Education for all Casually sit back and relax and enjoy your Income tax What do you mean by rest? B. Com, BBM, M.Com, INCOME FROM This slides are Prepared for Any one who SALARY Players!! Had not Now youAttended classes By Do some regularly Prof. Augustin Amaladas and Prof.Amala shanthi ExerciseOr do not have St. Joseph’s College of Commerce and Jyoti Even notTime or money. Nivas college respectively, Bangalore Studied M.Com., AICWA.,PGDFM., B.Ed. So far. 09845844319 firstname.lastname@example.orgMB ICWAAs It is so simplified in such a way that you can easily understand CA CS
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salary Fringe Benefit tax Taxable To Employer Applicable Basic + DA+ To companies Commission etcNormal components Perquisites Taxable Allowances To employee
Alternative work is rest Definition of salary• Section 15• Employer and employee relationship is very important.• Director of a company is not an employee- therefore his remuneration does not come under salary• Emolument received by college lecturer for valuation of answer scripts in the university does not come under salary because he/She is not an employee of the university but employee of a college.They come under income from other sources
Threat is your opportunity Paper setting, MP and MLA• If the same lecturer receives emoluments(remuneration or salary) from his college for academic or non academic work constitute salary.• Question paper set to other colleges or other universities comes under other sources.• A Member of parliament(MP), Member of the state assembly(MLA) receives remuneration does not come under salary as there is no employer employee relationship between government of India and MP and MLA.-therefore comes under
Salary and wages• Income tax point of view there is no difference between salary and wages.Strength is your weakness
If More than one employer• Salary from each source is taxable under the head salary• Example: Mr. A works in two places part time job. He is calculated under the head salary in both the places.All problems and happiness are temporary
Pension from former employer• As pension paid due to the previous employer employee relationships it is taxed under salary provided the same employee receives(alive)• If, after the death of such employee family pension received by spouse(wife or husband) comes under other sources, as there is no employer employee relationship after the death of such employee. as it is Take your life
Employer includes • Former • Present • And prospective employerLove others in order to love oneself
If No intention to pay?• Agreement between teacher and management to pay salary to employee and another agreement by which an identical sum has to be returned by the same teacher(assessee)-does not constitute salary because salary is not real but fictitious.(Actual intension to pay is important) Play every day
Whether salary taxed on payment or due basis?• Salary is taxable on due or receipt whichever earlier• Advance salary received or salary of the last month not received is taxed in the current previous year• See Example: Next slide
Example• April 2008 salary received in March 2008-taxable in the previous year 2007- 08 itself as it is received in 2007-08 period(receipt or due which ever is earlier)• March 2008 salary received in April 2008-taxable in the previous year 2007- 08 only(receipt or due which ever is earlier)Otherwise hardship
Surrender of salary• Surrender to central government- either by government employee or private employee-not taxable salary.Women have changed but men have not changed in India
If Tax paid by employer?• If Employer pays tax on employee then total salary to such employee will beNet salary received + tax paid by employerChange in attitude of men required to have a harmony in family life
Gifts given by employer?• Taxable under the head salary Men also should learn cooking as woman is working like men
Salary under section 17(1) • Wages • Any annuities or pension • Any gratuity • Any fees, commission • Perquisites( received in kind) • Profit in lieu of salary • Advance of salary • Any accretion(addition) due to interest on provident fund paid out of the employer’s contribution. • The contribution paid by employer under notified pension schemeDo not fight.If you want to fight, fight after??
Pension received by former employee who rendered service in India• Pension received outside india by an employee who rendered services in India taxable in India to all assessees(resident, not ordinarily resident and non resident) as salary is from India.• Place of accrual of salary is important- from India or from outside India After meal why?
Exercise-1• 1.Pension paid abroad for the services rendered in India?• 2.Leave salary paid outside India for the services rendered in India?• 3.Salary paid by government of India to an Indian National outside India if services rendered outside India?• 4.Allowances received outside India by Central government employee for services rendered outside India? Normally people do not fight after meal.
Answer-1• 1.taxable as services rendered in India• 2. Taxable as services rendered in India• 3. - DO-• 4. Allowances paid by government of India to its employees(Indian nationals) outside India for the services rendered outside India are exempted as per section 10(7)
Different forms of salary- Retirement benefits• 1. Leave encashment salary• 2.Gratuity• 3.Pension• 4.Retrenchment compensation• 5.Provident Fund• [Examination point of view these five items are very important]
Leave encashment• It is not related to casual leave• For every completed year of service employee is entitled to receive a certain number of days of paid leave.Employee either can take leave or en cash it while in service or after retirement.• Note: Any thing received while in service is normally taxable.After retirement there are some concessions given.
