2018

State Bank of India (SBI) published the reference lending rates for the purpose of loan perquisite calculation for the financial year 2018-19 on its website a few days ago. You can find the SBI rates as on 01-Apr-2018 here.

SBI provides reference rates for different types of loan (home loan, car loan etc.). Employers should use the correct reference rate for the purpose of perquisite calculation. For example, if a car loan is provided to an employee, the reference rate for perquisite calculation shall be the SBI car loan rate.

Reference rate for personal loan provided to employees

SBI’s loan product called “Xpress Credit” corresponds to personal loans provided by employers to their employees. Unlike last year (FY 2017-18) when SBI referred to 3 categories of reference rates – Full Check-off, Partial Check-off, and No Check-off, this year (FY 2018-19) the personal loan rates have been classified differently.

Let us take a look at the below table which presents personal loan rates which must be used by the large majority of the organizations for the purpose of perquisite calculation.

The table above presents the basis of which SBI determines the lending rate for an individual who applies for a personal loan with the bank. Any organization which uses the above table to determine the perquisite rate needs to know the following.

1. ECR – Refers to the employer’s credit rating.

2. CIBIL TU Score – Refers to the CIBIL score of the employee for whom the loan perquisite is sought to be determined.

For example, if your company’s credit rating is A- and the employee’s CIBIL score is 750, the reference rate for perquisite calculation shall be 11.65% for the year.

There are a few issues with the reference rates published by SBI.

1. For unrated companies, SBI does not provide reference rates if an employee’s CIBIL score is lower than 700. This probably means that SBI would not lend to an individual who works for an organization which has no credit rating and whose CIBIL score is lower than 700. But in reality, there are many unrated organizations which may provide loans to employees whose CIBIL rating may be lower than 700. What should be the reference rate for such instances?

2. SBI does not provide reference rates for employees who do not have CIBIL score. What should organizations do in such instances? It looks as though employers should ask employees to make an application to CIBIL and receive a score for the purpose of loan perquisite value calculation.

3. If an employee does not have a CIBIL score on account of insufficient credit history, what should be the reference rate?

The Income Tax Department should address the above issues and clarify on how employers should arrive at the perquisite rate for FY 2018-19 if an employee does not have a CIBIL score.

For personal loans, SBI publishes rates for a variety of its schemes such as XPRESS Credit, XPRESS Credit – IT Employees, and XPRESS Elite. This makes it complex for employers to identify the correct perquisite rate for its employees. Ideally, the Income Tax Department should simplify the process by publishing a single loan perquisite rate for all personal loans.

You can read about how to calculate perquisite value on loan provided to employees in this blog post.

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Each year, employers issue Form 16, the statement of salary paid and income tax deducted, to employees, and employees use the information in Form 16 to file their income tax return (ITR) using a tax return form such as ITR-1. Until last year (AY 2017-18), the format of ITR-1 was such that employees could easily fill in ITR-1 on the basis of their Form 16 information. For AY 2018-19, the Income Tax Department has notified a new ITR-1 format which requires salary break-up information from employees. However, the Form 16 issued by employers for FY 2017-18 does not contain the salary break-up information. As a result, we have been receiving questions from a number of people on how they should go about filing their tax return for AY 2018-19 on the basis of their Form 16 information.

What is asked for in ITR-1 and what does Form 16 contain?

For AY 2018-19, ITR-1 requires the break-up of salary as presented in the screenshot below.

Employees, as can be seen in the above screenshot, need to submit information on salary (excluding all allowances, perquisites and profit in lieu of salary) and allowances to the extent not exempt from tax, separately. Form 16, given its current format, provides the total salary amount (including the allowance amount) without the break-up.

The Income Tax Department in its help file for ITR-1 suggests the following.

Fill the details of salary/pension, allowances not exempt, perquisites and profit in lieu of salary, deductions under section 16 etc. as given in TDS certificate (Form 16) issued by the employer.

This suggestion is not helpful since the Form 16 format, as prescribed by the Income Tax Department, does not contain the salary and the allowances not exempt amounts separately.

What should employees do?

