The Employee Provident Fund Organization (commonly referred to as the PF Department), has notified (dated 26-Sep-2016) a form called New Form No. 11. This replaces the earlier Form No. 11 (New).

Form No. 11 – what is that for?

While many payroll managers know that employees need to submit Form No. 11, not many seem to be aware of the importance of Form No. 11 particularly in the light of the PF Department’s notification dated 29-Aug-2014. In fact, in many organizations, new employees are not even asked to submit Form No. 11 and this leads to inadequate PF compliance.

Form No. 11 is the document through which a new employee submits their PF information to their employer. The key information contained in Form No. 11 are as follows.

a. Employee’s prior PF status – whether member or not.

If an employee was a member of PF during their previous employment, they cannot be left out of PF in the new organization as long as their earlier PF amount was not withdrawn. We find many payroll managers not being fully informed about the rules under which a new employee may be left out of Provident Fund. Some are under the impression that if an employee’s PF wage is more than Rs 15,000 per month, they can be automatically left out of PF. This is wrong. If an employee submits his PF information in Form No. 11, the employer has to include the employee for PF.

b. If PF member in his previous organization, then was the employee a member of EPS?

The notification dated 29-Aug-2014 notifies an important change related to Employee Pension Scheme (EPS). According to the notification,

As EPS will henceforth apply only to EPF members whose pay at the time of becoming a PF member is not more than Rs.15,000 per month on or after 01.09.2014, the entire employer and employee contribution shall remain in the provident fund and no diversion shall be made to EPS for all new PF members on or after 01.09.2014 having salary more than Rs.15,000 at the time of joining.

Effective 01-Sep-2014, any new employee who becomes PF member for the first time and whose salary is higher than Rs 15,000 cannot be a member of EPS. In other words, the entire 12% contribution should be placed under Employee Provident Fund and there shall be no contribution to Family Pension Fund.

But what if a new employee was under EPS in their earlier employment?

In such a case the employee should come under EPS in their new organization even if the employee’s salary is higher than Rs 15,000.

The Form No. 11 requires the employees to state whether or not they were a member of EPS in their earlier organization. On the basis of the employee’s declaration in Form No. 11, the employer should include/exclude him in/from EPS.

We find many payroll managers complaining that they are unable to get the correct information regarding EPS applicability from new employees. Some say that the new employees are just unable to clearly state whether they were under EPS in their previous organization. Many employees do not even seem to know how the 12% contribution is bifurcated and what EPS is. Consequently, in many organizations, all new employees are brought under EPS whether or not they are eligible for it, as an easy way out.

c. Other information
Form No. 11 also presents other information such as details of an international worker (if applicable) and KYC details.

The PF Department requires that the New Form No. 11 – Declaration Form be “retained by the employer for future reference.” You may be aware that the PF Department has enabled online transactions for PF transfer and withdrawal and hence it is extremely important that new employees provide accurate information regarding their PF status by submitting Form No. 11.

If you are responsible for PF compliance in your organization, please ensure that you get a signed copy of New Form No. 11 from new employees as soon as they join your organization. In addition, please get the employer declaration in the form duly signed, and store the New Form No. 11 for future reference.

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The Ministry of Labour and Employment, Government of India, has amended the Employees’ State Insurance (Central) Rules, 1950 by introducing a new rule called Rule 51B, stated as follows.

“51B. In areas where the Act is implemented for the first time, the rates of employer’s and employee’s contribution for the initial twenty-four months from such date of implementation, shall be as under:-

(a) Employer’s contribution – A sum (rounded to the next higher rupee) equal to three per cent of the wages payable to an employee; and

(b) Employee’s contribution – A sum (rounded to next higher rupee) equal to one per cent of the wages payable to
an employee:

Provided that on completion of twenty-four months from the date of implementation of the Act, the rate of contribution as provided under rule 51 shall be applicable.”

You can read the gazette notification dated 06-Oct-2016 here.

What does the notification say?

As per Rule 51 of the Employees’ State Insurance (Central) Rules, 1950, the employer’s contribution to ESI is 4.75% of an employee’s ESI wage while the employee contribution is 1.75% of the employee’s ESI wage.

The Employee State Insurance Corporation continually expands its operations to cover new areas all over India. According to the notification, the ESI calculation for new ESI locations shall be as follows.

