Income from Salary 27-04-2021 [Recovered].pdf

Income From Salary
Dr. Amitabha Maheshwari

Content
• Introduction
• U/S 17 – Salary includes perquisites and profits in lieu of salary

Salary
• Basic Concept: Every Payment made by an employer to his employees
for service rendered by him would be chargeable to tax as income
from salaries. Provisions regarding income under head of salaries
given under section 15, 16 and 17
U/S 15- deals with chargeability Salaries Due
or paid or advance
U/S 16- Standard deduction , Entertainment
allowance & profession tax
U/S 17 – Salary includes perquisites and profits
in lieu of salary

CONCEPT Of SALARY
Any remuneration paid by an employer to his employee in
consideration of his services is called salary. It includes the
monetary value of those benefits and facilities provided by
the employer which are taxable.
Salary includes :
Wages any annuity or pension;
Any gratuity;
Any fees, commission, perquisites or profit in lieu of or in
addition to any salary or wages;
Any advance of salary, but not loan for purchasing car,
cycle, scooter or a house, etc.
Any payment received by an employee in respect of any
period of leave not availed of by him;

INCOME FROM SALARIES
• HEAD SALARIES DEFINED
• Under section 15, the following incomes are chargeable to income-tax
under the head salaries:
1. Any salary due from an employer or a former employer to an assesse
in the previous year whether paid or not;
2. 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 becomes due to him;
3. 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.

• Relationship of employer and employee:
For a payment to fall under the head salaries the relationship of
employer and employee must exist between payee and the receiver of
the salary. Every kind of payment to every kind of servant, public or
private, however high or low placed he may be, is covered under the
provisions of this act.

• Salary from more than one employer:
Any amount of salary received or due from one or more than one
employer shall be taxable under this head. Such situation may
arise when an employee is working with two employers
simultaneously or has worked with one employer and later on
serves with another employer after leaving service with the first
employer, salary from both the employers shall be taxable under
this head.

• Salary from present, past or prospective employer:
Salary received or due from present, past or future employer is also taxable
under this head.
• Tax free salary
Sometimes, the employer allows an employee to draw tax-free salary, e.g.
the employer pays full salary to the employee and also pays tax on this
directly to the department. The employee’s assessment is to be made not on
the amount of salary he is drawing but on gross amount i.e. salary drawn
plus the tax paid by the employer.

• Salary received as member of parliament or member of state
legislature
A member of parliament or of state legislature is not treated as an
employee of the govt. and hence, salary received by such persons is
not taxable under the head salaries. It is taxable as income from other
sources. Any allowance received by them is fully exempted from tax.

• Receipts from persons other than employer
Perquisites or benefits or any other remuneration received fro persons
other than the employer, would be taxable not under the head salaries
but under the head income from other sources even if they accrue to
the employee by reason of his employment or while he was
discharging his normal duties.

• Place of accrual of salary income
Salary accrues at that place where the services are rendered.
• Salary or pension received by UNO employees
It is fully exempted as per circular no. 293 Dt. 10-2-81.

• Deductions made by the employer: If , an employer makes certain
deductions out of the salary payable to an employee, amount so deducted is
deemed to be received by the employee. Some important types of
deductions made by the employer are as follows:
• 1. Deductions made to recover the loan advanced by the employer.
• 2. Employees contribution towards the provident fund, income-tax and
professional tax.
• 3. Deduction made to pay the premium on life insurance policy of the
employee.
• 4. Any other deduction for which the employee has authorized the
employer.

• Salary as partner:
Any salary, commission or remuneration received by a working
partner from a firm/LLP shall not be taxable under the head
salaries. It is taxable under the head profits and gains.

• Payments received by Legal Heirs of a Deceased employee
Any ex-gratia payment or compensation given to widow or
legal heirs of an employee who dies during service is not taxable
as salary income but family pension received is taxable under
other sources.

• VOLUNTARY FOREGOING: APPLICATION OF SALARY
Salary is chargeable on due basis.
 It will become income only after it has fallen due.
 Therefore ,voluntary surrender or forgoing of salary after it has
become due will be mere application of income and hence
taxable. .

• TAXABILITY OF SALARY ON DUE OR RECEIPT , WHICHEVER
IS EARLIER BASIS
• U/s 15(a) salary is taxable on due basis whether received or not .
• Salary becomes due after doing work in India is due on monthly basis. First
salary for the month of April becomes due on 1st day of next month.
• In some cases salary becomes due on the last day of the month and the
salary for the month of April shall be due on 30th April.

• SALARY GRADE/PAY SCALE
 In some organisations like Government offices ,banks ,post offices , railways, etc. salary
to employees is paid as per pay scales .the pay scale fixes the starting salary of an
employee and also the annual increment in future years of the employment. The annual
increment is granted to employee after completion of one full year of service e.g. If an
employee joins his service on 1st September 2011, he will be granted 1st annual increment
i.e.. 1st September 2012.
• EXAMPLE OF GRADE /PAY SCALE
• 8000-300-11000
• 12000-500-20000

Payment in cash made by the employer to his employees monthly other than
salary is called an allowance. It is a fixed sum of money paid regularly in
addition to salary for the purpose of meeting some particular requirement
connected with the services rendered by an employee. There are three types
of such allowances:
1. Taxable Allowance,
2. Allowances Exempt upto specified limit,
3. Fully Exempted Allowances

Fully Taxable Allowances Partly Exempted
Allowances
Fully Exempted
Allowances
• Dearness Allowance
• City Compensatory
Allowance
• Fixed Medical Allowance
• Tiffin Allowance
• Washing Allowance
• Warden Allowance
• Servant Allowance
• Non- Practicing allowance
• Proctor Allowance
• Deputation Allowance
• Overtime Allowance
1. House Rent Allowance
2. Entertainment Allowance
3. A. Special allowance to be
incurred in the performance
of the office duties- are
exempt to the extent
actually spent
3. B. Special allowance for
meeting certain personal
expenditure- these are
exempt up to specified limit
• Allowance to High
Court Judges.
• Allowance paid by
UNO
• Allowances granted to
Govt. employee outside
India.

