INCOME FROM

SALARY
 INCOME FROM SALARY
Chargeability (u/s 15)

Any payment paid by an employer to his employee in consideration of

his services is called salary. It includes monetary value of those benefits &
facilities provided by the employer which are taxable.

Under section 15, the following incomes are taxable under the head
‘salaries’:
(a) The salary due from as employer or former employer to an Assessee
in the previous year, whether paid or not.
(b) The salary paid or allowed to him in the previous year by or on behalf
of an employer or a former employer though not due or before it
becomes due to him.
(c) Any arrear of salary paid or allowed to him in the previous year by or
on behalf of an employer or a former employer, if not charged to
income tax any earlier previous year.

Employer & Employee Relationship

An income can be taxed under the head ‘SALARIES’ only if there is

a relationship of an employer & employee between the payer & the payee. If
this relationship does not exist, then the income would not be deemed to be
income from salary. The relation of employer & employee should be of
master & servant.
Example:
1. Any salary, bonus, commission or remuneration due to/received by an
Assessee from a firm, in which he is a partner, shall not be taxable
under the head ‘SALARIES’ as there is no employer-employee
relationship. It will, however, be taxable under the head ‘Profits &
gains of business or profession’.

Salary Grade or Pay Scale:

Salary grade means that at what starting salary any employee is to be

appointed & during the entire service period (if there is no revision of grade
or no promotion), what will be his increment per year & what will be his
maximum salary after which there will not be increment. Here salary means
basic salary. For example if a person is appointed in the grade rs. 2200-100-
3000, it means that his starting salary will be rs. 22000p.m. after one year of
service he will get an increment of rs. 100p.m. i.e., his salary will become rs.
2300p.m., & similarly he will get an annual increment of rs. 100p.m. till his
salary reaches Rs. 3000p.m.

Salary when Due

Salary becomes due on the first date of every month. In almost all the
offices of state govt. this rule is in force. In central govt. offices the salary is
paid on the last date of the month but salary for the month of March is paid
only on 1st April. In cases, in a particular assessment year, the salary drawn
by the employee for the month of March paid in April to February paid in
March shall be included.
In banks & certain other bodies, the salary is credited on the last date
of the month. Hence, the salary from April to March next shall be taxable.

DEFINITIONS
Under section 17 of the act the following have been defined:
(1) salary
(2) Perquisites
(3) Profits in lieu of salary.

SALARY
Salary includes:
1. Wages
2. Any Annuity or Pension
3. Any gratuity
4. Any fees, commission, perquisites, or profit in lieu of or in addition to
any salary or wages.
5. Any advance of salary but not loan for purchasing a car, cycle,
Scooter or a house etc.
6. the annual accretion to the balance at the credit of any employee
participating in a recognized provident fund i.e. employer’s
 contribution in excess of 12% of the employee’s salary & interest on
provident fund in excess of 9.5%
7. The aggregate of all sums comprised in the transferred balance to the
extent to which it is chargeable to tax.
8. The contribution made by the central government or any other
employer in the previous year, to the account of an employee under a
pension scheme.

Computation of Taxable Salary can be illustrated with the help of following

chart:

SALARY

Basic Allowances Perquisites Profits in lieu

Salary of salary

Less

Entertainment Employment
Allowance Allowance

= Taxable Salary
Treatment of Various incomes to be included in ‘Salary’

1. Basic salary:- Fully Taxable

2. Dearness Allowance/Dearness pay:- Fully Taxable
3. Bonus, Fess or Commission :- Fully Taxable
4. LEAVE ENCASHMNET OR LEAVE SALARY

(a) Before Retirement:- Fully Taxable

(b) At the time or Retirement whether on superannuation or
otherwise.

- for all govt. employees:- Fully Exempted

- For non govt. employees:-Least of following is
exempted.

• Credit balance of Leaves X average salary (on the

basis of last 10 months salary)
• 10 X Average salary
• Rs. 300000
• Amount actually received.

Salary means: - Basic + Dearness allowance/dearness pay (if term of

employment so provided) + fixed commission on sales.