Employer contribution: 3% of wage, rounded to next higher rupee
Employee contribution: 1% of wage, rounded to next higher rupee

The above rates shall be in force for a period of 24 months from the time a new ESI location is introduced. After 24 months from the date of implementation of a new ESI location, the ESI calculation shall be as per Rule 51 (Employer contribution at 4.75% of wage and Employee contribution at 1.75% of wage).

In case your organization has operation in a place where ESI is implemented for the first time, this notification shall be relevant to you. Given that the ESI remittance happens for each location code, we presume that the ESI portal will be able to validate the ESI contribution calculations as per the rates notified for new ESI locations.

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Someone asked us a question on Form 16 recently.

In case an employee has no tax liability and hence no tax is deducted from the employee’s salary, can/should the employer issue Form 16 to the employee?

The typical answers we come across are as follows.

a. Form 16 cannot be issued to an employee with zero tax. This is because Form 16 can be generated only if tax is deducted from an employee’s salary.

b. Part A of Form 16 cannot be issued while Part B alone can be issued.

Both the above answers are wrong.

The question has 2 parts – whether an employer can issue Form 16 to a zero tax employee and whether an employer should issue Form 16 to a zero tax employee.

Can Form 16 be issued?

A Form 16 comprises 2 parts – Part A (downloaded from the TRACES site) and Part B (prepared by the organization issuing Form 16). Any organization can create Part B. However, for Part A to be available on the TRACES site, an organization has to include the employee record (including zero tax employees) in Annexure II of the fourth quarter (Jan – Mar) Form 24Q.  You would be aware that Part A also contains information on salary paid to an employee and the tax deducted from an employee’s salary for each of the 4 quarters. Hence, for the salary and tax figures to appear in Part A, the employee record should also feature in Annexure I of Form 24Q. In fact, the employee record need not feature in Annexure I in Form 24Q of all quarters. Please note that if the employee record features in Annexure I of only one Form 24Q and Annexure II of the fourth quarter of Form 24Q, his Part A will be available for download on the TRACES site. Just that the fields (in Part A) pertaining to salary and tax amounts for the quarters in which the employee record is not included in Annexure I will be shown as blanks.

Once Part A is downloaded from the TRACES site, the organization can create Form B, and issue the signed Form 16 to a zero tax employee.

Here is a screenshot of Part A for an employee with no TDS.

So, can Form 16 be issued to a zero tax employee? Of course, it can be issued!

Should Form 16 be issued?

As per the diktat issued by the Income Tax Department, an organization need not include an employee record in Form 24Q until the quarter any tax is deducted from the employee’s salary. Once tax is deducted in a quarter, the employee should feature in Form 24Q for that quarter and the subsequent quarters until end of the year as long as the employee receives salary, even if no tax deducted in any of the subsequent quarters. Let us explain this with examples.

An employee works for the entire year and receives salary for all the 12 months.

1. Tax deducted in the first quarter.

The employee should feature in Form 24Q of all 4 quarters.

2. Tax deducted in the third quarter; no tax in the first 2 quarters.

The employee should definitely feature in Form 24Q of third and fourth quarters. The employer can choose to include or exclude the employee in Form 24Q for the first and second quarters.

3. No tax deducted in all four quarters.

The employer, at their discretion, can choose to include or exclude the employee record in Form 24Q.

So, should Form 16 be issued to a zero tax employee? It is up to the employer.

Since it is not mandatory for zero tax (for the whole year) employees to feature in Form 24Q, many employers do not issue Form 16 to zero TDS employees. However, there are also many employers who issue Form 16 (with both Part A and Part B) to zero TDS employees.

A word on the department’s diktat

We wonder why the Income Department does not insist on employers including zero tax employees in Form 24Q. Form 24Q presents not only tax figures but also salary figures. There can be instances where the Income Tax Department may never get to know instances of tax evasion because of this.

For example, let us assume that an employee works for 2 employers in the year 2016-17 and receives Rs 2.4 lakh from each employer. Both the employers do not deduct tax since the employee receives a salary which is in the zero tax bracket and both the employers decide not to include the employee record in their Form 24Q filings for the year.