A. Special allowance to be incurred in
the performance of the office duties-
are exempt to the extent actually
spent(under rule 2BB(1))
B. Special allowance for meeting
certain personal expenditure- these are
exempt up to specified limit(under rule
2BB(2))
• Prescribed allowances u/d. Rule
2BB (1)
- Granted to meet official expenses
• Exemption :
Actual amount of allowance
or
Amount Spent for official purpose
whichever is less
• Prescribed allowances u/d. Rule
2BB(2)
- Granted to meet personal expenses
• Exemption:
Actual amount of allowance
or
Specified Limit whichever is less

A. Special allowance to be incurred in
the performance of the office duties-
are exempt to the extent actually
spent(under rule 2BB(1))
B. Special allowance for meeting
certain personal expenditure- these are
exempt up to specified limit(under rule
2BB(2))
• Travelling Allowance
• Daily Allowance
• Conveyance Allowance
• Helper Allowance
• Academic Allowance
• Uniform Allowance
• Special Compensatory allowance of the nature of
• Special Compensatory allowance of the nature of
• Special Compensatory -Tribal Area Allowance
• Any allowance granted to an employee working in
any transport System
• Children Education Allowance
• Children Hostel Allowance
• Underground Allowance
• Transport Allowance ( physically handicapped
person)

Allowances covered u/s 10(14)(i) i.e., Official Allowances
• Helper Allowance. It is exempted upto actual amount spent on engaging a helper
required to perform the official duties.
• Uniform Allowance. It is also exempted upto actual expenditure incurred on
acquiring or maintaining of the official uniform. Excess, if any, will be taxable.
• Academic Research Allowance. It is exempted upto actual expenditure incurred
for research. Excess, if any, is taxable.
• Conveyance Allowance. It is exempted upto actual expenditure incurred in
performance of official duties. In case amount received is more than actual
expenditure, excess, if any, will be taxable.
• Travelling, Transfer or Daily Allowance. It is exempted upto actual expenditure
incurred for the purposes of employment. Excess, if any, will be taxable.
So, exemption shall be the least of following two amounts—
1. The amount of the allowance received.
2. The amount actually spent by the employee for the purpose for which the
allowance is given.

1. House Rent Allowance
Rule 2A prescribes that the least of the following amounts shall be exempt :
a) House Rent Allowance actually received by the assessee; or
b) Excess of rent paid by the assessee over 10% of salary due to him for the relevant period (Rent
paid – 10% of salary) ; or
c) A. If the accommodation is situated at Mumbai, Kolkatta, Delhi or Chennai 50% of salary due
to the assessee, and
c) B. If the accommodation is situated at any other place - 40% of Salary
In case employee is living in his own house and is getting H.R.A or is living in a house for which he is not
paying any rent, the full amount of H.R.A receivable is taxable.
Salary = Basic salary + D.A. (If part of a salary/in terms of employement) + Commission (If fixed % of
turnover)

1. HRA Exempted
Taxable = Actual received HRA – Exempted
Minimum of the following Three will be Exempted
Actual HRA received
Rent Paid – 10% of salary
Metro City = 50% of salary
OR
Non Metro city or other city = 40% of salary

Practical Problem 1:
Mr. Raj kumar has the following receipts from his employer:
Basic pay 3,000 p.m. , D.A 600 p.m., Commission 6000 p.a.,House Rent Allowance 900 p.m.
Find out amount of HRA eligible for exemption of Mr. Raj Kumar assuming that he paid a rent of
1,000 p.m. for his accommodation at Kanpur. DA forms part of Salary for retirement benefit/
employment purpose.
Actual HRA received
OR

Mr. Prasang is employed in a private company at 70,000 per month, 6,000 per month as dearness
pay and 10,000 per annum as commission during the previous year. He received 2000 per month
as house rent allowance. He paid 2500 per month rent. Compute House Rent allowance
exempted from tax.
Actual HRA received
OR

Practical problem 3: (For practice)
From the following information compute exempted amount of HRA of Mr. Ram
who resides at Kanpur.
Actual HRA received
OR
I II III
Salary per month 4500 6000 6000
HRA recd per month 525 300 1050
Rent paid per month 300 960 750

2. Education Allowance : Exempted upto Rs.100 per month per child
maximum for two children.
3. Hostel Expenditure Allowance: Exempted upto Rs.300 per month
per child maximum for two children.
4. Tribal Area Allowance: Exempted upto Rs.200 per month.
5. Underground Allowance: Exempted upto Rs.800 per month.

6. Any allowance granted to an employee working in any transport
System- minimum of the following two
a. 70% of such allowance
b. 10,000 per month
7. Transport Allowance- 1600 p.m.
8. Transport Allowance ( physically handicapped person) – 3200 P.M.

Deduction under section 16
I. Standard Deduction u/s 16(i) – Rs.50,000
II. Entertainment Allowance u/s16(ii)
III. Profession Tax u/s 16 (iii) – paid by employer or employee

1. Foreign Allowance
2. Sumptuary Allowance to High Court/Supreme Court Judges
3. Allowances from U.N.O
4. Per-diem allowance for use of the Hotel, boarding and lodging.

PERQUISITES : [Sec17(2)]
• The term perquisite means any benefit, attached
to an office or position in addition to salary or
wages
• Perquisite denotes a personal advantage. For
example, if an employee is provided with a
servant only for helping him in official duties, it
is not a perquisite, as there is no personal benefit
to the employee. But if the same servant helps
the employee in his domestic obligations only.
Then it is a perquisite, being a personal
advantage.

PERQUISITES : [Sec17(2)]
• Perquisite can be given in cash or kind. If it is
given in kind it should be capable of being
measured in terms of money. Reimbursement of
any expenses incurred by the employee, in cash,
is also treated as perquisite and not allowance.
• Perquisites received from a person other than an
employer is taxable under the head Profits and
gains from business or profession or Income
from other source, as the case may be.

PERQUISITES [Section 17(2)]
• Perquisite” is defined in the section 17(2) of the Income tax Act as
includes-
• The value of rent- free accommodation provided to the assessee by
his employer
• Any sum paid by employer in respect of an obligation which was
actually payable by the assessee.
• Value of any benefit/amenity granted free or at concessional rate to
specified employees etc.
• (a) by a company to an employee who is a director thereof;
(b) being a person who has a substantial interest in the company;
(c) by any employer to an employee to whose income under the head"

• The value of any specified security or sweat equity shares allotted or
transferred, directly or indirectly, by the employer, or former
employer, free of cost or at concessional rate to the assesssee.
• The amount of any contribution to an approved superannuation fund
by the employer in respect of the assessee, to the extent it exceeds one
lakh rupees; and
• (vi) the value of any other fringe benefit or amenity as may be
prescribed.