 Leaves allowed entitlement can not exceed 30 days (1 month) for

every completed year of service. For a part of year no leave is
allowed.

5. Death cum Retirement Gratuity (u/s 10(10))

(a) For all govt. employees:- Fully Exempted

(b) For non govt. employees: for A & B

(A) For Employee covered under Gratuity Act, 1972,

least of the following is exempted:
• Years of Service X 15/26 X last month’s
drawn salary.
• Amount actually received.
• Rs. 350000.
Salary means: Basic salary + dearness allowance/dearness pay (if all
cases).
Year of service will include each completed year + 1 year for part of the
year in excess of 6 months.

(B) For employees not covered under gratuity act,

1972 then least of the following is exempted:
• Completed years of service X 15/30 X
average salary ( on the basis of last 10
months salary preceding the month of
retirement)
• Amount actually received.
• Rs. 350000

Salary means: - basic + dearness allowance/dearness pay (if term of

employment so provided) + fixed commission on sales.
Year of service:-Only completed years are considered, any fraction period
should be ignored.
 If Gratuity received from previous employer was exempted, exempted
amount (granted earlier) shall be deducted from Rs. 350000.
 Gratuity received during the period of service is always taxable.

6. Retrenchment Compensation (u/s 10(B))

Any compensation received by any employee is exempted up to least
of the following:
a) Year of service X half X Average salary (on the basis of
last three month)
b) Rs. 500000
c) Amount actually received.

Salary means: - basic salary + all taxable monetary receipts (excluding

bonus) + value of electricity & water facility + value of rent free house +
any traveling aid.
1. Year of service will be round off
2. retrenchment includes following
(a) Retrenchment on account of closure of business , or
(b) Transfer of services of workman to some other employer, if it
amount to brake of service; or if the terms of services of the new
employer are less favorable than that of the original employer.
3. However, the amount of compensation shall be fully exempt, where it
is paid under any scheme approved by the central government.
 7. Compensation on voluntary Retirement (u/s 10 (10c))
Least of the following is exempted:-
(a) Rs. 500000
(b) Amount actually received
(c) Completed year of service X 3 X last month salary
(d) Balance month of service left X last month salary

Salary means: - basic salary + dearness allowance/dearness pay (if term of

employment so provide) + fixed commission on sale.

1. Conditions for claiming exemption:-It should be received at the time of voluntary

retirement.
2. Exemption: - only once- if exemption is claimed in one assessment year then
exemption shall not be allowed in another assessment year.
3. If the amount of compensation of VRS received on Installments, the Entire
amount of compensation accrued as salary & accordingly taxable at the time of
initial payment itself.
4. As per Rule 2BA, Guidelines of the govt. for the exemption from tax on the
Golden Hand Shake Scheme are as under:-
(a) Applied to the Employees, who have completed 10 years of service or
completed 40 years of age;
(b) Applied to all Employees except Director of company or co-operative
society;
(c) Voluntary retirement scheme intends to reduce existing overall strength
of the employees;
(d) Vacancy caused by the Voluntary Retirement is not to be filled up again;
(e) The retiring employee of the company shall not employed in another
sister concern;

8. Uncommuted Pension: - It is fully for all employees.

9. Commuted value of Pension [u/s 10(10A)]
(a) For all Govt. Employees: Fully Taxable.
(b) For Non Govt. Employees:
 I. If gratuity has also been received along with CVP then 1/3 of
the full CVP is exempted.
II. If gratuity has also been received along with CVP then 1/2 of
the full CVP is exempted.

10.Salary or Pension received UNO employees: - Fully Exempted.

11.Annuity: - Annuity received from the Employer is Fully Taxable.
12. Pension of Gallantry Awardee: - Pension received by an
individual who has been in service of the Central Government or State
government and has been awarded “Parma Vir Chakra” or “Mahavir
Chakra” or “Vir Chakra” or such other gallantry award as the central
Government may notify shall be exempt.
13. Payment under Key man Insurance Policy: - Any payment due
to or received by an Assessee, under a Key man Insurance Policy
including the sum allocated by way of Bonus on such Policy, will also
be taxable.
ALLOWANCES

It is a fixed sum of money paid regularly in addition to salary for meeting

Specific requirements. There are three types of allowances.

