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INCOME FROM SALARY

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

Taxable salary Computation of total taxable income


Income from salary Income from House property Profits and gain of Business or profession Capital Gain Income from other Sources

Amount Amount Amount Amount Amount Amount Amount

Gross Total Income


Less Deduction from Section 80C to 80U

Total Taxable Income

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

EXEMPT TO THE EXTENT OF OFFICIAL USE


Traveling allowance

EXEMPT TO THE EXTENT OF LIMIT


Children education allowance (Rs 100 p.m. up to max two child) Children hostel allowance (Rs 300 p.m. up to max two child) Tribal area allowance (Rs 200 p.m.) Transport allowance to employee of transport company (Rs. 800 p.m.) House rent allowance Exempt least of three a) Actual amount b) Excess of rent paid over 10% of salary c) 40%/50%(MDKC) of salary Salary means basic +DA(to the extent enters in computation of retirement benefit)+ commission on turnover

City compensatory allowance Medical allowance Lunch or Tiffin allowance Overtime allowance

Daily allowance

Conveyance allowance Helper allowance Academic allowance

Servant allowance Warden allowance Non- practicing allowance Family 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

B) TAX FREE PERQUISITES

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

not taxable. These should not be restricted to only a few employees.

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

perquisites provided to employee.

VALUATION OF MOTOR CAR


I: OWNED OR HIRED BY EMPLOYER
Running and maintenance expenses paid by Employer No value Actual running and maintenance expenses (including those paid to driver) + 10% on cost of car (1800 p.m. upto 1.6 litres 2400 p.m. exceeding 1.6 litres + 900 p.m. for driver) Running and maintenance expenses paid by Employee No value 10% on cost of car

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)

II : OWNED OR HIRED BY EMPLOYEE


Running and maintenance expenses paid by Employer No value Actual running and maintenance expenses (including those paid to driver) Actual Expenditure MINUS (1800 p.m. upto 1.6 litres 2400 p.m. exceeding 1.6 litres + 900 p.m. for driver) In all cases amount recovered from employee shall be deducted Running and maintenance expenses paid by Employee No value No question of perquisites

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.

VALUATION OF FACILITY OF SWEEPER, GARDENER, WATCH MAN


The value of services of a sweeper, a gardener, a watchman or a personal attendant by the employer, shall be the actual cost to the employer.

VALUATION OF FACILITY OF GAS, ELECTRICITY OR WATER


IF IT HAS BEEN MANUFACTURED BY EMPLOYER Its value shall be the manufacturing cost per unit IF IT HAS BEEN HIRED BY EMPLOYER Its value shall be the amount paid on that account by the employer.

VALUATION OF FREE OR CONCESSIONAL EDUCATIONAL FACILITY


IF IT HAS BEEN PROVIDED IN SCHOOL MAINTAINED BY EMPLOYER Its value shall be cost of such education in a similar institution in or near the locality. IF IT HAS BEEN PROVIDED IN OTHER SCHOOL NOT MAINTAINED BY EMPLOYER Its value shall be the amount of expenditure incurred by the employer or

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.

VALUATION OF FACILITY OF PRIVATE JOURNEY TO EMPLOYEE OR ANY MEMBER OF HIS FAMILY


It shall be actual expenditure incurred

VALUATION OF ACCOMMODATION PROVIDED FREE OR CONCESSIONAL RATE A) Value of unfurnished accommodation


Union or State Government Employees - The value of perquisite is the license fee as
determined by the Govt. as reduced by the rent actually paid by the employee.

Non Government Employees


I. IF ACCOMMODATION OWNED BY THE EMPLOYER Exceeding 25 Lakhs 15% of salary More than 10 lakhs but less than 25 lakhs 10% of salary Less than 10 lakhs 7.5% of salary

POPULATION OF CITY TAXABLE PERQUISITE II.

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.

VALUE OF FURNITURE FOR BOTH ABOVE CASES


i) ii) Where furniture owned by employer -: 10% of cost of furniture Where furniture hired by employer -: actual hire charges of furniture

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.

ACCOMMODATION PROVIDED IN HOTEL


24% of salary or the actual charges of hotel, whichever is lower. The above would be reduced by any rent actually paid by the employee. It may be noted that no perquisite would arise, if the employee is provided such accommodation on transfer from one place to another for a period of 15 days or less.