TAXABLE IN HANDS OF SPECIFIED EMPLOYEE ONLY
Specified Employee
Employee is Director of his
employer company
Employee has Substantial Interest in
his employer company
Employee’s Income under head
salary exceeds 50,000/- (excluding
non monetary benefits & amenities)
Sec 2(32) : Substantial Interest in relation to company means beneficial ownership of atleast 20%
Equity shares of the company
Salary for above purpose is to be taken on due basis or received basis, whichever is earlier.
The following perquisites provided by Employer to Employee or to any Member of his household
are taxable perquisite in the hands of specified employee only.

TAXABLE IN HANDS OF SPECIFIED EMPLOYEE ONLY
The following perquisites provided by Employer to Employee or to any
Member of his household are taxable perquisite in the hands of specified
employee only.
A. Motor Car
B. Sweeper, Gardener, Watchman or Personal attendant
C. Supply of Gas, Electricity or Water provided to Employee
D. Educational facilities to employee children & members of household
E. Free or concessional tickets provided to employee of transport
undertakings

PERQUISITES Exempted for All Employees
• Free medical facilities as given u/s 17(2).
• Free refreshments during working hours.
• Free recreational facilities.
• Provision of telephone whether basic or cellular exclusively for official use.
• Free meals provided in remote area or at offshore installation are fully
exempted.
• Free education, training or refresher course for employees.
• Leave Travel Concession if given twice in a bock of 4 years.
• Free ration received by members of armed forces.
• Perquisites allowed by Government to its employees posted abroad.

Valuation of Perquisites
RENT FREE ACCOMMODATION
Provided to the employee or to any member of his household
will be taxable in the hand of the employee
Member of household
• Spouse(s),
• Children& their spouses ,
• Parents,
• Servants &
• Dependants

Valuation of Residential Accommodation
Government Employee
Particulars Value of Accommodation
a) Unfurnished Amount determined as per Govt. Rules ………
b) Furnished i) Amount determine as per Govt. Rules ………
ii) Add : 10% p.a of the cost of furniture or hire charges (if any) ………
………
Less : Amount paid or payable by employees (If any) ………
Value of Accommodation ……….

Valuation of Residential Accommodation
Practical Problem
Shri Bishan Narain is District Magistrate of Agra. He is living in a furnished
bungalow provided by the government free of rent. His salary is 1,20,000 per
month. The rent of the unfurnished bungalow as per Govt. rules is 2,000 per month
but its fair rental value is 17,500 per month. He is provided furniture costing
1,70,000. Find out the value of rent- free house as a perquisite for the purpose of
income tax.

Valuation of Residential Accommodation (Other Employees)
A . Accommodation owned by employer
Unfurnished House
Cities having Population exceeding
25 lakhs per 2001 census
15% of salary for the period during which the
accommodation was occupied by employee
Cities having Population exceeding
10 lakh but not more than 25lakh
10% of salary for the period during which the
accommodation was occupied by employee
Other Places (less than 10 lakh) 7.5% of salary for the period during which
the accommodation was occupied by
employee

Practical Problem
A company has provided residential accommodation to an employee.
From the following information find out the value of perquisite of
accommodation:
i) Fair rental value of the house – Annual 70,000
ii) Salary 6,00,000
a) The house is situated in a city whose population is more than 25
lakh
b) The house is situated in a city whose population is less than 10 lakh

B. Accomondation taken on lease/rent by employer
Actual lease rental or 15% of the salary for the period during which accommodation was occupied
by an employee, whichever is less will be taken
Furnished House
i) Value of unfurnished house ……….
ii) Add: 10% p.a. of the cost of furniture or hire charges (if any) ……...
………
Accommodation at concessional Rent
i) Value of unfurnished/furnished accommondation ……….
ii) Less : Amount paid or payable by employee ………
Value of Concessional Rent ………

Practical Problem
A company took house on rent and allotted it to its employee. From the following
information find out the value of perquisite of accommodation :
i) Rent paid for the year 60,000
ii) Salary 5,00,000
iii) Cost of Furniture provided in the house 60,000
Rent charged from employee per month 1,000

RENT FREE HOUSE [Section 17 (2)(i)]
MEANING OF SALARY: Salary includes-
 Basic salary
 Dearness pay or dearness allowances ( if term of employment so provide or enters into salary for
service or retirement benefits)
 Commission
 Bonus
 Fees
 Value of all taxable allowances
 Any other monetary payment chargeable to tax
 Leave encashment of salary if it relate during the previous year in which rent free house is provided
Salary does not include-
Dearness allowance if not enter into salary
Exempted allowances
Employer’s contribution in employee’s provident fund.
Value of any other perquisites u/s 17 (2)
Leave encashment of salary if it relate to leave earned in earlier previous years.
Income tax of employee if paid by employer

Accommodation provided in a Hotel
If accommodation is provided by the employer (Govt. or Non Govt.) in a hotel
a) Where accommodation is given on his transfer from one place to another and the period in
aggregate does not exceed 15 days
value will be taken as nil
b) In other case
24% of salary ……..
or
Actual charges paid ……..
Whichever is less
Less: Any amount paid or payable ……..
Value of Perquisite ……..

Valuation of Perquisites- Valuation of Motor Car (Taxable only for Specified
Employee)
Valuation of Motor
Car
One car owned or
hired by an
employer for
Fully Official Use
Mixed use
Running and
Maintenance borne
by an employer
Running and
Maintenance borne
by an employee
Fully Personal Use
More than one car
provided to an
employee for private
and official use
Car owned by
Employee
Fully Official Use
Mixed use
Fully Personal Use

• One Car owned or hired by employer and provided to employee
1. Fully Official Purpose/Use : Value of perquisite will be nil
2. Fully Personal Use:
Actual expenditure on running and maintenance ……..
+ Remuneration paid to Chauffer ……..
+ Depreciation @ 10% p.a. of the actual cost of car
(If owned) or hire charges (if hired) ..……
Taxable Value .......