This is a case where an employee receives Rs 4.8 lakh in a year and is liable to pay a certain tax. Since the employers do not show the employee record in their Form 24Q filings, the Income Tax Department will never get to know the salary of the employee. If the employee does not pay the tax by himself and file his tax return, the Income Tax Department may never be able to levy tax on the employee’s salary.

The whole process of Form 24Q needs a revamp. But that is a topic for another day.

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The issue

An employee changes job in the middle of a year and submits his investment details (for tax saving) to the company he joins. The employee seeks benefits under Section 24 (interest on housing loan), Section 80C etc. of the Income Tax Act, from the new employer. The employee, while in his earlier company, too availed benefits under Section 24, 80C etc. for the year. Will the company which he joins be providing him with a “double” tax benefit if it were to consider benefits under sections such as 24 and 80C?

This is a question we received recently from the Chief Financial Officer (CFO) of a company we know. It looks as though payroll managers and CFOs are worried that they may be providing excessive tax benefits to employees who join their organization in the middle of a year.

In order to ensure that they do not give “double” tax benefit to employees, some payroll managers argue that they should reduce the interest (on housing loan) amount (Section 24) and life insurance premium amount (Section 80C) to the extent of an employee’s service period with their organization in a particular year. For example, if an employee submits that he would be paying Rs 1 lakh as interest on his housing loan for the year and works with the company for 6 months, say, from October to March, the company would consider only Rs 50,000 (which is Rs 1 lakh adjusted for the 6 month period of employment) towards tax benefit while calculating TDS on salary for the employee.

So, should an employer be worried about providing a double tax benefit to an employee who works for a part of a year?

The short answer is, “no.” There is no question of an employer providing a double benefit to an employee by considering the employee’s entire annual interest (on housing loan) amount or the annual life insurance premium amount.

What does the law say?

Let us take a look at Section 24 to explain this – our reasoning below applies to sections 80C, 80D etc. as well.

Section 192 (2B) of the Income Tax Act clearly specifies that employees, for the purpose of tax deduction, may submit details of income from house property (including loss from house property, if any) in a financial year to their employer.

Interest deduction under Section 24 of the Income Tax Act pertains to income from house property for a previous year and has nothing with the period of employment in the year or the income from salary received during the period of employment in a year. Employees can submit information related to their income from house property (and the interest deduction details) to their employer for timely tax remittance. There is nothing in Section 192 or in any other section which links interest deduction with period of employment. When an employer calculates salary TDS for a year, he should calculate the Income from House Property (after considering interest deduction) for the whole year even if an employee has worked only for a part of the year with the employer.

Section 192 imposes no restrictions on the tax benefit — under sections such as 80C, 24 etc. — that can be provided when an employee moves from one organization to another.

In fact, one could argue that considering income or interest deduction on house property for a part of a year (on the basis of the period of employment) would not be in line with Section 192 since such a thing could lead to over or under-deduction of tax despite the employee submitting information for the entire year. Consequently, the employee could be put to inconvenience with regard to timely tax payment.

Let us take a look at a case where linking housing loan interest with the period of employment could lead to problems.

For a live employee, we consider the housing loan interest of an employee and calculate TDS for the entire year in April itself. Let us assume that the employee leaves abruptly in September end and submits the housing loan interest certificate as part of the exit formalities. If we were to consider housing loan interest proportionately only until September, we could see an under-deduction of tax since we would be abruptly reducing the housing loan interest benefit by half while calculating TDS during settlement. This is not what the law mandates. This problem would occur not just for exiting employees but also for new joinees who join an organization in the middle of a year. For new joinees we may be over-deducting tax if we do not consider the housing loan interest for the entire year.

As an aside, you may be aware that for the purpose of tax calculation we need to consider only the home loan interest payable for the year. In fact, an employee need not even have paid any interest in a year in order to claim the benefit as per Section 24. Also, the timing of interest payment has nothing to do with the period of employment in a year.

Apportioning benefits under 80C etc. deductions across employers, in case of multiple employers within a year, too is not correct.

The treatment of 80C etc. deductions is similar to interest deduction on housing loan as described in the previous paragraphs. All these deductions are for a year and have nothing to do with the period of employment with a particular employer. Section 80C does not allow an employer to apportion 80C amounts as per the period of employment.

