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Taxation

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  • 1. 1 LEAVE SALARY SALARIES Leave Encashment During continuity At the time of Of employement Retirement or Leavig the job Government Non-govt Employee employee CGE/SGE NGE/LA/PSU Exempt U/S Exempt Taxable 10(10AA) Least of (a) Cash equivalent of Leave salary (b) [10m(Basic P.M +DA for Retirement) + fixed % Comm in T.O] / 10 x leave to the credit<_ 30 days P.A (c) Amount Specified by govt =300000 (d) Actual leave encashment 1
  • 2. NOTES: (1) Leave to the credit should be for each completed year of service. (2) Leave salary paid to the legal Heirs of deceased employee is not Taxable as “salary” but taxable as “IFOS” (3) Leave salary received by family of govt employee who died in harness is not taxable (4) Average salary should be calculated on the basic of salary for immediately preceding 10 months of the retirement GRATUITY: [Sec10(10) It is a death cum retirement benefit payable on the basic of duration of services (2) CGE/SGE/LA Exempt U/S10(10)(i) Covered by payment of Gratuity Act 1972 GRATUITY Exempt Least of (a) 15 day’s salary for every completed Not covered by ACT 1972 year of service or part there of in excess of 6 monthsExempt least of =BASIC + DA (P.M) x15/26 x N(a) Maximum 10,00,000 NOTE -> In case of seasonal employees(b) Half month’s avg salary for each =BASIC + DA (P>M) x 7/26 x N completed year of service (b) Maximum 10,00,000 =10(BASIC + DA for ret)+ comm on T.O/10 x ½ x N (c) Actual gratuity received 2(c) Actual gratuity received
  • 3. (3) PENSION (Sec 17(1)(ii) Pension is a perodical payment received by an employee after his retirement Uncommuted Perodical payment = GE/NGE Fully Taxable Pension Of pension CGE/SGE/LA/STATE CROP/SCJ/HCJ EXEMPTED U/S10((10A)(i) PENSION (a) Uncommuted pension Lumpsum payment =(Pension P.M x M) xxx Commuted (b) Uncommuted part of full pension = In lieu of perodical pension payment =(FPPM x(100/c%) x bal of months from commuted date) xxx ----- xxx NGE (c) Commuted pension commuted Taxable pension value received xxx CALCULATION (-) exempt (i) if grautity is received CV x 100/c% x 1/3 xxx OR (ii) if grautity is not received CV x 100/c% x ½ xxx ___ 3 Total taxable pension xxx
  • 4. NOTE: (1) pension received from united nations organisation ->Exempted (2) Family pension received by family members of an employee after his death-> not taxable as salary but taxable as GFOS U/S 56 (4) VRS Compensation[Sec 10(10)] -> Max exemption 5,00,000 -> Exemption allowed only once. Conditions/Guideline to be satisfied as per rule 2 B.A of IT Rules (a) Applicable if employee has completed 10 years of service or age of 40 years exepct for employee of public sector co (b) Applicable to all employees (c) VRS should caused due to VRS should not be filled up nor the retiring employee br employed in another concern of same management (d) Amount under VRS should be- Less than or = to 3 months’s salary for every completed year of service OR ( Salary less or = at the time of retirement) x Balance months of service left before the date of retirement Where, salary = salary last drawn P.M = Basic + DA for retirement + fixed% comm on TO 4NOTE: ->Relief can be claimed U/S 89
  • 5. (5) RETRENCHMENT COMPENSATION [Sec 10(10B)] Exempt -> least of (a) Amt calculated as per Industrial Disputes act 1972 =15 days avg pay for each completed year of service or part there of in excess of 6 months (b) Amt notified by Govt = 5,00,000 (c) Actual Retrenchment compensation receivedNOTE: No limit if compensation paid under govt approved scheme Different forms of Allowances(1) City compensatory allowance Taxable(2) House rent allowanse [sec 10(13A)] Exempt least of If Resedential house is in Bombay , Delhi , Calcutta , Madras(a) =50% of BASIC + DA for ret +fixed % comm on TO If at any other place =40% of (BASIC+DA for ret +fixed %comm onTO)(b) Actual HRA received for period of occupation(c) Excess of rent paid over 10% of salary on due basis =Rent paid (-) 10% of (BASIC + DA for ret +fixed %comm on TO)NOTE: No exemption if employee lives in his own house or in a house where 5he does not pay any rent