• Mixed Use (Partly for personal and partly for official)
• If running and maintenance borne by employer
Small Car (Upto 1.6 ltr cc ) - 1,800 p.m.
Large Car (exceeding 1.6 ltr cc) – 2,400 p.m.
• If Running and maintenance borne by an employee
Small Car – 600 p.m. ii) Large Car 900 p.m.
• *If Chauffer (Driver) provided add 900 p.m. in both cases
• II More than one car provided to an employee for private and
official use: treat one car for both use (mixed use) and all others as
personal use

• Car Owned by Employee
• 1. Fully Official use - value of perquisite = Nil
• 2. Fully personal use = Amount reimbursed
• 3. Mixed Use
Small Car Large Car
Amount of expenditure by employer reimbursed ………. ……….
Less: 1,800 p.m. 2,400 p.m.
Less: Chauffer (If any) 900 p.m. 900 p.m.
Value of Perquisite ……… ………

Practical Problem
Find out the value of the perquisite of the Motor-Car provided to the employee and owned by the employer in the following
cases:
i) Large Car: All expenses are borne by the employer. The car is solely used for official purposes.
ii) Large Car: All Expenses borne by the employer which are 60,000 during the P.Y. Cost of Car 2,80,000. The car is
solely used for private purposes of the employee.
iii) Large Car: Meant for both private and official use. All expenses borne by employer
iv) Small Car: Meant for both private and official use. All expenses borne by the employer. Chauffeur is also provided free
of charge.
v) Two small cars are provided to the employee for private and official purposes. Maintenance expenses of cars are borne
by the employer. Other information in this connection are:
vi) Large Car: Meant for both official and private purposes. Private expenses are borne by the employee
I Car II Car
Actual Cost of Car 3,00,000 2,80,000
Expenses of running and Maintenance 60,000 50,000

SUM PAID BY EMPLOYER FOR MEETING EMPLOYEE OBLIGATION
Where any Obligation is paid by employer (directly or through
reimbursement), which would have been payable by employee if
employer did not paid it, actual amount paid by employer is perquisite
taxable in hands of the employee
E.g. Gas, water, electricity Bills, Income Tax, Professional tax, children
education expenses of the employee which are paid/reimbursed by the
employer

SUM PAYABLE FOR LIC OR ANNUITY OF EMPLOYEE
Sum Payable by the employer
• for Life Insurance Policy or Annuity policy taken by him
• for the benefit of the employee
• is a perquisite in the hand of the employee

FRINGE BENEFITS OR AMENITY
Fringe benefits or amenity provided to employee or member of
household is taxable in hands of the employees. It includes the
following benefits
• Interest free/Concessional loans
• Use of movable assets
• Transfer of movable assets
• Travelling, Tour, Accommodation & Other Expenses Paid or Reimbursed by Employer
• Free Meals, Tea & Snacks
• Gift, Vouchers or token
• Expenditure on Credit Card
• Club membership & Club Expenses
• Other benefits

Interest Free Or Concessional Loans made available by Employer
FRINGE BENEFITS OR
AMENITY
If a loan (interest free or at concessional rates) is made available by employer to
employee or to any member of his household, such will be a perquisite chargeable to
tax The valuation of perquisite is done as follows
Step 1: Determine Maximum outstanding monthly balance of the loan on the last
day of each month
Step 2: Find out rate of interest charged by State bank of India for similar loan on
the 1st day of the previous year in which such loan is given
Step 3: Determine interest for each month on the above rate applied on balance
determined under step 1
Step 4: Total of step 3 is the value of the perquisite
If however, some interest is charged from employee, reduce such rate from the
SBI rate

FRINGE BENEFITS OR
AMENITY
Exemption : The following loans are not taxable perquisite
1. Medical Loans taken for treatment of any person for diseases specified in Rule 3A
e.g. cancer, AIDS or diseases of heart, blood, liver, skin, eye, ear, nose etc. requiring
surgical operation.
 If loan is reimbursed under medical insurance scheme, then such amount
reimbursed shall be treated as taxable perquisite
2. Small loans i.e. Total amount of loan is upto Rs. 20,000 in the current previous
year. The loan may be taken for any purpose.

FRINGE BENEFITS OR
AMENITY
Exemption : The following loans are not taxable perquisite
3. Advance salary & Advance against salary
 Advance salary is taxed as per section 15 on receipt basis. If any salary paid in
advance is included in the total income of any person for any pervious year it
shall not be included again in the total income of the person when the salary
becomes due.
 Advance against salary is not considered to be income rather it is a loan.
However, loan involves valuation of perquisite with respect to interest free loan
i.e. from the date the loan is given to the date it is repaid, the employee shall be
subject to perquisite u/s section 17(2) & Rule 3.

Use of Movable Assets
FRINGE BENEFITS OR
AMENITY
Laptop/Computers Exempt as per Rule 3
Telephone including
mobile
Exempt as per Rule 3
Motor Cars Taxable under Perquisites for Specified Employees
Other Movable Assets If owned by employer : 10% p.a of original cost
In other cases : 100% of hire charges payable by
employer for such assets
Special Point :
• As per circular no. 15/ 2001, use of an asset which is older than 10 years shall be exempt from
tax.
• The taxable amount shall be reduced by amount recovered from employee against this facility.

Sale of Movable assets belonging to employer to
employee/ household member
FRINGE BENEFITS OR
AMENITY
COMPUTER &
ELECTRONIC ITEMS
Actual cost to Employer
Less :
50% reduction on WDV basis
(for each completed year asset
used by employer)
Less : Selling Price
MOTOR CAR
Less :
20% reduction on WDV
basis (for each completed
year asset used by employer)
OTHER MOVABLE ASSETS
Less :
10% reduction on SLM basis
(for each completed year
asset used by employer)
Special Point :
1.Complete year here does not mean either calendar year or financial year. It means complete 365 days
2. As per clarification by circular no. 15/2001 electronic gadgets in this case means the data storage and
handling devices like computer, digital diaries and printers. They do not include household appliances like
washing machines, micro-wave ovens, mixers, TV etc.