ALLOWANCES

FULLY TAXABLE
PARTLY TAXABLE FULLY EXEMPT
ALLOWANCE
ALLOWANCE ALLOWANCE

1. FULLY TAXABLE ALLOWANCE:

(a) Dearness Allowance

(b) Food Allowance or Tiffin Allowance
(c) Servant Allowance
(d) Fixed Medical Allowance
(e) Non-Practicing Allowance
(f) Warden Allowance and Proctor Allowance
(g) Deputation Allowance
(h) Overtime Allowance
 (i) Others: - Marriage Allowance, Family Allowance, City
Compensatory Allowance(CCA)
(j) Furniture Allowance

2. PARTLY TAXABLE ALLOWANCE:

A. House Rent Allowance (HRA) (u/s 10(13A) & Rule 2A)

Least of the following is exempted:
i. Rent Paid – 10% of Salary.
ii. Actual Amount of HRA received;
iii. 50% of Salary- In Delhi, Mumbai, Chennai, Kolkata.
iv. 40% of Salary- In other Cities.

Salary means: - Basic Salary + Dearness Allowance/Dearness Pay (if term

of employment so provide) + Fixed Commission on sales.

1. HRA is fully taxable if Assesses stays in own house or no rent is paid by him.
2. Salary is to be taken on ‘due’ basis in respect of the period during which the
Rented Accommodation is occupied by the Employee in the previous year.
The salary of any other period is not to be included even though it may be
received and taxed during the previous year.
3. The period for which the following 4 factors are same, calculation for such
period can be made jointly:
(a) HRA
(b) Rent Paid
(c) Salary
(d) Location of house taken on place

4. The Assessee shall be required to produce the rent receipts in proof of actual
source, employees drawing HRA up to rs. 3000 p.m. are exempted from
production of rent receipts. For the purpose of regular Assessment, the
employee shall be required to produce the rent receipts in all cases.

B. Allowance Exempt (u/s 10(14)(i))

 Allowance granted to meet the expenses exclusively incurred
for the performance of official duties will be exempt if they are
incurred for the said purpose. Any excess (Saving) will be taxable:
(a) Traveling Allowance/Transfer Allowance.
(b) Daily Allowance (on tour or in connection with transfer of
duties on an office)
(c) Conveyance Allowance
(d) Helper Allowance
(e) Academic Allowance
(f) Uniform Allowance

C. Allowance Exempt (u/s 10(14)(ii))

(a) Children Education Allowance: - Exempt up to Rs.

100p.m. per child for maximum 2 children.
(b) Hostel Allowance for Children: - Exempt up to Rs.
300p.m. Per child for maximum 2
children.
(c) Hill Allowance: - Exempt up to Rs. 300p.m if the
place is located at the height of 1000 meters or more above
the sea level.
(d) Transport Allowance (For conveyance between
office & residence) :- Exempt up to Rs. 800p.m & Exempt
up to Rs. 1600p.m. (for blind and handicapped)
(e) Tribal Allowance: - Exempt up to Rs. 200p.m.
(f) Underground Allowance or employees working in
underground mines: - Exempt up to Rs. 800p.m
(g) Special Allowance paid to employees working in a
transport system Exemption: - 70% of such allowance or Rs.
6000 p.m. Which ever is less. (If the employee receives
daily allowance, he is not entitled to exemption in this
clause).
(h) Entertainment Allowance (u/s 16 (ii)): - It is first
included in Gross Salary as fully taxable then deduction u/s
16(ii) is given.

 For category C Allowances, Actual Expenses are irrelevant.

3. FULLY EXEMPT ALLOWANCE:

 (a) Allowances paid to high court or Supreme Court judges.
(b) Allowance paid to the employee of UNO.
(c) All Allowance to Govt. employee rendering services outside
India. (u/s 10(7)) (Example employees working in foreign
country’s in Indian Embassies).