Given that employees cannot fill in the income tax return form with information from just the Form 16, some experts are of the view that employees should take a look at documents such as payslips and tax workings provided by their employer for information required to file their return. Employees can take a look at their payslips and other documents for information. However, they have to be careful while filling in their tax return in order to submit the correct information. Any discrepancy between the total salary figures in Form 16 and the ITR form can lead to queries from the Income Tax Department.

Let us take a look at the break-up of the salary figure required for the ITR-1 form.

1. Salary (excluding all allowances, perquisites, profit in lieu of salary)
Please state the salary amount separately after excluding allowances, perquisites, and profit in lieu of salary. Hence, the salary figure for the purpose of ITR should include Basic pay, any annuity or pension, taxable gratuity amount, bonus, taxable leave encashment pay, salary advance, taxable employer contribution to Provident Fund, and taxable employer contribution to National Pension Scheme.

If the above figures are not clearly stated in your payslip or the tax working sheet provided by your employer, please seek information on salary break-up for the purpose of ITR from your employer.

2. Allowances not exempt
Please enter the total allowance value after exemptions such as those under Section 10 of the Income Tax Act. For example, if the House Rent Allowance (HRA) amount is Rs 1 lakh for the year and the exemption on HRA is Rs 0.50 lakh for the year, the net taxable amount of Rs 0.50 lakh (Rs 1 lakh minus Rs 0.50 lakh) should be included under the “Allowances not exempt” figure.

To reiterate, “Allowances not exempt” is not the total allowance amount you received under different allowance heads for the year. This should be the net amount after excluding exemptions such as those under Section 10 of the Income Tax Act.

3. Value of perquisites
You can locate the value of perquisites under “Gross Salary” in Part B of your Form 16.

4. Profit in lieu of salary
You can locate the value of profit in lieu of salary under “Gross Salary” in Part B of your Form 16.

5. Deductions under Section 16
You can locate the deductions under Section 16 under “Deductions” (item number 4) in Part B of your Form 16.

Finally, please ensure that “Income Chargeable under the head ‘Salaries'” in your ITR equals the amount under “Income Chargeable under the head ‘Salaries'” (after Section 16 deduction) in your Form 16.

If you are a Hinote customer

We have created a screen called “ITR Info” in HRWorks, our payroll portal, which presents the break-up of salary to help you file your ITR.

Please note that the amount shown under “Income chargeable under the head ‘salaries'” in the above screenshot should equal the amount under “Income Chargeable Under the Head Salaries” in Part B of your Form 16 as shown below.

The ITR Info screen also presents the break-up of your taxable allowances for your convenience.

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The Greater Chennai Corporation, by way of a council resolution dated 11-May-2018, has made changes to Profession Tax. The revised tax slabs for salaried employees in Chennai are as follows.

Salary for the half year in Rs	Profession Tax for the half year in Rs
Less than or equal to 21,000	Nil
21,001 – 30,000	135
30,001 – 45,000	315
45,001 – 60,000	690
60,001 – 75,000	1025
75,001 and above	1250

As you may observe, the half-yearly Profession Tax for the highest salary slab (Rs 75,001 and above) is now Rs 1,250, the maximum permissible levy under Article 276(2) of the Constitution of India.

The new Profession Tax rates are effective from the first half (Apr to Sep) of the financial year 2018-19.

You can download the announcement here.

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The Ministry of Labour and Employment has reduced the PF administrative charges with effect from 01-June-2018. You can read the gazette notification here. The highlights of the notification are as follows.

1. The EPF administrative charge shall be 0.50% of the total PF wage from 01-June-2018. The earlier administrative charge was 0.65% (until 31-May-2018). Consequently, the administrative charges to be remitted under A/C No. 2 (PF admin account) shall undergo a change.

2. In case of non-functional establishments (covered under PF) with no contributing member, an administrative charge of Rs 75 per month shall be payable. A non-functional establishment is an organization which is not operational and hence may not have any wages payable to employees.

3. In case of functional establishments, if the administrative charge (calculated at 0.50%), is less than Rs 500, then the administrative charge to be remitted shall be Rs 500. For example, if the PF wages for a month is Rs 70,000, then the administrative charges, calculated as 0.50% of wages, works out to Rs 350 (which is less than Rs 500). Such an establishment has to remit Rs 500 towards administrative charges.