Travelling, Tour, Accommodation & Other Expenses
Paid or Reimbursed by Employer
(Such expenses shall not include LTC provided by
employer)
FRINGE BENEFITS OR
AMENITY
OFFICIAL TOUR
Employee Household Member
Facility maintained by employer
& not available for all employees
Other Cases
Exempt Value at which similar services
provided by other agencies to
public
Actual expenditure of
employer

Travelling, Tour, Accommodation & Other Expenses
Paid or Reimbursed by Employer
(Such expenses shall not include LTC provided by
employer)
FRINGE BENEFITS OR
AMENITY
PRIVATE TOUR
Employee/Household Member
Facility maintained by employer & not
available for all employees
Other Cases
Value at which similar services
provided by other agencies to public
employer
Special Point :
In case above facility is not provided free of cost , Deduct amount paid/recovered from
Employee

Free Meals, Tea & Snacks
FRINGE BENEFITS OR
AMENITY
Special Point :
In case Meal is not provided free of cost , Deduct amount recovered from Employee
FREE MEALS/NON ALCHOLIC BEVERAGES TEAAND SNACKS
Office premises OR At eating joints ( by paid
vouchers)
Other Case
Office Hours Non Office Hours Office
Hours
Non Office Hours
A. Nil, provided value upto
Rs. 50/- per meal
B. (If value > 50 excess
taxable)
Actual expenditure
of
employer
employer
Nil Actual expenditure
of employer

Gift, Vouchers or token
FRINGE BENEFITS OR
AMENITY
Special Point :
In case Meal is not provided free of cost , Deduct amount recovered from Employee
Gift, Voucher or token on ceremonial or Other occasions
In Kind In Cash
Aggregate value upto
Rs. 5,000 during P/Y
Aggregate value more than Rs.
5,000/- during P/Y
Any amount
Exempt Perquisite Value = (Actual value –
5,000/-)
Fully Taxable

Expenditure on Credit Card
FRINGE BENEFITS OR
AMENITY
Special point :
Credit card includes add on card
Expenditure on credit card including membership & annual fees
Paid or reimbursed wholly & exclusively for
official purpose
Other Purposes
Nil, Provided:
a) Details of date & nature of expenditure
maintained by employer and
b) Employer certifies that expenditure incurred
for official purpose
Amount paid or reimbursed by
employer
Less: Amount recovered from
employee

Club membership & Club Expenses
FRINGE BENEFITS OR
AMENITY
Special Point:
1. Initial fees of corporate membership of a club is not taxable as perquisite.
2. Use of Health club, sports & similar facility provided uniformly to all employees is not
perquisite
Club membership & club expenses (including annual or periodic fees)
Paid or reimbursed wholly & exclusively for
official purpose
Other Purposes
Nil, Provided :
a) Details of date & nature of expenditure
maintained by employer
and
b) Employer certifies that expenditure incurred for
official purpose
Amount paid or reimbursed by
employer
Less : Amount recovered from
employee

SWEAT EQUITY SHARES / SPECIFIED SECURITY
Sweat Equity shares” means
 Equity shares issued by a company to its employees or directors
 at a discount or for consideration other than cash
 for providing know-how or value additions
Value of Perquisite :
Fair Market Value of sweat equity shares/specified security on the date on which
the option is exercised by the assessee
Less : Amount recovered from the assessee in respect of such shares/security
Special Point :
FMV means value determined in accordance with the method as may be prescribed

Employer Contribution to Approved Superannuation Fund
Value of Perquisite :
Employer contribution to Superannuation fund during the p/y in excess of Rs.
1,50,000/-
APPROVED SUPERANNUATION FUND
The purpose of this fund is to provide for annuities to employees on their retirement or to their
widows, children or dependents on the death of such employee.

Tax treatment of Superannuation Fund
 Annuities received by employee are taxable as Salary income,
 while those received by the widow etc. is taxable under Other sources.
Approved Superannuation Fund
Employees
Contribution
Employer’s
Contribution
Interest on
accumulated balance
Payment of Accumulated balance
Deduction 80C
from GTI is
available to
employee
Excess of
Rs.1,50,000
treated as Perquisite
Exempt from Tax Exempt from tax u/s 10(13), if
 on death ,
 on retirement ,
 after specified age or becoming
incapacitated before retirement
 Transfer employee account
 under pension scheme u/s 80CCD

Taxable In Hands of Specified Employee Only
 Sweeper, Gardener, Watchman or Personal attendant
Engaged by employer & provided to employee/household member , such
perquisite shall be taxable for all specified employee
Value of perquisite : Actual cost to employer Less Amount paid by employee.
Special point : Cost to employer shall be salary payable to such person by employer

 Supply of Gas, Electricity or Water provided to Employee
Gas, Electricity or Water provided to Employee
Purchase from outside agency
Amount paid to outside agency
Less: Amount recovered from employee
From own resources
Manufacturing cost
Less: Amount recovered from employee
Special point
If Electricity, gas & water connections are in the name of employee and employer is bearing the expenditure
either directly or indirectly then it will be covered under 3rd perquisite of Sec 17(2) i.e obligation of employee
paid by employer and therefore will be taxable for all employees

 Educational facilities to employee children & members of household
A. Facility in Educational institutions maintained by employer or in other educational institutions due to
employment
To whom Cost of education in
similar school in similar
locality
Value of Perquisite
Employee child upto `1,000 p.m per child Fully exempt
greater than `1,000 p.m per
child
Cost of education in similar
school in same locality
less : 1,000 pm/per child
Household members Limit of `1,000 irrelevant Cost of education in similar
school in same locality

 Educational facilities to employee children & members of household
B. Facility in any other educational institutions
To whom Value of Perquisite
Employee child Actual Cost to Employer
Household members Actual Cost to Employer
Special Points :
(a) If any amount is recovered from employee, reduce the value by that amount
(b) Education facility to employee in any form like training, seminars, conference etc. is fully
exempt.