  • 6. (3) Allowance where exemption depends upon actual exependiture by the employee (Sec10(14)) of allowance ->In case of following Amount exemption=lower of or Actual exp by employee(1) Travelling allowance or transfer allowance(2) Conveyance allowance(3) Daily allowance(4) Helper allowance(5) Research allowance-granted for encouraging academic or professional research(6) Uniform allowance-granted to meet exependiture on purchase or maintenance of uniform(4) Allowance where exemption does not depends on actual exependiture ofemployee [sec 10(14)] In case of following allowance Amount of allowance Exemption = lower of or Amount specified in rule2 BB (1) Special compensatory (Hill area) allowance  Exemption 800 P.M (2) Boarder area allowance/remote area/disturbed area allowance  Exemption 200P.M to 1300 P.M 6
  • 7. (3) Tribal area/Scheduledd area allowance Max Exemption =200 P.M(4) Allowance for transport employee i e an employee engaged in a transport co. Exemption = least of (a) 70% of allowance (b) 10,000 P.M(5) Children Education Allowance Max exemption 100 P.M per child to MAX of 2 children(6) Hostel expenditure allowance Max exemption 300 P.M per child to MAX of 2 children(7) Compensatory field area allowance Max exemption = 2600 P.M NOTE: If this exemption is taken, no exemption allowed for border area allowance(8) Compensatory modified area allowance Max exemption 1000 P.M NOTE: If this exemption is taken, no exemption allowed for border area allowance 7
  • 8. (9) Counter insurgency allowance Max exemption =3900 P.M Exemption allowed to member of armed forces Available if employee is away from permenant location for more than 30 days(10) Transport allowance Granted for going from place of residence to place of duty Max exemption --For normal employee 800 P.M --For blind or orthopardically handicapped employee 1600 P.M(11) Underground allowance For example –Employee in caol mines Max exemption =800 P.M(12) High altitude allowance Granted to employee of armed forces Altitude of Altitude above 9000-15000ft 15000 ft 8 1060 P.M 1600 P.M
  • 9. (13) Highly active field area allowance For member of armed forces Max exemption=4200 P.M(14) Island duty allowance For members of armed forces In Andaman Nicobar & Lakshdeep Max exemption =3250 P.M(5) Allowance to govt employees outside india[Sec 10(7)] Totally exempt for an indian citizen(6) Tiffin allowance Taxable(7) Fixed medical allowance Taxable(8) Servant allowance Taxable(9) Allowance to high court and supreme court judges Exempt(10) Allowance received from united nations organization(UNO) Exempt 9
  • 10. Deduction U/S 16 (i) Standard deduction  Not available now (ii) Entertainment allowance NGE = No deduction CGE/SGE Deduct =least of the following (a) Rs 5000 (b) 20% of basic salary (c) Entertainment allowance granted during PY NOTES: E A  should be added in Gross salary (i) Profesional tax  (Tax on employment) It should br added to gross salary only if it is paid by Employer on behalf of employee 10
  • 11. PERQUISITIES “Perquisities may be defined as any casual emolument/benefit attached to an office or position in addition to salary” Perquisities are taxable under the head “Salaries” only if they are: (a) Allowed by an employer to his employee, (b) Allowed during continunance of employment (c) Directly dependent upon service, (d) Resulting in the nature of personal advantages to the employee, (e) Derived by virtue of employee’s authority i.e. employee is authorized to enjoy such perquisite.Specified employee A speceified employee means A director employee : An employee who is a director in the employer company for any time during the PY OR  An employee : Who has a substantial interest in the employer company i.e. an employee who is benefical owner of equity shares carrying greater then 20% voting power in such company  An employee : Drawing in excess od Rs 50000 i.e. Gross salary xxx (-) all non monetary benefits xxx (-) all monetary benefits exempt U/S16 xxx 11 (-) deduction U/S16 greater then 50000 xxx
