Mod 2 Salary Income

8/8/2019 Mod 2 Salary Income

1/21

EXEMPTED INCOME U/S 10

1. Agriculture income 10(1)2. Receipt by a member from HUF 10(2)3. Share of profit from partnership firm 10(2a)4. Casual & non recurring receipts 10(3)5. Interest to non residents 10(4)6. Leave travel concession to an Indian citizen 10(5)7. Remuneration received by a foreign diplomat and other foreign nationals8. Foreign allowances 10(7)9. Gratuity 10(10)10. Commuted pension and leave salary 10(10a)11. Retrenchment compensation 10(10b)12. Payment on VRS 10(10c)

13. Amount received on life insurance policies 10()10d)14. Payment from PF 10(11)15. HRA 10(13a)16. Education scholarship 10(16)17. Daily allowance of MP 10(17)18. Awards 10(17a)19. Pension of galantry award winners20. Income of local authorities 10(20)21. Income of housing authorities 10(20a)22. Income of scientific research associations 10(21)23. Income of educational institutions 10(22)

24. Income of hospitals 10(22a)25. Income of specified news agencies 10(22b)26. Games association 10(23)27. Professional institutions 10(23a)28. Pension funds 10(23aab)29. Khadi or village industries 10(23b)30. European economic committee 10( 23bbb)31. SAARC 10( 23bbc)32. Insurance regulatory authority 10( 23bbe)


2/21

INCOME FROM SALARY

Basic condition/norms for charging

1) Relationship between employer and employee must be proved

eg where the relationship between employer and employee cannot be

proved like: agents, partner, director, MP MLA etc..

2) Salary & wages there is no conceptual difference.

3) Salary from more than one source Both are taxed

4) No concept of tax free salary tax paid by employer constitutes perquisites

5) Any receipt from person other than employer is not taxed under this head-

exam remuneration by teachers, tech fees etc6) Salary taxable on due basis or receipt basis whichever is earlier

7) Deduction made from salary should be added back to determine actual

taxable salary

COMPUTATION OF SALARY INCOME

SALARY U/S 17(1)

1) Wages/ basic wages or basic pay

2) Any annuity or pension

3) Advance salary or arrears of salary

4) Any fees, commission, perquisites or profits in lieu or in addition to any

salary

5) Bonus

6) Leave salary or leave encashment

7) Employer contribution to RPF in excess of 12% of employees salary

(salary = BP+DA+fixed % commission on turnover)

8) Interest credited to employees RPF balance in excesss of 9.5% PA

9) Contribution made by the central govt in the PY to the pension fund of the

employees under pension scheme exceeding 10% of Salary (BP + DA)


3/21

ALLOWANCES:-

Allowances refers to fixed sum of money paid by employer to employees to meet

some specific purposes like payment of house rent, childrens school fees,

transportation cost etc.

A ) Fully exempted allowances:-

1) Allowances to govt employees outside India(paid by govt)

2) Allowances to high court & supreme court judges (sumptuary allowance)3) Allowances received from UNO.

B ) Fully taxable allowance

1) Dearness allowance

2) City compensation allowance (CCA)

3) Lunch / Tiffin allowance

4) Servant allowance

5) Fixed Medical allowance

6) Deputation and project allowance

7) Non-practicing allowance

8) Water and electricity allowance

9) Overtime allowance

10) Warden ship allowance


4/21

C ) Partly taxable \ partly Exempted Allowances

ALLOWANCE EXEMPTION LIMIT

Traveling / convergence allowance Exempted upto actual amount spent

Allowance received for cost of

transportation on transfer of

employee

Exempted upto actual amount spent

Daily allowance Exempted upto actual amount spent

Helper allowance Exempted upto actual amount spent

Academic / Research allowance Exempted upto actual amount spent

Uniform allowance Exempted upto actual amount spent

Children education allowance Rs. 100p.m. per child maximum of

Two childrens

Children education allowance Rs. 300 p.m. per child maximum of

Two childrens

Transportation allowance (fromResidence to workplace)

800 p.m. (1600 p.m. for physicallychallenged employees )

. Running/ Flying allowance

(allowance given to employees of

transport organization to meet their

exp on duty)

70% of Such Allowance or

Maximum 6000 p.m WEL

Special Allowance for Tribal Area Exempted upto 200 p.m.

Underground Allowance Exempted upto 800 p.m.

Island duty Allowance (armed forces) Exempted upto 3250 pm

High attitude Allowance (armed

forces)

Exempted upto 1060/1600 p.m.