Free or concessional tickets provided to employees of transport
undertakings for private journeys
 Employees of Airlines and Railways : Exempt in hands of employees
 Employee of other transport undertaking : Value at which such benefit or
amenity is provided by the employer to public
Special point :
If any amount is recovered from employee, reduce the value by that amount

LEAVE TRAVEL CONCESSION IN INDIA : SECTION 10(5)
Travel concession or assistance due or received from employer
 For himself or family member
 For travel to any place in India
 During Service or on leave or after retirement or after termination
 Value to be included in salary :
Amount of concession due or received
Less : exemption u/s. 10(5)

Exemption u/s 10(5)
Journey by Air Journey by Rail Journey by other modes
Minimum of following
i. Actual concession
ii. Amount actually incurred
by employee
iii. Air economy fare of
National Carrier by
shortest route
ii. Amount actually incurred
by employee
iii. AC 1st class RAIL FARE
by shortest route
Connected by Rail - Same as column 2
Not Connected by Rail
ii. Amount actually incurred by employee
iii. Deluxe fare of such transport by shortest
route (where recognised transport exists)
OR
Similar AC 1st class rail fare by shortest
route
(if recognised transport does not exists)

Special Points :
1. Exemption available on twice in a block of FOUR CALENDAR YEARS :
1986-89, 1990-93, 1994-97, 1998-2001, 2002-05, 2006- 09, 2010- 2013 , 2014-
2017
2. No exemption claimed or only one exemption claimed in a block, then ONLY
ONE exemption carried forward in Calendar Year succeeding end of block.
Exemption only for the fare: - The exemption is strictly limited to expenses on air
fare, rail fare, bus fare only. No other expenses, like scooter charges at both ends,
porterage expenses [money paid for carrying luggage] during the journey and
lodging / boarding expenses will qualify for exemption.

Special Points :
3. LTC available for a TWO children born on or after 01.10.1998. However, this
restriction shall not apply in respect of children born before 1-10-1998 and also
incase of multiple births after one child.
4. Family for the above purpose means Spouse & Children & Parents, brother,
sisters of employee who are dependent on employee. Explanation to Sec 10(5)
5. In case the LTC is encashed without performing the journey, the entire amount
received by the employees would be taxable

MEDICAL FACILITIES (Proviso to Sec 17(2))
MEDICAL FACILITIES IN INDIA
( to EMPLOYEE / Family Members)
Hospital maintained
by employer
In Govt Hospital
or
local authority hospital
or
Govt. approved hospital
or
Hospital approved by CCIT
(For prescribed disease only)
Premium paid for
Health Insurance
under Approved
scheme
Other case
Fully Exempt Fully Exempt Fully Exempt Exempt upto Rs. 15,000/-
in P/Y
Excess taxable

MEDICAL FACILITIES (Proviso to Sec 17(2))
MEDICAL FACILITIES OUTSIDE INDIA to Employee / Family member
Medical Expenses of
Patient
Stay Expenses of Patient and
One attendant (total two
persons)
Travel Expenses of Patient with One
attendant (total two persons)
Tax free to extent
permitted by RBI
Tax free to extent permitted by
RBI
Tax free if employee‟s GTI UPTO
`2,00,000/- (before including such
travel expenses)
Special Points :
1. Family for above purpose means - Spouse & children of employee - Parents, brother & sister of employee
who are dependent on employee.
2. Hospital includes dispensary, clinic or nursing home.
3. Expenditure on medical treatment by the employer can be by way of payment or as reimbursement.
4. Medical allowance is fully taxable.

RETIREMENT BENEFITS
Retirement benefits consists of following
1. Gratuity
2. Pension
3. Leave salary
4. Compensation on voluntary retirement/Retrenchment compensation
5. Provident fund / Superannuation funds

RETIREMENT BENEFITS
GRATUITY
Gratuity is a kind of retirement benefit, like provident fund or pension. It is a
payment, which is intended to help an employee after his retirement whether the
retirement is the result of the completion of age of retirement or some physical
disability. The general principle underlying gratuity schemes is that by faithful
service over a long period the employee is entitled to claim a certain amount as
retirement benefit. Thus it is earned by an employee as a reward for long and
meritorious service.
Gratuity to be included under Salary = Amount of Gratuity less Exemption u/s. 10(10)

RETIREMENT BENEFITS
GRATUITY
Type of
Employee
Employee of
Central & State
Govt., Local
Authority
Employee covered under
payment of Gratuity Act,
1972
Other Employees
(not covered under earlier
categories)
Exemption
Amount
100% of Gratuity
received is
Exempt
Minimum of Following:
i. Actual Gratuity received.
ii. `20,00,000
iii. [15 X Completed yrs of
service Including part excess 6
mths] X
[last month SALARY/26
Minimum of Following:
i. Actual Gratuity received.
ii. ` 20,00,000
iii [15 X Completed yrs of service
Excluding part] X
[Average monthly SALARY /30]
Definition
of Salary
N.A SALARY = Basic Salary + 100%
DA
SALARY = Basic + DA(retirement
Benefits) + Commission % of turnover

RETIREMENT BENEFITS
GRATUITY
Type of
Employee
Employee of
Central & State
Govt., Local
Authority
Employee covered under
payment of Gratuity Act,
1972
Other Employees
(not covered under earlier
categories)
Special
point
1. Commission received as a fixed
percentage of turnover would form part
of the salary [Gestetner Duplicators
Pvt. Ltd. v CIT (SC)]
2.Average Monthly Salary = Average
of last 10 months immediately
preceding the month of leaving service

RETIREMENT BENEFITS
GRATUITY
SPECIAL POINTS:
 Where an employee had received gratuity in any earlier years and had claimed exemptions u/s
10(10) in respect of the gratuity received earlier also, he will still be entitled to this exemption but
the limit of 20,00,000 shall be reduced by the amount of exemption availed in the earlier year.
 If gratuity is received from more than one employer in the same previous year, the limit of
20,00,000 would apply to the aggregate of gratuity received from one or more employers
 Any gratuity paid to an employee, while he continues to remain in service with the same
employer is taxable under the head “Salaries” because gratuity is exempt only on retirement or on
his becoming incapacitated or on termination of his employment or death of the employee.

