income from salary

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PROJECT FOR DIRECT & INDIRECT TAXES

COMPUTATION OF INCOME FROM SALARYA CASE STUDY OF ANY EMPLOYEE

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CERTIFICATE FROM THE ORGANIZATION

This is to certify that:

Has/ have successfully completed a study on Procedure of Computation of Income from Salary - A case of State Bank of India and have submitted the project report on the same.

The study conducted was satisfactory. We wish them all the best.

Sign of the officer

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TABLE OF CONTENTS

Executive Summary.................................................................................................4

Remuneration: what is it? ....................................................................................5

Components of Remuneration System………………………………………….7

What is deducted from salary? ........................................................................10

What exemptions are made in salary? ……………………………………......11

Case Study: State Bank of India…………………………………………………...13

Acknowledgements ...…………………………………………………………………20

Bibliography………………………………………………………………………………21

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Executive Summary

The following case study acquaints the reader with the Remuneration System of the Public Sector Bank – State Bank of India.

It gives the reader a brief insight about the fundamentals of what constitutes a salary structure for an employee.

Then through a Balance Sheet of the Company we will explain the various elements listed and their relevance. Notes are mentioned for the same.

In conclusion we have prepared a sample salary slip to show how SBI remunerates its employees.

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Remuneration: what is it?

Remuneration is pay or salary, typically monetary payment for services rendered, as in an employment. Pay is described in employment legislation as "wages". The employer has a duty to pay wages, which are generally dealt with as an express termin the contract of employment.

Wages comprise the basic rate of pay plus any other monetary element (e.g. overtime, bonus, commission etc.). Wages may be paid in the form of an annual salary, where it is usual to pay on a monthly basis, or, for hourly paid employees, at weekly intervals.

Salaried employees are usually paid one-twelfth of their annual salary each month. Hourly paid personnel are usually paid for the number of hours worked during the relevant week.

The basic salary or rate of pay may be supplemented by any overtime, bonus or commission earned. This then becomes gross wages from which the employer is required to deduct the appropriate national insurance contributions and income tax due.

What is included in salary?

According to Section 17(1) salary includes:1. wages and salaries including advance of salary 2. fees and commission3. perquisites4. addition to salaries or wages 5. payment received by an employee in respect of any period of leave not

availed of by him, i.e. leave encashment6. annual accretion to the balance at the credit of an employee participating in a

recognize provident fund to the extent it is taxable

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Perquisites

It is a personal advantage or benefit derived by virtue of employment office or position. A perquisite denotes an additional monetary benefit going into the pocket of or enriching the employee. Some perquisites are taxable while some are non taxable. The taxable perquisites should be included in salary income.

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Components of a Remuneration System

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Direct Compensation

Basic pay

It’s the monthly base amount a person is entitled to. This is the biggest part of the pay, typically 50-60 per cent of the cost to the company (CTC). The basic tends to form a higher portion of the salary at junior levels. At senior levels, the proportion of basic goes down and variable pay components such as target-linked bonuses come into the picture. Basic determines the other components of an employee’s pay such as provident fund (PF) contribution (both by employee and employer) and house rent allowance, entitlement to loans by employers and, sometimes, designations and salary grades are linked to the basic.

Dearness allowance

Dearness allowance is a part of a person’s salary in India. It is calculates as a percent of the basic salary. The amount calculated is then added to the basic pay as well as the HRA to get the total salary. It is calculated on the basis of consumer price index. Dearness allowance is basically given by the company so that rise in prices of consumer price index will be compensated by increase in dearness allowance. As consumer price index is very volatile and variable dearness allowance is has a separate heading in salary slip.

City compensatory allowance

City Compensatory allowance is an additional allowance. It is not exempted from tax like HRA. It enables the employee to bear the high cost of living prevailing in an urban area or a city. If an employee is stationed at a bigger city, the person is required to spend more therefore the employer compensates the employee with this allowance.