PERQUISITES

The term ‘perquisite’ means any benefits, attached to an office or position in

addition to salary or wages. In other words Perquisites mean free facilities
provided by the employer to employee in addition to monetary payments.
Perquisites may be in cash or in kind. Perquisite denotes a personal
advantage. It may be given in kind it should be capable of being measured in
terms of money. For income tax purposes we limit the scope of perquisites
to the benefits received in kind & which are convertible in terms of money.

1. Perquisites taxable in case of all employees

(A) Rent Free Unfurnished Accommodation

• If Rent free Accommodations is provided by

Government
Taxable Value = License fee payable in respect of the accommodation
Accordance with the government Rules – Rent Actually
Paid by the employer.

• If Accommodation is provided by any other

Employer:

I. If Accommodation is owned by Employer:

Taxable value = 15% salary for the accommodation period (If city
Population is over 25lacs) & 10% of salary (if population is
Between 10 to 25lacs) & 7.5% of salary (if city population
Is less than 10 lacs)
 II. If Accommodation is taken on lease or rent by
employer

Taxable value = Rent paid or 15% of salary which ever is less.

• If accommodation is provided by govt. or any

other employer in a hotel:
Taxable value = Actual charge of hotel or 24% pf salary, which ever is less.
Taxable value will be NIL if accommodation in hotel is provided on the
transfer of Employee for a period not exceeding 15 days.

• For Employees, on transfer from one place to another:

(a) For the first 90 days of transfer.

Where accommodation is provided both at existing place of work & a new
place the accommodation which has lower value shall be taxable.
(b) After 90 days of transfer both such accommodations shall be
taxable.

(B) Rent free furnished Accommodation

Taxable value = Taxable value as accommodation is unfurnished + annually

10% of original cost of furniture or actual hire charges.
Furniture includes T.V., Radio, Refrigerator, A.c., or other house hold appliances.
Any repair, maintenance of building incurred by employer shall
be ignored.

(C) Accommodation provided at concessional Rent:

Taxable Value = Taxable value of rent free accommodation – Rent payable

By employee.

1. Salary Means: - Basic Salary + D.A.(if term of employment so

provided) + Bonus + Commission + Taxable portion of other allowances
+ leave salary ( on year to year basis)
(Above all are taken for the period of accommodation)
 No value of any perquisite will be included for the meaning of
salary of RFA.
2. If employee receives salary from more than one employer, then
aggregate salary from both the employers will be taken.
The above rule of valuation is not applicable to accommodation located in
remote area provided to the employees working at the mining site, an
onshore oil exploration site, a project execution site & an off-sore site of
similar nature.
Remote Area: - remote area for purposes of proviso to this sub-rule means
an area that is located at least 40 k.m. away from a town having a population
not exceeding 20000 based on latest published all India census.

D. Obligation of the Employee met by Employer

Any amount (obligation) paid by employer on behalf of
employee is taxable in all cases. For examples, income tax or
professional tax, servant salary, gas, electricity bill etc.

Taxable value = Amount so paid on behalf of employee.

E. Any sun paid by the employer for life insurance or to contract

for annuity

Taxable value = Amount so paid on behalf of employee.

F. Interest free or concessional loan provided to employee or any

member of household, the taxable value shall be computed by
rate charged by SBI on 1st day of relevant previous year for
similar loan.

I. Taxable value is NIL if loan is less than equal to Rs. 20000

II. Taxable value is NIL if loan is taken for Medical Treatment in
respect of disease Specified in rule 3A.(but if such loan has
been reimbursed under any medical Insurance Scheme and it is
not repaid to employer, it shall be taxable).
III. Interest is charged on Maximum Outstanding Monthly Balance
of loan.
IV. ‘Maximum Outstanding Monthly Balance’ means the aggregate
outstanding balance for each loan as on the last day of each
month.
 G. Use of Movable Assets by the employee or any member of his
household.

