SAMIR MOGUL [ SUNDAY, SEPTEMBER 21, 2003 12:35:21 AM ]

On certain specified income, tax is deducted at source even before it reaches the person earning income. Further, in a few cases, one can receive income without attracting tax to be deducted at source.

In this context, let us analyse the recent amendments to the Income Tax Act, 1961 specifically dealing with cases where one can receive income without attracting deduction of tax at source.

Specified incomes: Although we all like to receive the entire income we have earned from various sources, in certain cases we end up receiving the income only after tax has been deducted at source thereon.

Under the provisions of the IT Act, 1961 (the Act), tax is deduced at source on various specified incomes ranging from salary, interest on securities, dividends, interest other than interest on securities, commission, rent, professional and technical fees, sale of certain assets et al.

Exemption certificate: A natural question from the recipient of the above referred specified incomes would be “How can one reduce or claim exemption from tax deduction at source on income?”.

Under section 197 of the Act read with rule 28 of the income tax rules, 1962 (the Rules), a person earning specified income can apply to the concerned assessing officer in Form no(s) 13, 13C, 13D or 13E, as applicable, for lower or no deduction of tax at source and if the assessing officer is satisfied that the total income of the recipient justifies the same, then the assessing officer may issue a certificate to that effect in Form no 15AA.

The certificate so obtained from the assessing officer can be used for lower or non deduction of tax at source on specified income by the recipient

.General exemption: Let us now review the general exemption provided from deduction of tax at source on specified incomes under section 197A of the Act.

In the case of an individual, who is a resident of India as defined under the Act, can earn dividend income (section 194) and/or payment regarding deposit under the National Savings Scheme (section 194EE) without deduction at source by furnishing a declaration in duplicate in writing in Form no 15G and 15-I respectively to the effect that the tax on his/her total income of the financial year in which such income is to be included in computing the total income will be nil.

Similarly, a person other than a company or a firm, can earn interest on securities (section 193), interest other than interest on securities (section 194A) and/or income in respect of units (section 194K) without deduction at source by furnishing a declaration in duplicate in writing in Form no 15H to the effect that the tax on their total income of the financial year in which such income is to be included in computing the total income will be nil.

However, with effect from 1 June, 2002, in the case of both the above referred categories of assessees, under section 197A(1B) of the Act, the above exemption would not be available if either the individual or the aggregate amount of income specified there under credited or paid or likely to be paid or credited during the financial year, in which such income is to be included, exceeds the maximum amount which is not chargeable to income tax, ie Rs 50,000. Thus, with effect from 1 June, 2002 where the individual or aggregate amount of the specified income exceeds Rs 50,000 in a financial year, such a person cannot claim exemption from deduction of tax at source by furnishing Form no(s). 15G, 15H or 15-I.

However, in order to avoid hardship to senior citizens, the Finance Act, 2003 inserted sub-section (1C) to section 197A of the Act, whereby with effect from 1 June , 2003 no deduction of tax shall be made in case of an individual resident in India, who is 65 or more at any time during the financial year and who is entitled to deduction under section 88B of the Act from the amount of income tax, if such individual furnishes to the payer of interest on securities (section 193), dividend income (section 194), interest other than interest on securities (section 194A), payment on deposit under the National Savings Scheme (section 194EE) and/or income on the units (section 194K), a declaration in duplicate in writing in Form no 15H to the effect that the tax on his/her total income of the financial year in which such income is to included in computing the total income will be nil. Under section 88B of the Act, for assessment year 2004-05 relevant to the accounting year ending on March 31, 2004, a resident senior citizen aged 65 years and above at any time of the financial year is entitled to a deduction from the tax payable on the total income up to the amount of tax actually payable before rebate under section 88 of the Act or Rs 20,000, whichever is lower. This exemption would be available to the resident senior citizen even if the individual or aggregate amount of income specified thereunder credited or paid or likely to be paid or credited during the financial year, in which such income is to be included, exceeds the maximum amount which is not chargeable to income tax, ie Rs 50,000. In other words, resident individuals of the age of 65 years or more can submit Form No 15H for non-deduction of income tax at source even if the individual or aggregate amount of their specified income exceeds Rs 50,000 in a financial year but the income tax on the estimated total income for the financial year should be nil.

Recent amendments : In terms of the income tax (Eighth Amendment) rules, 2003, with effect from 9 June, 2003, Form no(s) 15H and 15-I have been omitted and Form No 15G has been substituted with a new Form 15G for an individual or a person, other than a company or firm, claiming certain receipts without deduction of tax.

Moreover, in terms of the Income-tax (Fourteenth Amendment) Rules, 2003, with effect from August 1, 2003, a new Form no. 15H has been inserted for individuals of the age of 65 years or more claiming certain receipts without deduction of tax.

Implications: In view of the above developments, resident senior citizens would benefit because they can now receive specified income without tax being deducted at source with effect from June 1, 2003 by submitting the old Form no. 15H. However, with effect from August 1, 2003 if the resident senior citizen has submitted to the payer of the specified income the old Form no. 15H before August 1, 2003, then he/she will now have to submit a declaration in duplicate in the new Form no 15H for claiming income without tax deduction at source.

Likewise, others who have issued declarations in the old Form no(s). 15G, 15H or 15-I before June 9, 2003, will now have to submit a declaration in the new Form no. 15G for claiming income without tax deduction at source.

Thus, all assessees need to carefully determine whether they are eligible to claim specified income without deduction of tax at source under the provisions of the Act and thereafter submit the declarations in the relevant new forms to take advantage of the recent amendments.[*]