Kudos Infy - You have the right Strategy, but Innovation is the Key

"High Growth comes from balance, you will see us moving towards growth and profitability with the balanced approach that we have adopted"  these were the words of Mr.SD Shibulal after the Q4-2012 quarterly results were announced on 13th the Friday.  These words summarizes what Infosys "stands for" and "will stand for" the years to come.  Right from the days of NRN, Infy never chased volumes at the cost of profits, they were ready to sacrifice volumes if there were no profits.  This strategy has worked for them for the past 30 years and will work for them for years to come.  True after announcement of results analysts battered Infy, stock prices of Infy crashed by a double digit percentage, but the legend lives strong on its principle of growth with profitability.  

Infy has a clear strategy of superior financial growth and strong margins and they have stayed with it.  Let us look at numbers of Infy and other major IT players to understand the strategy of Infy vis-a-vis others.  As now is the trend to look at quarterly numbers let us also look at the "Q" numbers.

                                  NYA - Not yet announced
The analysts are right definitely Infy's revenue growth is under test compared to its peers, growing slowly over the quarters @ 4.6% lowest among its competing colleagues.  Does this mean that the magic of Infosys has waned away?  We have only seen one parameter of the strategy which is growth, let us look at the other parameter Margin.

Here Infy & TCS win hands down, margin @ around 40's where as others are in 20's.  Clearly Infy is living up with its strategy of growth and profitability.  Is it a good strategy to have?  Definitely yes because of the following reasons :

1. Avoiding Cost Sensitive Clients - This strategy means not working with highly cost conscious clients, whose primary aim is cost and second comes the product.  If there is a price upward revision these clients simply dump the existing vendor and move to another who offers lower cost - No Loyalty 
2. No Cross Subsidization - Infy looks for profit in every business / client.  This is a very good option, some companies will look at taking clients at very low margin because of volume with the belief that from some other clients they will get higher margins. This is cross subsidy.  Margins will be under severe threat when the higher margin clients exert price pressure 
3. Falling Quality Standards -  In the long run with margins dropping there will be pressure from investors to keep profitability at reasonable levels.  At that point reaching to customers with price revisions may not be possible, which means cutting costs and some times at the cost of quality 
4. Increase in working Capital -  Companies with lower margins tend to have higher working capital requirements, as over a period of time their margins will be inadequate to cover Receivables & expenses.  This is turn would mean requirement for working capital and its related costs
5. Spreading Too Thin -  With volumes increasing constantly at the cost of margin, companies will like to make optimal (high) usage of resources meaning expectations of higher productivity from the existing assets (including Human Resources).  This will over a period of time lead to "Over Utilisation" of capacity and consequent costs related to it will occur
6. Price Pressure from Clients -  During difficult times like Euro Crises, clients will definitely like to cut their spends in whatever form and the first cut will happen in services, which means IT.  At that point if the margin is reasonably high then a small cut in margin will not affect the company's cashflow and once things are back to normal the margins can be restored.  But on the contrary if margins are low then taking a cut in margin will be very difficult as it would mean (at times) borrowing of funds to meet working capital expenses which will also add to profitability woes.
7. High Investment -  High volume of business means requirement for higher investments in infrastructure.  Cost of maintaining this infrastructure should also be added to this.  When margins are thin this will be definitely a strain on business funds over a long period of time
8. More Work less money - Though Revenue  per employee / asset will be higher in companies with lower margin high growth, Profitability per employee / asset will be lower, meaning "More Work, Less Money".  Again in long run this will have its own impact

In the long run definitely the strategy of Infy will be very solid - Growth with Profitability.  But the million Dollar question is how do they achieve both?  This is where I admire companies like Microsoft & Apple.  Both of them rely on innovation.  I like the words of Bill Gates who once said "For me a product is obsolete once it is launched", which means as soon as he launches a new version he considers it to be obsolete and goes back to the drawing board to innovate and launch new products.  Apple with its "i" range of innovative products has taken the market by storm and it not only grows leaps and bounds but also its profitability is sky rocketing.  For information Apple's Gross Margin is in the 40s and Microsoft's Gross Margin is in the whopping 60s.

In short, if Infy has to maintain its strategy as well be a darling to its stake holders it should Innovate.  It should roll out more and more innovative products and price them at a premium and earn higher margins.  One aspect always surprises me is that Infy (and most of the Indian IT companies) are excellent in rolling out SAP by being partners of SAP, but no one has ever tried to create a product like SAP and successfully roll it out (though some have smaller versions of it)?  This is where Indian IT companies have to innovate.  

