Section 192

Section 192 — the law in short

What the courts have decided on section 192, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Eli Lilly & Co (India) P Ltd Supreme CourtCuts both waysSuperseded by amendment
  The TDS officer says I under-deducted under s.192. If my estimate was made honestly, does that answer the demand, the interest and the penalty?
  It answers the penalty, not the tax and not the interest. The Supreme Court treated s.192(1) as requiring the employer to estimate the salary — an exercise akin to computation — and held that where there was a shortfall the officer proceeds under s.201(1) to recover it and interest under s.201(1A) runs from the date the tax was deductible to the date the tax was actually paid. On penalty it held that s.271C should not be invoked where the issue was a nascent one and the employers had acted bona fide.
• CIT v Larsen & Toubro Ltd Supreme CourtHelps taxpayerValidity unconfirmed
  As an employer, must I collect bills and tickets from employees before treating leave travel concession or conveyance allowance as exempt while deducting tax under section 192?
  No. The Supreme Court dismissed the department's appeals on 21 January 2009, holding that an employer is under no statutory obligation, under the Act or the Rules, to collect evidence that its employees actually spent the amounts paid as leave travel concession or conveyance allowance. Two reasons are given. The beneficiary of the exemption under section 10(5) is the individual employee, not the employer. And there is no circular of the Central Board of Direct Taxes requiring an employer, when deducting under section 192, to collect and examine material supporting the declaration the employee submits. The appeals were dismissed with no order as to costs.
• CIT v Infosys Technologies Ltd Supreme CourtHelps taxpayerValidity unconfirmed
  My employees exercised stock options but the shares are locked in and non-transferable. Was I supposed to deduct tax on the market value less what they paid?
  No, on the law as it stood before 1 April 2000. The Supreme Court dismissed the Revenue's appeals and held that the company was not an assessee in default. The shares were locked in for five years, held by the trust, stamped non-transferable and notified as such to the stock exchange, and had to be returned if the employee left. They had no realisable value on the date the option was exercised and there was no cash inflow, so any benefit was notional and its value unascertainable. Section 17(2)(iiia), which supplied the missing valuation mechanism from 1 April 2000, was held not to be clarificatory or retrospective.
• CIT v Dr Balabhai Nanavati Hospital High CourtCuts both waysValidity unconfirmed
  After a survey the TDS officer says my consultant doctors are employees and wants 192 instead of 194J. Is he right?
  Not on these facts, and only part of the case was decided. On the doctors the High Court found no substantial question of law: they are appointed on probation for qualification and specialisation, receive no fixed monthly remuneration, are free to practise at other hospitals, get no PF or ESIC and no perquisites, attend according to patients' needs, and the hospital exercises no real supervisory control; the doctors had also returned the receipts as business or professional income. The separate maintenance-contract question was not answered — the Tribunal's order on it was set aside and the matter sent back for a contract-by-contract finding, and the assessee-in-default question on that limb goes with it.
• Manjeet Singh Chawla v Dy CIT (TDS) High CourtHelps taxpayerValidity unconfirmed
  If the payment for the fall in option value is not salary, is it capital gains?
  On this decision, neither. The Karnataka High Court held that compensation for the diminution in value of stock options that were never exercised is a capital receipt not chargeable under any head, and quashed the order rejecting the employee's application for a nil withholding certificate.
• Nishithkumar Mukeshkumar Mehta v Dy CIT High CourtHelps departmentUnder appeal
  Is compensation for the fall in value of stock options taxable as salary if I keep the options?
  Yes, on this decision. The Madras High Court held that where the employee paid nothing for the options and kept all of them after receiving the compensation, the whole receipt was a perquisite taxable under the head Salaries, and refused the nil-deduction certificate sought under s.197.
• Sanjay Baweja v Dy CIT High CourtHelps taxpayerHigh Courts differ
  My employer paid me for the fall in value of options I never exercised. Is that a perquisite?
  No, on this decision. The Delhi High Court held that a one-time voluntary payment made to holders of unexercised stock options after a group disinvestment was not a perquisite under s.17(2)(vi), because the value of specified securities depends on the exercise of the option and no option had been exercised. The refusal of a nil-deduction certificate under s.197 was set aside.
• Sanjay Sudan v ACIT High CourtHelps taxpayerHigh Courts differ
  My employer deducted TDS but never deposited it. The department has raised a demand on me and set my later refund off against it. Can it do that?
  No. s.205 bars a direct demand on the person from whose income the tax was deducted, and the Court held that adjusting a later year's refund against that demand is an indirect recovery of the same tax. The demand notice and the adjustment were quashed and the refund directed to be released.
• State Bank of India v ACIT (TDS) High CourtHelps departmentValidity unconfirmed
  Staff booked a consolidated package tour with a foreign leg. Can we exempt the Indian part as LTC?
  No. Where the tour operator charges a consolidated amount for the whole journey including the domestic portion, there is no severable Indian leg on which s.10(5) can operate, and the employer was rightly treated as an assessee in default under s.201(1) and s.201(1A).
• Hosmat Hospital P Ltd v ACIT High CourtCuts both ways
  I engage salaried doctors, in-house consultants and visiting consultants. Can the officer treat them all alike?
  No — but you get a rehearing, not a finding. The Karnataka High Court set aside the Tribunal order treating the hospital as an assessee in default and remitted the matter, holding that the AO must reconsider the question with attention to the hospital's incentive policy and the returns the doctors actually filed.
