CIRCULAR

TDS ON SALARY Financial Year 2012-13 (01.04.2012 to 31.03.2013)

This Circular is proposed for the Current Financial Year 2012-13 with respect to Exemptions /
Deductions in determining TDS on Salaries which will be
Part I: Based on actual submission of documentary proof
Part II: Based on Declaration
Part I: Allowances / Deductions to be provided based on actual submission of
documentary proof:
Following allowances / deductions will be allowed in arriving at the taxable salary in the
month of submission of necessary documents supporting exemption/ deduction.
1. House Rent Allowance
2. Car Scheme Reimbursement
3. Medical Reimbursement
4. Telephone Reimbursement ( if applicable )
5. Professional Pursuit ( if applicable )
6. Leave Travel Allowance
7. Deduction for Interest on Housing Loan
Part II: Deductions / Exemptions to be provided based on Declaration:
Following Savings and Investment Schemes are allowed as deduction in arriving at the taxable
salary provided the proof for such savings and investment are submitted within the cut-off
date specified by each employee in their declaration. The cut-off date shall in no case exceed
25th January 2013.
1. L I C Premium, N S S, PPF, N S C (u/s. 80 C)
2. Tuition fees for children (u/s. 80 C)
3. Tax Saver Fixed Deposit (5 Years u/s.80 C)
4. Medical Insurance (u/s. 80 D) Includes Health Preventive Checks upto Rs.5,000 p.a.
5. Educational Interest (u/s. 80E)
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Note: Investment in Long Term infra bonds (u/s.80CCF) This has been removed with
effect from 01.04.2012.
Conditions for Proof Submission for Part-II:
1. Each employee shall specify a cut-off date within which he / she could submit the
necessary proof for investments.
The cut-off date shall be not be later than 25 th January 2013. However review will be
made in the month of January 2013 and if still necessary documents are not submitted
within such time, then investments would be considered to the extent proofs are
submitted and if no proofs are submitted as of the cut-off date, then investment would
be considered Nil.
2. Proofs submitted after the said cut-off date will be considered prospectively for the
month following the month of submission of proof for the purpose of TDS Calculation.
(There will be no question of retrospective effect for proofs submitted on / after the
cut off date.)
3. TDS if deducted from salary in any months will not be refunded under any
circumstances. Therefore employees are advised to plan well in advance.
4. The annexure to this circular details the procedure to be adopted for Computing TDS
on various heads of payments.
5. The declaration screen for the above will be available in the Employee Portal only
upto 15th MAY 2012.
6. Employees are requested to select and update only on appropriate declaration
portion available in PART II of Deductions / Exemptions above, as provided in the
employee portal.
Nature of Income
Basic

When allowed as deduction/ exemption

Always fully taxable

OPE

Always fully taxable

Treatment of
House Rent Allowance (HRA)

1. Employee must have classification as HRA in his salary.

2. Employee must pay the rent

3. Exemption is not available if employee stays in his own
house.
If the employee claims the Interest on Housing loan (u/s
24 as self occupied property), HRA exemption will not be
allowed under any circumstances
4. Exemption is subject to the conditions specified in the
IT Act.
5. Employee should submit copy of Lease / Rental
Agreement. In case agreement is not executed, then
ORIGINAL Rent Receipts with Revenue stamp shall be
submitted.
6. Rent receipt should contain the Name, phone number of
land lord and address of the rented property.
7. Employee must submit Rent Payment Declaration
(declaration enclosed). Without this declaration, the HRA
exemption will not be considered.
8. If the employee has house on which housing loan is
taken and his family (spouse and children only) stays in
such house and the employee stays in a rented house in a
another place due to his employment, in such case he can
claim both the housing loan interest and HRA exemption if
it is authorized by HR department in writing.
Interest on Housing Loan

1. Employee should have taken housing loan in his name or

along with his / her spouse. If, along with his / her spouse
loan taken, the spouse should not claim tax exemption on
his / her Income Tax Computation, if any.
2. Such house must be occupied by the employee.
3. Bank certificate on Interest on Housing Loan must be
submitted by the employee.
4. for Tax Exemption - Self Occupied Property acquired
/constructed before 01-04-1999 - Rs.30,000/- eligible &
Self Occupied Property acquired /constructed after 01-041999 - Rs.150,000/- eligible)
5. This deduction is not available if the employee claims
HRA exemption.
6. Employee must produce declaration for claiming this
deduction
(declaration
enclosed).
Without
this
declaration, exemption will not be considered.

