances and perquisites.

c) As per the Finance Ministry's orders (O.M.No. F1(34)-EII(B)/68 of January 18, 1969), "dearness pay" is considered as "pay" for the purposes of pension and gratuity and compensatory allowance (including HRA, and so on) in the case of Central Government employees.

d) Consequently, for the purpose of calculating the HRA exempt under Rule 2A, the term "salary" includes "dearness pay" too.

e) These provisions will also apply in the case of State Government servants who are paid "dearness pay" as in the case of Central Government employees.

These have been clarified in CBDT Circular No. 90 of June 26, 1972. Hence, Kalidas has to include "dearness pay" as part of salary while computing HRA exemption.

Case 9: Ramarajan is employed with Super Speciality Enterprises, Chennai. He resides in a rented premises, but his pay structure does not include any house-rent allowance. Ramarajan does not own any house property in Chennai or in any other place.

He wants to know whether any benefit similar to Section 10(13A) exemption is available to him. Can such benefit be utilised at the time of TDS? What are the procedural formalities?

Solution: i) Under Section 80GG of the Act, an assessee is entitled to deduction in respect of house rent paid by him for his own residence, if the following conditions are satisfied:

a) the assessee is not in receipt of any HRA;

b) he does not own any residential accommodation i) at the place of business or profession (either in his own name or in the name of his spouse/minor child/HUF; and ii) at any other place — a property treated as self-occupied;

c) he should furnish a declaration in Form 10BA;

d) the deduction under Section 80GG will be least of the following: i) Rs 2,000 per month; ii) house rent paid in excess of 10 per cent of salary; and iii) 25 per cent of salary.

Since all these conditions are satisfied in this case, Ramarajan is entitled to deduction under Section 80GG.

This deduction can be utilised at source from the employer. Paragraph 7 of Circular No.15 dated December 12, 2001, lays down the procedure in this regard.

Before allowing the deduction, the employer should satisfy himself that: a) all the conditions mentioned above are satisfied; and b) suitable evidence of actual payment of rent is furnished to them.

Case 10: John's father is blind and is totally dependent on John for his support and maintenance. John furnishes a medical certificate for the above in order to claim deduction under Section 80DD. He does not have any proof of expenses incurred by him for his father's medical care.

John's employer insists that the deduction of Rs 40,000 under Section 80DD will be allowed only if the assessee provides vouchers proving that the expenditure is greater than Rs 40,000. Is the employer's contention valid?

Solution: Deduction under Section 80DD is available if the following conditions are satisfied:

Applicability: This section applies to an individual or HUF resident in India.

Nature of expenditure:

a) incurred for medical treatment of dependent relative of individual or dependent member of HUF suffering from permanent physical disability, including blindness or mental retardation; and

b) amount deposited in approved scheme of LIC/UTI or other approved insurer, which provides for payment of recurring or lumpsum amount for the benefit of the handicapped dependent after the demise of the assessee.

Amount of deduction: Fixed amount of Rs 40,000, irrespective of the expenditure incurred/amount paid.

Conditions: i) the disability should be certified by a government physician or specialist;

ii) subscription to the scheme shall be made in the name of the assessee;

iii) if the handicapped dependent predeceases the assessee, amount paid or deposited shall be treated as income of the previous year in which it is received by the assessee;

iv) the relative should not be dependent on any person other than the assessee; and

v) the amount paid or deposited should be out of income chargeable to tax.

TDS formalities: The employer should allow deduction under Section 80DD if:

a) the permanent physical disability or mental retardation is certified by a government physician/specialist; and

b) the assessee furnishes a declaration in writing certifying the amount of expenditure incurred/amount deposited in the approved scheme.

Circular No.775/26-03-1999 specifically provides that the employer may not insist on production of vouchers/bills for having incurred expenditure on their handicapped dependents for computing deduction under Section 80DD, while computing the tax deductible at source.

This view has been confirmed in Paragraph 5.4.3 of Circular No.15 of December 12, 2001.

Section 80DD deduction is fixed, irrespective of the amount of expenditure incurred.

The employer need not insist on production of evidence, such as vouchers/bills for expenditure. Hence, in the instant case, John's claim should be allowed on the basis of the certificate.

(Concluded)

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