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Project Presented By: Group Leader: Maitrayee .R. Jadhav Roll No.16 Name Bhushan Dalvi Mrunmayee Gaokar Dinesh Gawade Dipesh Gawas Priyanka Ghag Deepak Gupta Ashmita Jadhav Roll no 9 10 11 12 13 14 15
INTRODUCTION:
MEANING OF SALARY
Salary, in simple words, means remuneration of a person, which he has received from his employer for rendering services to him. But receipts for all kinds of services rendered cannot be taxed as salary. The remuneration received by professionals like doctors, architects, lawyers etc. cannot be covered under salary since it is not received from their employers but from their clients. So, it is taxed under business or profession head. In order to understand what is included in salary, let us discuss few characteristics of salary.
CHARACTERISTICS OF SALARY.
1. The relationship of payer and payee must be of employer and employee for an income to be categorized as salary income. For example: Salary income of a Member of Parliament cannot be specified as salary, since it is received from Government of India which is not his employer. 2. The Act makes no distinction between salary and wages, though generally salary is paid for non-manual work and wages are paid for manual work. 3. Salary received from employer, whether one or more than one is included in this head. 4. Salary is taxable either on due basis or receipt basis which ever matures earlier:
Receipt basis when it is received even if it is not earned in the previous year.
Arrears of salary- which were not due and received earlier are taxable when due or received, which ever is earlier. 5. Compulsory deduction from salary such as employees contribution to provident fund, deduction on account of medical scheme or staff welfare scheme etc. are examples of instances of application of income. In these cases, for computing total income, these deductions have to be added back.
Annuity or pension
Gratuity
Leave Encashment
Compensation as a result of variation in Service contract etc. Salary Due: Any income due from an employer to an employee, whether paid or not. This is also true if the income is due from a former employer
Advance Salar y : Any salar y paid by an employer to an employee even though it was not due or was paid befor e the due date. T his is also tr ue if the advance salar y had been paid by a for mer employer
Arrears of Salary : Any arrears of salary paid to an employee by an employer, for which income tax had not been previously deducted. This is also true in case the arrears are paid by a former employee.
Employee, employer and employment areessential components of income from salary,which are defined as under: -
Employee means an individual engaged in employment . Employer means any person who engages and remunerates an individual engaged in employment . Employment includes A directorship or any other office involved
in the management of a company. A position entitling the holder to a fixed or ascertainable remuneration; or The holding or acting in any public office..
IS SALARY PAYABLE FOR LEAVE-PERIOD TO NON RESIDENTS TAXABLE EVEN IF LEAVE IS SPENT OUTSIDE INDIA?
Yes. The salary paid for services rendered in India is regarded as income earned in India, so as to specifically provide that any salary payable for rest period or leave period which is both proceeded or succeeded by service in India forms part of the service contract of employment will also be regarded as income earned in India and so is to be taxed.
PERQUISITE
"Perquisite" may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. Perquisite as defined in the Income tax Act includes:-
Any sum paid by employer in respect of an obligation which was actually payable by the assessee. Value of any benefit/amenity granted free or at concessional rate to specified employees etc.
The following perquisites are not taxable either under the executive instructions of the Central Board of Direct Taxes or by virtue of specific provision in the Act/Rules:
Rent-Free House
Rent-free official residence provided to a judge of a High Court or of the Supreme Court.
Rent-free furnished residence (including maintenance thereof) provided to an official of Parliament, a Union Minister or a Leader of Opposition in Parliament
Accommodation provided in a 'remote area' to an employee working at a mining site or an onshore oil exploration site, or a project execution site or an accommodation provided in an offshore site of similar nature.
Accommodation provided on transfer of an employee in a hotel for not exceeding 15 days in aggregate.
Car
Reimbursement of expenses in respect of car (which is owned by employee and used for personal and official purpose) (amount not taxable is up to Rs. 1,200 per month for car having engine capacity of not more than 1600cc, Rs. 1,600 per month for car of above 1600cc and Rs. 600 per month for driver).