  • 12. Following perquisities are not taxable for any type of employee:- T Empolyer’s hospital(1) Provision of Medical facilities O T Hospital maintained/approved byMedical facilities provide to Employee A Govt/local Authority whether OR any member of his family L reimbursed or paid by employer. L Y Treatement of prescribed disease in a Hospital approved by Chief Commissionor E Whether reimbursed or paid by employer X E Payment or reimbursement of group Partially Exempted M Insurance or Mediclaim insurance P by the employer T  Medical facilities in a private clinic Max exempt RS 15000 p.a  Medical facilities outside india:  Medical treatment—exemption=exependiture permitted by R.B.I  Cost on travel--- exempt it G.T.I. ≤200000  Cost of stay abroad---exemption=exependiture permitted by R.B.I 12
  • 13. (2) Refreshment provided by employer to all employees during working hours in office permises. It includes -tea or snacks during office hours; -free meals during working hours in a remote area or in an offshore installation; -free meals during working hours through paid non-transferable voucher not exceeding Rs 50 per meal -Taxable if employee of NON FBT EMPLOYEE(3) Amount spent on training of employee of fees paid for refresher management course(4) Goods manufactured by the employer and sold to the employee at the concessional rates(5) Perquisities allowed outside india by govt to a citizen of india for rendering service outside india(6) Employer’s contribution to staff group insurance scheme 13
  • 14. (7) Leave Travel Concession: - Available to indian as well as foreign citizen - Journey may be performed while in service or after retirement; - Available for employee and his family( family means individual spouse and children, and his/her parents, brother and sister wholly dependent on him) Condition Prescribed Amount of exemption Journey performed by air Lower or air economy fair of National carrier by shortest Route or amount spend Journey performed by rail Lower of A.C First Class rail Fair by shortest route or amount spent Where rail transport is available but Lower of A.C First Class rail JourneyIs performed by any other mode Fair by shortest route or amount spent When no rail transport is available but (a) Recoginized public transport exist First class deluxe class fair on shortest route Or amount spent (b) Where no public transport exists Lower of A,C First class rail fair as if journey Is performed by rail or amount spend  Exemption is available only in respect of two journey performed in a block of 4 calendar years commencing from 1986 If exemption is not availed in relevant 4 year block ,it can be claimed in the first 14 calendar year of next block
  • 15. (8) Free telephone including mobile phone  exempted(9) Transport facility to railway employee or employees of airlines Exempt But if facility is provided by private transport undertaking its employees,then Taxable perquisities = Value of benefit (-) Amt received from the employee [NOTE; Taxable for employee of NON FBT employer](10) Payment of annual premium by employer on personal accident policy effected by him on his employee(11) Free educational facility provided in an institute owned/maintained by employer to children of employeeMax exemption 1000 per month(12) Gift in kind upto Rs 5000 per year Exempt but gift in cash and cheque  Taxable(13) Computer/laptop given(not transferred) to an employee for official/personal purpose (which is owned or hired by employer) Not taxable(14) Transfer of movable asset(other than computer,electronic item,car) by employer to an employee after using it for 10 years or more without considerationNot Taxable(15) Interest free loan for medical treatment specified in rule 3A  Not taxable(16) Initial fees paid by employer for acquiring corporate membership of clubNot taxable(17) Use of health club etc. provided uniformally to all employees by the employer->Not Taxable(18) Perodicals and journals provided for dis charge of workNot taxable(19) Conveyance facility provided to high court and supreme courtNot taxable(20) Conveyance facility provided to an employee to cover the journey between office and residence Not taxable(21) The value of any benefit provided free of cost or at concessional rate by a company to its employees by the way of allotment of shares debentures or warrents under employee 15 stock plan Not taxable