• CIT (TDS) v Oil and Natural Gas Corporation Ltd High CourtHelps taxpayerValidity unconfirmed
  I am the employer. I treated the uniform allowance as exempt on my employees' self-certification and did not call for bills. The TDS officer has made me an assessee in default under s.201. Was I obliged to verify that each employee actually spent the money?
  No. The High Court held that the employer's liability under s.192 is to deduct tax to the extent of the employee's taxable income, and that where part of that income is exempt there is no liability to deduct from it. A certificate from the employee that he has incurred the expenditure is adequate for the disbursing officer when computing the tax deductible; whether the employee can in fact substantiate the claim is a matter for the employee's own assessment and has no bearing on the employer's estimate. The demand under s.201(1) and the consequential interest were rightly deleted.
• SAIL DSP VR Employees Association 1998 v Union of India High CourtCuts both ways
  My VRS compensation is being paid to me in instalments over ten years. Does the section 10(10C) exemption still apply, or is it lost once the payments cross into later years?
  It still applies. The Calcutta High Court held that the whole compensation became due when the employee was released under the scheme and was chargeable under section 15(a) at that point, whether paid or not. Spreading the payment over ten years does not turn the later instalments into salary of those later years, so the second proviso to section 10(10C) is not attracted. The exemption up to Rs 5 lakh runs on the compensation component alone. Terminal benefits paid under the same scheme, such as gratuity and leave encashment, are not part of the amount received on voluntary retirement and are not covered.
• Gwalior Rayon Silk v CIT High CourtHelps taxpayer
  The TDS officer says I under-deducted on perquisites and wants the short tax under section 201(1) plus interest under section 201(1A). My estimate was honest. Does that answer the demand or only the penalty?
  It answers the demand itself. The Madhya Pradesh High Court held that section 192 obliges the employer to deduct on the estimated income of the employee, so the employer has to form an opinion on his employee's liability and must do so honestly and fairly. If the estimate later turns out to be wrong, that fact alone does not support an inference that he failed to act honestly and fairly, and an employer who has deducted and paid tax on an honest estimate cannot be treated as an assessee in default under section 201(1). Interest under section 201(1A) went with it, the revenue accepting that sub-section (1A) is not attracted where there is no default under sub-section (1).
• Pramod Kumar Jain v DCIT ITATHelps taxpayerValidity unconfirmed
  The company bought back my vested options before I exercised them. Salary or capital gains?
  Capital gains, on this order, and on a fact that does real work. The shares of the Singapore parent were not listed, so the assessee could never exercise his options. Section 17(2)(vi) charges the value of a specified security allotted or transferred to the employee and values it on the date the option is exercised; with no exercise and no allotment there was no specified security and no way to value one, so the salary charge failed. The vested option was itself a capital asset - a right to subscribe to shares - and its repurchase was a relinquishment, so the consideration fell under s.45. The Tribunal said in terms that this leaves the ordinary case alone: exercise the option and the perquisite charge applies as usual.
• Krishnan Achary v ITO ITATHelps departmentValidity unconfirmed
  My client took the State Bank's exit option and claimed Rs 5 lakh under s.10(10C). The officer says the scheme does not meet rule 2BA. Is partial compliance enough?
  No. Compliance with s.10(10C) and rule 2BA is cumulative, and satisfying some of the six requirements does not entitle the employee to the exemption. Where the employer's own certificate described the payment as ex gratia under an 'Exit Option Scheme', said the amount would be added to income and tax deducted at source, and said nothing about rule 2BA, the Cochin Bench held the exemption was not available.
• ACIT v SDV International Logistics Ltd ITATHelps taxpayerValidity unconfirmed
  My employees claim HRA and home loan interest together. Must I treat that as a double benefit?
  No, not on these facts. The point was ground 2 of a composite order under s.201 and s.271C. The first appellate authority had held the exemption and the interest deduction to be two independent provisions, each with its own conditions, and the Tribunal upheld that because the department could not controvert it, so the short deduction and the consequential penalty both fell away. The employees concerned had let out the houses they owned and were living in rented premises, with the whole of the interest set against rental income and the exemption claimed on the rent they actually paid.
• DDE ORG Systems (P) Ltd v ACIT (TDS) ITATHelps departmentValidity unconfirmed
  We pay our staff a fixed monthly attire allowance and washing allowance and treat it as exempt under s.10(14). Nobody actually wears a uniform. Can the TDS officer make us an assessee in default?
  Yes. The Tribunal held that Rule 2BB(1)(f) exempts expenditure incurred on the purchase or maintenance of a uniform for wear during the performance of duties, and that where the employees wore dress of different colour, different design and texture according to their own choice, there was no uniform and nothing to show the allowance was granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties. Tax was required to be deducted on both the attire allowance and the washing allowance, and the employer was in default under s.201(1).
• CBDT Circular No. 3/2025 - salary TDS for FY 2024-25 CBDT Circulars & InstructionsCuts both ways
  Is there one document that tells the payroll department how to deduct on salary for the year?
  Yes. The Board issues an annual circular under s.192 and this is the one for financial year 2024-25. It consolidates the rates, the amendments made by the Finance Acts of 2023 and 2024, and the mechanics of the employer's deduction, and states that where no amendment has been made the position in the earlier circular for financial year 2022-23 continues.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.