Any person responsible for paying any income chargeable under the head “Salaries”, shall, at the time of payment, deduct income tax on the amount payable at the average rate of income tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year. Without prejudice to the provisions contained in above (first) Para, the person responsible for paying any income in the nature of a perquisite, which is not provided for by way of monetary payment, referred to in section 17(2), may pay, at his option, tax on the whole or part of such income without making any deduction there from at the time when such tax was otherwise deductible under the provisions contained in above Para. For the purposes of paying tax as per the above (second) Para, tax shall be determined at the average of income tax computed on the basis of the rates in force for the financial year, on the income chargeable under the head “ Salaries” including the income referred to in above (second) Para and the tax so payable shall be construed as if it were, a tax deductible at source, from the income under the head “ Salaries” as per the provisions contained in above (first) Para, and shall be subject to the provisions of this Chapter. Example: An employee gets a salary of Rs. 3,00,000 from his employer. Apart from the salary, he also gets non- monetary perquisites whose valuation as per Rule 3 amounts to Rs. 80,000/-. Now the taxable income under the head salaries shall be Rs. 3,00,000 + Rs. 80,000 = Rs. 3,80,000. Let us say that employee has invested Rs. 60,000 in PPF. Deduction under section 80C is Rs. 60,000. Taxable income of employee is Rs. 3,20,000. Tax payable by the employee shall be Rs. 16,480/-. The employer shall deduct TDS of Rs. 1,373/- every month from the salary of employee. The employer may exercise the option referred in section 192(1A) as per second Para. In terms of section 192 (1B) as referred in third para, the average rate of tax on the income under the head “Salaries” is Rs. 30,900/Rs.3,80,000 = 8.13%. Tax on perquisites at average rate of tax shall be 8.13% of Rs. 80,000 = Rs. 6,504. Employer has the option to deposit tax of Rs. 6,504 from his own pocket. Now let us say that the employer deposits Rs. 6,504 from his own pocket in terms of section 192(1A) as per second Para. – Now as per section 10(10CC), Rs. 6,504 is exempt income in hands of employee. The taxable income of employee shall remain to be Rs. 3,20,000/- – As per section 40 of Income Tax Act, Rs. 6,504 shall not be allowed as expenditure to the employer and shall be disallowed, while computing the employer’s income. – The employer shall deduct TDS of Rs. (16,480 – 6,504) = Rs.9,976/-. Accordingly, Rs. 831 shall be deducted every month from the employee’s salaty. – The employer shall also pay every month tax to the credit of Central government of Rs. 6,504/12= Rs. 542 in terms of section 192(1A) as per second Para from his own pocket. – The assessee shall be given the credit for the following tax which shall be regarded as TDS: TDS Rs. 9976 Tax under section 192(1A) Rs. 6504 Total Rs. 16,480 Note 1: Where, during the financial year, an assessee is employed simultaneously under more than one employer, or where he has held successively employment under more than one employer, then he may furnish to the person responsible for making the payment referred to above (being one of the said employers as the assessee may, having regard to the circumstances of his case, choose), such details of the income under the head “Salaries” due or received by him from the other employer or employers, the tax deducted at source there from and such other particulars, in prescribed form, and thereupon the person responsible for making the payment referred to above shall take into account the details so furnished for the purposes of making the deduction under this section. Note 2: Where an assessee, being a Government servant or an employee in a company, co – operative society, local authority, university, institution, association or body is entitled to the relief u/s 89(1), then he may furnish to the person responsible for making the payment referred to above, such particulars, in prescribed form, and thereupon the person responsible as aforesaid shall compute the relief on the basis of such particulars and take it into account in making the deduction of tax. Note 3: Where an assessee who receives any income chargeable under the head “Salaries” has in addition, any income chargeable under any other head of income (not being a loss under any such head other than the loss under the head “Income from house property”) for the same financial year, he may send to the person responsible for making the payment referred above, the particulars of – (a) such other income and of any tax deducted thereon under any other provisions of this chapter; (b) the loss, if any, under the head “Income from house property”, in prescribed form, and thereupon the person responsible as aforesaid shall take- (i) such other income and tax, if any, deducted thereon; and (ii) the loss, if any, under the head “Income from house property”, also into account for the purposes of making the deduction of tax. However, this shall not in any case have the effect of reducing the tax deductible (except where the loss under the head “Income from house property” has been taken into account, from income under the head “Salaries”) below the amount that would be so deductible if the other income and the tax deducted thereon had not been taken into account. That means that the salary income shall be reduced by the loss under the head house property for computing tax to be deducted at source. Tax Returns for Financial Year 2010 -11 (March 2011) has started. Request you to please visit Taxmantra.com or mail us Form16/ Salary Certificate and details of other income, at info@taxmantra.com . We would take it from there to file your return of income. Taxmantra.com provides complete online taxation solutions for individuals ( Tax Returns + Tax Support + Tax Planning ) – please see this – Services Offered. Taxmantra.com- Providing Complete Online Tax Solutions for Individuals, Not Just Returns .