1.Leave encashment 1.Received while in Service Received At the time Fully taxable(government or of retirement Non government employee) Non government employee Government (including local authority Employees-Exempted and corporation employees) Central/ State govt. (see next slide)Employees(2)
Non-government employee (including local authority and corporation employees) *Average salary Basic + % DA comes only for retirement +fixed % of commission on sales. Least of the followingNote: Immediately before the Exempted out of leave cash received The retirement a) 10 months average salary* b) Amount specified by the government-3,50,000 c) Actually received at the time of retirement d) [Period of leave on 30 days basis (if more than 30 days as per service rules)for every completed year of service( -) leave availed while in service(-)leave encashed while in service] x (average salary)*
• Basic + DA which comes for retirement +fixed percentage of commission only on sales.• Do not consider fixed amount of commission on sales• Do not consider variable or fixed percentage of commission on purchase• BDA employee is not a government employee as for as the leave encashment point of view.• Note: 1.Fixed % of commission is different from fixed amount of commission(monthly fixed amount)
Exercise-1• X an employee of the central government receives Rs.4,00,000 as cash equivalent to leave credit to his salary on 1st Feb. 200X after his retirement.• a)How much is taxable?• b)Suppose X is a private employee and received Rs.15000 as salary and served 20 years and 3 months and taken 3 months leave while in service at the time of retirement?• c)If X had rendered 24 years and 8 months of service and he is employee of BDA and received Rs 15,000 basic, 40% DA out of which only 60% will come for retirement purpose and 5% variable and 4% fixed commission on sales where sales achieved in the previous year was Rs.30,00,000. Leave availed while in service was 10 months and 8 months leave en cashed ?• d)Suppose X receives leave encashment while in service and he is a government employee?
Answer• a) after the retirement leave encashment by government employee is not taxable.• b)If he is a private employee the least of the following is exempted from the amount received Rs.4,00,000• 1.Actually received-Rs.4,00,000;• 2.10 months average salary=15000 x 10=1,50,000;• 3.Maximum limit=Rs.3,00,000 4. One month for completed year of service(-)leave availed while in service(-)leave en cashed while in service x (average salary) = 20months-3month-0 months(15,000)=2,55,000How much is exempted? How much is taxable?
The lowest of all four is Rs.1,50,000 is exempted from Rs.4,00,000Therefore taxable leave encashment is Rs.2,50,000.(Rs.4,00,000-1,50,000)
• c) Working Notes:-• No of years of service= 24 years and 8 months=24 years only(fraction is ignored)• Average salary=15000 +(40% x 60% x15000) +(4% x 10/12) (30,00,000)=15000 +3600 +30,00,000 x10/12 x 4%/10=28,600• Rs. 30,00,000 is for 12 months but we have to calculate for ten months only before the date of retirement.• Least of the following is exempted out of Rs.4,00,000:• A) Actually received-Rs.4,00,000• B) 10 months average salary-10 x 28,600=Rs.2,86,000• C) (24 months-10 months-8 months) x 28,600=Rs.1,71,600• D) Maximum limit-Rs.3,00,000• Least of the above is Rs.1,71,600 which is exempted .• Therefore taxable leave salary is• Rs.4,00,000-Rs.1,71,600=Rs.2,28,400
• D) Salary received by government employee while in service is fully taxable.
@Exercise-2• X a non government employee receives Rs.2,50,000 as leave salary at the time of retirement on February 20, 2008. On the following information, determine the amount of taxable leave salary: Basic salary Rs.15,000 per month since 2005. Duration of service : 26 years; leave at the credit of X at the time of retirement: 25 months; entitlement of leave salary: 60 days’ salary for every year of service and leave availed while in service: 27 months.
Working notes for exercise-2• 1. No of years:26 years equal to 26 months for our calculations because every completed year of service one month is allowed.• 2.Average salary Rs.15,000Least of the following is exempted from Rs.2,50,000a) Actually received Rs.2,50,000b) 10 months salary=10 x Rs.15,000=1,50,000c) Maximum limit Rs.3,00,000d) (26 months-27 months-8 months) x Rs.15,000=0 (as it is negative it is equal to Zero)Least exempted leave encashment is Rs.0. Therefore taxable leave encashment is Rs.2,50,000.
Fees and commission• Taxable as salary if paid to employee by employer
Bonus• It is taxable on due basis.• If it is not taxable on due basis it is taxable on receipt basis.