Taxable value
- Use of Laptop & Computer NIL
- Use of assets other than Laptop & computer 10% p.a. of Actual cost
& other Specified assets in rules OR
Hire Charges paid by employer
H. Transfer/Sale of any Movable Asset to employee or any
member of his household at nominal rate/without cost

Taxable value
- Computer & Actual Cost – 50% P.a. of cost for each completed
Electronics item year. (On WDV method on purchase of asset)
- Motor Car Actual Cost of use – 20% P.a. of cost for each
completed year of use. (On WDV method)
- Any other Asset Actual Cost – 10% P.a. of cost for each completed
year of use. (On straight line method

 Member of household shall include: - Spouse; Children & there

Spouses; Parents; Servants & Dependents.

2. The value of traveling, touring, Accommodation (Holiday Home

Facility) & any other expense on holiday incurred by employer
for employee or the member of his household will be taxable as
under: -

Taxable value
- Where such facility is maintained Value at which such facility are offered
by employer & is not available by other Agencies to the public
uniformly to all employees.
-Where employee is on official tour Amount incurred for other member by
& expenses are For the any member employer.
of his household accompanying him
- Where official tour extended as Amount incurred for extended period
vacation of vacation.
- Any other case Amount incurred
  The above rules are not applicable to LTC to which rule 2B is
applicable.

A. Free or Concessional Meal or Snacks

(Food Facility)

Taxable value
- Tea or Snacks provided during official NIL
hours (i.e. Refreshment or breakfast)
- Free meals during office hours in a Remote NIL
Area or an offshore installation
- Free meals provided by employer during Exempted up to Rs. 50 per meal.
office hours
 At office or Business Premises;
or
 Through paid vouchers which
are not transferable.

- Any other case any amount incurred by

employer - amount if received
employee

Remote Area: - remote area for purposes of proviso to this sub-rule means
an area that is located at least 40 kilometers away from a town having a
population not exceeding 20000, based on latest published all –India census.

B. Value of any gift, voucher or token

received by employees:-
- Exempted up to Rs. 5000
 Gifts made in cash or convertible into money (like Gift Cheques) are
not exempted.

The value of aforesaid gifts given on Social & Religious occasions like Diwali,
Christmas, New Year, the Anniversary of the organization etc. are deductible (for
employer) in computing the P/G/B/P. if gifts are of personal nature, e.g. Birthday
gift, Gift on Marriage Anniversary etc. the value of such gifts is neither Taxable in
the hands of an employee not deductible in computing the income of the employer.
 C. Expenses on Credit Card of employee or his household
member:

Taxable value
- Where any expenses including membership fees & annual Amount paid or
fees incurred by the employee or his household member reimbursed by
credit Card, on are paid or reimbursed by the employer employer
-Where such expenses are incurred wholly for official NIL
purposes.
D. Expenses on Club membership & other expenses:

Taxable value
- Where any expenses (annual or periodical) incurred Amount paid or
by Employee in a club are paid or reimbursed by the reimbursed by the
employer employer.
- Where such expenses are incurred wholly for NIL
official purposes.
- Where facility of Corporate Membership taken by NIL
employer is enjoyed by employee or any member of
his household, the initial fee paid for such corporate
membership by employer.

F Taxability Car & Transport Facility: -

These are chargeable for specified employees only (check it under

perquisites taxable for specified employee).

4. perquisites taxable only in case of specified

employees
Specified employee: -

a. A director of his employer company.

b. An employee who has substantial interest in his employer company
having 20% or more voting rights or having 20% or more equity
shares of company.
c. Am employee drawing salary in excess of Rs. 50000/.

Meaning of salary in excess Rs.50000p.a.

Basic salary + all taxable monetary receipts less deduction of section
16 (ii,iii).
Following are some perquisites which are taxable for specified employees
only: -
A. Motor car facility

I. In case of car is owned/hired by the employer: -

If car is used wholly for official purpose then nothing is
taxable whether expenses are borne by employer or employee.

- If car is used for private purpose only.

Taxable value
Expenses are borne by EMPLOYER Expenses are borne by EMPLOYEE
Actual expenses + salary of driver + (no specified rule in act but assumed)
10% p.a. of cost of car estimated wear & tear expenses
(10% p.a. depreciation) + Salary of
driver

- If use of car is partly for office & partly for private purpose:

If personal expenses of if personal expenses of

car are borne by car are borne by
employer employee
Up to 1.60 ltr. Rs. 1800 per month Rs. 600 per month
More than 1.60 ltr. Rs. 2400 per month Rs .900 per month.

