salary - meaning salary includes – 1) wages 2) pension 3) any gratuity 4) any fees, commission,...

I NCOME FROM SALARY

SALARY - MeaningSALARY - Meaning Salary includes –1) Wages2) Pension3) Any gratuity4) Any fees, commission, perquisite or

profits in lieu of or in addition to any salary or wages

5) Any advance salary

6) Encashment of un availed leave

7) Interest earned in excess of 9.5% on Recognized Provident fund

8) Amount transferred in excess of 12% on salary to RPF

9) New Amendment-

Contribution made by Central Government or any other employer (w.e.f.AY 2008-09) in the previous year to the account of an employee under pension scheme u/s 80CCD

Chargeability of Salary – Sec. 15Chargeability of Salary – Sec. 15

1) Due or receipt whichever is earlier

2) No double taxation

3) Relief u/s 89(1)

4) Advance salary Vs Advance against salary

5) Govt. employees

Profits in lieu of Salary – Sec.17(3)Profits in lieu of Salary – Sec.17(3)

1) Compensation – Termination or modification of T & C

2) Amount due or received – Pre joining or after cessation of his employment with an employer

3) Payment received as employer’s contribution by assessee from employer or former employer or from PF or from any other fund

Features of SalaryFeatures of Salary

1) Employer – Employee relation

2) No difference between salary and wages

3) Salary from more than one employer

4) Real and fictitious salary

5) Foregone Salary

6) Surrendered salary

7) Tax free salary

8) Foreign Salary and pension

9) Payments made to legal heirs / Widow

10) Family Pension

11) Salary to partner

Format for salary calculationFormat for salary calculationSee the word document

ALLOWANCES -ALLOWANCES -Fixed amount of money given along with

salary in order to meet some particular requirement connected with the services rendered by the employee

Taxed on due or receipt basisThree types –a)Fully taxableb)Partly taxablec)Fully exempted

Partly exempted allowances Partly exempted allowances --1) Hostel Allowance –

Rs.300 per month per child upto a maximum of two children

2) Transport Allowance –Exempted upto Rs.800 per month.

3) Uniform Allowance –Allowance given to purchase or maintain

uniforms. Amount spent is exempted4) HRA

Partly Exempted Allowances -Partly Exempted Allowances -

Actual amount spent is exempted for –

5) Conveyance Allowance

6) Academic Research Allowance

7) Washing Allowance

8) Helper Allowance

9) Daily Allowance

10) Uniform Allowance

Fully Exempted -Fully Exempted -Out of pocket or out fit allowance for

NCC officersAllowances to employees of UNOForeign allowance to govt. servants for

services outside India

Special Items – Special Items – (1) Gratuity - Sec.10(10) -(1) Gratuity - Sec.10(10) -Retirement benefitTax treatment to be based on whether he

is –

1)Government employee

2)Non-government employee

a. Covered by Payment of Gratuity Act,1972

b. Not covered by Act

Tax Treatment -Tax Treatment -Government employees –

Gratuity is fully exempt in the hands of the assessee.

Non-Govt. Employees Non-Govt. Employees --

1) Covered by Act –

Least of the following is exempted –

a) Actual gratuity received

b) Rs.3,50,000

c) 15 days’ salary for every year of completed service

Remember Remember --Take days as 15/26Take 7 days in case of employees in

seasonal factoriesFraction above 6 months be taken as

-“one year”Salary = Basic + DA + % of commission

Not covered by Act –

Least of the following is exempted –

a) Actual gratuity received

b) Rs.3,50,000

c) ½ month’s Average salary for every year of completed service

Remember Remember --Average salary = Average salary of 10

months immediately preceding the month of retirement

Fraction to be ignored

(2) Pension – Sec.10(10A)(2) Pension – Sec.10(10A)Amount received by an employee after

his retirementCannot receive pension while in serviceTypes –

a) Uncommuted Pension –

Fully taxable in the hands of all employees

b) Commuted Pension b) Commuted Pension --Lump sum received at the time of

retirementOne time paymentTaxability –

a) Govt. Employees –

Fully exempt

Non – Govt. Employees –

a) Those in receipt of gratuity –

Amount taxable =

Amount received

Less: 1/3rd of full value of pension that he is entitled to receive

b) Those not in receipt of gratuity –Amount taxable =

Amount received

Less: ½ of full value of pension that he is entitled to receive

Special Item – Special Item – (3) Leave Encashment(3) Leave EncashmentEarned Leave – where employee can

convert his leave into cash provided he has not utilized the leave.

Can encash at the time of retirement or while leaving the job.

Known as Leave SalaryEncashment fully taxable if during the

service.