  • 16. (22)Tax on perquisities-in-kind paid by the employer Not taxable(23) Rent free accomodation Provided in a remote area to an employee working at a mining site or oil exploration site etc Not taxable provided on transfer of an employee in a hotel for not exceeding 15 daysNot taxable provided to high court judge,supreme court judge,official of parliament,union minister, leader of opposition Not taxable Following Perquisities are TAXABLE in hands of both SPECIFIED as well as NON-SPECIFIED EMPLOYEES: (1) Rent free Accomodation Accomodation includes house ,flat,farm house or part there of accomodation in hotel ,motel service apartment,guest house carvan, mobile home, ship or any other floating structure Rent free accomodation may be UNFURNISHED or FURNISHED 16
  • 17. (A) Valuation of rent free UNFURNISHED accomodation:- (i) CGE/SGETaxable value = liscense fee determined by Central State Govt (ii) NGE  Population in Accomodation owned by Accomodation taken on lease or City Employer Rent by the Employer Having population 7.5% of salary for period of 0 to 10 lakh occupation of accomodation Which ever is lower is taken Having population 10% of salary for period of 10 to 25 lakh occupation of accomodation Amount of lease rent paid or Having population 15% of salary for period of 15% of salary 25 lakh and above occupation of accomodation For the purpose of valuation of rent free unfrunished accomodation, Salary includes= (BABC SALARY) Basic+DA(for ret)+Bonus+comm+all taxable allowances and all taxable monetary payments but does not include employer’s contribution to PF all Allowances which are exempt from tax value of perquisitiessalary shall be determined accrual basissalary from one or more employers for period of occupation shall br taken into account 17
  • 18. (B) Valation of rent free FURNISHED accomodation:-Taxable value is calculated as under Taxable value of rent free unfurnished accomodation xxxx Add: 10% of original cost furniture, if furniture is owned by the employer xxxx OR Actual hire charges of furniture is hired by the Employer xxxx Taxable value of rent free furnished accomodation xxxx Note: (a) Furniture includes radio sets, television sets, refrigerators, air- conditioner and other housrhold appliances.(c) Valuation of perquisities if accomodation is provided in a hotel for more than 15 days:- Taxable value=24% of salary or actual charge of hotal which ever is less Note: If hostel accomodation is provided on employees transfer nothing is taxable 18
  • 19. (d) Valuation of perquisitie if accomodation is provided at concessional rent:- Taxable value=Taxable value of rent free Unfurnished/Furnished house xxxxxx LESS : Rent payable by the employee xxxxxx Taxable value of accomodation. At concessional rent xxxxxx(2) Gas, electricity or water supply provided free of cost to an employee  Purchased by employer from outside agency Taxable value= Amount paid by employer to such agency (-) Any amount recovered from the employee  If supplied out of own sources Taxable value = Manufacturing cost per unit incurred by the employer Important note: If gas electricity or water supply connection is taken in the name of employer and the employer also bears expenditure thereon perquisities is taxable only in the hands of specified employees 19
  • 20. (3) Perquisities in respect of credit card provided to the employee Taxable for employee of NON FBT employer(a) Taxable value = Amount paid or remibursed by employer (-) Amount recovered from employee (b) Running & maintenance expenses met by EMPLOYER  Used wholly for official purpose Nil if employer maintains complete details of journey and gives certificate for official use  Used wholly for private purpose Taxable value =Actual exependiture of • Owned by employer employer(+) 10% of cost of car (+)salary of chauffeur • Hired by employer Taxable value = Hire charges (+) Chauffeur’s salary Taxable value= 1800 p.m if cc ≤ 1.6 litres  Used partly for official and OR partly for private purpose 2400 p.m if cc ≥1.6 litres (+) 900 p.m if chauffer is provided 20