Conveyance facility provided to High Court Judges and Supreme Court Judges.
Conveyance facility provided to an employee to cover the journey between office and residence.
Interest-Free Loan
Others
WHO IS A SPECIFIED EMPLOYEE AND WHAT PERQUISITES ARE TAXABLE IN HIS HANDS?
The specified employees include the following:a) Director employee, whether full time or part time. b) Employee who is beneficial owner of equity in the employer's company carrying 20% or more voting power. c) The employees other than those mentioned above, drawing salary in excess of Rs. 24,000 (w.e.f. 13th April 2002 this limit is Rs. 50,000) in monetary terms. The value of any benefit or amenity granted or provided free of cost or at concessional rates to these specified persons would be a 'perquisite' taxable in their hands.
WHAT ARE THE OTHER TAXABLE PERQUISITES? LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001.
The other taxable perquisites which are taxable in a prescribed manner include the folio wing: a) Value of rent free accommodation provided to the assessee by his employer.
b) Value of concession in rent of accommodation provided to the assessee by his employer. c) Amount payable by an employer directly or indirectly to effect an assurance on the life of the employee or to effect a contract for an annuity, other than payment made to recognised provident fund etc. d) Amount paid by an employer in respect of any obligation which otherwise would have been payable by the employee, for example - payment of incometax.
Valuation of perquisites - The employer often gives some perquisites to the employees. Value of these perquisites is added to the income of employees. The valuation of perquisites is done as follows : Rent Free unfurnished Accommodation - - In case of private sector employees, value of perquisite of rent free unfurnished accommodation is taken as follows - (a) If owned by employer - If population of city exceeds 25 lakhs - 15%, if population exceeds 10 lakhs but below 25 lakhs - 10% (c) In other cases 7.5%.
In case of Government Employees, value will be rent as per rules framed by Government, as reduced by sum actually paid
Salary includes basis, DA (if taken into account for retirement benefit), bonus, commission, fees and all taxable allowances.
Valuation of furnished accommodation - If accommodation is furnished, in addition to above, 10% of cost of furniture (including TV, radio, refrigerator, AC etc.), if owned by employer, will be treated as perquisite. If the furniture is hired from third party, actual hire charges less any amount recovered from employee will be the perquisite. Gas electricity or water supply - Some benefits like gas, electricity, water are valued at actual cost to employer. If these are provided from own sources, value will be manufacturing cost incurred per unit, less amount recovered from employee. Domestic servants - Actual cost to employer for sweeper, gardener, watchman or personal attendant will be value of perquisite. Use of movable assets - If some movable asset is provided to employee, perquisite will be @ 10% of the cost of asset or rent paid, as reduced by sum paid by employee.
Loans to employees at concessional rate Calculate interest on basis of SBI lending rates, reduced interest paid by employee and difference will be the value of perquisite. 1-3 Perquisites which will be added to salary
Remaining perquisites perquisites like motor car, lunch, refreshment, travelling, touring, gift, credit card, club etc. will be added to salary and taxed in hands of individual (Till 31-3-2009, FBT was payable
Valuation of motor car -.If car is owned or hired by employer and provided for personal purposes of employees, valuation will be expenditure incurred by employer on running and maintenance plus remuneration of chauffer plus normal wear and tear @ 10% on actual cost less amount charged to employees.
If motor is partly for official and partly for personal purposes and expenses are reimbursed by employer, perquisite value per month is Rs 1,2000 per month if engine cubic capacity is upto 1.6 liters and Rs 1,600 per month if cubic capacity of engine exceeds 1.6 liters. If motor is partly for official and partly for personal purposes and expenses are reimbursed by employer, perquisite value per month is Rs 1,200 per month if engine cubic capacity is upto 1.6 liters and Rs 1,600 per month if cubic capacity of engine exceeds 1.6 liters. If chauffer is provided, value of perquisite will be Rs 600 per month. If motor is partly for official and partly for personal purposes and expenses are met by employee, perquisite value per month is Rs 400 per month if engine cubic capacity is upto 1.6 liters and Rs 600 per month if cubic capacity of engine exceeds 1.6 liters. If chauffer is provided, value of perquisite will be Rs 600 per month.