My advice - Infy turn to the drawing board invest in R&D, roll out innovative products and then surely you can walk your talk of Growth with Profitability, if not you will only provide lip service to your strategy and see your competitive colleagues zip past you.

What Went Wrong @ Kingfisher Airlines - An Accountants Perspective

It was during good times (or deemed good times?) of Kingfisher airlines about 3 years ago, I took a Kingfisher flight from Delhi to Lucknow.  It was a 40 minute flight.  The aircraft was a big one (not sure of the make), with 6 seats in a row and it had live television on every seat.  Once the aircraft took off the hostess hurried with snacks and believe me it was so huge that by the time I could finish half of it the plane was about to land and the hostess came back asking for the plates, so being typical Indian I packed the left out snack in a tissue paper and continued eating and the hostess happily took away my empty plate.  Though Immersed onto the live television and the snack provided, I also looked around the aircraft and found it was half empty (or half full to be optimistic).  In Lucknow I had one of my colleagues waiting for me to take me to Kanpur and I said to him "for the money I paid, it is too big a service I got from KFA, I am not sure whether they can continue like this for long?"  From that time, being an accountant I kept asking myself how does KFA keeps rolling out these big services at the same time keeping the price tag lower to match its competitive colleagues. 

Now that the tide has changed on KFA and my fear over the years have become real.  The company has been subsidizing its services over the years and the bill for this subsidy was picked by the banks to an extent of Rs.7,200 crores.  Am I right in saying subsidy?  Let me check the cashflow of KFA.

The analysis of cashflow shows that majority of the Cash realised from financing activities over the years have been consumed to finance the loss in cash from operations, rather than taking the money to investment activities.  Argument may be placed that the cash spent on operations is towards working capital but if we look at Net Profit it is negative through out which means expenses outsmarted income by a huge margin.   And according to me it is subsidy.

But did KFA had a choice as this is the state of the industry with high cost of wages due to lack of skilled pilots, increasing aviation fuel cost, congestion at airports leading to delays and consequent costs, compulsion to operate in some routes & intense competition from other airlines.

Let us analyse some more facts.  First, Indian aviation traffic increased 19% CAGR during the period 2006-11, Second, Indian air travel penetration is approximately 0.1 or less trips per year per person this is compared to China which is 0.2 trips per person per year and 2 trips per person per year in United States.  Does this fact suggest something juicy?  Yes it does there is lot of meat to chew, a huge potential to tap.  That I believe is what made KFA over leverage on their finances (ie) spend more than their means. 

Can this huge market availability turn into opportunity for the airlines?  I have my doubts.  First for an airline to make profits there should be world class infrastructure.  I for one believe that our airport infrastructure is far from satisfactory except for some airports in the metros.  This lack of infrastructure will make operational costs higher.  Second, passenger traffic grew 16% CAGR between 2006-11 will that be maintained is quite doubtful atleast in the short term of 3 years as Indian economy is not growing at the speed which it grew in the last decade and there will be a dent in growth rates.  Third most of Airline companies in India have major portion of their revenue from domestic operations which is highly price sensitive, they should tap more into International routes to have better realisation's.   Fourth pricing should be aggressive no doubt to keep competition at bay but it should be done smartly to have expenses covered.

If I were to be CFO of an airlines company what I will do?  It is easy to buy / lease aircrafts as they are sourced out of developed countries and the financial products in India are aped from developed countries and so financing them is also easy.  But the Big Question is "Is the Indian market ready", the answer is NO.  The current Indian market though looks big in potential is a small market and highly price sensitive.  I will look for the long term and a steady growth.  I would not put too much money in too many planes but start modestly, price aggressively (to keep my expenses covered) generate margins, generate net worth and use this positive networth to grow over a period of time (remember our childhood story of Hare & the Tortoise).

KFA is now having a huge negative Networth (BIFR?) they need more money to provide more subsidy to the passengers or alteast pay back the bankers who till now are subsidising.  I would suggest KFA to cut planes / routes, bring in more capital, pay off huge debts, stop major chunk of financial lease, recreate the brand of KFA, generate profits and use that profit to leverage in the long run.

My advise as an Accountant : Indian aviation industry will be a success story, but the players in this industry need to progress with caution as there are too many "Smoke and mirrors" there and it is easy to get foxed into them.  Price your product aggressively but never lose your focus on margins, because once you let it go it is difficult to get it back.   I always say it is good to lose some "Battles" but  win the "War".

