2. Employer employee relationship.
Written or implied contracts.
Any benefit or receipt arising
from employment.
3. Whether director or managing director
of a company is an employee ?
Whether partner of a firm can be an
employee ?
4. As pension paid due to the previous
employer employee relationships is
taxed under salar y .
If,af ter the death of such employee
family pension received by spouse -
comes under other sources, as there
is no employer employee
relationship.
5. Sec. 15 - Salaries.
The following income shall be chargeable to
income-tax under the head Salaries -
(a) any salary due from an employer or a former
employer to an assessee in the previous year,
whether paid or not;
(b) any salary paid or allowed to him in the
previous year by or on behalf of an employer or a
former employer though not due or before it
became due to him;
(c) any arrears of salary paid or allowed to him in
the previous year by or on behalf of an employer
or a former employer, if not charged to income-
tax for any earlier previous year.
6. Explanation 1.-For the removal of doubts, it is
hereby declared that where any salary paid in
advance is included in the total income of any
person for any previous year it shall not be
included again in the total income of the
person when the salary becomes due.
Explanation 2.-Any salary, bonus, commission
or remuneration, by whatever name called,
due to, or received by, a partner of a firm from
the firm shall not be regarded as "salary" for
the purposes of this section.
7. Sec. 16 - Deductions from salaries.
The following deductions are available in
computing income under the head Salaries,
(ii) a deduction in respect of any entertainment
allowance granted to a govt. assessee, a sum
equal to one-fifth of his salary (exclusive of any
allowance, benefit or other perquisite) or five
thousand rupees, whichever is less;
(iii) a deduction of any sum paid by the assessee
on account of a tax on employment within the
meaning of clause (2) of article 276 of the
Constitution, leviable by or under any law.
8. Salary u/s 17(1) includes-
Wages
Any annuities or pension
Any gratuity
Any fees, commission, perquisites or
profits in lieu of or in addition to salary
Advance of salary
Amount received on encashment of leave
9. Employer’s contribution to recognised
P.F. in excess of prescribed percentage of
salary
Interest credited in a RPF in excess of
prescribed percentage
Balance transferred from unrecognised
PF to RPF(Rule 11 part A, Sc. IV)
The contribution by employer under
notified pension scheme (Sec. 80CCD).
10. Perquisites u/s 17(2) includes-
Value of rent free accommodation
Value of rent concession
Value of any benefit provided free or at
concession to specified employees
Any sum paid by employer for any obligation
which would have been payable by employee
Any sum payable for life assurance of
employees(other than RPF, superannuation fund,
deposit linked insurance fund)
The value of any other fringe benefit as per Rule 3
on which employer is not liable to pay FBT
11. Specified employee-
(i) Director Employee,
(ii)Employee having substantial Interest
[beneficial owner 20% or more equity shares,
voting power, in the Employer company],
(iii)Employees having Salary Income exceeding
Rs 50.000 /- (excluding all benefits & amenities
not provided by way of monetary payments
from one or more Employers in the P.Y.).
12. Profits in lieu of salary u/s 17(3)-
(i) any payment for termination / modification
of terms of employment
(ii) any payment other than those received ,
u/s 10 (10) / (10A) / (10B) / (11) / (12) / (13) /
(13A) or from any U.P.F. / Unrecognized
Superannuation fund or under Keymans’
Insurance Policy
(iii) any sum received from an employer
before joining or after cessation of
employment etc .
13. Please note
Items of Salary Wholly Taxable
i) Basic ii) D.A. iii) D.P. iv) Commission or Fees
v) Bonus vi)Arrear or Advance Salary vii) and
other taxable allowances
Items of Salary Partly Exempted and Partly Taxable
i) H.R.A. ii) T.A. iii) Education Allowance iv)
Hostel Allowance v) Perquisites vi) Excess
Contribution & Accrued Interest to R.P.F. vii)
Retirement Benefits .
15. Received at the time
Received while in service-
of retirement
Fully taxable( both govt. &
Non govt. employees)
Non government employee
Govt employees
(including employees local
(both central & state)
authority and corporation)
Exempted
(see next slide)
16. Least of the following:
a) 10 months average salary*.
b) Amount specified by the govt. Rs.3,00,000.
c) Actually received at the time of retirement.
d) Period of leave on 30-day basis for every
completed year of service(-) leave availed
during service(-)leave encashed during
service] x (average salary of last 10 months)*
*Average salary-Basic + DA if in employment terms
+fixed % of comm.
17. (i) In case of employee of Central, State, Local
authority it is fully exempt.