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Indirect Compensation

Travelling allowance

It depends on area to area. Conveyance allowance is basically paid to cover an employee’s work-related travel needs. An employee has to travel during the job so this takes care of the transportation expenses. Up to Rs 800 is exempt from tax every month. This component helps make the pay more tax-efficient and influences the take home pay of those at lower levels of pay.

Provision for newspaper

In certain factories/establishments the employees are reimbursed the cost of Newspapers while in some other factories/establishments the employees are paid monthly newspapers allowance instead of reimbursement of the cost of the Newspapers. This allowance is called newspaper allowance.

Telephone allowance

All officers of SMGS III and above, all Branch Managers and other functionaries who are permitted by competent authority are eligible for this allowance.

In addition to free calls, reimbursement will be as under:

TEGS VII – 2000 calls per monthTEGS VI – 1500 calls per monthSMGS IV & V – 800 calls per monthMMGS II & III – 300 calls per monthJMGS I – 200 calls per month

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What is deducted from salary?

Deductions under section 16

Entertainment allowance : sec 16 (2)-It is only given to the government employees -It is initially included in the gross taxable salary -Thereafter section 16(2) allows a deduction from salary to the government employees to the least of the following:

(a) 1/5th of the basic salary (it would include dearness allowance excluding bonus, perks, allowances) (b) Rs. 5000(c) Amount of entertainment allowance actually received

- A non- government employee is no entitled to any deduction for EA

Professional tax : sec 16(3)

Section 16 (3) allows a deduction from salaries of the amount of a tax on employment by or under any law by the state government under article 276 of the constitution

Deductions under section 80

Deduction under sec80C(a) Life insurance premium: payment of premium which is in excess of

20% of actual capital sum assured shall not be included in gross qualifying amount.

(b)contribution to statutory provident fund (c) National saving certificates

Deduction under sec80D

Medical insurance premium paid:

The maximum amount of deduction is rs.15000 for normal citizen and rs.20000 for senior citizen

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What exemptions are made in salary?

Exemptions under section 10

Leave travel concession : sec 10(5)It is exempt to the following extent:

-in the case of an individual-the value of any travel concession or assistance received by or due to him-From his employer for himself and his family, in connection with his proceeding on leave to nay place in India.

Encashment of leave salary : sec 10(10AA)

- It means cash received by an employee against leave earned but not taken and accumulated.- Leave encashment while in service is taxable

In case of government employee:

Any payment received by an employee of the central govt or state govt as the encashment of the earned leave to his credit at the time of his retirement, is wholly exempt from tax

In case of other employees:

Leave salary is exempt to the extent of the least of the following amounts:

-Encashment of the earned leave, not exceeding 30 days per each completed year of service -10 months average salary on basis of basic salary drawn for 10 months immediately preceding the date of retirement -The amount notified by the government which is 3, 00,000-And the amount actually received

Payment from statutory / public provident fund : sec 10(11)

-A provident fund to which the provident funds act, 1925 applies -Or from the provident fund set up and notified by the central government

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Payment from recognized P.F : sec 10(12)

-The accumulated balance due and becoming payable,-To nay employee participating in a recognized provident fund -To the extent provided in rule 8 of part A of the 4th schedule to the act

House rent allowance : sec10 (13A)

-Any special allowance granted to an employee by his employer to specifically meet expenditure actually incurred on the payment of rent for residential accommodation occupied by him -Where as no exemption is available:

1. When such accommodation occupied by the Assesse is owned by him

2. The Assesse has not actually incurred any expenditure on payment of the rent in respect of such accommodation occupied by him.