194LLA - TDS on purchase of immovable property

From 1.10.2012, if you are buying property more than Rs.50 lacs in urban areas or Rs.20 lacs in other areas be prepared to deduct income tax @ 1% and remit the same to Income tax authorities.  This is one more tax procedure proposed to be introduced to be complied by the buyer of property.

Effective 1st October, 2012 a new section is proposed to be introduced in Income Tax Act, 1961 - 194LLA under which, TDS (Tax deduction at Source) should be deducted at the rate of 1% on all payments made for transfer of property other than agricultural land if the value of the property exceed Rs.50 lacs in urban areas and Rs.20 lacs if the property is situated in any other areas.

The buyer has to produce to the registrar the tax payment challan equivalent to 1% of the transaction value to get the land registered.  This the Government claims will help rein in information on real estate transactions immediately and will help Government curb black money as the Government feels real estate is a major area which generates black money.

Question is will this new levy help achieve the Government objective of curbing black money?  The problem with India is we are extremely good in drafting laws, debating them and enacting them.  But the major point is whether we are implementing the law as it should be implemented?  The answer is a big no!!  What is the Government doing with the data it gets from banks / registrars on large value transactions?  This TDS is more of a duplication of information to the Government.  This new TDS section will unnecessarily complicate the already complex tax laws we have in our country.

"Come on India" let us move forward with tax reforms these type of tinkering legislations lead to a vicious circle leading us nowhere.  Let us not waste time discussing and implementing 194LLA, but spend that time trying to implement GST / DTA and other landmark legislations

Cheques / DD valid only for 3 months from 1.4.2012

From yesterday 1.4.2012 banks will not honour cheques / Demand Drafts which are more than 3 months.   So please ensure that your cheques / DDs are presented for clearing within 3 months.

This follows Reserve Bank of India has issued directions vide RBI/2011-12/251 - DBOD.AML BC.No.47/14.01.001/2011-12, under which it has directed banks from 1st April 2012, not to honour cheques / Drafts / Pay Orders / Banker’s Cheques which are more than 3 months old as against the current practice of 6 months.

Budget 2012 - Direct Taxes

This article provides a brief overview of budget proposals 2012 and its implications. 

Individual Tax Payers

Basic exemption limit extended by Rs.20,000 to Rs.2,00,000.  For women exemption limit extended by Rs.10,000 to Rs.2,00,000.  No increase for senior citizens to remain at Rs.2,50,000.

Tax slabs have been slightly changed to extend the rate of 20% upto Rs.10 lacs.  The revised rate slab is as follows.

           Upto Rs.2,00,000 - Nil

           Rs.2,00,001 to Rs.5,00,000 - 10%

           Rs.5,00,001 to Rs.10,00,000 - 20%

           Rs.10,00,001 and above - 30%

80C - There is no change 

80D - In addition to the current benefits expense upto to Rs.5,000 on Medical Preventive Health check-up is allowed

80DDB - Senior Citizen age reduced to 60 years from current definition of 65 years

80TTA - Interest received from Savings Bank Account exempt upto a value of Rs.10,000

A new condition has been introduced in 80C as regards insurance premium.  Deduction under section 80C for insurance is allowed only to an extent of 10% of the capital sum assured.

Section 80CCF - infrastructure bond has been withdrawn from tax deduction

Corporate Tax Payers

No change in corporate rate of 30% for domestic companies and 40% for foreign companies. 

No change in Dividend Distribution tax (DDT) rates, remains @ 15% + 7.5% surcharge + 3% Cess (effective rate 16.60875%)

No change in MAT rate of 18.5%

Section 115JC - AMT (Alternate Minimum Tax) of 18.5% applicable to a person other than a company.

Perquisites Valuation for Salaried Employees

Section 17(2) of the income tax act, 1961 defines Perquisites and it includes within its gambit a variety of perquisites provided by the employer.   This articles provides an insight into the valuation of these perquisites.