ALLOWANCE
"Allowance" is defined as a fixed quantity of money or other substance given regularly in addition to salary for meeting specific requirements of the employees. Most allowances are taxable like city compensatory allowance, tiffin allowance, fixed medical allowance and servant allowances. Encashment of any concession is also taxable. If ARE THERE ANY ALLOWANCES, WHICH ARE ONLY : exempt when received at a particular place(s) ;pr area(s)? and do they have any upper ceilings : for exemption? For the new amended Rules contain other allowances also .which are exempt (subject to ceilings) in particular area(s) only. These special allowances are :-
i) Any special Compensatory Allowance, in the nature of Composite Hill Compensatory allowance or High Altitude, Allowance or Uncongenial Climate Allowance or Snow Bound Area Allowance or Avalanche Allowance; ii) Any special Compensatory Allowance given which is in the nature of border area allowance or remote area allowance or difficult area allowance or disturbed area allowance; ii) Tribal Area Allowance; iii) Allowance granted to an employee working in any transport system to meet his personal expenditure
during his duty performed in the course of running of such transport from one place to another place, provided that such employee is not in receipt of daily allowance;
Allowance (know as DA in TA bill) paid for purpose explained in point 11 above ,to meet the ordinary daily charges on account of absence from his normal place of duty):exempted to the extent allowance used for the said purpose Conveyance allowance:To meet the expenditure on conveyance in performance of duties of an official nature:exempted to extent allowance used for said purpose Uniform allowance : exempted to the extent used for the said purpose Children Education allowance :Rs 100 per month per child up to maximum of two child is exempted if expenses made in India Children hostel allowance:Rs 300 per month per child up to maximum of two child is exempted if expenses made in India Allowance granted to employee working in transport system where no daily allowance has not been allowed to meet daily expenses ,done to meet his personal expenses during duty performance from one place to other place :70 % of such allowable exempted maximum up to 6000 per month. Allowance granted for encouraging the academic ,research and other professional pursuits:exempted to the extent used for said purpose many hilly area,remote area,field allowances are exempted on various rate Any other allowance :generally Taxable. HRA(House Rent Allowance ) house rent allowance is exempted u/s 10(13A) of the income tax act.Least of the following is exempted from Hra Received
o o
HRA received House rent paid minus 10 % of salary(salary means basic plus dp plus da if term of employment so provides) 50% of salary(same meaning as above)in case of rented house situated in Bombay,Madras,Delhi or calcutta 40 % of salary ,if rented house is situated in any other places
Exemptions for salary income - Following are exempt from income taxTransport allowance upto Rs 800 per month granted to an employee to meet his expenditure for the purpose of commuting between place of residence and the place of his duty. Conveyance and transport allowance granted to employee to meet cost of travel on tour are exempt. Allowance granted to meet expenditure incurred on conveyance in performance of duties of an office or employment are exempt. In LIC Officers v. LIC of India (2000) 112 Taxman 227 (Bom HC DB), it was held that conveyance allowance is exempt only if expended for meeting expenses wholly and necessarily incurred or to be incurred in performance of duties of office. Conveyance allowance at flat rate irrespective of place of residence, work and posting will not be exempt from income tax. Conveyance and transport allowance granted to employee to meet cost of travel on transfer are exempt. Expenses granted to meet cost of travel on transfer and cost of packing and
transportation of personal effects on such transfer are exempt. Use of employers vehicle or transport provided for journey of employee from residence to his place of work and back is not treated as perquisite and its cost is not treated as income. Refreshments during office hours to employees and recreational facilities provided to group of employees are not treated as perquisites.