  • 21. (C) When employee uses any automative conveyance other than car & expenses met by employer Used wholly for official purpose Nil if employer maintains complete details of Journey and gives certificate of official use Used partly for official and partly Taxable value= for private purpose Actual expense by employer (-) 600 p.m Important Notes:  Month means each completed month as per english calander and part of the month should be left out  No amount recovered from employee is deductible in case of car owned or hired by employer and used for official as well as private purpose .In other cases however amount so recovered is deductible from value of perqusities  If more than one car is given value of first car should br calculated in usual maner and for the remaining car it is demend to have been used for personal as well as official purpose & the car is owned & Hier by employer and the Govt, Huf ,Charitable institution whose income is exempt 21
  • 22. (4) Valuation of perquisities in respect of Motor car (i) Where car is owned by Employee:- (ii) Where car is owned or hired by employer:- Situation Value of perquisities from 1/4/01 (a) Running & maintaince(a) Car expenses met by expense Not a Perquisities-Not taxable Not a Perquisitie-Not taxable employee  Used wholly for official purpose(b) Running & maintaince expense Used wholly for Used wholly for Nil if employer maintains complete Private purpose Taxable value=10% p.a of official purpose details of journey and gives Owned by employer cost of car(+)driver’s salary Certificate for official use Used wholly for Taxable value= Hired by employer Taxable value=Hire charges private purpose Actual exependiture of employer (+) driver’s salary Used partly for official Taxable value= Used partly for official Taxable value= 600 p.m if cc ≤ 1.6 litres OR and partly for private 1800 p.m if cc ≤ 1.6 litres OR and partly for private 2400 p.m if cc ≥1.6 litrres (+) 900 p.m if cc ≥1.6 litrres (+) purpose purpose 900 p.m if chauffer is provided 900 p.m if chauffer is provided 22
  • 23. (5) Valuation of perquisities in respect of free education facilities: Free education or training to employee – Not taxable In the following cases if bills are issued in the name of employee and paid by the employer then the perquisities is taxable in the hands of both specified and non specified employee BUT otherwise it is taxable in the hands of specified employees only: (a) School fees of family members of the employee paid by the employer directly to the school-TAXABLE (b) Reimbrusement of school fees or any other exependiture on education of family members of the employee-TAXABLE (c) Education facilities provided in employer’s institute or in any institute due to employee’s employment with the employer Provided to employee’s children • Cost of education or value of benefit ≤ Rs 1000 p.m. Not Taxable • Per child > Rs 1000 p.m. Taxable value= Cost of education in similar institute (-)1000 p.m per child (-) Amount paid or recovered from employee Provided to any other member of Cost of education in similar institute employee’s household ….including (-)amount paid or recovered from employee grand children(d) Amt of scolarship given by employer company to the children of its employees-NOT TAXABLE 23
  • 24. (6) Interest free loan at concessional rate of interest provided to the employee –(or any member of his household) Taxable for both specified and non specified employees. Taxable value= If loan is for house and conveyance Simple interest @ 8% p.a on maximum outstanding and not for repairs balance sheet of each loan as on last day of each month (-) interest actually paid by employee If loan is for any other purpose Simple interest @ 16% p.a on maximum outstanding monthly balance of each loan(-) Interest actually paid employee Note: If loan Amt ≤ Rs 20000 Nothing is taxable(7) Perquisitie in respect of use of movable asset by the employee&any member of his household Taxable for both specified and non specified employee Assets owned by employer Taxable value= 10% p.a of actual cost to the employer (-) amount paid/recovered from employee Assets hired by employer Taxable value= Rent paid or payable by employer(-) Amount paid/recovered from employee 24