Provision of Unfurnished Accommodation

If the employee is employed with Central or State Government the valuation of accommodation is

• licence fee determined by the concerned government
• Less rent actually paid by the employee

If the employee is employed by other "employers" then

1. if the accommodation is owned by the employer then the valuation
• is 15% of salary in cities having population exceeding 25 lacs as per 2001 census or
• is 10% of salary in cities having population exceeding 10 lacs but less than 25 lacs as per 2001 census or
• is 7.5% of salary in other places
2. if the accommodation is leased / rented by the employer then the valuation
• is 15% of salary or
• actual amount of lease rent payable by the employer

         whichever is lower, and reduced by any amount of rent paid by the employee

If accommodation is provided in a hotel for a period exceeding 15 days on transfer from one place to another then valuation is

• 24% of annual salary or
• actual charges payable to the hotel as reduced by the amount paid by the employee

         whichever is lower

Provision of furnished Accommodation

Perquisite valuation will be in addition to the valuation under "Provision of unfurnished Accommodation".  To the said valuation will be added

1. 10% of the cost of furniture, appliance and equipments or
2. actual cost of rental of these furniture, appliance and equipments

    less any amount paid by the employee

Personal Attendants

Value of services paid by the employer for provision of

1. Sweeper
2. Watchman
3. Gardener

will be treated as perquisite.  Actual cost of payment by the employer will be taken as perquisite less any amount paid by the employee

Gas, Electricity & Water

Actual cost (less any amount paid by the employee) of provision of gas, electricity or water to employee's household consumption will be treated as perquisite

Free or Concessional Education

Cost of free education is a perquisite less any amount paid by the employee.  If the employer runs the educational institution then valuation will be based on cost of education in a similar institution in a nearby locality.

Interest free or concessional loans

Any loan provided by the employer, in excess of Rs.20,000, either at NIL rate of interest or reduced rate of interest then perquisite valuation will be

• Difference in interest rate charged by State Bank of India for similar types of loans and interest payable by the employee.  If for example State Bank of India charges 16% for personal loan and the employer extends to the employee personal loan at 2% interest.  Then perquisite value will be equivalent to 14% of the loan amount

However loan extended for any medical purpose does not get covered under this clause provided the employer does not reimburse the same under any medical insurance scheme

Use of Assets

If any assets of the employer, except computer & laptop, is used by the employee then perquisite valuation will be 10% of the value of these assets less any amount paid by the employee

Transfer of Assets

Any asset of the employer transferred to the employee is a perquisite, the value of perquisite is as follows

1. Motor Car - Original value less Depreciation at the rate of 20% in Written down value method for every completed year of usage less any amount paid by the employee
2. Computer or any other Electronic Gadgets - Original value less Depreciation at the rate of 50% in Written down value method for every completed year of usage less any amount paid by the employee
3. Any other asset - Original value less Depreciation at the rate of 10% in Straight line value method for every completed year of usage less any amount paid by the employee

The above perquisites valuation can change depending on rules prevalent at various times, you are requested to check the same before proceeding for any decisions

Salary TDS Provisions and Proofs to be given to Employer

Objective of this article is to explain various provisions tax savings / planning under income tax for salaried persons and documents they need to provide to their employers to enable exemptions / tax deductions by the employer

Multiple Employments - Section 192(2)

An employee who is employed with more than one employer during a financial year should provide to his present employer details of salary earned, tax deduted during his previous employment. 

Documents to be submitted to employer

1. Duly filled in Form 12B duly signed by the employee
2. If possible, Form 16 provided by the previous employer till the time the employee was in service with the previous employer (as additional proof

Loss from House Property (section 22 - 24) - (Let out Property)

If an house is let out (not occupied by the employee) then exemption can be claimed under this section if there is a loss from house property income.  The formula for calculating loss from house income is as follows (an example of Rs.10,000 per month rent, interest paid during the year is Rs.2,55,000 & municipal / water taxes paid is Rs.9,675)

                Actual Rent Received or Annual Value                                            1,20,000
   Less :  30%  of Actual Rent received or Annual Value                                    36,000
   Less :  Interest on capital borrowed for purposes of construction /
                                                                                           repair                      2,55,000
   Less :  Municipal / water taxes paid for the house                                             9,675

                Loss Under House Property                                                              1,80,675

This loss will be recognised by the employer and taken for tax deduction accordingly.

Documents to be submitted to employer

1. Details of full address of the property
2. Details of loan along with copy of loan / interest payment certificate from the bank / financial institution from which loan is availed
3. Details of Annual rent / municipal taxes (copy of receipts)
4. A self signed declaration with the following words: I, …………………. (name of the assesse), do declare that what is stated above is true to the best of my information and belief.  

