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1) Relation between employer and employee is necessary to tax any income under salary head. For example exam fee received by a lecturer from university will be taxable under head income from other sources 2) Surrender of salary to Government is exempt from tax 3) Salary foregone is taxable in the hands of employee 4) Salary is deemed to accrue or arise at a place where service is rendered. The only exception is individual who is citizen of India and sent to abroad for Government services 5) Any tax paid by employer on salary of employee shall be taxable in the hands of employee. The only exception is tax paid by employer on non-monetary perquisite 6) Salary is taxed on due or received whichever is earlier basis. Thus, advance salary will be taxable in the year of receipt. Further, arrears of salary and Bonus shall be taxed in the year of receipt
FORMAT
Basic salary Dearness allowance Other allowances less exempt Bonus Commission Employers contribution to RPF in excess of 12% of salary Interest on RPF in excess of 9.5% p.a. Pension Gratuity Leave salary Perquisites from section 17(2)(i) to 17(2)(viii) Total Less deduction under section 16(ii) & 16(iii) Amount Amount Amount Amount Amount Amount Amount Amount Amount Amount Amount (Amount) Amount
Amount
ALLOWANCES
FULLY TAXABLE
Dearness allowance
FULLY EXEMPT
Allowances to citizen of India who is rendering services abroad on India Government service Allowances to judge of High court and Supreme court Allowances to employee of UNO from his employer
City compensatory allowance Medical allowance Lunch or Tiffin allowance Overtime allowance
Daily allowance
Uniform allowance
PERQUISITES
Perquisites means additional benefit provided by the employer to employees Following is the list of taxable perquisite
A) TAXABLE PERQUISITES
Accommodation provided to employees Furnished or unfurnished Car provided to employees with or without driver Provision of Gas, Electricity and Water
Facility of sweeper, gardener or watch man Private journey to employee or any member of his family
Free Educational facility to children or his other family member Accommodation provided to employees Interest free or concessional loan Value of traveling for any holiday Value of free food during working hours
Value of any gift, voucher or token to employee or any his family member. Expenses on credit card Club membership fee and expenses Use of movable assets, other than laptops and computers Transfer of movable assets Specified security or sweat equity shares
Medical facility: Any medical facility provided by the employer to the employee and his family members in a hospital, dispensary or a nursing home maintained by the employer. Medical reimbursement: Any medical expenses reimbursed by the employer for the treatment of his employee and his family members in an approved Hospital subject to maximum of Rs.15,000 per annum Refreshments: Any refreshment like tea, snacks, provided to the employees during office hours at the place of work. Use of Health club: provided uniformly available to all employees Subsidized lunch or dinner provided by the employer: When lunch or dinner is provided at subsidized rates during official hours provided value of such meal is up to Rs 50 per meal Recreational facilities: Any recreational facility provided to a group of employees by the employer is
Telephone Bills: Telephone bills of the telephone installed at the residence of the employee for offiicial purposes , if paid/reimbursed by the employer, is not a taxable perquisite even if such telephone is used for official as well as personal benefit of the employee. Goods sold by the employer at a concessional rate to his employees: When the employer sells the goods being manufactured by him to his employees at concessional rates, it is not a taxable perquisite e.g. a company, manufacturing fans, sells the fans to its employees at concessional rates, the concession given to the employees shall not be taxable. However, if the employer sells other goods to the employees at a value lower than the market value of the goods, the benefit given to the employee is taxable. Educational facility: Educational facility in an educational institution owned by employer or any other educational institution, provided value of such benefit does not exceed Rs 1,000 per child per month for any number of children Loans to employees: If the employer gives a loan to an employee either without interest or at a concessional rate up to Rs 20,000 or for medical treatment of specified diseases Transportation facilities: If an employer, engaged in the business of transport, provides transport facilities to its employees and his family members either free of cost or at concessional rate then it would not be a taxable perquisite. For example, free passes provided by the Indian Railways to its employees are not taxable in the hands of the employees. Perquisites provided outside India: Perquisites provided by the Government to its employees, who are citizen of India for rendering services outside India, are not taxable. Training of employees OR Refresher course: Any expenditure incurred by the employer, for providing training to the employees or by way of payment of fees of refresher management courses attended by the employee.
Vehicle provided for commuting from residence to office: any vehicle provided for commuting from residence to office and back is fully tax-free perquisite. Rent-free House: Rent free official residence and conveyance facilities provided to a Judge of a High Court/Supreme Court is not a taxable perquisite.
Residence to officials of Parliament etc.: Rent free furnished residence (including maintenance thereof) provided to an officer of the Parliament, a Union Minister or Leader of Opposition in Parliament, is not a taxable perquisite. Employers contribution: Employers contribution to pension, deferred annuity scheme and staff group insurance scheme of employees, is not a taxable perquisite in the hands of employees provided it does not exceed Rs 1 lakh per employee per year Use of laptops and computers: Use of laptops and computers by employee or any of his family member Tax paid by employer on non-monetary perquisites. Any tax paid by employer on non-monetary
Motor car used solely for official purposes Motor car used solely for private purposes
Motor car used partly for official and partly for private purposes (whether proportion determinable or not)
(600 p.m. upto 1.6 litres 900 p.m. exceeding 1.6 litres + 900 p.m. for driver)
Motor car used solely for official purposes Motor car used solely for private purposes
Motor car used partly for official and partly for private purposes (whether proportion determinable or not)
No question of perquisites
Where more than one car is being provided for use for employee or member of his family then valuation will be as under
Only one car will be valued as partly used for official purpose and partly for private purpose. All other cars will be valued as fully used for private purpose.