Gratuity1.Government Non Government employee Non Government employeeEmployee(Central,State under the payment of gratuity under not covered under theand local authority Act. payment of gratuity Act.employees)(three) Including statutory Including statutory corporation corporation2.Average salary: Average salary:last drawn Average Salary: Basic +DANot necessary includes Basic+DA comes for retirement +Fixed % of commission on sales No of days in a month-3.No of days in a No of days in a month-month-Not necessary 26 days only 30 days only4..Received while in Received while in service is Received while in service isservice is fully taxable fully taxable fully taxable Received Gratuity at the time5.Received Gratuity at of retirement: Received Gratuity at the timethe time of retirement of retirement: Least of the following isExempted exempted Least of the following is see in the next page. exempted(next page)
Non Government employee under Non Government employee underthe payment of gratuity Act. not covered under the payment ofIncluding statutory corporation gratuity Act. Including statutory corporationThe Least of the following isThe least of the following isexempted from gratuity exempted from gratuityreceived: received:1.(15/26) x (last salary 1.(15/30) x (10 precedingdrawn )x (number of years of months average salary) xservice ) ie.Basic+DA (number of fully completed years of service)(No commission please) Basic + % DA comes forYear= above 6 months is retirement + Fixed Percentageconsidered as one year. of commission on sales2.Rs.3,50,000 2. Rs.3,50,0003.Gratuity actually received 3. Gratuity actually received
Exercise-1 • Mr. X retires from service on Nov.18 200X and received Rs.3,40,000 as gratuity after 32 years and 8 months. His salary at the time of retirement is Basic Rs.19000 and DA 40% on Basic and 4% commission on sales. • Sales achieved preceding ten months was Rs.15,00,000. Basic salary was more by Rs.2000 since 1 st April 200X. st • 60% of DA will come for retirement purpose. • Answer the following:How much is taxable gratuity? • A)If Mr.X is a government employee? • B) If Mr. X is a private employee who is covered under the payment of gratuity act? • C) If Mr. X is a BDA employee? • D) If Mr.X is a Bangalore Mahanagara paliga(BMP) employee? • E) If Mr. X is a XYZ public Ltd.(a Government
Answer Particulars Government A BDA BMP Employee employee employee 1.Years of service Not applicable Local BMP is a authority= corporation.therefore Government the employee is a employee private employee who is covered under the payment of gratuity Act. Year of service=33 years. Not 2.Meaning of Not necessary Basic + Full DA =Rs.19,000 necessary salary +40%(19000)=26,600 Least of the following is Not taxable exempted: 3.How much Not taxable 1. Rs.3,50,000 taxable? 2. Gratuity actually received Rs.Rs.3,40,000 3. (15/26)x 33 x Rs.26,600=5,06,423 Least=Rs.3,40,000 exempted.Therefore
Particulars XYZ Public limited Wife receives after the death government company not of Mr.X covered under the payment of gratuity Act1.Year of service Fraction of the year is Not required as there is no ignored. Therefore 32 years employer employee relationship after the death of Mr.X.The gratuity received is taxable under the head income under other sources.2.Meaning of salary Average salary 10 months preceding the month of retirement=Basic+DA which Least of the following is comes for retirement +fixed % of commission= January exempted: to October salary= Jan to 1.(15/30) x32 March Rs.17,000 each and x31,760=Rs.5,08,160 19000 from April to 2.Rs. 3,50,000 October=Rs.1,84,000+ 3.Gratuity actually Rs.7360 x10(DA)+6000 x received=Rs. 3,40,000 10(Commission) Least : Rs. 3,40,000 Average salary=3,17,600/10 Therefore Gratuity received =Rs.31760 is fully exempted.
Pension• Regular pension received by the employee himself ( not dead )after the retirement is taxable as salary.• Family pension(after the death of husband/wife) received by wife/husband comes under income from other sources as there is no employer and employee relationship after the death of husband who was an employee. 1/3 rd of family pension or •Standard deduction is available ie. •15,000 whichever is lower is deductible from family pension.
Commuted pension-Sec.17(1) (ii)• Instead of receiving monthly pension some portion of regular pension can be accumulated and can be received( after retirement/voluntary retirement) a lump sum is known as commuted pension.• 1. Government employee-Exempted after retirement.• Government employee means:-Central, state,local authority and corporation employees(totally 4)
Non Government employee- commuted pension• If gratuity received Maximum 1/3 of the regular pension can be commuted which is not taxable.• If gratuity is not received ½ of the regular pension can be commuted which is not taxable.• Note: above those limits are taxable for non government employees• See example in the next slide
Example – commuted pension• Mr. X receives pension every month Rs.10,000. He wants to commute some portion of the pension.• ? How much can he commute if• A) he is a state government employee• B) he is a Bangalooru development authority employee.• C) He is receiving gratuity from Karnataka Government.• D) He is an employee of Shanthi Ltd.
Answer for commuted pension• A,B and C all are government employees therefore any amount of pension commuted are exempted . It is because government never exceeds the statutory limit of 1/3 or ½ depends on the situation.• D) If he an employee of Shanthi ltd. Max.1/3 if he receives gratuity ie 1/3(10,000)=Rs.3333• If he does not receive gratuity he can commute ½ of pension ie. ½(10,000)=Rs.5,000.• Note:remaining pension regularly received (after commutation)is taxable.
Pension scheme-(after 1st Jan 2004)• Applicable for those join after 1st Jan 2004• Contribution made by employer –taxable• Employer and employee’s contribution to the extent of 10% is deductible as saving U/S80CCD. Beyond 10% is not deductible.• When pension received –fully taxed in the hands of recipient• Salary=Basic +DA if it comes for retirement benefit• Example-next page
Exercise• Mr. X joined a government service on January 2007 for a salary of Rs.40,000 per month.The government contributes towards pension scheme is Rs.5000 per month.Find out how much is taxable for the year 2007- 08, 2008-09 and 2009-10 previous year?• Answer: 1st April-31st March• 12 months salary=40,000 x12= 4,80,000• Government contribution 5000 x12= 60,000• Total 5,40,000• Less: deduction U/S 80CCD• Upto 10% both by employer and employer=4000 x2=8000 per month.• Annual Saving =8000 x12=96000 deductible from 5.40,000.• Net taxable salary=Rs.5,40,000- 96,000=4,44,000.Applicable for all three years.
