1. INCOME FROM
SALARY
THE FIRST HEAD OF INCOME
Jolly Joseph
St.Teresa’s Arts & Science College
Kottakkal – Mala, Thrissur - Kerala
2. BASIS OF CHARGE SEC.15
Salary due from the present or
former employer for the service
rendered during the previous
year.
Salary received before it
becomes due. Advance salary.
Arrears of salary, if it was not
assessed earlier.
3. Principles of salary
Voluntary Surrender 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. .
4. Principles of salary
Employer-Employee Relationship: A
payment is treated as ‘salary’ only
when there is relationship of employer
and employee between assessee and
payee
Payment received by M.Ps, MLAs,
examiner’s remuneration, family
pension and partners remuneration
will not be treated as “Salary Income”.
5. Principles of salary
Tax-free salary: In the
case of tax free salary, the
employee will be taxable in
respect of gross salary, i.e.
Aggregate of salary received and
the amount of tax paid by
employer on behalf of employee
6. Principles of salary
Deductions made by Employer:
Salary is paid to an employee after
making some deductions in respect of any
loan advanced to him, employee’s
contribution towards PF and E.S.I, income
tax, professional tax, life insurance
premium etc. Such deductions are
treated as application of salary income
and tax is chargeable on the gross
salary without any deductions.
7. Principles of salary
Due date of Salary: In the case of
government and semi
government employees, salary
becomes due on the first day of
next month. In the case of other
employees, salary becomes due
on last day of each month.
8. Salary includes….Sec. 17(1)
Wages;
Annuity or pension;
Gratuity;
Fees, Commission, perquisites or profits in
lieu of salary;
Any advance salary;
Leave salary;
Annual accretion; and
Transferred balance
9. TAX TREATMENT OF DIFFERENT
KINDS OF SALARIES
1. Basic Salary or Wages: Both salary and
wages mean a payment or compensation of
work done, or service rendered. Ordinarily
salary paid in respect of non-manual work
and wages for manual work. Basic salary is
taxable.
2.Fees and Commission from Employer for
doing any Extra Work: These items are
taxable as salary income.
10. 3. Leave Salary: Leave salary
received before retirement is
taxable as salary income.
4. Pension: Pension received by
assessee during the P.Y. is
taxable as salary income.
5. Bonus: Bonus paid by
employer to employee is taxable
on receipt basis as salary income
13. Exempted Allowances
Foreign Allowance: These are the
allowances granted by Government of India
to its citizens who are working abroad on
Indian Government Service.
Sumptuary allowances to High
Court or Supreme Court Judges
Allowances from U.N.O.
Per-diem Allowances: It is paid for
the purpose of use of hotel, boarding and
lodging facilities to an employee.
14. Partially Exempted allowances
House Rent Allowance
Sec.10(13A)
The least of the following is exempted…
1. Actual H.R.A received,
2. Rent paid – 10% of salary
3. 40% of salary(50% in the case of
Delhi, Chennai, Mumbai & Kolkata.)
Salary = basic salary + D.A. if it form
part of salary + Commission on
turnover at fixed percentage.
15. ….partially exempted
allowances
2.Children Education Allowance: - It is
exempt in whole of India @ Rs.100 p.m.
per child up to a maximum of two
children.
3.Children Hostel Allowance: - It is
exempt in whole of India @ Rs.300 p.m.
per child up to a maximum of two
children.
4.Transport Allowance: - It is granted to
meet expense on traveling from
residence to work place and return
back. It is exempted from tax @ Rs.800
p.m. In the case of physically
handicapped employees, it is exempted
up to Rs.1600 p.m.
16. ….partially exempted
allowances
5.Any allowance granted by an employer,
who is a transport undertaking to its
employees to meet personal expenditure
during his duties. (Flight or running
allowance):-70% of such allowance up to
Rs.10000 p.m. is exempted from tax.
6.Underground allowance: - It is granted to
an employee who is working in
uncongenial and unnatural climate in
underground mines. It will be exempted
from tax up to Rs.800 p.m.
17. Taxable allowances
Dearness Allowance
D.A. is allowed to employees to meet high
cost of living. Sometimes it is given under
the terms of employment and sometimes
without it. When it is given under the terms
of employment, it is included in the salary for
determining the exemption limit of H.R.A,
Gratuity, and P.F. etc. Sometimes D.A. is
given as Dearness Pay. It means that it is
being given under terms of employment.
18. ……taxable
allowances
2. Fixed Medical Allowance.
3. Tiffin allowance
5. Non-practicing allowance
4. Servant allowance.
6. Hill allowance in a place is
located at less than 1000
meter height from sea level.
19. ……taxable allowances
7. Warden/Procter allowance
8. Deputation allowance
9. Overtime allowance
10. Project allowance
11. City compensatory allowance
12. Entertainment allowance
13. Special qualification allowance
20. PERQUISITES
“any casual emolument, fee or
profit attached to an office, in
addition to salary of wages”.