If a driver is also provided then add Rs. 900 per month in each of above
case.
 II. In case of car is owned by the employee & expenses are met by
employer:

Taxable value
1. Car is used wholly for official NIL
purpose
2. Car is used wholly for private Actual Expenses paid by employer
purpose

3. Car is used partly official & partly Actual expenses of employer – 1800
private purpose and car is up to 1.60 p.m. or 2700 p.m. if driver is
ltr. provided

4. If car is more than 1.60 ltr. Actual expenses – 2400 p.m. or 3300
p.m. if driver is provided.

Notes related to clause (II)

1. It is taxable for all employees as it is obligation

2. If actual expenses for official purpose exceed Rs.1200/ Rs.1600 p.m.
then that expenses will be deducted in above (if specified documents
are maintained).
3. Specified documents:
(a) The employer has maintained complete details of journey undertaken
for official purpose which may include date of journey, destination,
mileage and the amount of expenditure incurred thereon.
(b) The employee & his supervisor gives a certificate that
expenditure was incurred wholly & exclusively for official
purpose.

III. In case of any other automotive is owned by employee &

expenses are met by Employer.

Taxable value
- Automotive is used wholly for NIL
official purpose
- Used partly for official & partly Actual expenses of employer –
private purpose. Rs 600 p.m.
  In above all cases, month means complete month & a part of month
is left out of consideration.
 Vehicle provided for commuting from residence to office or any place
of work & back to residence shall not be regarded as perquisites.

B. FREE TRANSPORT FACILITY: -

(In case employer is engaged in carriage of passenger or goods)

Taxable Amount = Value at which such facility is provided to the

Public – Amount if any recovered from employee.

 This sub-rule shall not apply to the employees of an airline or the

railways.

C. FACILITY OF DOMESTIC SERVANT:- [Rule 3 (3)]

Taxable value
- Free Service of a Sweeper, Salary paid by employer To them
Gardner, Watchman or Personal
Attendant provided by employer.
- In case any domestic servant is Amount Reimbursed
engaged by the employee & their (Taxable is case of all employees as
salary is paid or reimbursed by the it is obligation of the employee met
employer. by the employer).

D. FACILITY OF FREE GAS, ELECTICITY, WATER:- [Rule

3(4)]

Taxable value
- If supplied from own sources. Manufacturing cost.
- If purchased by employer from any Actual amount paid to Agency by
outside agency. Employer
- Gas, Water, Electricity bill paid or Taxable in case of all employees as it
reimbursed by the employer on is the obligation met by the
behalf of employee. employer.

E. FREE OR CONCESSIONAL EDUCATION TO ANY

MEMBER OF EMPLOYEE’S HOUSEHOLD: - [Rule 3(5)]
 (a) Where Free Education facility is provided:

- In the Education Institution maintained & run by employer.

- In any other Education Institution by reason of his being in
employment of that Employer.

Taxable Value = Reasonable cost of such Education in a similar institution

In or near the locality – Amount if any recovered from
Employee.

1. Taxable Value will be NIL, if such facility is provided to the children of the
(b)
employee & cost
Any of education
other per childexpenses
case if Education does notofexceed Rs. 1000
employee’s per month.
children or
2. No any
limitother
of number
member of are
children.
paid or reimbursed by employer.

Taxable Value = Actual Expenses incurred or paid or reimbursed by

Employer.
In above case, value of Perquisite will be taxable in case of All employee as
it is obligation of employee paid by Employer.

5. TAX FREE PERQUISITES FOR ALL

EMPLOYEES: -

A. MEDICAL BENEFIT PROVIDED TO EMPLOYEE OR HIS

FAMILY MEMBERS.

(a) If medical treatment has been alone in a Govt. Hospital, Recognized

Public hospital, Approved Hospital, An Hospital run & maintained by
employer. [Sec 17(2) Proviso (V)]
Taxable Value = NIL (No limit of expenses.)