Does it make any difference if he had joined XYZ Ltd?• No. It is because this provision is applicable both for government and any other employer.
Annuity[17(1)(ii)]• Annual payment constantly paid by employer to employee.• Even paid voluntarily it is taxable• Annuity received from ex employer is taxed as profit in lieu of salary-taxed as salary.
Retrenchment compensation[10(10B)]• The Least of the following is exempted:• 1. Amount calculated as per Industrial dispute act.• (15 days salary for every completed year of service and fraction beyond 6 months ie. 25 years and 7 months=26 years.)• 2. Rs. 5,00,000 notified by Government• 3.The amount received• Exercise:-next page Note: If approved by government, under any scheme, such amount is fully exempted.
Exercise• Mr. X has working in BPL. Due to closing down of the company, company pays to Mr.X Rs. 2,60,000 as compensation.He has rendered service 20 years and 8 months.Average salary was Rs.20,000. How much is taxable? How much is exempted?• Answer: no of years of service=21 years• 1.Compensation as per Industrial dispute 15/30(20,000) (21)=2,10,000• 2.Rs.5,00,000• 3.Rs.2,60,000• Least is Rs.2,10,000 is exempted. Therefore 50,000 is taxable ie (2,60,000-2,10,000)
Profit in lieu of salary• If company wants a manager to quit immediately as per the service rules he is paid a lump sum immediately. Such compensation is treated as salary.• The compensation can be received from present or former employer.
Remuneration for extra duties• Taxed as salary• Even warden ship remuneration also taxed as salary
Salary received from a United Nations organisation• Not taxable in India
VRS[10(10C)]• Voluntary Retirement scheme• Maximum amount of exemption is Rs.5,00,000.• Up to Rs. 5,00,000 is exempted• Conditions:• The same employee can not be re- employed in the same or any other company comes under the same management.• Salary means the last salary drawn for computation of compensation• Basic+ DA which comes for retirement + fixed % of commission on sales.
Provident fundParticulars Statutory PF Recognised PF Un-recognised PF Public PF1.Who maintains? Government Private Not recognised by Personal and semi- establishments commissioner of savings in government having 20 or Income-tax act post office by more employees Employer self employed Both employer contributes but etc. Both employer and similar there is no2.Who contributes? contribution by separate account By and similar employees in the name of Employee(not contribution by employees employee by employer3.Exempted or not? Employer’s Only when contribution employerEmployees Employer’s Since exceeding 12% transfers his employer doescontribution comes contribution is account tounder Section 80C exempted. of salary and not contribute Interest employee’sas savings in all nothing is exceeding 9.5% account is taxable taxablecases or converted to taxable. recognised PF excess over 12% Salary means of salary and excess over 9.5% Basic+DA+Fixed % of towards interest is Commission on Sales taxable
City compensatory allowance• Fully taxable as salary
House rent allowance(10[13A]) be lowest of •Exemption will • (a) 50% of salary where residential accommodation is in Mumbai, Kolkata, Delhi or Chennai and 40% of at other place (b)(Rent paid minus 10% of salary) (c) Actual allowance paid.• There will be no tax exemption if the residential accommodation is self occupied (not taken house for rent by employee or employee has not paid any rent for residential accommodation used by him [section 10(13A) of Income Tax Act and rule 2A] •Salary means basic plus DA (if forming part of retirement benefits) • plus commission (if fixed as a percentage of turnover).
House rent allowance• Important points:• 1.It is advisable to calculate claim month wise if any changes in salary or house rent allowance or rent paid or place of stay during the previous year.• 2. Salary to be estimated on due basis when you calculate the meaning of salary• Place of work is not important but the place of accommodation taken is important either to claim 50% or 40% depends on type of city.• After receiving rent allowance either he stays in his own house or rent accomodation is not taken rent allowance for such period is taxable.