Special compensatory (Hilly area

allowance)

Exemption varies from 300 to 7000

pm.


5/21

Border area allowance Exemption varies from 200 to 1300

pm.

Highly active field area allowance Exempted upto Rs 4200 pm

House Rent Allowance H.R.A. received

Less:-

a) Actual H.R.A.

b) Rent Paid 10% of Salary

c) 50% of Salary for D.M.K.C.

40% of Salary for other cities

(whichever is less among them

is Exempted )

Salary = Basic Pay + D.A. (entering

into retirement benefit) + Fixed % of

commission

If employee resides in own house for

which he does not pay any rent, No

exemption is allowed.

Entertainment Allowance While calculating gross total income it

is fully taxable & later a deduction is

allowed only for central / state Govt.

employees u/s 16(ii).


6/21

PERQUISITES

Specified Employee

a) A employee who is a director of the company.

b) Employee with substantial interest in the company( atleast 20% voting

rights)

c) Employee drawing salary in excess of Rs. 50,000 p.a.(excluding amenities benefits not provided by way of monetary benefits)

1. Free medical benefits

a) Free treatment is provided by employer to employee or his

family member at

Hospital maintained by

employer

Fully exempted

Hospital maintained by central

Govt , State Govt, or

approved hospitals

Fully exempted

Pvt hospitals/ nursing homes Upto 15000 p.a. is exempted

Bill issued in name of

employee but paid by

employer

Upto 15000 p.a. is exempted

Medical Insurance Premium

paid by employer

Fully exempted


7/21

b) Treatment provided outside India

Cost of treatment of employee or his family members and

Cost of stay for patient & one attendant is exempted upto

limit permitted by RBI

Cost of traveling of patient and 1 attendant - exempted if

G.T.I. does not exceed Rs. 2,00,000 p.a.

2. Leave travel concession provided to employee

- fully exempted

3. Free education

Expenses on training the

employee

Fully exempted

Education Allowance Already discussed

Payment or reimbursement of

school fees by employer

Fully taxable in all cases

(specified or non-specified

employee)

Free education in own institution Exempted if value does not

Exceed Rs.1000 p.m./child (no

limit)

If it exceeds Rs 1000 pm ;

Cost of education in similar

institution Less Rs 1000 pm is

taxed


8/21

4. Providing free use of computer / laptop to the employee or any

other member of household. -

Fully exempted

5. Free use of any other movable assets by employee -

Taxable value of perquisites is

10% of actual cost p.a.

OrAmount of rent paid or payable

(Perquisite is taxable in the hands of the both specified or non-

specified employees)

6. Transfer of movable assets by employer to employee at free of

cost or at nominal rates.

W.D.V. of the assets

(original cost dep. By reducing

balance method)

xxx

Less:- amount received by

employee (if any)

xxx

Taxable value xxx

Note : Depreciation Rates:-

1. Electronics and computer items - 50%

2. Motor Car - 20%

3. Other Assets - 10%

(Perquisite is taxable in the hands of the both specified and non-specified

employees)


9/21

7. Interest free loan or loan at concessional rate of interest :-

(taxable in all cases)

When original loan amount is upto Rs. 20000 its fully exempted

If its above 20,000 -- its fully Taxable.

[ any amount of loan taken for medical purpose is fully exempted ]

ValuationCalculate the interest on the basis of

rate of int charged by SBI as on 1-4-

07

xxx

(-) any int charged by employer to

employee

xxx

Taxable value xxx

8 Amount paid / payable by employer towards L.I.C. premium of

employee or his family member.

fully taxable in all cases

(Group insurance, ESI, accident insurance paid by employer is

not considered as perquisites.)


10/21

9 . Free Domestic Servents:-

(Service of sweeper, gardener, watchman, or personal attendant.)

Taxable value of perquisites is actual cost to the employer.