Calculation Calculation --For Government servants =

Fully exempted

Calculation –Calculation –Non Government Employees -Non Government Employees -Least of the following is exempted –

1)Actual leave salary received

2)10 months’ average salary

3)Rs.3,00,000

4)Salary for unutilized eligible leave

(Consider 30 days per year)

(Ignore fraction)

(4) Provident Fund-(4) Provident Fund-Employer’s contribution to RPF is taxable

beyond 12% of salaryInterest credited is taxable beyond 9.5%

p.a.Assessee’s contribution is deductible u/s

80C

Income from SalaryIncome from Salary

PERQUISITES

Perquisites – Meaning – Sec.17(2)Perquisites – Meaning – Sec.17(2)

Any amount due to or received in lump sum or otherwise by an assessee from an employer which is usually attached to a position

May be in cash or in kind (measurable in terms of money)

Personal advantage

Perquisites -Perquisites -

I) Taxable for all –

a) Rent free house

b) House at concessional rent

c) Obligation of employee paid by

employer

d) Fringe Benefits –

Free meal, gifts, credit card, club

facility, interest free/other loans

aa) Accomodation facilities –) Accomodation facilities –Rent free -UnfurnishedRent free -Unfurnished Owned by employer / Rent paid by

employer– Chargeable to tax as follows-

1. Popln > 25 lakhsLeast of 15% of salary or Rent paid

2. >10 lakhs but <25 lakhs –Least of 10% of salary or Rent paid

3. Other places – Least of 7.5% of salary or Rent paid

Rent free –Rent free –Furnished AccommodationFurnished AccommodationValue of unfurnished accommodation

Add: 10% cost of furniture or full hire charges=Value of taxable perquisite

Salary for this purpose:-Gross salary before value of perquisites,

exempted allowances and before taxable value of PF

Exempted Accommodation Exempted Accommodation In a hotel for a period of upto 15 days for

an employee on his transfer

Free accommodation facility given to SC/HC judge, parliament officials

Housing/Vehicle/Other loans -Housing/Vehicle/Other loans -Int by employer =>SBI Interest rate:

=Nothing is taxableInterest charged is lower than SBI rates:

=Difference chargeable

Where,

SBI Rate = as on 1st day of PY

Interest free Housing Loans Interest free Housing Loans --Taxable perquisiteInterest recovered by the employer will be

allowed as a deduction

II) Taxable for Specified Employees only

a) Motor Car

b) Domestic Servants

c) Gas, Electricity, water

d) Education facility

a) Motor Car –

Taxable in the hands of empoyer as FBT

b) Domestic Servants –

Taxable value =

Total salary paid /payable by employer Less paid by employee

c) Gas, Electricity, Water –Actual amount paid by employer

net of what is paid by the employee is taxable

Actual amount paid to supplier or spent on production. Any amount charged from the employee deducted

d) Education facility –

1) School fees of family members of employees paid by the employer directly to the school or reimbursed is taxable as perquisite for all employees

2) If education in employer’s institute, then cost in similars less 1000 p.m. per child

Specified Employee -Specified Employee -

1) Director – Employee

2) Employee having substantial interest in the company (i.e.20% of the paid up capital or more , 20% of voting power or more)

3) Employee whose monetary salary exceeds Rs.50,000 p.a.

(Basic + DA + taxable A/w – PT)

III) Exempted for all (with conditions)–

a) Medical facilities

b) Interest free / concessional loans –

If loan amount is not exceeding Rs.20,000 or if given for medical treatment for specified diseases

a)Medical Facilities -a)Medical Facilities -Fixed medical allowance – fully taxableAny medical expenditure reimbursed

subject to a maximum of Rs.15,000Medical treatment abroad –

Treatment and stay expenses exempt from tax , subject to the maximum amount permitted by RBI

Travel expenses of patient and attendant =

Fully exempt if GTI is upto Rs. 2 lacs

Fully taxable above that

Tax Free medical benefits -Tax Free medical benefits -Local treatment to employee or any

member of his family in hospital maintained by employer,govt. hosp.,notified hospital for prescribed diseases

Family = spouse, children, parents, dependent brothers / sisters

Deductions under chapter VI-ADeductions under chapter VI-AShall not exceed the GTI of assesseeNot available in respect of –

1) LTCG – Sec.112

2) STCG s.to STT – Sec.111A

Medical Insurance Policy –Medical Insurance Policy –Sec.80D -Sec.80D -In case of individual himself, or spouse,

dependent parents & childrenDeduction:-

1) Normal- Lower of Rs.15000 or the premium paid

2) Senior Citizen – Lower of Rs.20000 or premium paid