Exercise- 1• Mr. X works in Mumboi but stays in Pune and receives house rent allowance of Rs.12,000. He pays Rs. 15,000 per month as rent.His Basic is Rs.20,000, DA-30% which will come for retirement purpose.• A)Compute taxable House rent allowance if he has taken a rented house in Pune.• B) If he stays in Mumboi and pays the same rent.• C) suppose he stays in his own house in Mumboi• D) suppose he has taken a house for rent in Mumboi for the same rent but rent his own house in Pune?• E) Suppose he stays in a rented house upto December in Mumboi by paying same rent and taken a rented house in Pune from 1st January for a
Answer-HRA• A) Rented house in Pune:• Since salary, place of stay, HRA and rent paid are same throughout the year we can calculate for the whole financial year.House rent Allowance received (12,000x12) Rs.1,44,000Least of the following is exempted:1.40% of salary*=26000 x 12 x40% 1,24,8002.Rent paid-10% of salary* 1,48,800[(15000-10% x26000) x 12]3.Actually received 1,44,000 *Salary means:The Least is Rs.1,24,800 which is exempted out of HRA 20,000+(30% x20,000)=26,000 received.There fore taxable HRA is Rs.19,200 ie (1,44,000-1,24,800)
Answer-HRA• A) Rented house in Mumboi• Since salary, place of stay, HRA and rent paid are same throughout the year we can calculate for the whole financial year.House rent Allowance received (12,000x12) Rs.1,44,000Least of the following is exempted:1.40% of salary*=26000 x 12 x50% 1,56,8002.Rent paid-10% of salary* 1,48,800[(15000-10% x26000) x 12]3.Actually received 1,44,000 *Salary means:The Least is Rs.1,44,000 which is exempted out of HRA 20,000+(30% x20,000)=26,000 received.There fore taxable HRA is Zero ie (1,44,000- 1,44,000)
C) Stayed in Mumboi in own house• The entire rent allowance received is fully taxable as he stays in own house in Mumboi.• There fore Rs.1,44,000 is fully taxable.• D) It does not make any difference with answer C as he stays in a rented house in Mumboi, the answer ‘A’is applicable.-See the answer A.The house rented in Pune and rent receivable comes under the head income from House property.
E. Up to December in Mumboi in a rentedhouse and thereafter in Pune in a rented house• Exempted HRA in Mumboi Nine months• Meaning of salary:Rs.26,000• HRA received Rs.1,08,000• Least of the following is exempted:• 1. 50% of salary=26000 x50% x9 Rs.1,17,000• 2. Rent paid – 10% of salary Rs.1,11,600• [(15000-10% x26000) x 9] 3.Actually received 1,08,000The least is 1,08,000. There fore for the 9 months entire HRA is exempted. Nothing is taxable.Exempted HRA in Pune :-Next slide www.professoraugustin.com
3 Months HRA in Pune in a rented house• Meaning of salary:Rs.26,000• HRA received Rs.36,000• Least of the following is exempted:• 1. 40% of salary=26000 x40% x3 Rs.31,200• 2. Rent paid – 10% of salary Rs.22,200• [(10000-10% x26000) x 3]3.Actually received 36,000The least is Rs.22,200 which is exempted. There fore for the3 months the taxable HRA is Rs.13,800[ 36000- 22200]Therefore HRA taxable for the previous year is Rs. 13,800.
Entertainment allowance[16(ii)]• In case of *government employees:Least of the following is deductible:• 1. Rs. 5,000;• 2. 20% of salary**;• 3.Amount of entertainment allowance granted during the previous year. Non government employees are not exempted *Government employee **Salary excludes any allowance Central and State government employees Benefit or other perquisites
Special allowances[10(14)]For official duties Not directly relate to (after Official dutyReaching office) (General) 1.Official travel/transfer To be Allowance to meet the cost Spent 2.Conveyance allowance Fully to meet customers Other3.daily allowance on official Wise, See in Tour/journey amount the4.Helper allowance to carry not Next Official documents Spent slide 5. Research allowance taxable6. Uniform allowance to do Official duty
Not directly relate to Official duty (General)1.Allowance &70% offor transport allowanceemployees Or Rs. 6000 per month whichever2.Children is lower They are fixed.education exempted Whether spentallowance Rs.100 per Or not.Excess month per child Taxable as they max.two children.If in Are not given hostel Rs.300 For official extra per child Duty for two children3. Traveling Rs. 800 per
Amount spent or not, exemptions are given ExerciseParticulars No. of Amount Exempted from Childre received tax Chargeable n/Name from to tax employe r1.Educational Three 300 PM 100 x2 x12=2400 (200 x2 x12+300allowance per child x12=84002.Hostel Three 400 per 300 x2 (100 x2 x12 +400expenditure child per x12=7,200(limited to x12)=7200 month two children3. Transportallowance from 800 x12=9600 12000-9600=2400house to office or ------- 12000vice-versa4.Transportcompany Y 70%(72000) or 6000 72000-50,400=21600employee –daily 72000 per month which everallowance is lower=50,4005. -DO- 6000 x 12=72000 or
Tiffin allowance, fixed medical allowance• Any amount received in cash is always taxable before the expenditure incurred.