1. If domestic servents are appointed by employee and paid /

reimbursed by employer - fully taxable in all cases

2. If servents are provided by employer - taxable only for specified

Employee

( If employer provides a rent free accommodation (owned by employer)

Gardeners salary is not taxed separately)

10. Free Gas, electricity & water :-

Valuation

Provided from own source Manufacturingcost/unit incurred

by employer is taxable

Provided from outside agency amount paid or payable by

employer is taxable

If connection is in name of

employee & bill paid or

reimbursed by employer

taxable in all cases


11/21

11. Rent Free Accommodation:-

Accommodation House, Flat, Farmhouse, Service apts. Hotel,

Guest house, Mobile home, Ship etc.

a) Govt employees ( central and

state)

License fees (value fixed by

govt.) is the taxable value of

perquisites

b) Non-Govt. employees

If Accommodation is owned by

employer

Population upto 10 lacs 7.5 % of salary for the period

is taxable

Population above 10 lacs but

not more than 25 lakhs

10% of salary for the period is

taxable

Population above 25 lacs 15% of salary for the period is

taxable

If Accommodation taken by

employer on lease or rent

Amount of rent paid / payable

by employer or

15% of Salary WEL is taxable

Salary = Basic Pay + D.A. (if entering into RB) + Bonus +Commission + fees + Taxable portion of all allowances + any monetarypayment chargeable to tax.[ Not includes PF contribution, Perquisites ]

Furnished Accommodation

Calculate taxable value of unfurnished Accommodationxxx

Add :- 10% of original cost of furniture if its owned by employerOR Actual rental charges of furniture paid / payable byEmployer if its taken on hire.

xxx

Taxable value of furnished house xxx


12/21

Concessional rent Accommodation

Calculate taxable value of unfurnished or furnished

Accommodation xxx

Less:- Rent charged / paid by employee xxx

Taxable value of concessional rent accommodation house xxx

Hotel Accommodation on transfer

Upto 15 days is exempted

If Beyond 15 Days :-

24% of salary for the period of stay

OR

Actual rental charges WEL is taxable

Notes:-

1. Accommodation in remote area. ( 40 km away from town & population

less Than 20000) is fully exempted.

2. Temporary Accommodation (upto 800sq.ft.) given at mining site, etc

fully exempted

3. Rent free Accom given to high court & supreme court Judges, union

ministers, officers of parliament leader of opposition - fully

exempted

4. On transfer employee can maintain 2 accom for 90 days, beyond 90

days both the accommodation will be taxed.


13/21

12 Issue of securities under employees stock option, sweat equity plan /

issue of bonus shares / right shares - fully exempted

13 Any obligation of the employee met by employer (taxable in all cases)

a) Domestic servents appointed by employee - paid or reimbursed

by employer

b) Gas, electricity connection in the name of employee but paid by

employer etc

c) Professional tax, income tax paid be er on behalf of employee,

etc

14 Other Perquisites

Car & other conveyance , Free food and beverage, traveling &

touring, gifts & gift vouchers, credit card, club. -- not taxed in the

hands of employee for assessment year 2006-07 onwards if employer is

covered under fringe benefit tax.

Following perks taxable only if employer is Individual (Sol prop), HUF,

Political party, Government

(These employers are not covered under Fringe benefit tax)

A Free Food and Beverage.

Lunch or Tiffin allowance Fully taxable

Tea or snacks during working hours Fully exempted

Food in office premises / Vouchers Exempted up to Rs 50 per meal.


14/21

B Traveling touring, accommodation.

Full amount of expenditure incurred is fully taxable

C Gifts

Cash gift - Fully taxable

Other Gifts Exempted up to 5000 pa , beyond Rs 5000 it is taxable.

D Club Facility

Expenditure incurred by employer for providing club facility for employee or

family members for personal use ( not official ) is fully taxable

E Credit Card

Expenditure incurred by employer for providing club facility for employee or

family members for personal use ( not official ) is fully taxable.

F Motor Car

(i) Car Owned by Employee. Expn By Employer

Purpose Taxable value

Full Official Exempted

Fully Personal Full expenditure is taxable

Partly Actual Expenditure

(-) Expn claimed to be for official

purpose


15/21

(ii) Car Owned / Hired by Employer. Expn By Employer



Fully Personal Full expenditure is taxable

Partly Rs 1200 pm is taxable if car is upto 1.6 ltr

Rs 1600 pm is taxable if car is above 1.6 ltr

Rs 600PM is taxable if driver is provided

(iii) Car Owned / Hired by Employer. Expn By Employee



Fully Personal 10% of actual cost of car / Rental

charges of Car.

Partly Rs 400 pm is taxable if car is upto 1.6 ltr

Rs 600 pm is taxable if car is above 1.6 ltr

Rs 600PM is taxable if driver is provided


16/21

DEDUCTIONS U/S 16

16(i) Standard deduction :- Not available from A.Y. 2006-07

16(ii) Entertainment Allowance:- Ist its included in salary income & thereafter a

deduction is allowed.