4. The notification clarifies that the new administrative charges are applicable only from the wage period starting June 2018. In other words, administrative charges for periods up to 31-May-2018 should be calculated as per the earlier rates.

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The Union Budget for FY 2018-19 was tabled in the Parliament by the Finance Minister of India on 01-Feb-2018. Here are the key proposals related to computation of tax on salary which payroll managers need to consider for FY 2018-19.

1. Tax slabs remain the same

The tax rates for salaried employees below 60 years of age for FY 2018-19 shall be the same as those for FY 2017-18.

The tax rates (for FY 2018-19) for salaried employees below 60 years of age are as follows.

Total Income for the Year in Rs	Tax Rate in %
Up to 2,50,000	Nil
2,50,001 to 5,00,000	5
5,00,001 to 10,00,000	20
Above 10,00,000	30

The tax rates (for FY 2018-19) for salaried employees aged 60 years and above but below 80 years are as follows.

Total Income for the Year in Rs	Tax Rate in %
Up to 3,00,000	Nil
3,00,001 to 5,00,000	5
5,00,001 to 10,00,000	20
Above 10,00,000	30

2. Surcharge remains the same

In case the total taxable income for the year goes beyond Rs 50 lakh (but is less than or equal to Rs 1 crore) in the year, a surcharge of 10% (subject to marginal relief) on the income tax is to be deducted, as it was in FY 2017-18.

In case the total taxable income for the year goes beyond Rs 1 crore in the year, a surcharge of 15% (subject to marginal relief) on the income tax is to be deducted – the surcharge was 15% in FY 2017-18 too.

3. Introduction of Health and Education Cess

In FY 2017-18, the Education cess was levied at 2% on the income tax and surcharge, if applicable, and the Higher Education cess was levied at 1% on the income tax and surcharge, if applicable. In FY 2018-19, a “Health and Education Cess” shall be levied at 4% on income tax and surcharge, if applicable, in lieu of the Education Cess and the Higher Education Cess.

4. Reintroduction of Standard Deduction for salaried employees

A standard deduction of Rs. 40,000 shall be applied as a deduction on salary, for the purpose of calculating taxable salary in FY 2018-19. You may be aware that standard deduction was abolished some years ago. It has now been reintroduced.

5. No tax benefit on reimbursement of medical expenses

According to Section 17 of the Income Tax Act, any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family is exempted from income tax as long as such sum does not exceed fifteen thousand rupees. This clause has now been omitted and from FY 2018-19, any reimbursement of medical expenses by the employer will be fully taxable in the hands of the employee.

6. No tax benefit on transport allowance, except for differently abled employees

According to Rule 2BB of the Income Tax Act, any transport allowance paid to an employee (who is not a disabled employee) to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty is exempted from income tax to a maximum of Rs 1,600 per month. This rule has now been omitted and the exemption will not available from FY 2018-19.

However, in case of disabled employees (please see the income tax rules for the exact definition of disabled for determining eligibility for this benefit), transport allowance will continue to remain exempted to the extent of a maximum of Rs 3,200 per month.

7. Change to medical insurance tax benefit for senior citizens

Section 80D allows a deduction of up to Rs 30,000, for senior citizens, in respect of payments towards annual premium on health insurance policy, or preventive health check-up, of a senior citizen. From FY 2018-19 onwards, the deduction limit has been enhanced to Rs 50,000. Please note that the enhancement in deduction is only for senior citizens and very senior citizens.

8. Enhanced deduction for expenses incurred for treatment of specified diseases for senior citizens

Section 80DDB allows a deduction of up to Rs 60,000, for senior citizens, for treatment of specified diseases. From FY 2018-19 onwards, the deduction limit has been enhanced to Rs 100,000. Please note that the enhancement in deduction is only for senior citizens.