What about the issue of double benefit?

Here is an actual question we received recently.

The Form-16 is meant to reflect the taxable income of an employee. By showing deductions for home loan interest and 80C deduction in both the Form 16s (issued by the 2 employer), is the taxable income for the year not getting understated?

Some people seem to be under the impression that if the annual figures of 80C amounts and interest on housing loan are considered by 2 employers in a year, there could be a case of double benefit to an employee. This is totally without any basis.

When an employee submits Form 12B (previous employment information) to his employer, the employer should consider the salary income before the housing loan interest and 80C etc. deductions from the first employer. In other words, the top line salary (after Section 10 exemptions) from the first employer should be added to the top line salary of the second employer when the second employer calculates TDS. The second employer should consider the tax deducted by the first employer and the employee’s investment declaration for the year. Whether the TDS calculated by the first employer is correct or incorrect is immaterial to the second employer as long as the second employer calculates tax correctly with the information he has at his disposal.

Since the second employer considers only the top line salary (before any deduction) from the first employer and applies deductions under sections 24, 80C etc. only once, there is no double benefit to the employee.

One can do a simple test to check if there is any double benefit (and hence under-deduction of tax) to an employee who works in 2 organizations in a year. Calculate the tax liability for the year (by creating a simple Excel sheet for tax calculation) without looking at the Form 16 tax numbers and check if the tax amount you have arrived at is the same as the total tax across the 2 Form 16s. If the tax amount you calculate matches with the Form 16 tax numbers (taking into account Form 16 from both organizations) you can conclude that the numbers in Form 16 are correct. If there is double benefit, the tax you calculate would be higher than the total of the tax amounts in the 2 Form 16s.

If the annual housing loan interest amount is shown in 2 Form 16s, it does not mean that the employee has paid/will pay the total of 2 interest amounts for the year. Form 16 should be read at the level of an individual employer and deductions shown in the 2 Form 16s cannot be added up.

What about Section 10 exemptions such as HRA exemption?

Should the second employer provide House Rent Allowance exemption on the basis of the rent paid during the employee’s stint with the organization (part of the year) or full-year rent?

The House Rent Allowance (HRA) exemption should be provided only for the period the employee is with the organization and hence only the rent paid during the period of employment should be considered. This is because HRA exemption is tied to the head of pay called House Rent Allowance which is paid only for the employee’s service duration with the organization. We cannot provide exemption on a head of pay (HRA, in this case) when it is not paid to an employee (i.e. after he leaves the employment). The rent amount as a factor under Section 10(13A) is tied to the period of HRA received. For example, when HRA is paid for the period Apr to Sep, the HRA exemption can be calculated only for that period and hence rent (as a factor for HRA exemption calculation) for that period alone can be considered.

In summary, Section 10 exemptions (such as those on HRA and Leave Travel Allowance) are organization specific while deductions such as housing loan interest and 80C amounts are financial year specific.

Instances of excessive tax benefits

There can be instances of excessive tax benefits when an employee moves from one employer to another and does not submit Form 12B (previous employment salary and tax) information to the new employer. For example, in FY 2015-16, an employee receives a taxable salary of Rs 2 lakh from the first employer and Rs 2 lakh from the second employer. The first employer does not deduct any tax from the employee’s salary since the salary paid to the employee is in the 0% slab. The employee does not submit Form 12B to the second employer, and as a result, the second employer does not deduct any tax since the salary paid to the employee is in the 0% slab.

For the year, the total taxable salary received by the employee is Rs 4 lakh which is in the 10% slab while both the employers have not deducted any tax. Clearly, the employee receives an excessive tax benefit in this case. However, both the employers have complied with Section 192 and calculated TDS correctly, and hence cannot be faulted. The employee should take the blame for not revealing the previous employment income to the second employer.

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Let us take a look at the tax rules governing accommodation provided by the employer – both when the accommodation is owned by the employer and when accommodation is rented by the employer for the benefit of the employee. The term employer in this post refers to non-government employers. Please see the “Definitions” section in this post for the meaning of terms such as accommodation, furnishings, and salary, used in this post.

Rule 3 of the Income Tax Rules, which pertains to valuation of perquisites, provides guidelines on how to tax accommodation provided to employees.