GRATUITY sec 10(10)
During Continuation Of
Service
On Termination Of
Service
Fully Taxable
Fully Exempt
Covered
Under
PGA
Minimum Of Following Exempted
1) Actual Gratuity Received
2) Rs. 20,00,000
3)1/2 month Avg Salary X
Completed Year of Service
1) Actual Gratuity Received
2) Rs. 20,00,000
3) P.M. Salary X Completed Year of
Service X 15/26
If Non
Government
Employee
NO
YES
YES
NO
Note:
* PGA= PAYMENT OF GRATUITY ACT
*SALARY= BASIC+D.A.
*COMPLETED YEAR includes every
completed year & period in excess of 6 months
shall be treated as a year
Note:
*AVG. SALARY= (10 MONTHS BASIC
SALARY+D.A.+TURNOVER BASED
COMMISSION) / 10
*COMPLETED YEAR ignores ANY
FRACTION

RETIREMENT BENEFITS
PENSION
Refers to Periodic Payment made by the employer after retirement or death of the
employee as a reward for past services rendered by the employee
 Pension can be Uncommuted or Commuted
TAX TREATMENT OF UNCOMMUTED PENSION
Pension payable to an employee periodically e.g. every month, after retirement
from service. This pension is known as uncommuted pension.
 It is Fully Taxable in the hand of all employees, whether government or non-
government

RETIREMENT BENEFITS
PENSION
TAX TREATMENT OF COMMUTED PENSION
Sometimes the employee wants to have a lump-sum payment in lieu of certain
portion of monthly pension, which he would have otherwise received monthly. The
lump-sum payment which he receives on foregoing the monthly pension is known
as commuted value of the pension. Commutation is done having regards to age of
recipient, state of his health ,rate of interest and tables of mortatility.
 Though it is also taxable, exemption u/s 10(10A) can be claimed by the employee

RETIREMENT BENEFITS
PENSION
TAX TREATMENT OF COMMUTED PENSION
Exemption u/s 10(10A):
 Treatment for employees of Government, local authority & Statutory
Corporations :
Commuted pension received by these employees is 100% Exempt
 Treatment in the case of Other Employees
Commuted value of pension received is exempt to the following extent:
(a) If receives Gratuity : 1/3 of Normal commuted pension
(b) If he does not receive Gratuity : 1/2 of Normal commuted pension
Normal Commuted pension = Actual commuted pension x 100 % of commutation

RETIREMENT BENEFITS
PENSION
SPECIAL POINTS:
 The pension discussed above is different from “Family Pension” While the
pension paid by the employer to the employee is known as pension, the monthly
payment by the employer to the family of such employee after his/her death is
known as family pension.
The family pension is taxable as Income from other source
Deduction against such family pension : 1/3rd of family pension or `15,000,
whichever is less.
 Pension received from a United Nations organization is not taxable.
 Exemption of Commuted pension is also available to Judges of High courts and
Supreme Court.

PENSION sec10(10A)
UNCOMMUTED
PENSION
FULLY TAXABLE
FULLY EXEMPT
ASSESSEE
RECEIVED
GRATUITY
ONE HALF OF TOTAL PENSION
COMMUTED SHALL BE EXEMPTED
ONE THIRD OF TOTAL PENSION
COMMUTED SHALL BE EXEMPTED
IF NON
GOVERNMEN
T EMPLOYEE
NO
YES
YES
NO
COMMUTED
PENSION

RETIREMENT BENEFITS
LEAVE SALARY
Employees are entitled to various types of leave on the job. These leaves may either
be availed by the employee or may not be availed. If they are not availed, they can
also be encashed.
Such leave which the employee gets encashed is taxable under head salary
 Encashment of leave during tenure of service:
Leave encashment by an employee, while he continues to be in service, is fully
taxable for all categories of employees [Whether Govt. employee or a Private
employee]
 Encashment of unavailed leave at the time of retirement/ resignation
This is also taxable but employee can claim exemption u/s Section 10(10AA)

LEAVE SALARY ENCASHMENT sec10(10AA)
During Continuation Of
Service
On Termination Of
Service
Fully Taxable
Fully Exempt
1) Actual leave encashment Received
2) Rs. 3,00,000/-
3) 10 Months Average Salary
4) 30 Days Average Salary For Every Completed Year Of
Service, Subject To Leaved Availed During The Tenure Of
Service.
If Non
Government
Employee
NO
YES
Note:
*AVG. SALARY= (10 MONTHS BASIC SALARY+D.A.+TURNOVER BASED COMMISSION) / 10
[LAST 10 MONTHS EXACT FROM THE DATE OF RETIREMENT.]
*COMPLETED YEAR ignores ANY FRACTION

RETRENCHMENT COMPENSATION sec10(10B)
In any other Case
If Compensation Paid Under Any Scheme
Approved By The Central Government.
Nothing Shall Be Taxable.
MINIMUM OF FOLLOWING SHALL BE
XEMPTED
a) ACTUAL AMOUNT RECEIVED
b) Rs.5,00,000/-
c) ANY AMOUNT CALCULATED UNDER
INDUSTRIAL DISPUTE ACT,1947 i.e Average
of last 3 months8* a5/26 * No of completed years
of service and part there in excess of 6 months

VOLUNTARY RETIREMENT
In any other Case
RECEIVED FROM SPECIFIED EMPLOYERS
MINIMUM OF FOLLOWING SHALL
BE EXEMPTED
a) ACTUAL AMOUNT RECEIVED AS
PER V.R.S. GUIDELINES* or
b)Rs.5,00,000/-
FULLY TAXABLE
GUIDELINES:-
a)COMPLETED AGE OF 40 YEARS OR COMPLETED 10 YEARS OF SERVICE (IT IS NOT APPLICABLE ON PUBLIC
SECTOR COMPANY)
b)THIS IS FRAMED TO REDUCE THE STRENGHT OF EMPLOYEES.
c)THE VACANCY CAUSED BY VRS IS NOT TO BE FILLED UP
d)THE RETIRING EMPLOYEE IS NOT EMPLOYED IN ANOTHER COMPANY BELONGING TO THE SAME
MANAGEMENT
e)* THE AMOUNT OF COMPENSATION DOES NOT EXCEED = 3 MONTHS SALARY FOR EACH COMPLETED
YEAR OF SERVICE or SALARY AT THE TIME OF RETIREMENT x BALANCE MONTHS OF SERVICE LEFT
# SPECIFIED EMPLOYERS :-
a)COMPANY b)LOCALAUTHORITY c)CO-OPERATIVE SOCIETY
d)ANYAUTHORITY ESTABLISHED UNDER CENTRAL/STATE/PROVINCIALACT
e)SPECIFIED UNIVERSITY f)INDIAN INSTITUTE OF TECHNOLOGY(IIT)
g)STATE GOVERNMENT h)CENTRAL GOVERNMENT i)NOTIFIED INSTITUTION
j)NOTIFIED INSTITUTION OF MANAGEMENT (IIM)

PROVIDENT FUND
TYPES OF PROVIDENT FUND
Provident fund is of four types:
I. Statutory Provident Fund: Statutory provident fund is set up under the provisions
of the Provident Funds Act, 1925. Generally, this provident fund is maintained by
Govt., Semi-Govt. offices like local authorities, universities, other recognised
educational institutions, statutory corporations and nationalized banks, etc.