(b) If Medical facility is provided in any other hospital. (Private hospital)

Taxable Value = Exempt Up to Rs. 15000.

(c) Payment of medical insurance premium of employee or his household

member by employer for the purpose of [sec 80(D)].
Taxable Value = NIL
 (d) Expenses on Medical treatment or stay abroad Expenses of employee
& Attendant are exempted as per RBI rules. [Sec. 17(2) Proviso (VI)
& (VII)].
(e) If Gross Total Income of the employee does not exceed Rs. 200000
(before including taxable Travel expenses) then travel expenses of
employee & one attendant are exempted otherwise taxable.
Family for valuation of medical means spouse & children of the employee,
whether dependant or not, parents, brothers, sisters of the employee who are
mainly dependant on the employee.

B. PREMIUM PAID BY EMPLOYER

ON ACCIDENT POLICY

C. Employer’s contribution: Employer’s

Contribution to Pension, Deferred Annuity Scheme & Staff Group
Insurance Scheme of employees, is not taxable in the hands of
employees.
D. Allotment of Shares / Debentures under
ESOP Scheme e.g. Sweat Equity Shares.
E. Expenditure on ENTERTAINMENT
(Entertainment Facility).
F. Expenditure on TELEPHONE,
MOBILES (Telephone Facility).
G. Scholarship.
H. Facility of Refresher or Trainee Course
for employee.
I. Use of Health Club, Sports or Similar
Facilities.
1. Exemption
J. is available for maximum
LEAVE2 children
TRAVEL born CONCESSION
after 01.10.1998. This
restriction shall not MONEY
(LTC) / or PASSAGE be applicable
[Sec 10in(5)].
respect of children born before
01.10.1998 & also in case of multiple births after first child.
2. The is
If journey Exemption
performedunder
by air10(5)
(Air is availableFare
Economic in respect of 2 journey
of the National performed in
Carrier),
or Raila (A.C.
block first
of 4class)
calendar years
or any commencing
other from the
Transport mean calendar
(First year
Class or 1986-89 (VI
Deluxe
Other)thbyblock
way 2006 – 09). Route – ALL TAX EXEMPTED.
or Shortest
3. Out of two journeys, exemption for one journey can be claimed in the
calendar year succeeding the end of the block.
4. It is not necessary that the family members should performed journey along
with the employee concerned.
5. It is pertinent to note that the exemption is available in respect of journeys
actually undertaken; payments received without actually performing the
journey are totally taxable as salary [Rule (2B)].
6. LTC is not exempted if it is provided for the journey is performed out of
INDIA.
 K.

K. Facility of FAMILY PLANNING provided by employer.

L. Perquisites to citizens RENDERING
SERVICE OUTSIDE INDIA aie exempted. [SEC 10 (7)].
M. RENT FREE HOUSE /
CONVEYANCE FACILITY TO SUPREME COURT / HIGH
COURT JEDGES.
N. RESIDENCE TO OFFICIAL OF
PARLIAMENT.
O. TAX PAID BY THE EMPLOYER ON
NON-MONETARY PERQUISIT: - Tax paid by the employer on
Non-Monetary Perquisites of the employee shall be exempt in the
hands of the employee [Sec 10(10CC)].

RULE in respect of all PEQUISITES: When ever any concession is given

or any amount is recovered from the employee, the value of the perquisite
shall be calculated as follows:
Step1. Determine value of the perquisite as if nothing has been recovered
from the employee.
Step2. Determine the amount recovered (deducted from salary) from the
employee.
Step3. Taxable amount of perquisites Step1. - Step2.

TREATMENT OF PROVIDENT FUND CONTRIBUTION

Particulars Statutory P.F. Recognized Unrecognized P.F.

P.F.
1. Employer’s Fully Exempted Exempt Up to Not Taxable on yearly
Contribution 12% Salary basis
2. Interest on P.F Fully Exempted Exempt up to Not Taxable on yearly
9.5% p.a. basis
3. Repayment of Fully Exempted Fully Exempt Total Employer’s
lump sum amount *Subject to Contribution & interest
certain thereon is taxable
Condition Under the head
‘SALARY’ &
Interest on employee’s
Contribution is taxable
under The head
‘INCOME FROM
OTHER SOURCES’.