Conveyance allowance

1. Employee must have classification as conveyance

allowance in his salary.
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2. Exemption is based on the conditions specified in the

IT Act. ( at present Rs. 800 per month or actual allowance
from his salary whichever is lower)
3. This allowance is not eligible for Employees claiming
Car reimbursement and for trainees.
4. Employee need not produce any supporting documents
for this allowance.
Education allowance

1. Employee must have classification as Education

allowance in his salary
2. Exemption is allowed for Rs.100 per child per month
subject to a maximum of two children.
3. Employee may provide Self Declaration to this effect.

Food allowance

1. Employee must have classification as Food allowance in

his salary
2. Exemption is allowed to the maximum of Rs.2,000/- per
month or actual food allowance received from his salary
whichever is lower

Academic,
Research
Professional Pursuit

and 1. Employee must have classification as Professional

pursuit in his salary
2. Employee must get approval from HR Department for
higher studies for which he/she claims the exemption.
3. Exemption is allowed based on eligible courses and
production of copy of proper receipts from the Recognized
Institutions.

Telephone reimbursement

1. Employee must have classification as Telephone

reimbursement in his salary.
2. Employee must produce the copy of the telephone bills.
(payment receipts for prepaid mobile service are not
eligible for this exemption).
3. Maximum eligible amount is based on cadre of
employee.

Variable Pay

Always fully taxable

Additional Pay

Always fully taxable

Site Allowance

Always fully taxable

Car Scheme Reimbursement

1. Employee must receive Reimbursement under Car

scheme from the company.
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If the employee is covered

under the Company owned
Car scheme and if the car is
transferred to the employee
at any time (either at the
time of resignation or after
completion of 4 years)

2. The amount of exemption will be restricted to the

actual value of bills produced towards Petrol, Chauffer
Salary, Maintenance and Insurance. Perquisites value will
be added to the Income as per IT Act.

This transaction will be taxable as perquisites in the hands

of the employee for the difference in the Written Down
Value of Car in the books of company less security deposit
paid by the employee, if any, for the Car scheme.
Medical
scheme
Reimbursement

/ 1. Exemption is available for Medical Reimbursement Upto

Rs.15,000 p.a and balances, if any, is fully taxable even it
is certified by the third party.
2. Employee may opt to split a portion of Additional Pay as
Medical Reimbursement.
3. Actual Original medical bills have to be produced.
4. This amount will be Reduced from Additional Pay and
paid separately.

Earned Leave Encashment

Always fully taxable.

Housing loan interest subsidy

Always fully taxable.

Bonus / Ex-gratia / Loyalty

Always fully taxable.
Bonus
ESOP

ESOP will be taxable as perquisites in the hands of

employee at the time of allotment / transfer of shares to
the employee from the trust. The taxable value will be the
difference between the market value of the share at the
time of allotment / transfer to the employee and the face
value on which the shares actually transferred / allotted
to the employee.

Leave travel Allowance (LTA)

1. Employee must receive the LTA reimbursement. If not

Employee may opt to split a portion of Additional Pay as
LTA. This amount will be Reduced from Additional Pay and
paid separately.
2. Exemption is based on the conditions specified in the IT
Act.
3. Employee has to take leave minimum of 7 days
continuously as per companys norms.
4. Only 2 Journeys in a block of 4years is exempt. Current
block 2010 - 2013 (Jan1,2010 to dec31,2013)
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5. Exemption is strictly limited to expenses on air fare, rail

fare, and bus fare only. No other expenses allowed. Travel
should be within India.
6. Employee must submit the tickets to claim the
exemption.
7. Mere declaration for the travel will not be allowed for
the LTA exemption.