NOTES:
a) b) Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered: Provided that where free educational facilities are provided to the children of the employee, nothing shall be taxable the value of such benefit per child does not exceed Rs. 1,000 p.m.
IF ACCOMMODATION HIRED BY THE EMPLOYER Value of the perquisite would be the actual amount of lease rent paid/payable by the employer or 15% of the salary, whichever is lower.
In both of above cases, the value of the perquisite would be reduced by the rent, if any, actually paid by / recovered from the employee.
Salary for accommodation means Basic +DA (If it enters in computation of retirement benefit) +allowances + Bonus + Commission
Facility
Interest free or
concessional loan
medical
treatment
specified diseases Value of traveling for any holiday -: if facility maintained by employer, then value at which such facilities are offered by outside agencies -: in other cases expenses actually incurred -: for official tour, or -: if facility maintained by employer available to all employees Value of free food during hours working Actual value minus Rs 50 per meal -: in remote area , or -: value is up to Rs 50 per meal
-: Actual value of gift in kind minus Rs 5,000 -: if gift given by way of cash or cheque, then entire amount is taxable even if it is less than 5,000.
member. Expenses credit card Club membership fee and expenses use of movable assets, computers Transfer movable assets of For computers and other electronic items -: Actual cost to employer minus 50% depreciation for each completed year during which asset was put to use by employer on reducing balance method For motor car-: Actual cost to employer minus 20% depreciation for each completed year during which asset was put to use by employer on reducing balance method For other assets-: Actual cost to employer minus 10% depreciation for each completed year during which asset was put to use by employer on straight line method other than laptops and Actual amount paid or reimbursed. However if employer has taken corporate membership fee then initial amount shall not be taxable 10% p.a. on cost of assets or rent paid by employer as the case may be on Actual amount paid or reimbursed Fully spent for official purposes Fully spent for official purposes Use of laptops and
Fair market value minus amount paid by employee -: the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange
Travel expenses abroad of the employee or any of his family members with one attendant if gross total income of employee before this perquisite is up to Rs 2, 00,000.
Travel expenses abroad of the employee or any of his family members with one attendant if gross total income of employee before this perquisite is exceeds Rs 2, 00,000. Any medical allowance is fully taxable irrespective of actual expenditure
3) 4) 5)
Payment received under key man insurance policy including bonus Any amount received before joining or after cessation of employment Any other sum received by employer from employee
Gratuity received Employees covered by the Employees not covered by Government payment of gratuity act by the payment of employees or 1972 gratuity act 1972 employees of local authority
Fully exempt above cases in both Exemption in both above cases shall be lower of following three: a) actual amount of gratuity received b) 15 days salary for every completed year of service or part thereof in excess of 6 months c) Rs 10,00000 -: 15 days salary shall be calculated by dividing with 26 and multiplied by 15 -: Salary means Basic + DA, and is to be computed based on last months salary Exemption in both above cases shall be lower of following three: a) actual amount of gratuity received b) half months average salary for every completed year of service c) Rs 10,00000 -: average salary to be computed based on last 10 months IMMEDIATELY PRECEDING THE MONTH OF HIS RETIREMENT OR DEATH -:Salary means Basic + DA (to the extent it is included in computation of retirement benefit) + commission based on turnover
TREATMENT OF PENSION
Monthly pension Commuted pension or lump sum pension Family pension (pension received by legal heirs) after death of employee Will be taxable under income from other sources. A deduction of 1/3rd of pension or Rs 15,000, whichever is less shall be allowed
For Government employees or employees of local authority -: fully exempt For other employees, 1/3 rd will be exempt if he receives gratuity also. However if he does not receive gratuity then will be exempt
LEAVE SALARY
Received during tenure of service
Fully taxable for types of employees all
Notes
Other employees (including employees of public sector and local authority) Exemption shall be least of following four alternatives: a) actual amount received b) 10 months average salary c) cash equivalent of unavailed leave based on maximum 30 days for each year of completed service d) Rs. 3,00,000
1) Salary means Basic + DA (to the extent it is included in computation of retirement benefit) 2) Last 10 months means 10 months completing exactly on date of retirement. For example if employee retires on 15-1-2010, then 10 months means from 164-2009 to 15-1-2010 3) Unavailed leave computed as under-: shall be
> (30 or actual days for which he is entitled to leave salary, which is less completed year of service MINUS Number of days for which leave availed > If this difference is D, then D/30 x average salary = ) cash equivalent of unavailed leave based on maximum 30 days
RETRECHMENT COMPENSATION
Any retrenchment compensation received as per industrial dispute act 1947 shall be exempt least of following thee a) b) c) actual amount received 15 days average pay for each of the completed year of service or part thereof in excess of 6 months ( computed in the same way as gratuity for covered employees) Rs 5,00,000
URPF
Taxable at the time of its actual receipt in lumpsum (and not on yearly basis) under head salary
PPF
Not applicable as employer does not contribute
SPF
Fully exempt
Interest
credited of on 9.5%
in is
Taxable at the time of its actual receipt in lumpsum (and not on yearly basis) under head salary
Fully exempt
yearly
Employees contribution
under is
Fully exempt
Fully exempt
service at least for 5 years except in case of abnormal beyond like his illness situation control or of
business