Income under the head salary(FULL NOTES)

1. Income Under The Head Salary-
Under the Income Tax Act,1961
Submitted By: Parminder Kaur

2. SALARY
• Wages
• Any annuity or pension
• Any Gratuity
• Any fees, commission, perquisite or profit in lieu of
salary or in addition to salary
• Any Advance Salary
• Leave Salary
• Amount transferred to RPF to the extent is taxable.
• Any other payment made or benefit extended due to
the employer-employee relationship.

3. TAX TREATMENT OF DIFFERENT FORMS OF
SALARY INCOME
• ADVANCE SALARY : taxable on receipt basis in the
A/Y relevant to the P/Y in which it was received.
(However relief can be claimed)
• ARRERS SALARY : TAXABLE ON RECEIPT BASIS, if
the same has not been subjected to tax earlier on
due basis. (However relief can be claimed)
• BONUS & COMMISSION RECEIVED : Both will be
taxable in the year of receipt, if it has not been
taxed before. (However relief can be claimed)

4. ENTERTAINMENT ALLOWANCE
• Entertainment allowances is first included in
income under the head Salaries and deduction
is given only to Government Employees :-
Least of the following shall be exempt :
• Actual amount received
• 20% of Basic Salary
• ₹5,000/-

5. Rent Free Accommodation
Rent free
accommodation
Govt. employee
Unfurnished
accommodation
Furnished
accommodation
Non govt.
employee
Unfurnished
accommodation
Furnished
accomodation

6. Income tax on accommodation given by the
government in case of unfurnished accommodation
License fee determined by the Govt XXXXX
Less Rent paid by the employee (XXX)
Taxable value of unfurnished accommodation XXXX

7. Income tax on accommodation given by the
government in case of furnished accommodation
License fee determined by the Govt XXXXX
Add Leased charges of furniture in case of leased
furniture or 10 % depreciation on furniture
in case it is owned by owner
XXXX
Less Rent paid by the employee (XXX)
Taxable value of unfurnished
accommodation
XXXX

8. Unfurnished owned accommodation provided by
employer(non-Govt.employees)
Population less than
10 lakh
Population exceeds
10 lakh but less than
25 lakh
Population exceeds
25 lakh
7.5 % of salary 10 % of salary 15 % of salary
(Less) rent paid by
employee
(Less) rent paid by
employee
(Less) rent paid by
employee

9. Unfurnished leased accommodation provided by
employer(non-govt. employees)
Actual rent paid by employer or 15 % of salary
whichever is less
XXXX
Less Rent paid by the employee (XXX)
Taxable value of RFA

10. Furnished owned accommodation provided by
employer(non-govt. employees)
Population
less than 10
lakh
Population exceeds
10 lakh but less
than 25 lakh
Population
exceeds 25 lakh
7.5 % of salary 10 % of salary 15 % of salary
(Less) rent
paid by
employee
(Less) rent paid by
employee
(Less) rent paid
by employee
Value of unfurnished owned accommodation as computed
above
Add Leased charges of furniture in case of leased furniture or 10 %
depreciation on furniture in case it is owned by owner
XXXX
Less Rent received (XXX)
Taxable value of RFA

11. Furnished leased accommodation provided by
employer(non-govt. employees)
Actual rent paid by employer or 15 % of
salary whichever is less
XXXX
Less Rent paid by the employee (XXX)
Taxable value of RFA
Value of unfurnished leased accommodation as computed
above
Add Leased charges of furniture in case of leased furniture or 10 %
depreciation on furniture in case it is owned by owner
XXXX
Less Rent received (XXX)
Taxable value of RFA

12. ACCOMODATION IN HOTEL
• 24% of Salary (OR) ACTUAL CHARGES
{whichever is less} – actual rent paid
• However nothing shall be taxable if the
accommodation is provided for not more than
15 days + provided on transfer of employees
from one place to other. For all Government
and Non-Government employees.

13. • Note:
• 1. Salary of all employees shall be taken.
• 2. Only current year’s monetary payment shall
be taken.
• 3. Salary – Basic + DA + Bonus + Commission +
Taxable portion of all allowances + all
monetary payments but does not include
Provident Fund and exempted allowances.

14. VALUE OF INTEREST FREE LOAN
• Loan type = Any
• Rate = Rate charged by S.B.I. on 1st day of
relevant P/Y
• However nothing shall be taxable – If Loan in
aggregate do not exceed ₹20,000/- OR – If the
loan provided for the treatment of specified
diseases.
• But if such loan has been reimbursed under any
medical insurance scheme & the loan is not paid
to the employer, it shall be taxable.

15. USE OF MOVEABLE ASSETS
a) LAPTOP & COMPUTERS : exempted
b) OTHER ASSETS : 10% p.a. of the Actual Cost if
it is owned by the employer OR Actual Hire
Charges if it is hired by the employer

16. TRANSFER OF MOVEABLE ASSETS
• Value of the benefit shall be : –
• Actual Cost of the assets shall be reduced by the
following percentage for each completed year;
ignoring fractions from the date of purchase/put
to use by the employer : –
• Computer & Electronic Items 50% W.D.V.
• Motor Car 20% W.D.V.
• Any other assets 10% S.L.M.
“Electronic items do not include household
appliances”

17. PERSONAL EXPENDITURE BENEFITS
• SWEEPER / GARDNER / WATCHMAN /
PERSONAL ATTENDENT : Actual cost to the
employer.
• GAS, ELECTRICITY, WATER :
Own Source : manufacturing cost per unit.
Other Source : amount paid to outside agency.