Exercise• Salary income and various allowances: Compute the gross salary of Mr. Amal for the assessment year 2008-09on the basis of the following information:• 1. Basic pay Rs. 8,000 per month• 2. DA –40% of basic pay• 3. City compensatory allowance-10% of basic pay• 4.Medical allowance –Rs.800 per month• 5. Children educational allowance- Rs. 200 per month for three children• 6. Hostel expenditure allowance-Rs. 400 per child per month for 2 children• 7. Tribal area allowance – Rs. 500 per month in Bihar• 8. Travelling allowance – Rs. 12000(However actual expenditure was only Rs. 8000 for official duties• 9. Conveyance allowance –Rs. 500 per month(the whole
Answer:• Computation of gross salary of Mr. Amal for the assessment year 2008-09: » Taxable allowances• 1. Basic pay Rs. 8,000 x 12 96,000• . DA –40% of basic pay(8000 x 40% x12) 38 400• 3. City compensatory allowance-10% x 8000 x12 9,600• 4.Medical allowance –Rs.800 x 12 9,600• 5. Children educational allowance-[ (Rs. 200-100)2 x 12+• 200 x 12] 4,800• 6. Hostel expenditure allowance-(Rs. 400-300) 2 x 12 2,400• 7. Tribal area allowance – (Rs. 500-200) x 12 3,600• 8. Travelling allowance – (Rs. 12000-8000) official duties 4,000 Children education –Rs. 100 per month per child for two children allowed.• 9. Conveyance allowance –Rs. month –500)children allowed Nil Hostel expenditure Rs. 300 per child per 500 for two 12
Perquisites• Casual emolument or benefit attached to an office or position in addition to salary or wages• Something that benefits a man by going into his own pocket• Whether perquisites should be given in Kind?
Perquisites• Need not be in kind.It can be in cash.• What are the conditions to be fulfilled to become a perks?
Conditions To become perquisites 1.Allowed by Employer to 4.Personal Employee advantage To the employee 3.Directly Depend upon service2.Allowed during 5. Derived by Continuance Virtue of Of employment Employer’s authority
Other conditions• Employer and employee relationship should exist at any point of time-need not be an employee now.• Legal origin is important-Un authorized advantage taken by employee without employer’s authority will not become perquisites.
Perquisites Includes 1.Rent free Accommodation 4.Personal Provided Obligations of By employer Employee Accommodation Related(1-3) Met by Including sweeper,gardener,watchman,gas, employer electricity, 6.Fringe 3.value of Benefits Benefits provided Allowed Like furniture 5. Funds paid To employees 2.concessional In the accommodation By employer Of OtherAccommodation Other than Than Provided RPF/Insurance companies By employer fund
Perquisites Taxable in the hands of employeeIn the hands of employeeCategory-A1. (R)ent free or concessional 1 to 5 taxable only to rent accommodation Specified Employee2. (S)weeper in the house, gardener, watchman, personal attendant Category –B3. Free/concessional 1.Car given by employer (g)as,electricity,water etc 2. Transport facility given by4. (E)ducational facility to transport undertakings except employee’s family members Railway and airlines. including servants and depentant, parents, spouse and ( only to Specified Employee) children(need not be dependent)
Rent Free accomodation(RFA) • Company’s House given at free of cost or rented by company given to employee at free/cocessional rent. • Includes: house, flat, farm house, carvan(people go by camel place to place), mobil home,ship, floating structure-like boat. • Step1. Unfurnished Accomodation Central or State Government Private employees employees
1.Central or state government employee-RFA• License fee of flat determined by central government is perquisites in the hands of employee.• Fair market value of rent is not important
RFA-Government employee- Exercise• Exercise:- Mr. X is working in Central government service given rent free accommodation in an government apartment at free of cost. The license fee prescribed by government is Rs.3000 but fair rental value of the house is Rs. 10,000. How much is taxable?• Answer:-next page
Answer-RFA• Fair rent is not considered. The license fee Rs. 3,000 is taxable in the hands of Specified employee.
2. Private Employees(RFA) • It depends on Population of the city where accommodation provided. Population as per 2001 censusExceeding population Population beyond Population Upto 25 lakhs 10 lakhs-Up to25 lakhs 10 lakhs Owned Owned Owned Rented By By Byemployer Rented employer 15%of salary employer Rented or amount paid By By company By company To outsider Whichever company 10% of Is lower 7.5% of15% of salary salary Salary
Explanation to the diagram• 1.If house property is owned by employer depends on the population of the city percentage differs. Big city it is 15% of salary, medium city it is 10% and small city it is 7.5% of salary for accommodation with out any facility like furniture.• If house is rented by employer given to employee it is 15% of salary or rent paid by employer whichever is less taxable for specified employees irrespective of the type of city.