Factors that determine taxability of accommodation provided to employees

According to Rule 3, the following factors determine the perquisite value of the accommodation.

1. Accommodation ownership – owned by the employer or rented by the employer.
2. Whether the accommodation is furnished.
3. Accommodation location – as per the population of the city/town in which the accommodation is located.

The perquisite values (the salary amount to be added to the taxable income) for employer-provided accommodation under different circumstances are as follows.

I. Employer owns the accommodation and the accommodation is unfurnished

i) The accommodation is located in a city with population of over 25 lakh (as per 2001 census).

The perquisite value shall be calculated as 15% of the employee salary as reduced by the rent, if any, actually paid by the employee.

ii) The accommodation is located in a city with population exceeding 10 lakh but not exceeding 25 lakh (as per 2001 census).

The perquisite value shall be calculated as 10% of the employee salary as reduced by the rent, if any, actually paid by the employee.

iii) The accommodation is located in a city with population less than or equal to 10 lakh (as per 2001 census).

The perquisite value shall be calculated as 7.5% of the employee salary as reduced by the rent, if any, actually paid by the employee.

II. Employer owns the accommodation and the accommodation is furnished

i) The accommodation is located in a city with population of over 25 lakh (as per 2001 census).

The perquisite value shall be calculated as 15% of the employee salary as reduced by the rent, if any, actually paid by the employee plus the annual value of the furnishings provided.

ii) The accommodation is located in a city with population exceeding 10 lakh but not exceeding 25 lakh (as per 2001 census).

The perquisite value shall be calculated as 10% of the employee salary as reduced by the rent, if any, actually paid by the employee plus the annual value of the furnishings provided.

iii) The accommodation is located in a city with population less than or equal to 10 lakh (as per 2001 census).

The perquisite value shall be calculated as 7.5% of the employee salary as reduced by the rent, if any, actually paid by the employee plus the annual value of the furnishings provided.

III. Employer rents/leases the accommodation and the accommodation is unfurnished

The perquisite value shall be the actual amount of lease rental paid or payable by the employer or 15% of salary, whichever is lower, as reduced by the rent, if any, actually paid by the employee.

IV. Employer rents/leases the accommodation and the accommodation is furnished

The perquisite value shall be the actual amount of lease rental paid or payable by the employer or 15% of salary, whichever is lower, as reduced by the rent, if any, actually paid by the employee plus the annual value of furnishings provided by the employer.

V. Accommodation provided in a hotel

In case an employee is provided accommodation in a hotel on account of transfer, the accommodation shall be tax-free for a period of 15 days (in total for the year). In any other case, the perquisite value shall be calculated as 24% of salary paid or payable for the year or the actual charges paid or payable to the hotel, whichever is lower, for the period during which such accommodation is provided minus the rent, if any, actually paid or payable by the employee.

VI. More than one accommodation, in case of transfer

When an employee is transferred from one location to another and the employer allows the employee to retain the accommodation in the previous location for the sake of employee convenience, the perquisite value shall be calculated for accommodations provided in both locations and the lower value of the two shall be taken as the perquisite value until a period of 90 days.

Beyond 90 days, the value of perquisite shall be charged for both accommodations (in the previous and the current locations).

The value of perquisite shall be calculated for the accommodations on the basis of the location of the accommodation, whether the accommodation is employer-owned or rented, and whether the accommodation is furnished.

VII. Temporary accommodation at project site

When an accommodation is provided to an employee at a project site (including locations such as a mining site, an on-shore oil exploration site, a dam site, a power generation site or an off-shore site), such an accommodation shall be tax-free, subject to the following condition.

1. The accommodation should be of temporary nature with a plinth area not exceeding 800 square feet and located not less than eight kilometres away from the local limits of any municipality or a cantonment board or
2. The accommodation should be located in a remote area.

Definitions

1. The term accommodation refers to a house, flat, farm house or part thereof, hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure.

2. The term salary refers to the gross salary of the employee after excluding components such as the employer’s contribution to Provident Fund and tax-free allowances. Please check Rule 3 of the Income Tax Rules for the exact definition of the term salary for the purpose of perquisite calculation.

3. Annual value of furnishings

The term furnishings refers to furniture and household appliances (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets).