Interest on Self occupied house

If housing loan is taken on or after 1.4.1999 for construction or acquiring of a residential unit then a deduction upto maximum of Rs.1,50,000 is allowable on interest on such housing loan.   This is not available in case loan is taken for purpose of repair or renovation of an existing residential house.  The following points are worth noting

1. This deduction is available only after completion certificate is obtained from the builder and regular EMI is commenced by the financial institution
2. All Pre-EMI's can be shown as deduction in 5 equal instalments (5 years) commencing from the year in which the construction is completed

Documents to be submitted to employer

1. Details of loan along with copy of loan / interest payment certificate from the bank / financial institution from which loan is availed - clearly detailing the amount of interest paid on the housing loan

Medical Allowance - Section 17(2)(v)

Medical expenditure incurred by an employee for himself or any member of his family (who are his dependents) shall be exempted to a maximum extent of Rs.15,000 in a year

Documents to be submitted to employer

1. Medical bills pertaining to the relevant financial year and in the name of the employee or any member of the family (who are dependents)

Leave Travel Allowance - Section 10(5) - Rule 2B

 

Expenses incurred on travel for proceeding on leave to any place in India is exempt provided employer pays him a specific allowance to this regard or can allocate a portion of the salary to this allowance.  The following are the conditions to avail of this exemptions from income tax.

1. Cost of the travel is restricted to Economy Air Fare by the shortest route
2. If travelled by any other mode than Air, then exemption is restricted to cost of First Class Air Conditioned fair by the shortest route
3. The exemption can be claimed in respect of two journeys in a block of four years
4. This exemption can be claimed only for expenses incurred on family.  Family is defined as Spouse, Children, Parents, Brothers and Sisters wholly dependent of the individual

Documents to be submitted to employer

1. Proof of Travel - Tickets etc
2. Proof of availing leave to prove that the employee travelled
3. If travel by Car / Taxi then as a corroborative evidence Toll Bills, Parking bills etc.

House Rent Allowance - Section 10(13A) - Rule 2A

HRA exemption is restricted to the least of the following

1. Actual HRA Received by the employee
2. 40% of salary - Salary means Basic + Dearness allowance.  (50% of salary if the rented accommodation is situated in Delhi, Mumbai, Kolkata or Chennai)
3. Actual Rent Paid in excess of 10% of salary (Salary means Basic + Dearness Allowance)

Documents to be provided to employer

1. Proof of Rent Paid - Rent Receipt (not required to provide if monthly rent is less than Rs,3,000)
2. Rent receipt should be stamped with revenue stamp and duly signed by the landlord
3. If rent exceeds Rs.1,80,000 per annum then the PAN number of the landlord should be mentioned in the rent receipt.  If the landlord does not have a PAN then a declaration to the effect that no PAN number is available should be taken from the landlord along with the name and address of the landlord

Deductions under Chapter VIA

Deductions under Section 80C

Exemption under 80C is restricted to Rs.1,00,000 and it covers the following.

Payment towards insurance Premium

Payment of insurance premium (including ULIP's) to keep in force an insurance to cover the life of the individual or spouse of the individual or any dependent child of the individual.

It may be clarified that the amount of premium so allowed on the insurance policy is subject to a maximum limit of 20% of the actual sum assured (ie) if sum assured value for a policy is Rs.2,00,000 then the premium allowed per year under section 80C for this policy will be maximum Rs.40,000 or actual premium paid.

Documents to be submitted to employer

1. Receipt of premium paid
2. Proof of sum assured (if available in Premium receipt above not required seperately)

Contribution to Public Providend Fund

Contribution to any Providend fund set up by the Central Government and notified accordingly. 

Documents to be submitted to employer

1. Receipt of contribution made
2. In case of Passbook entry copy is submitted, to submit originals for verification and return

Deposit in Savings Certificates

Deposit in savings certificates as defined under section 2(c) of the Government Saving Certificate Act, 1959.  Currently the Government has notified National Savings Certificate VIIIth issue.

Documents to be submitted to employer

1. Copy of the savings certificate in the name of the individual or spouse or children of the individual who are dependent on the individual

Deposit in Mutual Funds

Deposit in units of any mutual fund referred to in Clause 23(D) of section 10.  The Centre has notified that the deposit should be made in an "Equity Linked Savings Scheme"

Documents to be submitted to employer

1. Proof of investment in designated mutual funds

Repayment of loan borrowed for purpose of construction of residential house property

Deduction will be allowed on repayment of housing loan availed by an employee from any bank or reputed financial institution.  For the purpose of this deduction expenses incurred on Stamp Duty, registration fees and other expenses incurred on transfer of property is also exempt in the year of transfer.  Note - no other expenses will be allowed for deduction under this clause regarding house property.

