Computation of income from Salaries

Computation of Income from Salaries
for B Com students
Based on B. Com Syllabus of Goa University
Presented by
Dr. Sanjay P Sawant Dessai
Associate Professor
VVMs Shree Damodar College Margao Goa
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• Sections 15 -Basis of charge )
• Section 16 -Deductions from salary income)
• Section 17- Definition and different forms of
salary (Perquisites and Profit in lieu of salary)
• Inclusive of allowances
• (exclusive of valuation of Perquisites)
UNIT II: COMPUTATION OF INCOME FROM ‘SALARIES’

Sections: 15, (Basis of charge )
Section 15 stated that 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.
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Essential norms
• Salary is taxable on “due” or “Receipt” basis
whichever is earlier
• Relationship between payer and payee
• Employer and employee relationship
• Remuneration paid to person in respect of
service rendered

Exception
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.
• Its an appropriation of profit – chargeable
under the head profits and gains of business
and profession

Definitions (17)
• Salary 17(1) includes the following
• Wages
• Annuity or pension
• Any gratuity
• Any fees, commission, perquisites or profits in lieu of salary or wages
• Any advance salary
• Any payment received in respect of any period of leave not availed by him
(Leave encashment)
• Portion of the annual accretion to the balance at the credit of an
employee participating in recognised provident fund to the extent taxable
• Transferred balance in a recognised provident fund to the extent it is
taxable
• Any contribution made by central govt or any employer to the account
covered under pension scheme refereed in section 80CCD.

Allowances
• Allowances are fixed quantity of money or
other substance given regularly in addition to
salary for the purpose of meeting some
particular requirement connected with the
service rendered by employee.
• Amount of Exemption
• Amount of allowance or the actual amount
spent whichever is lower

Allowances
• House rent allowance
• Transport Allowance
• Conveyance Allowances
• Daily Allowance
• Uniform Allowance
• Helper Allowance
• Research Allowance
• Children Education Allowance
• Children’s Hostel Expenditure Allowance.
(Covered under section 10)

House Rent Allowance u/s. 10 (13A).
• Exemption in respect of house rent allowance
is least of the following three
• Amount equal to 50 percent of salary, where
house is situated in metros and 40 percent of
salary where residential house is situated at
any other place.
• Actual house rent allowance received
• Excess of rent paid over 10 percent of salary

Transport Allowance
• Transport allowance is granted to meet his
expenditure for the purpose of commuting
between the place of his residence and place
of duty .
• Exemption
• Up to Rupees 800 per month
• Rupees 1600 per month in the case of blind or
orthopedically handicapped employee

Children Education Allowance
• The allowance is given for children's education
• Rupees 100 per month per child up to a
maximum of 2 children

Hostel Expenditure Allowance
• The allowance is granted to an employee to
meet the hostel expenditure on his child
• Rupees 300 per month per child up to a
maximum of two children.

Medical allowance
• Fixed medical allowance is chargeable to tax
• Reimbursement of medical expenses –
Exemption up to Rs. 15,000 per year

Employers contribution to approved
superannuation
• Employers contribution towards approved
superannuation fund – chargeable to tax
above Rs 1,00,000 per assessment year

Employers contribution to Provident
fund
• Employers contribution to statutory provident
fund – fully exempt
• Employers contribution to recognised
provident fund – Excess of 12 percent of salary
is taxable

Interest credited to provident fund
• Statutory provident fund – not taxable
• Recognised provident fund – excess of 9.5
percent is taxable
• Public provident fund – exempt from tax

Perquisites 17(2)
• Dictionary meaning
• – A gain or profit incidentally made from
employment in addition to regular salary or
wages, especially one of a kind expected or
promised.
• Any casual emolument or benefit attached to
an office or position in addition to salary or
wages
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Examples of perquisites
a. The value of rent-free accommodation
b. The value of concession in the matter of rent
respecting any accommodation
c. Benefit or amenity granted or provided free
of cost or at concessional rate.

Perquisites
d. Any sum paid by an employer in respect of any
obligation but for which payment would have been
payable by assessee
e. Insurance premium on life of the employee paid by
the employer
f. The value of any specified security or sweat equity
allotted free of cost or at concessional rate
g. Contribution to an approved super annuation fund by
the employer in respect of the assessee in excess of
Rs. I lakh.
h. The value of any fringe benefit or amenity as may be
prescribed

Profit in lieu of Salary 17(3)
• Profit in lieu of salary includes-
a. Any compensation due or received by an employee in connection
with the termination of the employment/ modification of the
terms and conditions of his employment
b. Payment from employer or former employer from provident fund
or such other funds, excluding the amount exempted form tax
under section 10
c. Any sum received under Keyman Insurance policy including the
sum allocated by way of bonus on such policy
d. Amount due to or received, whether in lumpsome or otherwise by
any assessee from any person
• -before his joining any employment
• -after cessation of his employment Back

Deductions from salaries (section 16)
• Entertainment allowance 16(ii)
• A deduction of entertainment allowance
specifically granted by an employer to the
assessee who is in receipt of a salary from the
Government
• A sum equal to one-fifth of his salary
(exclusive of any allowance, benefit or other
perquisite) or five thousand rupees, whichever
is less

Entertainment allowance deductions
• Least of the following amount is to be
deducted from salary income
1. Actual amount of entertainment allowance
received
2. 1/5th of his basic salary
3. Rupees 5,000

Tax on employment 16(iii)
• A deduction of any sum paid by the assessee
on account of a tax on employment leviable
by or under any law.
• Profession tax

Important items
• Advance salary taxable in the year of receipt,
however assesse can claim relief u/s 89
• Arrears of salary – taxable on receipt basis,
however not taxed earlier
• Leave salary ( leave encashment )
• At the time of retirement - exempt
• Leave encashment at the time of employment
– taxable, but relief under section 89 is
available

Computation of income from Salaries

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