If Furniture provided by employer If rented Actual hire charges payable If owned10% of originalCost of furniture
Meaning of salary for RFA• All Cash salary received or recivable in hand( including taxable allowances) by the employee himself.• Excludes all *perquisites and *DA which will not come under retirement purpose• If any allowance is exempted ( like HRA(partly), children educational allowance upto Rs.100 Per month or transport allowance up to Rs. 800 per month etc.) to the extent exempted is not included in the meaning of salary but balance is included in the meaning
Exercise-RFA• Value of rent free accommodation : Preetham is sales manager of a private company and for previous year 2007-08,he received the following emoluments(amts in Rs)• Basic Salary 248000• Bonus 16000• Dearness allowance(50% forming part of salary) 60000• Project allowance 15000• Commission on sales 16000• City compensatory allowance 25000• Medical allowance 12000• Employer contribution to recognized provision fund 20000• Salary pertaining the year 2008-09 has been received in advance 20000•• He has been provided with a rent free accommodation in Bangalore
• He has been provided with a rent free accommodation in jaipur owned by the employer. The population of jaipur may be assumed to be 15lakhs as per 2001 census• Determine : a) Meaning of salary for RFA• b)the taxable value of the perquisite in respect of rent free accommodation.• 1. Meaning of salary:-• All Cash salary received or recivable in hand including taxable allowances by the employee himself.• Excludes all *perquisites and *DA which will not come under retirement purpose• Any allowance is not taxed( like HRA(partly), children educational allowance upto Rs.100 Per month or transport allowance up to Rs. 800 per
Meaning of salary- Exercise• The valuation of rent free accommodation shall be 15% of the salary i.e. 15% of (248000+ 16000+30000+15000+16000+25000+12000)= Rs 54,300• Note: Salary shall be taken on basis for the period for which accommodation has been provided. Hence advance salary for 2008-09 shall not be taken in account.• Employer’s contribution does not come to the assessee in cash as it is paid directly to the department. That is why I have mentioned the meaning of salary is cash
Exercise• Value of free rent accommodation : sri Mohan is purchase manager of a private company and for previous year 2007-08 he received the following emoluments-•• Basic Salary 120000• Bonus 16000• Dearness allowance(50% forming part of salary) 60000• Project allowance 15000• Commission on purchase 16000• City compensatory allowance 25000• Medical allowance 12000• Employer contribution to recognized provision fund 20000• Salary pertaining the year 2008-09 has been received in advance 20000•• He is also in part employment with B ltd and is receiving salary of Rs 80000 P.A. he has been provided with a rent free accommodation in Mysore owned by the employer. The population of Mysore may be assumed to be 15 lakhs as per 2001 census. Determine taxable salary
solution• Computation of taxable salary of Sri Mohan for assessement Year 2008-09•• Basic Salary 120000• Bonus 16000• Dearness allowance(50% forming part of salary) 60000• Project allowance 15000• Commission on purchase 16000• City compensatory allowance 25000• Medical allowance 12000• Employer contribution to RPF in excess of 12% of salary 2000• [20000- 12% of (120000+ 50% of 60000)]• Salary from B ltd 80000• Advance of salary 20000• Value of housing facility[10% of (120000+16000+30000+ 31400• 15000+16000+25000+12000+80000)]• Taxable Salary 397400
Exercis• Value e concessional accommodation: Sri Basant is purchase of manager of a private company and for the previous 2007-08 he received the following emoluments-• Basic Salary 240000• Bonus 32000• Dearness allowance(50% forming part of salary) 120000• Project allowance 30000• Commission on purchase 32000• City compensatory allowance 50000• Medical allowance 24000• Employer contribution to recognized provision fund 40000• 2 months salary for year 2008-09 has been received in advance 20000•• What would be the value of accommodation if the employer charges www.professoraugustin.com rent of Rs 2000 p.m. in the following independent cases:
Solution• Soln: The valuation of accommodation provided at concessional rent shall be as under-•• Place of accommodation Value of perquisite• Hyderabad 15% of salary less rent recovered = Rs 70200-24000=Rs46200• Alwar 10% of salary less rent recovered = Rs 46800-24000=Rs22800• Tumkore 7.5% of salary less rent recovered =Rs 35100-24000=Rs11100•• Salary = 240000+32000+60000+32000+30000+50000+24000 = Rs 468000•• Any rent collected by employer
Furnished accommodation in hotel• 24% of salary paid or payable only for the period accommodation provided• Or• Actual charges paid or payable by the employer to such hotel• Whichever is lower• Exceptions:-1.The above rule is not applicable if such employee stays less than 15 days in the previous year and• 2.Accommodation given only he is transferred to such new place• Both the conditions should be fulfilled
Perquisites –Domestic servants,free supply of gas, electricity etc• Sweeper, gardener watchman personal assistant paid by employer is perquisites to the extent of cost to the employer.
Monthly Fixed Education allowance• Training of employees is not perquisites• Fixed educational allowance Rs.100 per child per month is exempted per child. Maximum two children.Beyond is taxable• Hostel Rs.300 per month per child exempted.Maximum two children.Beyond it is taxable to the employee
Payment of school fees and re- imbursement of school fees• Taxable as perquisites fully
Education facility to children(own) in their own school or any other school/college• If less than Rs. 1000 per month exempted• If exceeds Rs. 1000 per month cost of education in similar institution in the near locality (minus )Rs. 1000(minus) amount recovered.Example:- Employer pays Rs. 1500 per month to the school selected by employee for three children and one grand children.How much is taxable perquisites?
Education facility to relative’s children• Cost to the employer in such similar institution minus amount recovered• Important Note: Only for own children exemption of Rs. 1000 allowed. But for the relative’s children such deduction is not allowed.
Answer- Educational facility• 3 x 1000= 3000 exempted• 500 x 3 + 1500= 3000 taxable• Note: Number of children is not limited to two
Scholarships• Scholarship given by employer company is not taxable as perquisites.• Note:- It should not be related to his/her employment.
