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BTP Presentation Group No 4 :- Karan Khelan Mehul Ravish Salary Income
Basis Of Charge Salary is taxable on due or receipt basis whichever is earlier as per section 15. Computation of income under head “Salaries” Salary A Allowances B Perquisites C Gross Salary A+B+C Less : Deduction under section 16 Entertainment allowance deduction [Sec. 16 (ii)] D Professional tax [Sec. 16 (iii)] E Income under the head “Salaries” A+B+C-D-E Note :- Professional tax is deductible on “payment basis”. If it is paid by the employer on behalf of the employee, it is first included in gross salary as perquisite and then deduction is allowed under section 16(iii).
Different Forms of Salary Basic salary Taxable. Dearness allowance/Pay Taxable. Advance salary Taxable in the year of receipt. Arrears of salary Taxable in the year of receipt, if not taxed on due basis earlier. Leave encashment while in service Taxable. Leave encashment at the time of retirement or at the time of leaving the job
In case of Government employees, it is fully exempt from tax.
In case of non-government employees, it is exempt from tax to the extent of the least of the following:
Cash equivalent of leave salary in respect of the period of earned leave at the credit of employee at the time of retirement(Which cannot exceed 30 days’ “average salary” for every completed year of service); or
10 months “average salary”; or
Amount specified by the government, i.e., Rs. 3,00,000; or
Leave encashment actually received at the time of retirement
Contd….. Salary in lieu of notice Taxable Salary to partner Not chargeable under the head “Salaries” but taxable under the head “Profits” and gains of business or profession Fees and Commission Taxable Bonus Taxable on receipt basis if not taxed earlier on due basis. Gratuity
In case of Govt. employee it is fully exempt from tax.
In case of non-govt. employee covered by the payment of Gratuity Act, 1972 it is exempt from tax to the extent of the least of the following:
15 days’ salary for each year of service (or part thereof exceeding 6 months);
Rs 10,00,000 ; or
Gratuity actually received.
In case of non-Govt. employee (not covered by the payment of Gratuity Act) it is exempt from tax to the extent of the least of the following:
Half month’s salary for each completed year of service; or
Gratuity actually received.
Uncommuted pension is taxable in all cases. Commuted pension is fully exempt from tax in the case of a Government employee (i.e., an employee of the central Government, State Government. Local authority and statutory corporation). In the case of non-Govt employee, commuted pension is exempt to the extent given below-
One-third of normal pension is exempt if the employee receives gratuity; or
One-half of normal pension is exempt from tax if the employee does not receive gratuity.
Pension under new scheme in the case of govt. employee or any other employee joining on or after Jan 1,2004
Employer’s contribution is first included in salary and then a deduction is available (to the extent of 10% of salary) under sec 80 CCD.
Employee’s contribution is deductible under section 80 CCD to the extent of 10% of salary.
When pension is received out of the aforesaid amount, it will be taxable in the year receipt.
Annuity from employer Taxable as salary
Contd… Annual accretion to the credit balance in recognized provident fund
Excess of employer’s contribution over 12% of salary is taxable.
Excess of interest over notified interest is taxable (notified rate of interest is 9.5 %)
Retrenchment for extra duties Fully taxable under section 15. Compensation received under voluntary retirement scheme (VRS) Exempt up to Rs 5 lakh, if a few conditions are satisfied. One of the conditions is the amount payable on account of voluntary retirement or voluntary separation of the employees does not exceed (a) the amount equivalent to three months’ salary for each completed year of service, or (b) salary at the time of retirement multiplied by the balance months of service left before the date of his retirement on superannuation. Relief under section 89 is not available. Salary from UNO Not chargeable to tax. Salary received by a teacher/researcher from a SAARC member state Not taxable up to 2 years.
Different Allowances City compensatory allowance Fully taxable under section 15. House rent allowance
Exempt from tax to the extent of the least of the following :
50% of salary in Delhi, Bombay, Calcutta, Madras or 40% of salary in other cases;
House rent allowance; or
The excess of rent paid over 10% of salary.
This allowance is first included in salary and thereafter a deduction is allowed.
In the case of Govt. employees, least of the following is exempt from tax:
20 % of salary; or
Children education allowance It is exempt from tax to the extent it does not exceed Rs. 100 per month per child for a maximum of two children Hostel expenditure allowance It is exempt from tax to the extent it does not exceed Rs. 300 per month per child for a maximum of two children. Exemption is in addition to the exemption available in the case of children education allowance.
Contd… Transport allowance It is given to an employee to meet his expenditure for the purpose of commuting between office and residence. It is exempt up to Rs. 800 per month .The exemption in Rs 1,600 per month in the case of an employee who is blind or orthopaedically handicapped. In the case of serving chairman and members of UPSC, transport allowance is exempt from tax without any monetary ceiling. Allowance for transport employees It is given to employees of transport undertaking to meet their personal expenditure during performed in the course of running of such transport from one place to another place. The amount is exempt to the extent it does not exceed (a) 70% of the allowance or (b) Rs. 6,000 per month, whichever is lower. Tribal area allowance Exempt up to Rs. 200 per month in some cases. Travelling allowance, conveyance allowance, helper allowance, research helper, uniform allowance These allowances are given to meet specific expenditure in performance of duties of an office. Exemption is available to the extent the amount is utilized for the specific purchase for which the allowance is given Transfer allowance It is exempt from tax to the extent expenditure is incurred in connection with transfer, packing and transportation of personal effects on transfer from one place to another place.