….means a personal advantage to the
employee.
….employee must have a vested right
to receive it.
21. Tax free perquisites
• Medical benefits,
• Tea, snacks, free food, free lunch or
beverages provided during office hours at
work place,
• Accommodation provided at site,
• Telephone including mobile phone,
• Contribution to Staff Group Insurance
Scheme,
• Scholarship to employees or their children,
• Conveyance facility from residence to
office and return back
22. …….Tax free
perquisites• Refresher courses,
• Tax on perquisite paid by employer
(Fringe benefit tax paid),
• Perquisites to government employee
who are posted abroad,
• Rent free house and conveyances to
Judges of High Court and Supreme
Court,
• Rent free house provided to a
minister, specified officers of
Parliament or a Leader of Opposition
in parliament,
23. …….Tax free
perquisites
• Laptops and computers provided by
the employer to employee or family
members.
• Interest free or concessional loan
(below Rs.20,000),
• Transfer without consideration to an
employee of a movable asset (other
than computers, electronic items
and car) by the employer after using
it for a period of 10 years or more,
24. …….Tax free
perquisites
• Leave travel concession,
• Any benefit or amenity on which
employer is liable to pay Fringe
Benefit Tax
• Periodicals and journals,
25. Taxable perquisites in all cases
• The value of rent-free
accommodation [sec 17(2) (i)]
• The value of concessional
accommodation [sec.17(2)(ii)]
• Any sum paid by employer in
respect of any obligation which,
but for such payment would have
been payable by employee
[sec.17(2) (iv)]
26. …….Taxable perquisites in all
cases
Any sum payable by the employer,
whether directly or through a fund,
other than recognized P.F. or
recognized superannuation fund to
effect an assurance on the life of
assessee or family members
[sec.17(2)(v)].
Value of any other fringe benefits as
may be prescribed under Sec .17(2)
(vi)
27. The value of any benefit or
amount granted to an
employee (on which
employee has no
obligation) is taxable only
in the hands of specified
employees. [Sec. 17(2)
(iii)].
28. Specified Employee
a person who satisfies any of the following
conditions:
By a company, an employee who is a
director thereof;
By a company, an employee who has
a substantial interest in the
company (i.e. Holding more than
20% of Equity shares);
An employee whose salary,
excluding value of perquisites,
exceeds Rs.50000 during the P.Y.
29. Accommodation
Government Employees
Value=The licence fee or value
determined by Govt authorities
Non Govt employees
If house owned by employer,
the value will be 15% (above
25 lakh)or10%(10-25lakh) or
7.5%(below 10 lakh) of salary
as per population of the city
31. Car facility
Car is owned by the
employer.
Car is used only for
official purpose- it is
not a perquisite.
32. ……car is owned by the
employer
Car is used exclusively for the
private or personal purpose of
employee or household
members-
The value = the actual amount
met by the employer including
driver’s salary + normal
depreciation @ 10% of original
cost of the car
33. Car for personal
and official use
Small Car
(Below 1.6
liter. CC)
Large Car
(Above 1.6
Liter. CC)
If entire expense of
running and
maintenance of the
car are borne by
employer
1,800 p.m. 2,400 p.m.
Rs. 900 pm is to be added if free driver is provided
34. Car for
personal and
official use
Small Car
(Below 1.6
liter. CC)
Large Car
(Above 1.6
Liter. CC)
If expense of
personal use of
the car are
borne by
employee
600
p.m.
900
p.m.
Rs. 900 pm is to be added if free driver is provided
35. PROVIDENT FUND
Statutory Provident
Fund,
Recognized Provident
Fund,
Unrecognized provident
fund,
Public Provident Fund.
36. Statutory Provident Fund
Indian Provident Fund Act, 1925 applies
Employee’s contribution:
Eligible for deduction U/S 80C
Employer’s contribution:
Exempted from tax
Interest: Exempted
Lump sum amount received:
Not taxable
37. Recognized Provident Fund
Employees’ Provident Fund Act, 1952 applies & recognized by
C.I.T.
Employee’s contribution:
Eligible for deduction U/S 80C
Employer’s contribution:
Exempted up to 12% of salary
Interest:
Exempted up to 9.5% p.a.
Lump sum amount received:
Not taxable
38. NOT RECOGNIZED by C.I.T.
Employee’s contribution:
NOT Eligible for deduction U/S 80C
Employer’s contribution:
FULLY TAXABLE WHEN LUMPSUM AMT
RECEIVED
Interest:
FULLY TAXABLE AS SALARY INCOME AND
OTHER SOURCES
Lump sum amount received:
EMPLOYER’S CONTRIBUTION & INTEREST
THEREON IS TAXABLE
Unrecognized Provident Fund
39. Deductions from gross salary
Entertainment Allowance [Sec.16 (ii)]
1/5th of Basic salary;
Rs.5000; and
Actual Entertainment allowance
received
……the least is deductible (only for Govt
employees)
Employment or Professional tax paid
[sec.16 (iii)]