7. This circular is meant for the purpose of better understanding on the basis of
computation of TDS and all exemptions will be allowed after scrutiny of the
documents submitted for claiming exemptions.

1. Actual house rent allowance received from your employer

2. Actual house rent paid by you minus 10% of your basic salary
3. 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a nonmetro
This minimum of above is allowed as income tax exemption on house rent allowance.
Salary here means basic salary which includes dearness allowance if the terms of employment
provide for it, and commission based on a fixed percentage of turnover achieved by the employee.
The deduction will be available only for the period during which the rented house is occupied by the
employee and not for any period after that.
Meaning of Salary for calculation the exemption of HRA

Salary means (Basic + D.A + Commission based on fixed percentage on turnover).

Salary is to be taken on due basis in respect of the period during which the period
accommodation is occupied by the employee in the previous year.

Examples for calculation of exemption/deduction of HRA

X has received following amount during the previous year.
1. Basic Salary Rs. (5000*12) Rs. 60,000/2. Dearness Allowance (D.A) Rs. (1000*12) Rs. 12000/3. House Rent Allowance (H.R.A.) Rs. (2000*12) Rs. 24000/4. Actual Rent Paid Rs.(2000*12) Rs. 24000/Calculation

The minimum of the following amount shall be exempt

Actual HRA received (2000*12) Rs. 24000/Rent Paid in excess of 10% of salary ( 24000-7200) Rs. 16800

40% of Salary Rs. 28800/-

Therefore, Rs. 16800 shall be exempt and the balance Rs. 7200 shall be included in gross salary.

Frequently Asked Questions:How is HRA accounted for in the case of a salaried individual and a self-employed
professional?
HRA (house rent allowance) is accounted for in the case of salaried people under Section 10 (13A)
of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. On the other hand, selfemployed professionals cannot be considered for HRA exemption under this act, as they do not earn
a salary. However, they can claim benefits on the house rent expenses incurred under section
80GG, which resembles section to 10(13A) but is subject to certain conditions.
What are the dependent factors in calculating HRA for the salaried individual?
When you are calculating HRA for tax exemption, you take into consideration four aspects which
includes salary, HRA received, the actual rent paid and where you reside, i.e., if it is a metro or nonmetro. If these aspects remain constant through the year, then tax exemption is calculated as a
whole annually, if this is subject to change, as in a rent hike, pay hike or shift in residence etc., then it
is calculated on a monthly basis. It is usually rare for all the values to remain constant in a financial
year.
The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is
50% of the basic salary while for non-metros it is 40% of the basic salary. This holds true especially
when you work at a metro and reside at a non-metro. In this case, your city of residence only will be
considered for calculating your HRA.
Can I pay rent to my parents or spouse to avail HRA benefits?
You can pay rent to your parents, however, they need to pay tax on the same or account the same in
calculating their taxable income.
On the other hand, you cannot pay rent to your spouse. In view of the relationship when you take up
residence together, you are expected to do so and hence such a transaction does not bear merit
under tax laws. Sham transactions can only spell trouble under scrutiny, so steer clear of these.
Do I need to submit any proof for my HRA claim?
You need to submit proof of rent paid through rent receipts, for which only two need to be submitted,
one for the beginning of the year and one towards the end of the financial year. It should have a one
rupee revenue stamp affixed with the signature of the person who has received the rent, along with
other details such as the rented residence address, rent paid, name of the person who rents it etc.
Can I simultaneously avail tax benefits on my home loan and HRA?
The tax benefits for home loan and HRA are two separate entities and have no direct bearing on
each other. As long as you are paying rent for an accommodation, you can claim tax benefits on the
HRA component of your salary, while also availing tax benefits on your home loan. This could be the
case if your own home is rented out or you work from another city etc.

Image courtesy of Salvatore Vuono at FreeDigitalPhotos.net

(Republished with amendments )

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