18. PERSONAL EXPENDITURE BENEFITS
• CHILDREN EDUCATION : If the education facility
is owned by employer.
OR
Free education is provided in any other
educational institution by the reason of employee
being in employment of that employer.
FAIR MARKET VALUE OF SUCH SIMILAR EDUCATION.
HOWEVER NOTHING SHALL BE TAXABLE IF VALUE PER
CHILD DOESNOT EXCEED ₹1,200/- PER MONTH.

19. LEAVE TRAVEL CONCESSION
• By Air: If the Journey is made by National
carrier then Fare up to Economy Class
• By Train: 1st class AC fare
• By Bus: 1st class fare

20. Conditions of LTC
• The exemption is restricted only to the travel cost incurred by the
employee. The exemption is not valid for the costs incurred during
the entire trip which might include expenses such as food expenses,
shopping expense and other expense.
• The exemption is not available for more than two children of the
individual born after October 01, 1998.
• Exemption is allowed for only two travels within a block of four years.
The current block is between 2014-2017. If the individual doesn’t
take advantage of the exemption within this block, they can carry it
over to the next block.
• Leave Travel Allowance covers only domestic travel and does not
cover international travel
• The mode of travel should be either air travel, railway or public mode
of transport

21. MEDICAL PERQUISITE
• WITHIN INDIA :• Expenditure incurred or reimbursed
on any medical treatment provided to an employee or
any member of his family is FULLY EXEMPT without any
limit for treatment in any hospital, dispensary, etc., if
– Maintained by the Employee
– Maintained by Government
– Maintained by any local authority
– Approved by Govt. for treatment of
Government or other employees
– Approved for a specified disease only for
treatment of specified disease.

22. WITHIN INDIA :
• Health Insurance Premium incurred or
reimbursed for insurance on the health of
employee or any member of his family is FULLY
EXEMPT.
• REIMBURSEMENT BY EMPLOYER of any amount
actually spent by the employee for obtaining his or
his family member’s treatment in any hospital,
nursing home or a clinic up to maximum ₹15,000/ -
for P/Y.

23. OUTSIDE INDIA:
• Such medical expenses shall be tax-free to the extent
permitted by R.B.I.
• Expenses on stay abroad of the employee or any
member of his family for medical treatment with one
attendant who accompanies the patient in connection
with such treatment to the extent permitted by R.B.I.
• TRAVEL EXPENSES of patient ( employee or his family
member) and one attendant. . Who accompanies the
patient in connection with such treatment shall be
exempt, IF Gross Total Income (excluding such travel
expenses but after including taxable medical and
boarding) doesn’t exceed ₹2,00,000/ -.

24. Family for the purpose of Medical perks
• Spouse & Children of the employee (Whether
dependent or not).
• Dependent :
– Parents
– Brother
– Sister of the employee

25. VALUATION OF MOTAR CAR
(A) When car is owned or hired by employer and
used for:
1. Office purposes- Nil
2. Personal purposes- Actual Running &
Maintenance + Actual Chauffeur Expenses +
wear & tear @ 10% of Cost
OR
Actual HIRE CHARGES

26. 3. Partly Official & Partly Personal Purpose
• Running & Maintenance Expenditure is borne
by EMPLOYER up to 1.6 Litres CC ₹1,800 p.m.
Exceeding 1.6 Litres CC ₹2,400 p.m.
• Running & Maintenance Expenditure is borne
by EMPLOYEE up to 1.6 Litres CC ₹600 pm
Exceeding 1.6 Litres CC ₹900 pm
• Add : ₹900 per month of Chauffeur ₹900 pm
(BOTH CASES)

27. (B) WHEN CAR IS OWNED BY EMPLOYEE AND USED :
1. Exclusively for Official Purpose: NIL
2. Exclusively for Personal Purpose : Actual Expenditure incurred
by employer
3. Partly Official Partly Personal :
• Up to 1.6 Litres CC ₹1,800 p.m.
• Exceeding 1.6 Litres CC ₹2,400 p.m.

28. Valuation Of Perquisite In Respect Of Gifts,
Voucher Or Token
• If the amount of Gift exceeds ₹5,000/ - in
aggregate during the previous year, then such
excess amount shall be taxable.
• If any amount of gift received in cash or cash
equivalent is fully taxable.

29. VALUATION OF CREDIT CARD
Expenditure incurred by
employer * * *
Less: expenditure on its use for official
purposes (* * *)
Less: any amount received or recovered from the
employee (* * * )
Taxable value of the
Perk * * *

30. VALUATION OF PERQUISITE : CLUB
EXPENDITURE
• STEP 1 : Expenditure incurred by employer in respect
of club expenditure.
• STEP 2 : Less : Amount incurred for official purpose
• Less : Amount recovered from employee
BALANCE IF POSITIVE WILL BE TAXABLE
Note : Health Club, Sports facilities etc. provided
uniformly to all classes of employees by the employer
shall be EXEMPTED.
Note : Initial deposit / Fees for Corporate or institutional
membership, where benefit doesn’t remain with the
particular employee after the cessation of employment
are exempt.

31. Employer’s CONTRIBUTION TOWARDS APPROVED
SUPERANNUATION FUND :
• The amount of any contribution to an
approved superannuation fund by the
employer in respect of the assessee
(employee), to the extent it exceeds
₹1,00,000/ -.
• It is taxable in the year in which contribution is
made.