If the furnishings are bought by the employer.
The annual value shall be calculated as 10% of the cost of furnishings.

If the furnishings are hired by the employer from a third party.
The annual value shall be the actual hire charges payable to the third party as reduced by any charges paid or payable for the same by the employee.

4. The term hotel refers to licensed accommodation in the nature of motel, service apartment or guest house.

5. The term remote area means an area that is located at least 40 kilometres away from a town having a population not exceeding 20,000 based on latest published all-India census.

Security deposit/rental advance paid by the employer

Is there is any tax implication with regard to the employer paying the security deposit/rental advance when the employer provides a rented accommodation to an employee? Should there be any perquisite calculation on the deposit/advance provided?

Rule 3 of the Income Tax Rules is silent on the issue of security deposit/rental advance paid by the employer. However, there are case laws in which the tax and judicial authorities have ruled that the security deposit/rental advance shall not be taxable.

ITA No. 6591/Mum/2014 (Assessment Year: 2010-11)
An investment advisory firm provided accommodation to one of its employees and as part of the same paid Rs 20 lakh as a deposit to the house owner. At the time of assessment, the assessing officer was of the view that the Rs 20 lakh deposit should be construed as a benefit, akin to an interest-free loan, in the hands of the employee. Further, the assessing officer applied a notional interest of 12% on the deposit and concluded that Rs 2.4 lakh (20% of Rs 20 lakh) should be added to the taxable income of the employee as perquisite. The case was taken up by the appellate tribunal and the tribunal ruled in favour of the assessee dismissing the Income Tax Department’s contention that the security deposit should be looked at as a loan. The tribunal based its verdict on an earlier case in which the High Court of Bombay adjudicated on Income Tax Appeal No.3516 of 2010 (COMMISSIONER OF INCOME TAX-26 Vs SHANKAR KRISHNAN).

The first paragraph of the Bombay High Court judgement takes the question head on.

Where an employer takes residential premises on rent by giving security deposit
for the benefit of employees, whether the notional interest on such security deposit
is liable to be included in the perquisite value of the accommodation given to the
assessee employee is the question raised in this appeal?

Paragraph 9 of the judgement provides the answer to the above question in no uncertain terms.

Thus, on a plain reading of Rule 3, it is seen that the perquisite value of the
residential accommodation provided by the employer is to be computed on actual
amount of lease rental paid or payable by the employer and not on notional basis.
Therefore, in our opinion, the contention of the revenue that the notional interest on
the deposits paid by the employer to the landlord has to be taken into consideration
while computing the perquisite value of the residential accommodation cannot be
accepted in view of the express words used in Rule 3 of the Income Tax Rules, 1962
as amended w.e.f. 1.4.01.

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Employers seek information on and proof of investments/expenditure from employees who wish to avail tax benefits each year. The benefits include those on allowances such as House Rent Allowance and Leave Travel Allowance, and those on deductions such as interest payment on housing loan (Section 24) and payments towards life insurance premium etc. under Section 80C, and other sections. As of now (May 2016), there is no format as prescribed by the Income Tax Department with regard to how information on investments/expenditure should be collected. So far, organizations have been using their own formats for the purpose of collecting information from employees in this regard.

The Income Tax Department, by way of a notification dated 29-Apr-2016, has prescribed a format called Form No. 12BB for collection of investment/expenditure information from employees. This comes into effect on 01-June-2016.

According to Rule 26C of the Income Tax Rules:

The assessee shall furnish to the person responsible for making payment under sub-section (1) of section 192, the evidence or the particulars of the claims referred to in sub-rule (2), in Form No.12BB for the purpose of estimating his income or computing the tax deduction at source.

Information to be submitted in Form No. 12BB

Form No. 12BB should contain:

1. Name, address, and PAN of the employee.
2. Financial year to which the form pertains.
3. For each of the tax benefit sought, the following information:
   • Nature of the claim (House Rent Allowance, Leave Travel Assistance, Housing Loan Interest, Benefit under Section 80C etc.)
   • Amount in Rs (HRA paid, LTA paid, Housing Loan Interest payable/paid, Investment under Section 80C. etc.)
   • Evidence/particulars (Landlord details for HRA, Lender details for housing loan, details for other benefits claimed)

Employees should sign Form No. 12BB with the declaration that the information provided is complete and correct, and submit the same to the employer along with the supporting documents.

