CBDT issues circular on TDS and Income Tax deduction for A.Y 2021-22

Last Updated On: March 19, 2022, 11:26 p.m.
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A CIRCULAR ON TDS & INCOME TAX DEDUCTION ON SALARIES FOR A.Y 2021-22

The Central Board of Direct Taxes (CBDT) has released a circular regarding Tax Deduction at Source (TDS) and income tax deduction on salaries for the year 2021-22. The Circular issued today contains the rates of deduction of Income-tax from the payment of income chargeable under the head “Salaries” during the financial year 2021-22

Circular No. 20/2020 dated 03.12.2020 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 2020-21, 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 2021-22 and explains certain related provisions of the Act and Income-tax Rules, 1962 (hereinafter the Rules). All the sections and rules referred are of Income-tax Act, 1961 and Income-tax Rules, 1962 respectively unless otherwise specified.


 

Introduction of Income Tax:

Income Tax is the tax levied by the government on the income earned by an individual in any given previous year. Income tax is charged as a price for utilizing the services provided by the government and maintaining the same. It is the main source of revenue for the central government. The main motive of collecting income tax is so that the amount raised by the government can be used for the development of buildings, roads and other infrastructure and development services. Income tax is collected by the central government and distributed to the state governments.

Income tax is managed by the Central Board of Direct Tax (CBDT) and is governed by the Income Tax Act, 1961. There are six sources of income according to the Indian tax system. Income from salary, income from business or profession, income from capital gains, income from other sources, income from house property and income from lottery, horse race etc. Different rates of tax are applicable to different types of incomes. Some deductions are also provided by the government on the income. The taxable income of an individual can be calculated after the deduction of such deductions.

 

What is salary?

As per section 15 of the Act, the following incomes are chargeable to income-tax under the head “Salaries":

(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;

(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year. As per section 17 of the Act, Salary includes the following:

i) wages;

ii) any annuity or pension;

iii) any gratuity;

iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;

v) any advance of salary;

 

What is a Perquisite?

As per Section 17(2) of the Act, perquisites include:

i) The value of rent-free accommodation provided to the employee by his employer;

ii) The value of any concession in the matter of rent in respect of any accommodation provided to the employee by his employer;

iii) The value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:

a) By a company to an employee who is a director of such company;

b) By a company to an employee who has a substantial interest in the company;

c) By an employer (including a company) to an employee, who is not covered by (a) or (b) above and whose income under the head “Salaries” (whether due from or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds Rs.50,000/-.
 

iv) Any sum paid by the employer in respect of any obligation which would otherwise have been payable by the assessee.

v) Any sum payable by the employer, whether directly or through a fund, other than a recognized provident fund or an approved superannuation fund or other specified funds u/s 17, to effect an assurance on the life of an assessee or to effect a contract for an annuity.

vi) The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the employee. For this purpose,

(a) “specified security” means the securities as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956 and, where employees’ stock option has been granted under any plan or scheme therefore, includes the securities offered under such plan or scheme;

(b) “sweat equity shares” means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called;

(c) the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from the assessee in respect of such security or shares;

(d) “fair market value” means the value determined in accordance with the method as may be prescribed (refer Rule 3(9) of the IT Rules); (e) “option” means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price;

(vii) the amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer:

(a) in a recognised provident fund;

(b) in the scheme referred to in sub-section (1) of section 80CCD; and

(c) in an approved superannuation fund, to the extent it exceeds seven lakh and fifty thousand rupees in a previous year;

(viia) the annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme referred to in clause

(vii) above to the extent it relates to the contribution referred to in the said clause which is included in total income


 

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