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CASE STUDY: STATE BANK OF INDIA

Salary slips of different management levels

Grade JMGS – I JMGS – I JMGS – I

DesignationAssistant Manager

Assistant Manager

Assistant Manager

Basic pay 10000 14880 21040

Dearness allowance 18 27 38

City compensation allowance

400 540 540

House Rent Allowance

850 1265 1788

Provision for newspaper 350 350 350


2750 2750 2750

Gross 14368 19812 26506

PF (Employers contribution) 1000 1488 2104

Net [Gross + employers

contribution to PF]15368 21300 28610

PF (Employeescontribution) 1000 1488 2104

CTC (per month) 16368 22788 30714

Annual CTC 196416 273456 368568

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Grade MMGS - II MMGS – II MMGS - II

DesignationDeputy

ManagerDeputy

ManagerDeputy

Manager

Basic pay 13820 19360 22920


City compensation allowance 540 540 540


1175 1646 1948

Provision for newspaper 500 500 500

Travelling allowance 3025 3025 3025

Gross 19085 25106 28974

PF (Employers contribution)

1382 1936 2292



PF (Employeescontribution)

1382 1936 2292

CTC (per month) 21849 28978 33558

Annual CTC 262188 347736 402696

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Grade MMGS - III MMGS - III MMGS - III

Designation Manager Manager Manager

Basic pay 18240 21040 23520




1550 1788 1999


500 500 500


Gross 24163 27206 29901

PF (Employers contribution) 1824 2104 2352




1824 2104 2352

CTC (per month) 27811 31414 34605

Annual CTC 333732 376968 415260

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Grade SMGS - IV SMGS - IV SMGS - IV

DesignationChief

ManagerChief

ManagerChief

Manager

Basic pay 20480 23520 24140



540 540 540

House Rent Allowance 1741 1999 2052


700 700 700


3575 3575 3575

Gross 27073 30376 31050


2048 2352 2414




2048 2352 2414

CTC (per month) 31169 35080 35878

Annual CTC 374028 420960 430536

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Grade SMGS - V SMGS - V SMGS – V

DesignationAssistant General Manager

Assistant General Manager

Assistant General Manager

Basic pay 24140 25380 26620



540 540 540



700 700 700


3850 3850 3850

Gross 31325 32673 34021


2414 2538 2662




CTC (per month) 36153 37749 39345

Annual CTC 433836 452988 472140

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Grade TEGS - VI TEGS - VI TEGS – VI

DesignationDeputy General Manager

Deputy General Manager


Basic pay 26620 28660 29340




2263 2436 2494


900 900 900


Gross 34496 36713 37452


2662 2866 2934




2662 2866 2934

CTC (per month) 39820 42445 43320

Annual CTC 477840 509340 519840

Grade TEGS - VI TEGS - VI TEGS – VI

DesignationDeputy General Manager



Basic pay 26620 28660 29340




2263 2436 2494


900 900 900


Gross 34496 36713 37452


2662 2866 2934




2662 2866 2934

CTC (per month) 39820 42445 43320

Annual CTC 477840 509340 519840

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Grade TEGS – VII TEGS – VII TEGS – VII

DesignationGeneral Manager

General Manager

General Manager

Basic pay 29340 31600 32600



540 540 540



1000 1000 1000


4400 4400 4400

Gross 37827 40283 41370


2934 3160 3260




CTC (per month) 43695 46603 47890

Annual CTC 524340 559236 574680

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Acknowledgements

We as a group hereby give our sincere thanks to Prof. Mr. Sandeep L. Chopde for giving us this opportunity to use our knowledge in the subject of “Accountancy” and improve our knowledge in the subject of “Taxation”.

We would like to thank Mr. Suhas Phalnikar, Branch Manager of SBI, Fort and Mrs. Pratima Avasare, Branch Manager, Andheri for providing us with valuable information regarding the project.

We also thank Mumbai Education Trust for providing us with the books, notes, the invaluable information and help.

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Bibliography

Varsha Ainapure, Mukund Ainapure Direct and Indirect taxes. Mumbai: Manan Prakashan, 2000

A.M. Sharma Understanding Wage System. Delhi: Himalaya Publication House, 2004

State Bank of India Officers’ Association (Mumbai Circle), Service Conditions at a Glance, 2008

State Bank of Indiahttp://www.statebankofindia.com/http://www.onlinesbi.com/

Income Tax Departmenthttp://www.incometaxindia.gov.in/

Googlehttp://www.google.co.in/

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