Contd… Foreign allowance Exempt from tax if paid outside India by the Government to an Indian citizen for rendering service outside India. Tiffin allowance Taxable Fixed medical allowance Taxable Allowance received by a teacher / researcher from a SAARC member State Not taxable up to 2 year. Sumptuary allowance to serving Chairman/members of UPSC Not chargeable to tax. Allowance to retired Chairman and retired members of UPSC An allowance (subject to a maximum of Rs. 14,000 per month) for defraying the service of an orderly and for meeting expenses incurred towards secretarial assistance on contract basis, is not chargeable to tax.
Perquisites Rent-free unfurnished house
In the case of Government employee(i.e. Central Government employee State Government employee or a Government employee on deputation to a public sector undertaking if house is allotted by the Government): Taxable value is the license fees of the house as per house allotment scheme of the Government.
In the case of non-Government employees:
If the house is owned by employer : Taxable value is 15 per cent of salary of employee of the relevant period(7.5 per cent If population is 10 lakh or less or 10 per cent if population is above 10 lakh but not more than 25 lakh).
If house is taken on lease by employer : Taxalbe value is either 15 per cent of the salary or lease rent. Whichever is lower.
Contd… Rent-free furnished house Value of “Furniture” will be added to the value of rent-free unfurnished house as computed above. Value of furniture is 10 per cent per annum of cost of furniture to the employer or rent paid / payable of the furnishing by the employer, as the case may be. Concession in rent Value of the perquisite in respect of rent-free furnished/ unfurnished house will be calculated as given above. From the amount so calculated, rent charged by employer shall be deducted. The balance ( if it is positive) is taxable value of the perquisite in respect of concession in rent.
Contd… Rent-free/concessional furnished / unfurnished house in special cases
Not chargeable to tax if provided in a “remote area”.
Hotel accommodation / guest house accommodation provided to an employee is taxable at the rate of 24 per cent of salary of the relevant period or hotel tariff, whichever is lower.
Hotel accommodation for 15 days (in aggregate in a previous year) can be provided immediately after transfer at the new location as a tax-free perquisite.
Further, if an employee is transferred and housing facility is provided to him at the new location (he has yet to vacate a house given at the old location),, for a period of 90 days immediately after transferred only one house( at the option of the employee at the old location or new location) is chargeable to tax.
Perquisite in respect of rent-free furnished/ unfurnished house is not taxable if provided to a High Court Judge, Supreme Court Judge, Union Minister, leader of opposite in Parliament, an official Parliament and serving Chairman/ members of UPSC.
Free domestic servants Actual expenditure of the employer (as reduced by any amount paid by the employee) is taxable perquisite in the hands of an employee. Gas, electricity or water supplied after purchasing from outside agency Actual amount spent by the employer (as reduced by any amount recovered from the employee) is taxable perquisite in the hands of employee. Free education facility Related to training is not taxable whereas education provided to family members of the employee is taxable beyond the limit Rs. 1000 Per month per child only if the Education institute is maintained/owned by Employer
Leave Travel Concession
Only 2 Journey in the Block of 4 Years is Exempt (can be Carried over)
Taxable In the hand of employee on the basis of value deducted any amount recovered from the employee
Lunch, Refreshment, etc
Food and non-alcoholic beverages are provided in Working hours are fully exempt from tax.
Lunch and Refreshment are provided in Working hours at any other place cost the employer excess of Rs. 50 per meal as reduced by the amount recovered by the employee is the taxable value.
Traveling Touring Accommodation
When such facilities available uniformly to all employees, Taxable as a perquisites in the hands on employee on the basis of actual expenditure of the employer.
When such facilities available uniformly to all employees, Taxable as a perquisites in the hands on employee on the basis of value at which such facilities are offered by other agency to the public
Gift Voucher or Token
Gift may be made either to employee or any member of his household, gift in kind upto Rs 5000 p.a is exempted
Incurred by the employer – office use – recovered from the employee is taxable
In house club facilities are not taxable other than that are taxable in the hand of employee
Specified Security or Sweat equity shares allotted on or after April 1, 2009 is Taxable in the hands of employee
Any Other Facility is Taxable on the hands of employee on the basis of actual expenditure reduced by the amount paid by the employee
Employee Provident Fund
Statutory PF : Deduction U/s 80 C on Employees Contrubution is available, all other Contribution/ Interest / Lump sum are Exempted from tax
Recognized PF: Deduction available U/s 80C to Employee but for Employer Excess over 12% of Salary is taxable and Interest is also exempted to 9.5%
Unrecognized PF: Employee has no deduction available, where the contribution is exempt from tax but the lump sum Payment is taxable at the time of retirement
Deduction U/s 80 C is up to Rs. 100,000
Calculation of Salary
For purpose of HRA, Gratuity, Leave encashment at the time of Retirement and Provident Fund: Salary means basic Salary, dearness allowance/pay.
For the Purpose of Gratuity Salary means Basic + Dearness Allowance , where Dearness allowance is Paid.
For the Purpose of Perquisites, Salary means Basic + Dearness allowance /Pay + Bonus + Commission + Fees and other benefit that are Taxable.