Gratuity - Gratuity for Government employees is fully exempt [section 10(10)(i)]. In case of employees covered under Payment of Gratuity Act, exemption is upto Rs 3,50,000 to be reduced by such exemptions claimed in the past or 15 days salary for every completed year of service, whichever is lower.. Salary means basic plus DA (if forming part of retirement benefits) [section 10(10)(ii) of Income Tax Act] Any other gratuity is also exempt to same extent [section 10(10(iii)]of Income Tax Act] LTA/LTC - Leave Travel Assistance/Leave Travel Concession is allowed twice in a block of four years. It is limited to amount actually spent on travelling of employee and his family members. It is limited to economy class of air fare or AC first class fare [section 10(5) of Income Tax Act and rule 2B]
The allowance is exempt subject to amount of expenses actually incurred by the employee for such travel. The employee will have to keep account of actual expenses incurred. It appears that actual travel by air or AC is not required, but the overall
Medical treatment - Reimbursement of amount actually spent for medical treatment upto Rs 15,000 is exempt in a financial year. In addition, reimbursement of insurance premium for self, spouse, children and dependent brothers, sisters and parents is exempt.
In case of treatment in Government or approved hospital, or expenditure on medical treatment outside India, reimbursement of medical expenses is exempt without any ceiling
VRS (Voluntary Retirement) - It is exempt upto Rs five lakhs if VRS is as per prescribed conditions. Leave encashment - Encashment of earned leave on retirement of employees of Central/State Govt is fully exempt [section 10(10AA)(i) of Income Tax Act] . Leave encashment while in service is treated as part of salary. In other cases, leave encashment of earned leave on retirement will be lowest of 10 months salary, Rs three lakhs or actual sum received [section 10(10AA)(ii) of Income Tax Act]
RENUMERATION FOR CO-OPERATIVE TECHNICAL ASSISTANCE PROVIDED AS PER AGREEMENT BETWEEN GOVERNMENT OF INDIA & FOREIGN GOVERNMENT [SEC 10(8)] COMMITED PENSION [SEC10(10A)]-COMMITED PENSION IS THE DISCOUNTED AMOUNT RECEIVED IN ADVANCE,INSTEAD OF MONTHLY PENSION.THIS EXEMPTION IS AVAILABLE TO CENTRAL/STATE GOVERNMENT EMPLOYEES,DEFENCE PERSONNEL, & EMPLOYEES OF LOCAL AUTHORITY.
INCASE OTHER EMPLOYEES (PRIVATE SECTOR) YHE MAXIMUM LIMIT IS 1/3RD OF TOTAL PENSION,AS MAY BE APPLICABLE.
STANDARD DEDUCTION
For A.Y. 1998-99, Standard deduction of a sum equal to 331/3% of the salary or Rs.20,000 whichever is less, was allowed to an individual having income from salary. Then w.e.f. 1-4-99 this limit of Standard deduction for assessees having salary income upto Rs. 1,00,000 was increased from Rs.20,000 to Rs.25,000, However, the benefit of standard deduction to assessees having salary income of more than Rs. 5,00,000 was withdrawn. This implies that an assessee earning salary income between Rs. 1 lac and Rs.5 lacs will only be entitled to a Standard deduction of a sum equal to 33-1/3% of the salary or Rs.20,000 whichever is less. IS STANDARD PENSIONERS? Yes. The pensioners. DEDUCTION TAX DEDUCTION ALLOWABLE TO
standard
deduction
is
also
allowable
to
FOR
PROFESSIONAL
OR
EMPLOYMENT
Professional tax or employment tax, levied by a State Government is eligible as a deduction. The amount so paid can be deducted from the taxable salary.
