New provisions to make dent into salary income

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SummaryLike every year, the Central Board of Direct Taxes (CBDT) updated its annual circular relating to withholding taxes from salary payments.

Like every year, the Central Board of Direct Taxes (CBDT) updated its annual circular relating to withholding taxes from salary payments. The circular was updated to sync with the amendments brought in by the Budget earlier this year relating to Fiscal 2013-14.

While there were certain amendments brought to the existing provisions of the Act, certain new provisions were introduced. The key provisions introduced are as under:

Levy of surcharge of 10% on income tax where the total income of an individual exceeds R1 crore during the FY 2013-14 only. Rebate of lower of R2,000 or the amount taxes payable, under section 87A for individuals having total taxable income up to R5 lakh. Additional deduction of R1 lakh under section 80EE on interest paid on housing loans, on fulfilment of the following conditions: Loan taken in FY 2013-14; loan not exceeding R25 lakh; value of the residential property not exceeding R40 lakh and that the individual does not own any residential property on the date of sanction of the loan.

One of the key amendments in the new circular is the change in the documentation requirements for claiming House Rent Allowance (HRA) exemption. A salaried employee claiming HRA exemption is now required to mandatorily report the PAN of the landlord, where the rent paid by him exceeds R1 lakh per annum (which was earlier R2 lakh per annum).

The CBDT had earlier during the year altered the procedure for issuing Form 16. Form 16 shall have two parts — Part A and Part B (Annexure). Part A is to be downloaded from the income tax department’s website TRACES and must contain a unique identification number. Part B will have to be prepared by the deductor manually and issued to the deductee after due authentication and verification along with Part A of Form 16.

If the employer fails to deduct whole or any part of the tax at source (TDS) or after deducting fails to deposit the whole or any part of the tax to the credit of the central government within the prescribed time, he shall be liable to interest consequences. Further, the new circular, in addition, states that such employer shall be deemed to be an assessee in default in respect of such tax and shall be liable for the penal action under section 221 of the Act.

Deductions, in respect of investment in Rajiv Gandhi Equity Savings Scheme 2012, is now allowed for three consecutive financial year beginning with the financial year in which the listed equity shares or units were first acquired. Employers should carefully read through the circular to understand the changes brought into the tax law relating to withholding of tax on salary payment made to their employees to ensure that they are compliant with regard to taxes and mitigate any interest and/or penal consequences that could occur as a result of any default.

* The writer is senior tax professional, EY. Views expressed are personal

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