Documents to be submitted to employer

1. Copy of payment certificate from the financial institution clearly mentioning the principal and interest repayments.

Tuition Fees of Children

Tuition Fees for any two children incurred whether at the time of admission or thereafter, paid to any university, college, school or other educational institution situated in India for the purpose of full time education.  Full time education includes play-school activities, pre-nursery and nursery classes.  Also note payment in nature of development fees, donations or capitation fees or fees of similar nature are not allowed as exemption.

Documents to be submitted to employer

1. Children's fees receipts - copy

Fixed Term Deposit

Investment in a term deposit for a fixed period of not less than 5 years with a scheduled bank.  Please take care to invest only in banks and schemes of the banks which are covered under "Bank Term Deposit Scheme, 2006"

Documents to be submitted to employer

1. Copy of the deposit receipt

Other deductions (more than Rs.1,00,000

Contribution to New Pension Scheme - Section 80CCD

Contribution made by an Employer into the New Pension Scheme (NPS) is exempt subject to a maximum of 10% of employee's salary (Salary defined to include Basic + Dearness Allowance).  The Employer should deduct from the employee salary NPS and deposit the same in Tier 1 account of the employee to enable the employee to avail this benefit.  This benefit overrules the limit of Rs.1,00,000 of section 80CCE. 

Document to be provided to employer

1. The law here is that employer should deduct and pay into NPS account, so proof is available with the employer himself similar to Providend Fund (PF) deduction

Contribution to Infrastructure bond - Section 80CCF

This section is extended for financial year 2011-12 and may not be continued for subsequent years.  Under this section investment of maximum Rs.20,000 in specified long term infrastructure bonds as notified by Central Government is exempted. 

Document to be provided to employer

1. Copy of infrastructure bond
2. If demat account copy of transaction statement of demat account

Medical Insurance Premium - Section 80D

No Cash Payment is allowed for this premium (ie) payment for medical insurance premium should be by "other than cash" mode to avail exemption under this section.  The deduction allowed for medical insurance premium is 2 fold.

1. Premium paid on medical insurance of family of assessee for an amount of Rs.15,000
2. Premium paid on medical insurance of parents of assessee for an amount of Rs.15,000.  If the parents are senior citizens (more than 60 years) then the exemption allowed is maximum of Rs.20,000 instead of Rs.15,000.

Document to be provided to employer

1. Copy of medical insurance premium paid
2. Copy of policy to prove that it is a Health / Mediclaim policy

Medical treatment of a dependent with disability - Section 80DD

Deduction is provided for Rs.50,000 towards medical treatment, and if treatment is for persons with severe disability then deduction is provided for Rs.1,00,000. 

Documents to be provided to employer

1. Certificate from medical authority in prescribed form

Repayment of Interest on loan taken for higher education - Section 80E

Deduction is allowed for interest on loan taken for purposes of pursuing higher education from any financial institution or Charitable institution.  Deduction is allowed for the individual's education loan or loan for spouse or dependent Children or for a student for whom the assessee is a legal guardian.  This deduction is allowed for 7 years from the year in which the loan is availed or until the loan is fully repaid whichever is earlier. 

Documents to be provided to employer

1. Details of loan and clear specification of interest on the loan

Donations - Section 80G

Generally no deductions should be provided by employer in deducting TDS from salary for purposes of donations under section 80G, the assessee should claim the same in his return.  Only those donations which are deducted by employer for donations and paid by the employer to Prime Minister's Relief fund, the Chief Minister's Relief Fund or the Lieutenant Governor's Relief fund should be deducted from salary

Important Note

The above is only a illustrative list and may not cover all scenario's.  There may be certain instances when the above scenarios may be interpreted differently by taxation authorities.  Please treat this article as a basic guide and seek expert advise for taxation purposes.

Section 206AA - Compulsory quoting of PAN

 

From 1.4.2010 income tax act has inserted section 206AA which makes furnishing of PAN compulsory for all employees in case they are liable for payment of TDS. If the employee fails to produce PAN then the TDS for the employee will be deducted at the higher of the following rate

1. at the rate specified in income tax act
2. at the rate or rates in force
3. at the rate of 20% 

In short, if PAN is not obtained tax will be calculated @ the minimum rate of 20% or higher rate as per tax calculation.  It is advisable to obtain PAN numbers immediately by all employees.