PROJECT FOR

DIRECT & INDIRECT TAXES

COMPUTATION OF INCOME FROM SALARY

A 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 term
in 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 commission
3. perquisites
4. 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 encashment
6. 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 month

TEGS VI – 1500 calls per month
SMGS IV & V – 800 calls per month
MMGS II & III – 300 calls per month
JMGS 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

Assistant Assistant Assistant

Designation
Manager Manager Manager
Basic pay 10000 14880 21040
Dearness allowance 18 27 38
City compensation
400 540 540
allowance
House Rent
850 1265 1788
Allowance
Provision for
350 350 350
newspaper
Travelling
2750 2750 2750
allowance
Gross 14368 19812 26506

PF (Employers
1000 1488 2104
contribution)
Net [Gross +
employers 15368 21300 28610
contribution to PF]
PF (Employees
1000 1488 2104
contribution)
CTC (per month) 16368 22788 30714
Annual CTC 196416 273456 368568

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 Grade MMGS - II MMGS – II MMGS - II
Deputy Deputy Deputy
Designation
Manager Manager Manager
Basic pay 13820 19360 22920
Dearness allowance 25 35 41
City compensation
540 540 540
allowance
House Rent
1175 1646 1948
Allowance
Provision for
500 500 500
newspaper
Travelling
3025 3025 3025
allowance
Gross 19085 25106 28974
PF (Employers
1382 1936 2292
contribution)
Net [Gross +
employers 20467 27042 31266
contribution to PF]
PF (Employees
1382 1936 2292
contribution)
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
Dearness allowance 33 38 42
City compensation
540 540 540
allowance
House Rent
1550 1788 1999
Allowance
Provision for
500 500 500
newspaper
Travelling
3300 3300 3300
allowance
Gross 24163 27206 29901
PF (Employers
1824 2104 2352
contribution)
Net [Gross +
employers 25987 29310 32253
contribution to PF]
PF (Employees
1824 2104 2352
contribution)
CTC (per month) 27811 31414 34605
Annual CTC 333732 376968 415260

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 Grade SMGS - IV SMGS - IV SMGS - IV
Chief Chief Chief
Designation
Manager Manager Manager
Basic pay 20480 23520 24140
Dearness allowance 37 42 43
City compensation
540 540 540
allowance
House Rent
1741 1999 2052
Allowance
Provision for
700 700 700
newspaper
Travelling
3575 3575 3575
allowance
Gross 27073 30376 31050
PF (Employers
2048 2352 2414
contribution)
Net [Gross +
employers 29121 32728 33464
contribution to PF]
PF (Employees
2048 2352 2414
contribution)
CTC (per month) 31169 35080 35878
Annual CTC 374028 420960 430536

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 Grade SMGS - V SMGS - V SMGS – V
Assistant Assistant Assistant
Designation General General General
Manager Manager Manager
Basic pay 24140 25380 26620
Dearness allowance 43 46 48
City compensation
540 540 540
allowance
House Rent
2052 2157 2263
Allowance
Provision for
700 700 700
newspaper
Travelling
3850 3850 3850
allowance
Gross 31325 32673 34021
PF (Employers
2414 2538 2662
contribution)
Net [Gross +
employers 33739 35211 36683
contribution to PF]
PF (Employees
2414 2538 2662
contribution)
CTC (per month) 36153 37749 39345
Annual CTC 433836 452988 472140

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 Grade TEGS - VI TEGS - VI TEGS – VI
Deputy Deputy Deputy
Designation General General General
Manager Manager Manager
Basic pay 26620 28660 29340
Dearness allowance 48 52 53
City compensation
540 540 540
allowance
House Rent
2263 2436 2494
Allowance
Provision for
900 900 900
newspaper
Travelling
4125 4125 4125
allowance
Gross 34496 36713 37452
PF (Employers
2662 2866 2934
contribution)
Net [Gross +
employers 37158 39579 40386
contribution to PF]
PF (Employees
2662 2866 2934
contribution)
CTC (per month) 39820 42445 43320
Annual CTC 477840 509340 519840

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 Grade TEGS – VII TEGS – VII TEGS – VII
General General General
Designation
Manager Manager Manager
Basic pay 29340 31600 32600
Dearness allowance 53 57 59
City compensation
540 540 540
allowance
House Rent
2494 2686 2771
Allowance
Provision for
1000 1000 1000
newspaper
Travelling
4400 4400 4400
allowance
Gross 37827 40283 41370
PF (Employers
2934 3160 3260
contribution)
Net [Gross +
employers 40761 43443 44630
contribution to PF]
PF (Employees
2934 3160 3260
contribution)
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 India

http://www.statebankofindia.com/
http://www.onlinesbi.com/

 Income Tax Department

http://www.incometaxindia.gov.in/

 Google
http://www.google.co.in/

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