ENTERTAINMENT ALLOWANCE
Upto A.Y. 2001-02 Entertainment allowance is first , included in the employee's salary and then exemption is allowed as given here-in-below:(a) In the case of Government employee the least of (i) Rs.5000 or, (ii) 20% of salary (exclusive of any other allowance), is allowable as a deduction. (b) In the case of non-Government employees least of the following : (i) Entertainment allowance regularly received present employer from a date prior to 1.4.1955 or, from his
(ii) A sum equal to 1/5th of salary (exclusive of any other allowance, benefit or perquisite) or, (iii) Rs.7,500, is allowed as a deduction. HAS THERE BEEN A CHANGE IN ALLOWABILITY OF ENTERTAINMENT ALLOWANCE? Yes. With effect from 1 st April, 2002, i.e. in relation to the assessment year 2002-2003 and subsequent years, this provision relating to deduction of entertainment allowance
stands omitted in the case of employees in continuous employment since the 1 st April, 1955 under section 16.
FORMAT OF INCOME FROM SALARY NAME OF ASSEESSEE PANSMENT YRASSESMENT YEAR-2009-10 PREVIOUS YEAR-31-3-
COMPUTATION OF INCOME FROM SALARIES NAME AND ADDRESS OF THE EMPLOYER SALARYBASIC SALARY/WAGES ARREARS OF SALARY ADVANCE SALARY BONUS LEAVE SALARY COMMISSION PENSION GRATUITY(TOTAL EXTWNT NOT EXEMPT U/S 10) COMMITED VALUE OF PENSION(TO EXTENT NOT EXEMPT U/S 10) ALLOWANCES(TO EXTENT EXEMPT U/S 10) ENTERTAINMENT ALLOWANCES DEARNESS ALLOWANCE RS RS
CITY COMPENSATORY ALLOWANCE HOUSE RENT ALLOWANCE OTHER ALLOWANCE(TO SPENT) PERQUISITES(TO TAXABLE) EXTENT NOT
THE
EXTENT
we didnt warn you.for simplification purposes, we have used round numbers for the table.
Item Basic Salary, Pension, Annuity, Bonus, Dearness Allowance, Commission, Advance Salary, Arrears of Salary Add Add Gratuity Leave Encashment, Commuted Pension, Perquisites and Profits in addition to or in lieu of Salary
100,000
10,000 5,000
Employers contribution to Add recognized Provident Fund in excess of 12% of salary Gross Salary Less Deduction for Entertainment Allowance Salary Income
Please recognize that not all these line items might be applicable to you, the above is just an illustrative example to demonstrate how one can calculate ones Salary Income. EXAMPLE:MS Urmilla is employed with DREAM WORK LTD as a secretary since 1st april 2006 during the year ended 31st march 2009, she received the following Basic salary RS 15,000 per month House rent allowance RS 2,500 per month Amount received for meeting conveyance expenses RS 500 per month .She has spend RS 7000 in the year for commuting on business work Reimbursement of medical bill RS 2,800 Perquisite in respect of concessional lunch during office hours RS 4,500 COMPUTE THE INCOME CHARGEABLE TO TAX OF MS URMILLA FOR THE AY 2009-10 SOLUTION: MS URMILLA PAN: 2009-10 ASST YRPRV YR-31-3-
COMPUTATION OF INCOME FROM SALARY RS SALARIES SALARIES (15,000X 12) HOUSE RENT (2,500X12) MAKE UP ALLOWANCE (1,000X12) RS 1,80,000 30,000 12,000 42,000
RECEIVED FOR MEETING CONVEYANCE CONVEYANCE ALLOWANCE 6,000 (1,500X12) LESS: EXEMPT U/S 7,000 10 (14) GROSS SALARY LESS: DEDUCT U/S 10 (14) TO EXTENT SPENT INCOME FROM SALARIES
2,22,000 -
2,22,000
NOTE-LUNCH RS 4,500, SINCE THIS ALLOWANCE IS PAID DURING OFFICE .THUS HOURS THIS WILL NOT BE TREATED AS SALARY