Leave travel concession for Family• Any place in India• Only travel short route permissible• Two Journey in four block period allowed.• If Journey is not taken place with in two years, in the very next year if used itcan be claimed.• Flight- economy class fair allowed(not taxable).• Train-Air conditioned first class fair allowed(Not taxable)• Note:- Only Journey expenditure is
Employee’s obligation met by employer eithergiving money or reimbursed is taxed in the hands of employee(17(2)(iv))• Example:1.Domestic servant’s salary reimbursed by employer.• 2.Gas connection in the name of the employee but monthly gas bill paid by employer-Taxable to all employee whether specified or not.• 3.If gas connection in the name of the company then there is no obligation to employer. Such perquisites is taxable in the hands of Specified employee.
Amount payable by employer for fund on life of employee• Taxable to all employees• Exception:1. RPF,• 2. approved superannuation fund• 3. Group Insurance,ESI• 4. Fidelity Guarantee scheme
Valuation of Interest free/concession loan• Difference between SBI interest rate on 1st day of the previous year-rate of interest charged by company from employee.• SBI rate:on 1st April 2007 are:- Housing loan more than 5 years-10.75%, Upto 5 years- 10.25%,educational loan upto 4 lakhs-11.5%, above 4 lakhs-13.25%• Exceptions- see in the next slide
Example• X is employed by A Ltd. on 1st June 2007, he has taken interest free Housing loan of Rs. 14,00,000.How much is taxable?
Answer• Lending rate upto 5 years is 10.25% per annum• 10.25% x 14,00,000=1,19,583 is taxable.• Suppose the interest charged by the company from assessee is 6%, then how much is taxable?
Perquisites in respect of movable assets given to an employee for personal use.• 10 % of Original cost of such asset purchased by employer(- )reimbursed by employee• If taken on rental basis by employer:Rent payable(-)reimbursed by employeeNote: It is not on WDV value
Perquisites by sale of company asset at nominal rate• Electronics and computers- Calculate WDV at 50% depreciation for every fully completed years and compare with amount charged. If WDV is more there is perquisites.• Note: 1. WDV method only• 2. Fully completed years of individual asset only It is not financial year. Fraction of the year is ignored.• What % of depreciation on Motor car?
Motor car transferred?• 20% depreciation under WDV for completed year of service.• Other assets?• 10% on ORIGINAL value of asset.
Exception on Interest on loan• 1. Loan(s) less than Rs.20,000(in aggregate of original loan ) and• 2.Taken for specified medical treatment.• Amount reimbursed from medical insurance scheme is not considered.
Medical facilities• Medical facilities availed in employer’s hospital, government hospital or hospitals recognised by Income tax department is not taxable.( No limit for specified diseases.• If private –Up to Rs.15000 is not taxable if reimbursed to specified employees.• If bill is issued in the name of employee but paid by employer then it is taxable in all types of employees.• Family means: spouse, children, parents, brothers, sisters who are wholly or mainly dependent on him/her.
Medical facilities outside India• Medical treatment expenditure To the extent of RBI’s permission is not taxable.• Travel:employee+relative or one attendant-exempted provided cost does not exceed Rs.2,00,000.• Stay for one relative/one attendant expenditure – allowed to the extent of RBI’s permission.
Motor car – belong to Employee but expenditures met by employer• Exclusively used for private – Fully taxable.• Exclusively used for official- Not taxable.• Partly used for business partly for private and difficult to identify:-• Calculation of perquisites:-1.6 litres car• Actual expenditure incurred by employer• Less:Rs.1,200 per month +600 per month if driver is paid.(This is assumed that it is incurred for official purpose)
Motor car-Owned /Hired and maintained by employer by employer-• Used for private purpose:-(All expenditure met by employer + 10% depreciation on original cost are perquisites) or higher chargesPartly for private partly for oficial:Up to 1.6 litres-1200(car) +600(if Driver provided) per month- taxable.If more than 1.6 litre:-1600 (car) + 600(If driver provided) per month
Motor car-Owned /Hired by employer but maintained by employee Used wholly for personal purpose Expenditure Hire charges + Incurred by or 10% on original employer Cost of car incurred by employer Note:- if recovered by employer it is deductible
Motor car-Owned /Hired by employer maintained by employee• Used Partly for private partly for official- difficult to identify:-• If 1.6 litres cubic capacity- Rs.400Per month(Car) + 600 per month(if driver provided)----Taxable• If above 1.6 litres cubic capacity:• Rs.600 per month(car) +Rs.600per month(if driver provided) taxable. Note: amount recovered from employee is not deductible
Other than car like two wheeler owned by employee but maintained by employer• Partly for office and partly for private-if difficult to measure:• Expenditure incurred by employerLess: Rs.600 per month or higher sum for official purpose as per log book if maintainedLess: Amount recovered from employee balance is taxable in the hands of assessee.
Higher claim on car• Conditions:• 1.Complete detail of journey for official purpose to be maintained• 2.Certified by employer that the expenditure was incurred wholly and exclusively for official purposes.• Ref: Income tax by Dr. Singhania-page 147-149 39th edition.
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