  • 25. (8) Perquisitie in respect of movable assets sold by an employer to its employee at a nominal price Taxable for both specified and non specified employees Taxable value is calculated as under- Actual cost of such assets to the employer xxxxxx LESS: Depreciation for each completed year which asset was put to use by the employer by RBM on MOTORCAR 20%(RBM) xxxxxx Electronic items @ 50%p.a and computer xxxxxx By SLM on any other assets @ 10% p.a xxxxxx Taxable value xxxxxx Note: Electronic items include data storage and handling devices like computer , digital diaries and printer but do not include household appliances like washing machines, microwave ,ovens , mixers, hot plates , ovens etc 25
  • 26. (9) Valuation of perquisities in respect of free domestic servants: Domestic servants include sweeper, gardener , watchman , personal attendant.• Engaged by employerTaxable for specified employees• Engaged by employee & salary paid/reimbursed by employerTaxable for specified employees Taxable value =Salary paid or payable by employer to the servant (-) any amount paid for specified employees for such service Note: • If rent free accomodation is provided , gradner’s salary is not separetaly taxable • Domestic servant allowance or allowance for engaging domestic servant is always chargeable to tax for all(10) Valuation for holiday home facilities i.e expenses met by employer for travelling ,touring and accomodation of employee Taxable value= Amount of expenditure by employer(-) amount paid/recovered from employee(11) Issue of right shares to an employee who is a shareholder –Not taxable(12) Any other perquisities Bills issued in the name of employee but paid by employer taxable for all 26 Otherwise – taxable for only specified employees
  • 27. PROVIDENT FUNDProvident fund is retirement benefit. A certain amount is deducted from employee’s salaryregularly as his contribution to P.F Employer also generally contributes the same amount tothe fund . Interest is received on both these amounts and credited to the fund account . WholeAmount is paid to the employee at the time of his leaving the job or on retirement.There are four kinds of provident funds:-(1) STATUTORY PROVIDENT FUND – It is act under the provisions of the provident funds Act 1925. it is maintained by govt and semi govt organizations, local authorities , railways ,universities and recognized educational institutions(2) RECOGNISED PROVIDENT FUND- It is set up under the employee’s provident fund and Miscellaneous provision Act 1952. it is applicable to the establishments 20 or more employees can also join RPF(3) UNRECOGNISED PROVIDENT FUND- If the provident fund is not recognized by the commissioner of Income Tax as Recognized Provident fund ,it is known as Unrecognized provident fund(4) PUBLIC PROVIDEN FUND- This fund is developed by the central Govt for the benefit of general public. Both Salaried employees as well as self employed person can join this scheme. However no interest @ 8% p.a is credited to this fund at present. The accumulated sum Is payable after 15 years. 27
  • 28. Tax treatment of Provident Fund Particulars S .P .F R .P .F U .P .F P .P .F Employer’s Contribution Exempt Exempt upto 12% of salary Exempt Taxable value =Employer’s Employer does not Contribution(-)12% of contribute (Basis(+)DA for ret(+)Fixed% comm on TO) Deduction on Employee’s Available Available Not Available Available contribution U/S 80C Interest credited to P. F Exempt Taxable value =Interest Exempt Exempt credited (-) Interest @ 8.5% Lumpsum payment on retirement • Employee’s contribution Exempt Exempt if some condition Exempt Exempt are fulfilled (*)otherwise treated as UPF • Interest on employee’s cont Exempt Taxable as income Exempt (II) from other sources • Employer’s contribution Exempt (II) Exempt Taxable as salary • Interest on employer’s cont Exempt (II) Taxable as salary ExemptCondition: Accumulated balance under RPF is exempt if employee renders a continuous service of 5 years or more with oneor more employers. (2) If he could not complete 5 years due to reason beyond his control E.G Ill-health is continuance ofemployer’s business etc (3)If he joins another employment and accumulated balance is transferred to the RPF maintained 28by such other employer. If the above condition are not fulfilled all the calculation are to be made as if fund is UPF

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