PROVIDENT FUND
II. Recognised Provident Fund: This provident fund is meant for private sector
employees. This fund is set up under the employee provident fund and
miscellaneous act, 1952.According to this act,any establishment employing 20 or
more employees is under an obligation to register itself under this act. An employer
employing less than 20 persons, can also start a P.F. scheme if both employer and
employee want to do so.
An establishment who wants to start a R.P.F scheme has two alternatives.
a) Set up provident fund as per scheme mentioned under the P.F.Act,1952.
b) Set up Provident fund under its own scheme. In this case approval of the
provident fund commissioner is required together with approval of commissioner of
Income Tax. If both the approval is granted,it is called Recognised provident fund

PROVIDENT FUND
III. Unrecognised Provident Fund: It is that provident fund which is set up under
own scheme (as in (b) above) and which is not approved by Commissioner of
Income tax.

PROVIDENT FUND
IV. Public Provident Fund: This fund is set up under Public provident
act,1968.Every individual (including a salaried employee) can contribute to this
fund. An account under this scheme can be opened at a branch of the State Bank of
India or at a branch of any of the authorized nationalized banks. The accumulated
sum is repayable after 15 years. This provident fund carries compound interest (tax-
free) at prescribed rate. Interest is credited every year but is payable only at the time
of maturity.

PROVIDENT FUND
TAX TREATMENT OF PROVIDENT FUNDS
Employees
Contribution
Employer’s
Contribution
Interest on
Provident Fund
Payment of
Accumulated balance
Statutory
Provident Fund
(SPF)
Deduction u/s 80C
from GTI is available
to employee
Not Taxable Not Taxable Exempt u/s 10(11)
Recognised
Provident Fund
(RPF)
Deduction u/s 80C
from GTI
is available to
employee
Exempt upto 12%
of SALARY
Excess Taxable
under Salary
Exempt upto
9.5% p.a
Excess Taxable
under Salary
Exempt u/s 10(12)
(Refer special point
below)
Un Recognised
Provident Fund
(URPF)
Deduction u/s
80C is NOT
available to
employee
Not Taxable Not Taxable Taxable in P/Y of Receipt
- Employers contribution +
interest on it
taxable as profit in lieu of
salary u/s 17(3)
- Interest on Employee
contribution taxable
under I/O/S

PROVIDENT FUND
TAX TREATMENT OF PROVIDENT FUNDS
Employees
Contribution
Employer’s
Contribution
Interest on
Provident Fund
Payment of
Accumulated balance
Public Provident
Fund (PPF)
Deduction u/s 80C
from
GTI is available to
assessee
No employers
contribution
Exempt from
Tax
Fully exempt
10(11)

Sec10(11,12,13) Any sum received from PF,RPF,SAF
Type of
fund
Employer
Contribution
principal)
Employer’s
contribution
interest)
Employee's
Contribution
principal)
Employees
Contribution
interest)
Amount withdrawn
on retirement
SPF Exempt Exempt Deduction u/s 80
c
Exempt Exempt u/s 10(11)
RPF Exempt up to
12% of salary
Exempt up to
9.5%
Deduction us 80 c Exempt up to
9.5%
Exempt subject to
condition. If not then
RPF treated as
URPF
URPF Exempt Exempt No Deduction us
80 c
Exempt Employees
contribution exempt.
Interest on employee
taxable under IOS.
Employer
contribution
taxable as salary
PPF NA NA Deduction us 80 c Exempt Exempt
u/s 10(11)
Approved
Super
annuation
fund
Exempt Exempt Deduction us 80 c Exempt Exempt
u/s 10(3)
Approved
gratuity
fund
Exempt Exempt NA NA Exempt
u/s 10(10)

Computation
of
Income
from
Salary
109
Salary/wages ………
Advance Salary ………
Dearness Pay ………
Dearness Allowance ………
Bonus ………
Fees ………
Commission ………
Allowances ………
Value of taxable Perquisites ………
Profit in lieu of ………
Contribution of the employer in RPF in excess on 12% of salary ………
Interest on RPF in excess of 9.5 % ………
Any other like gratuity, retrenchment compensation ………
Gross Salary Income ………
Less: a) Standard Deduction - Max 50,000
b) Entertainment Allowance
c) Employment Tax
………
Taxable Salary ………

Compute taxable Income under the head salary of Mr. X for the Assessment
Year 2019-20:
• Salary 60,000 p.m.
• D.A. 10,000 p.m.
• Entertainment Allowance 1,000 p.m.
• Employer’s Contribution to recognized provident fund 88,800. His
contribution was 88,800.
• Interest @10% p.a. on Credit Balance of Recognized P.F. amounted to 50,000.
• City Compensatory Allowance 500 p.m.
• Medical Allowance 1,200 p.m
• He has been provided with a large car for both official and personal use.
Employer bears all the expenses of the car
• He is provided an unfurnished house by the employer in a city (population
12 lakh). The fair rental value of the house is 90,000 p.a. Employer charges
2,000 from him per month as rent.
110

Solution:
111
Salary (60,000 * 12) 7,20,000
D.A. (10,000 * 12) 1,20,000
Entertainment Allowance (1,000 * 12) 12,000
Employer’s Contribution to RPF in excess of 12 %
Excess of 12% 7,20,000 * 12 % = 86400
(88,800 – 86,400 = 2,400)
2,400
Interest on P.F. in excess of 9.5 %
(50,000 *.5/10 )
2,500
City Compensatory Allowance 6,000
Medical Allowance 14,400
Car (2,400 * 12) 28,800
Concession in Rent
Rent Free House 10% of salary (B.s 7,20,000+
12,000+6000+14,400) = 75,240
Less : Paid by the employee (2000*12) = 24,000
51,240
Gross Salary 9,57,340
Less: Deductions
i) Standard Deduction Sec. 16(ia) 40000
40,000
Taxable Salary 9,17,340

Income from Salary 27-04-2021 [Recovered].pdf

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