(ii) In case of employees covered by the Payment of
Gratuity Act, 1972 , where 10 or more persons are
employed during any time in preceding 12 months :
Least of the following is exempt :
(a) 15 days salary ( 7 days in the case of seasonal
establishment ) based on salary last drawn for each
completed year of service or part thereof in excess
of 6 months. [ 15 / 26 X Salary last drawn X No:
of Years of service ]
(b) Rs. 3,50,000/-
(c) Gratuity actually received.
18. (iii) In other cases least of the following :
(a)Rs.3,50,000/-.
(b) 1/2 month’s average salary for each completed year
of service.
(c) Gratuity actually received.
Average Salary means the average of 10 months
Salary immediately preceding the month of retirement
Salary - Basic + DA ( forming part of Salary if in terms
of employment) + Commission at fixed % on turnover.
19. Regular pension received by the employee
himself af ter the retirement is taxable as
salar y.
Family pension comes under income from
other sources as there is no employer and
employee relationship af ter the death of
employee.
20. Commuted pension is exempt as follows :
i) Govt./Local authority employee : Entire
commuted pension is exempt u/s 10(10A)(i)
ii) Non-Govt. employee :
a. If Gratuity received – Maximum 1 / 3 rd of the
Full Value of Pension
b. If Gratuity not received – Maximum 1 / 2 of
the Full Value of Pension
21. Applicable for those join on or af ter 1 st Jan
2004.
Contribution made by employer –taxable.
Employer and employee’s contribution to
the extent of 10% is deductible as saving
U/S80CCD.
When pension received –fully taxed in the
hands of recipient
Salar y=Basic +DA if it comes for retirement
benefit.
22. Voluntar y 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.
Salar y means the last salar y drawn for
computation of compensation
Basic+ DA which comes for retirement + fixed
% of commission on sales.
23. HRA received is taxable after allowing an exemption
u/s 10(13A) read with Rule 2A
Least of the following:
i) H R A actually received
ii) Rent Paid - 10% of Salary
iii) 50% (for Delhi/ Kolkata / Mumbai / Chennai) OR
40% of Salary for other places)
Salary*= Basic+DA+Comn. at fixed % of turnover.
[Gestetner Duplicator (P) Ltd Vs C.I.T (1979) 1
Taxman 1 /117 ITR (SC)]
24. Government(central & state) 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
Salar y excludes allowances benefit or other
perquisites.
25. Education Allowance received for education
Of employees own children is taxable after
allowing an exemption of Rs 100/- p.m. per
child for a maximum of two children.
26. Accommodatio City with City with City with population
n population population not exceeding 10
exceeding 25 exceeding 10 akhs
lakhs lakhs but
upto25 lakhs
Owned by 15% of salary 10% of salary 7.5% of salary
employer
Taken on Lease or rent or Lease or rent or Lease or rent or
lease or rent 15% of salary 10% of salary 7.5% of salary
- Least – Least - Least
Furnished- 10% of cost of furniture or actual hire charges.
Concessional rate- Perquisite-amount recovered.
Salary- Includes pay, allowances, bonus, commission etc. but
excludes DA, DP conditionally, exempted allowances, perquisites and
employer’s contribution to PF.
27. Education Allowance received for education
Of employees own children is taxable after
allowing an exemption of Rs 100/- p.m. per
child for a maximum of two children.
28. (i) Interest Free Loan- The following are not
taxable (a) If the Loan is for medical treatment of
diseases specified in Rule 3A [ i.e. Cancer ,
Tuberculosis , AIDS , Disease of Heart / Blood / Lymph
Gland / Bone Marrow / Respiratory , Nervous , Urinary ,
Digestive system / Liver / Gall Bladder / Skin involving
surgical operation ]
(b) If the aggregate amount of loan does not exceed
Rs 20.000/-
The Perquisite value of such Interest free Loan to be calculated
at the rates applicable in S B I for the respective loan on the
maximum outstanding balance” on the last day of each month .
29. The Perquisite value for use of movable assets :-
(I) Use of Computer , Laptop is not taxable perquisite.
(II) Use of Other Movable Assets:
a) If Owned by employer - 10 % of Actual Cost
.
b) If Hired by employer - Actual Hire Charges.
(iii) The Perquisite value for Transfer or Sale of M.A.
a) Electronic appliances including Computers & Cars
to be valued at W D V depreciated @ 50% & 20%
b) Other Assets to be valued at Actual Cost as
depreciated by 10% of actual cost for each year .