Salary for accommodation means Basic +DA (If it enters in computation of retirement benefit) +allowances + Bonus + Commission

VALUATION OF FRINGE BENEFITS

Facility
Interest free or

How much taxable


-: sum equal to interest computed at the rate charged by SBI on first day of relevant previous year -: interest to be computed on the outstanding balance on last day of each month

When not taxable


-: does not exceed Rs 20,000 or -:it is in respect of for

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

Value of any gift, voucher or token to any employee his or family

-: 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.

Value of gift in kind below Rs 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

computers by employee or his family members

Specified security or sweat equity shares

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

VALUATION OF MEDICAL FACILITIES


I. TAX FREE PERQUISITES I. HOSPITAL OWNED BY EMPLOYER Value of any medical facility provided to employee in any hospital maintained by employer II. SUM PAID OR REIMBURSED Medical treatment in any clinic, nursing home, hospital up to Rs 15,000 to employee or any of his family member Family member means spouse, any child, and dependent brother, sister and parent. Child may be dependent, independent, married, or unmarried. Any amount of expenditure in Government hospital or approved hospital by Government for its employees Any amount of expenditure on specified diseases in any Hospital approved by chief commissioner of income tax Any premium paid or reimbursed by employer on a scheme approved by central government or IRDA II. MEDICAL TREATMENT OUT SIDE INDIA TAX FREE PERQUISITES Expenses on medical treatment of employee or any of his family member to the extent permitted by RBI Expenses on stay abroad of the employee or any of his family members with one attendant to the extent permitted by RBI. TAXABLE PERQUISITE Expenses on medical treatment of employee in excess of the limit permitted by RBI Expenses on stay abroad of the employee or any of his family members with one attendant in excess of the limit permitted by RBI. Medical treatment of any other person who do not fall in definition of family of employee. Medical treatment in any clinic, nursing home, hospital exceeding Rs 15,000 to employee or any of his family member (taxable value = expenditure reimbursed minus Rs15, 000.) MEDICAL TREATMENT IN INDIA TAXABLE PERQUISITE

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

TREATMENT OF LEAVE TRAVEL CONCESSION


The exemption is available if employee or any of his family members actually performs journey to any place in India during leave or after retirement It will be allowed to the extent of economy fare where journey performed by air and where journey performed by any other mode then first class air-conditioned fare. However exemption shall be limited to shortest distance only connecting to the destination This exemption can be claimed for any two journey for a block of 4 years (2002-2005), (2006-2009), (2010 -2013) Maximum one journey can be carried forward upto first calendar year (1ST Jan to 31st December) of next block Exemption is available for two children only after 1-10-1998. However, this limit will not apply for children born before 1-10-1998 or multiple births after 1-10-1998. Family means spouse, any child, and dependent brother, sister and parent. Child may be dependent, independent, married or unmarried.(same as medical treatment)

PROFIT IN LIEU OF SALARY [section 17(3)]


Following amount received by employee from his employer will be taxable as profit in lieu of salary 1) 2) TERMINAL COMPENSATION -: Compensation received for termination of his employment or modifying the terms of employment PAYMENT FROM UNRECOGNISED PROVIDEND FUND Employers contribution and interest thereon :- shall be taxable as profit in lieu of salary Interest on employees contribution shall be taxable as income from other sources.

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

TREATMENT OF RETIREMENT BENEFITS


Gratuity received by employee after his retirement shall be taxable under the head salary

Gratuity received by legal heirs of income from other sources

employee after his death shall be taxable under the head

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

Fully taxable in the hands of all employees, whether Government or NonGovernment

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

Received after retirement


Government exempt employees-: fully

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

The employee can claim relief under section 89

TREATMENT OF PROVIDEND FUND


NATURE Employers contribution RPF
Exempt up to 12% of salary. The excess is taxable basis on yearly

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

Interest excess taxable basis

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

Not applicable as employer does not contribute

Fully exempt

yearly

Employees contribution

Deduction section available 80C

under is

No Deduction under section available 80C is

Deduction under section 80C is available

Deduction under section 80C is available

Accumulated sum received

Fully exempt provided employee rendered has continuous

Already written above

Fully exempt

Fully exempt

service at least for 5 years except in case of abnormal beyond like his illness situation control or of

discontinuance employers etc

business

Deductions under section 16


16(i) : standard deduction = nil 16(ii): deduction for entertainment allowance-: allowed only to government employees deduction shall be least of three alternatives: a) actual entertainment allowance received b) 20% of basic salary c) Rs. 5000 16(iii): deduction for professional tax paid Where paid by employer: first add in salary and then give deduction Where paid by employee: directly gives deduction.