9. Deduction in respect of interest income to senior citizen

Currently, a deduction up to Rs 10,000 is allowed under section 80TTA to an employee in respect of interest income from savings account. The budget has proposed creation of a new section 80TTB which would allow a deduction of up to Rs 50,000 in respect of interest income from deposits held by senior citizens. If an employee is a senior citizen, please calculate deduction under section 80TTB instead of section 80TTA from FY 2018-19 onwards.

10. No deduction benefit if tax return is not filed by the due date

The finance bill proposes the introduction of a new clause under Section 80AC of the Income Tax Act.

80AC. Where in computing the total income of an assessee of any previous year relevant to the assessment year commencing on or after––

(i) the 1st day of April, 2006 but before the 1st day of April, 2018, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE;

(ii) the 1st day of April, 2018, any deduction is admissible under any provision of this Chapter under the heading “C.—Deductions in respect of certain incomes”,

no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.

The text in bold in the above quote is the new clause proposed to be introduced. The new clause proposes to deny certain deductions under Chapter VIA in case an employee files his tax return beyond the due date specified by the Income Tax Act. Some tax practitioners have opined that this includes denial of 80C deductions. However, it should be noted that heading “C – Deduction in respect of certain incomes” (specified in the new clause) does not include 80C deductions which come under heading “B — Deductions in respect of certain payments” within Chapter VIA of the Income Tax Act.

This means that employees will not be denied 80C deductions even if they file their return after the due date.

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The income tax calculator on the website of the Income Tax Department is one of the most widely used online utilities in India. It looks as though the calculator is making a mistake with regard to the set off of loss from house property against salary income. The mistake is as on 16-Jan-2018.

You may be aware that in FY 2017-18 the government introduced a limit on the loss from house property which can be set-off against amounts under other heads of income. See here for more information. In case the loss from house property is more than Rs 2 lakh, the set off is to be restricted to Rs 2 lakh. In other words, the loss from house property amount beyond Rs 2 lakh should be ignored and cannot be used for set off in the year. The income tax calculator on the Income Tax Department site considers the entire loss (from house property) amount for set off even when the loss is in excess of Rs 2 lakh. We entered some dummy data on the tax calculator to check.

As you can see on the above screenshot, the calculator considers the entire loss (from house property) amount for set off even when the loss is in excess of Rs 2 lakh. Given that we are in the last quarter of the tax year, we request the Income Tax Department to rectify this error at the earliest.

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The Income Tax Department has issued the “TDS on Salary” circular for FY 2017-18. You can take a look at it here.

Please ensure that all tasks (income tax deduction, investment proof scrutiny, etc.) related to salary TDS compliance in your organization for FY 2017-18 are carried out as per the circular.

Para 3.6.1 in the circular

Conditions for Claim of Deduction of Interest on Borrowed Capital for Computation of Income From House Property [Section 24(b)]:

Section 24(b) of the Act allows deduction from income from houses property on interest on borrowed capital as under:-

(i) the deduction is allowed only in case of house property which is owned and is in the occupation of the employee for his own residence. However, if it is actually not occupied by the employee in view of his place of the employment being at other place, his residence in that other place should not be in a building belonging to him.

There seems to be some confusion on account of the text above. The above para seems to suggest that deduction of interest on housing loan is available only in the case of house property which is owned by the employee (please see the words underlined by us in the above quote). Some question whether this means interest deduction is not available for let-out property in FY 2017-18.

Section 24(b) allows interest deduction for both self-occupied and let-out properties. Para 3.6.1 has been poorly worded and hence is misleading. It should be noted that the same para was there in past salary TDS circulars too. You may be aware that in FY 2017-18, the government introduced a limit on the loss from house property which can be set-off against amounts under other heads of income. See here for more information. Para 3.6.1, in light of the set-off limit, compounds the confusion.

Para 3.6.1 should have clearly stated that the text in the paragraph pertains only to self-occupied property and does not refer to let-out property. It is not easy for a lay person to go through sections 23, 24 and 71 of the Income Tax Act, in order to understand the conditions governing interest deduction on house property. Readers of the circular can easily misunderstand the text in para 3.6.1 and make mistakes in interest deduction computation.

The Income Tax Department should consider getting its circulars vetted by communication experts prior to their release.

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