Deduction is allowed only to Govt. Employees (central and state).

The amount of deduction.

a) Amount of E.A. received during P.Y.

b) Rs. 5000

c) 20% of Basic Pay

(whichever is less)

16(iii) Professional tax on employment:- (tax collected by state Govt.)

Actual amount of Professional tax paid by employee is allowed as

deduction.

If employer pays Professional tax on behalf of employee:-

Ist it is taxed in computing Gross Salary as a perquisite (obligation

of Employee met by employer). Then deduction is allowed for full amount.


17/21

RETIREMENT BENEFITS

1. GRATUITY (DEATH CUM RETIREMENT GRATUITY):-u/s 10 (10)

Its a payment made by employer to employee in recognition of services.

Its made compulsory after passing of payment of Gratuity act of 1972

In Case of Govt

employees ( State

Govt, Central Govt,

Local authorities)(Statutory corps are

not included here)

Gratuity received is

fully exempted

Non government

Employees covered

under payment of

Gratuity act of 1972

Amount of Gratuity

received

xxx

Less deductions

a) Gratuity actually

received

xxx

b) Maximum limit 3,50,000

15/26 x last month

salary x years of

completed service

WEL

Xxx xxx

Taxable gratuity xxx

Salary = Basic Pay + D.A.(entering into Retirement Benefits)

Any Fractions of the year more than 6 months shall be taken as one full

year and 6 months or less than that will be ignored.


18/21

Employees not

covered under

payment of Gratuity

act

Amount of Gratuity

received

xxx

Less deductions

a) Gratuity actually

received

xxx

b) Maximum limit 3,50,000

1/2 x average salary x

years of completed

service WEL

Xxx xxx

Taxable gratuity xxx

Salary = Basic Pay + D.A.(entering into Retirement Benefits) + fixed % of

commission

Average Salary = Avg of last 10 month immediately preceding the month

of retirement.

Any Fractions of the year is ignored

2) COMMUTED PENSION u/s 10 (10A)

Uncommuted or monthly pension

--- fully exempted in the hands of employees


19/21

Commuted Pension

Commutation of pension is a process where by an employee sacrifice

certain portion of his pension for a lump sum amount.

Govt employee:-

(state, central, local

authorities& statutory

corps)

full amount of

commuted pension

is exempted from tax

Non-Govt.

employee:-Gratuity received:- Amount of

Commuted pension

received

xxx

Less:- total

commuted value of

pension x 1/3

xxx

Taxable value xxx

Gratuity not

received:-

Amount of

Commuted pension

received

xxx

Less:- total

commuted value of

pension x 1/2

xxx

Taxable value xxx


20/21

3 LEAVE SALARY / LEAVE ENCASHMENT AT THE TIME OF RETIREMENT

10(10AA)

Govt. (state or central)

Fully exempted

Non-Govt.

Amount received xxx

(-) deduction

i. actual amount

received

xxx

ii. Maximum of Rs. 3,00 000

iii. Avg Salary x 10 xxx

Iv Avg Salary x period of

earned Leave(months)

to the credit Of

employee

Xxx

WEL

xxx

Taxable value xxx

Salary = B.P. + D.A.(entering into RB) + Fixed % of Commission

Avg Salary = Average of salary of last 10 months immediately preceding

previous year in which employee retires.

Leave to credit of employee

Calculate duration of service in years (ignore fractions)

Each year leave entitlement cannot exceed 30 days

Deduct any period of leave used or en cashedduring the service

(Leave encashment received by legal heirs is fully exempted)


21/21

4 REFUND FROM PROVIDENT FUND

GPF / STATUTORY PF Fully exempted from taxRPF Fully exempted from tax if employee completed a

service of 5 years ormore with the sameemployer)

URPF:- Own Contribution:- ExemptedInt on own Contribution

-taxable under the headincome from othersources

Employer contributionand Int there on

taxable under the headsalary

PPF Fully exempted

5RETRENCHMENT COMPENSATION 10(10B)

Compensation received xxxLess:-

a) actual amount received xxxb) Maximum of RS 5,000 00

c) Amount calculated inaccordance with provisionsof industrial dispute act.

Xxx WEL xxx

Taxable amount xxx

6) COMPENSATION ON VRS 10(10C)

Compensation received is as per govt provisions and VRS is taken fromorganizations which are approved for that purpose.

Compensation is exempted upto Rs. 5,00,000********

Documents

Mod 2 Salary Income