You can take a look at the format of Form No. 12BB here.

Additional information to be provided in Form No. 24Q

A. Report landlord PAN to the Income Tax Department

Currently, employees who wish to avail HRA exemption are required to submit the PAN of their landlord to the employer if the rent payment exceeds Rs 1 lakh in a year. Until now, employers were not required to submit information on landlord PAN to the Income Tax Department. From FY 2016-17 onwards, employers will have to report the PAN of the landlord in Annexure II of Form No. 24Q. In the entry numbered 357 in Form No. 24Q Annexure II, the following should be provided.

In case of House Rent Allowance claim-Name and Permanent Account Number of the landlord if aggregate payment during the previous year exceeds rupees one lakh

B. Report PAN of the housing loan lender to the Income Tax Department

If an employee wishes to seek interest deduction under Section 24 (on housing loan), the PAN of the loan provider, if available, should be reported to the Income Tax Department from now on. In the entry numbered 358 in Form No. 24Q Annexure II, the following should be provided.

In case of deduction of interest under the head “Income from House property” – Name and Permanent Account Number of the lender (if available)

Here are the PAN of some of the banks/financial institutions for your benefit.

Bank / Financial Institution	Permanent Account Number (PAN)
Allahabad Bank	AACCA8464F
Axis Bank Limited	AAACU2414K
Bank of Baroda	AAACB1534F
Bank of India	AAACB0472C
Bank of Maharashtra	AACCB0774B
Canara Bank	AAACC6106G
Canfin Homes Limited	AAACC7241A
Central Bank of India	AAACC2498P
City Union Bank Limited	AAACC1287E
Corporation Bank	AAACC7245E
DCB Bank Limited	AAACD1461F
Deutsche Bank	AAACD1390F
Dewan Housing Finance Corporation Limited	AAACD1977A
Dhanlaxmi Bank Limited	AABCT0019J
GIC Housing Finance Limited	AAACG2755R
GRUH Finance Limited	AAACG7010K
HDFC Bank Limited	AAACH2702H
Housing Development Finance Corporation Limited	AAACH0997E
ICICI Bank Limited	AAACI1195H
IDBI Bank Limited	AAACI1603C or AABCI8842G
Indian Bank	AAACI1607G
Indian Overseas Bank	AAACI1223J
Indusind Bank Limited	AAACI1314G
Kotak Mahindra Bank Limited	AAACK4409J
LIC Housing Finance Limited	AAACL1799C
Oriental Bank of Commerce	AAACO0191M
PNB Housing Finance Limited	AAACP3682N
Punjab & Sind Bank	AAACP1206G
Punjab National Bank	AAACP0165G
REPCO Home Finance Limited	AACCR0209F
State Bank of Bikaner and Jaipur	AADCS4750R
State Bank of Hyderabad	AADCS4009H
State Bank of India	AAACS8577K
State Bank of Mysore	AACCS0155P
State Bank of Patiala	AACCS0143D
Syndicate Bank	AACCS4699E
The Hongkong & Shanghai Banking Corporation Limited	AAACT2786P
The South Indian Bank Limited	AABCT0022F
UCO Bank	AAACU3561B
Union Bank of India	AAACU0564G
United Bank of India	AAACU5624P
Vastu Housing Finance Corporation Limited	AABCV9934C
Vijaya Bank	AAACV4791J
YES Bank Limited	AAACY2068D

Parting thoughts

1. According to the income tax rules, employees can submit a “No PAN” declaration from their landlord, if the landlord does not have PAN. The current format of Form No. 12BB does not refer to the No PAN declaration. The Income Tax Department would do well to clarify this.
2. In Annexure II of Form No. 24Q, we present one row of information for each employee. In case of an employee presenting more than one landlord/housing loan lender PAN due to the fact that the employee has paid rent to more than one landlord or taken housing loan from more than one lender, we are not sure how to enter the same in Form No. 24Q. We are also not sure if an entry should be made in Form No. 24Q in case of No PAN declaration from the landlord. We await the new format of Form No. 24Q to be notified by the Income Tax Department for clarity on this.
3. We find many payroll managers being undisciplined about collecting investment/expenditure proof from employees while finalizing tax calculations each year. Now that Form No. 12BB has been notified by the Income Tax Department, payroll managers would do well to ensure that they collect Form No. 12BB from employees at the time of final settlement processing for exiting employees and before the end of the year for active employees. In the event of a query from the Income Tax Department, employers may well have to submit Form No. 12BB for scrutiny.