Salary Means: - Basic Salary + D.A. (if term of employment so provided) +

Fixed Commission on Sales.

 If employer contributes (in RPF) certain percentage of D.A in

addition to basic salary then it will be treats as DA under the term of
employment for all other purposes too.

 Payment from Recognized Fund is exempt if [Sec10 (12)]

1. He has been in continuous service for at least 5 years; or
2. his service has been terminated due to his ill-health or due to
contraction or discontinuation of his employer’s business or
any other cause beyond his control; or
3. On cessation of his employment his accumulated balance is
transferred to another recognized provident fund.

TRANSFERRED BALANCE [Sec.17 (1) (VII)]

The balance of unrecognized provident fund, which is transferred to

R.P.F., is called “Transferred Balance”.
According to Schedule IV, Rule 11(4), the amount of Taxable portion will
be calculated as under:-
1. The fund will be treated as R.P.F. from the date fund was instituted.
2. The Employer’s Contribution of URPF shall qualify for Exemption up
to 10% of salary (up to Assessment Year 1997-98) & 12% w.e.f.
Assessment Year 1998-99 & excess shall be taxable.
 3. The interest Credited to the Accumulated Balance shall be Exempt if
rate of interest was up to 12% p.a. (9.5% w.e.f. 1-.04-2001) Excess if
any is Taxable.
4. The taxable amount under point (2.) & (3.) Above shall be deemed to
be the income of the previous year in which fund gets Recognition.
The remainder of the Transferred balance shall be ignored.

PROFITS IN LIEU OF SALARY [Sec. 17 (3)]

Sec. 17(3) gives an inclusive definition of “Profits in Lieu of

Salary”. As the name suggests, these payments are received by the
Employee in lieu of or in addition of salary or wages. These payments
include the following: -

1. Terminal Compensation: It is Compensation paid to Assessee from

his Employer in connection with the Termination of his employment
or the Modification of the Terms & Conditions.
2. Payment from an Unrecognized Provident Fund or an
Unrecognized Superannuation Fund: When the Accumulated
balance of such fund is paid to the employee either on Retirement or
on Termination of Service, the untaxed portion, i.e. the Employer’s
Contribution & interest thereon is taxed as ‘Profit in Lieu of Salary’.
The interest on employee’s Contribution is taxed as “Income from
Other Sources”.
3. Payment under Keyman Insurance Policy: Any payment due to
received by an Employee, under a Key man Insurance Policy
including the sum allocated by way of bonus on such policy, will also
be regarded as Profit in Lieu of Salary.
4. Any Amount due to or received, whether in Lump sum or
otherwise, by any Assessee:
(a) Before his joining any employment with that person; or
(b) After cessation of his Employment with that person.

DEDUCTIONS FROM SALARIES:

The income Chargeable under the head ‘Salaries’ is computed after making
the following deductions:
1. ENTERTAINMENT ALLOWANCE U/S 16(II)
- Only for Govt. Employees.
Least of the following is deductible:
 i. Amount of allowance actually received.
ii. 20% of salary.
iii. Rs. 5000
Salary means: - Basic Salary Only.

1. For purpose of deduction in respect of Entertainment Allowance, the

Actual Amount spent towards entertainment expenses is irrelevant.
Even if the Govt. Employee spends the entire amount of entertainment
allowance or even an amount greater than the entertainment allowance
received is spent on entertainment for official purposes, the deduction
shall be restricted to the amount as per the provisions mentioned
above.
2. Sumptuary allowance has to be treated as an entertainment allowance.

2. EMPLOYMENT TAX OR PROFESSIONAL TAX U/S 16 (iii)

Under Article 276 of Constitution, Actual Amount paid by is

deductible.
1. Deductions available only in the year in which Professional tax is paid.
2. If the Professional tax is paid by Employer on behalf of employee, it is
first included in the salary of the employee (in case of all employees as a
payment of obligation) & then the same amount is allowed as deduction
from Gross Salary.