Please check with your payroll software or service provider regarding Form No. 12BB after 01-June-2016.  Of course, if you are a customer of Hinote, we will make it available for you on our payroll portal – sorry, couldn’t resist that :D.

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Currently (as of May 2016), the deadlines for Form No. 24Q filing are as follows:

Quarter	Deadline
First quarter, ending 30th of June	Immediately following 15th of July
Second quarter, ending 30th of September	Immediately following 15th of October
Third quarter, ending 31st December	Immediately following 15th of January
Fourth quarter, ending 31st of March	Immediately following 15th of May

The Income Tax Department, by way of a notification dated 29-Apr-2016, has changed the deadline for Form No. 24Q filing each quarter.

Revised Form No. 24Q filing deadline

With effect from 01-June-2016, the deadlines for Form No. 24Q filing are as follows.

Quarter	Deadline
First quarter, ending 30th of June	Immediately following 31st of July
Second quarter, ending 30th of September	Immediately following 31st of October
Third quarter, ending 31st December	Immediately following 31st of January
Fourth quarter, ending 31st of March	Immediately following 31st of May

As you may have observed, organizations will have an additional 15 days for filing Form No. 24Q each quarter from 01-June-2016 onwards. Given that the last date for TDS remittance is the 7th, we at Hinote receive TDS challan information from many of our clients only after the 7th, and consequently burn the midnight oil to file Form No. 24Q by the 15th after completing all the checks regarding TDS data. The additional 15 day period comes as a relief to us and payroll compliance managers.

Deadline for Form No. 16 issuance

For the last quarter, the Form No. 24Q filing deadline has been extended to 31st of May. Rule 31 of the Income Tax Rules states that Form No. 16 should be issued “by 31st day of May of the financial year immediately following the financial year in which the income was paid and tax deducted.” This means that the deadline for Form No. 16 issuance too is 31st of May. Given that it takes a few days for the TRACES system to generate Part A of Form No. 16 once Form No. 24Q is filed, it is currently impossible to issue Form No. 16 by 31st of May if Form No. 24Q is filed on 31st May or even a day or two ahead of 31st of May.

Maybe the Income Tax Department should consider moving the Form No. 16 issuance deadline by a week or 15 days after 31st of May.

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State Bank of India (SBI) has published the reference lending rates for the purpose of loan perquisite calculation for the financial year 2016-17. You can find the SBI rates as on 01-Apr-2016 here.

SBI provides reference rates for different types of loan (home loan, car loan etc.) and 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. There are 3 categories of reference rates under this loan – Full Check-off, Partial Check-off, and No Check-off. The term Check-off, in this context, refers to the system whereby the employer regularly deducts a portion of an employee’s salary and makes payments towards loan repayment. If the loan repayment from an employee happens entirely by way of salary deduction (and not by the employee paying by cheque/cash outside of salary deduction), the Full Check-off rates should be considered for perquisite calculation.

For 2016-17, SBI has published a range of rates for the 3 categories (Full, Partial, and No Check-off). It is not clear how employers should interpret the range provided. For example, the reference rate range for the “Full Check-off” category is as follows:

Full Check-off: 330 bps – 380 bps above Base Rate i.e., 12.60 % p.a. – 13.10% p.a.

If an employer provides a personal loan at 0% interest rate and the loan deduction happens entirely by way of deduction from salary, should the employer consider 12.60% or 13.10% as the reference rate? It would be useful if SBI or the Income Tax Department provides a clarification on how employers should interpret the range of reference loan rates published by SBI.

In addition to offering Xpress Credit, SBI offers a number of other personal loan products such as SBI Saral – the interest rates for these products are different from those of Xpress Credit as of 01-Apr-2016. It may be noted that SBI has chosen Xpress Credit alone as the reference loan product for perquisite calculation in the personal loan segment.

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

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