INCOME UNDER THE HEAD SALARIES

Meaning of Salary
Relationship between payer and payee No conceptual difference between salary and wages Salary from more than one source Salary from former, present or prospective employer Salary income must be real foregoing of salary is an application of income Surrender of salary benefit available to all Salary paid tax-free Voluntary payments gratuitous v/s contractual

Salary under Section 17(1)

Wages Any annuity or pension Any gratuity Any fees, commission, perquisites or profits Any advance of salary Any payment received by an employee in respect of any period of leave not availed Portion of annual accretion in any previous year to balance at credit of an employee participating in recognised provident fund to the extent taxable Contribution by CG under a pension scheme

Basis of charge of Salary income

taxable on due or receipt basis, whichever is earlier accounting method of the employee not relevant place of accrual of salary income [ Section 9(1)] accrued in India even if it is payable outside India or payable after contract of employment in India comes to an end pension paid in respect of services in India is deemed to accrue or arise in India leave salary paid abroad in respect of leave in India is also deemed to accrue or arise in India

Different forms of Salary

Advance salary: taxable on receipt basis Arrear salary: taxable on receipt basis if not taxed earlier on due basis Leave salary: Fully exempt for Govt. employees, while fully or partly exempt from tax for Non-Govt. employees Period of earned leave to credit* avg. monthly pay 10 * avg. monthly pay Amount specified by the Govt. now Rs. 3,00,000 leave encashment actually received on retirement

Different forms of Salary

salary in lieu of notice period: taxable on receipt basis salary to a partner: it is appropriation of profit fees and commission bonus: taxable as receipt if not as due earlier Gratuity [ Section 10(10)]: 15 days salary ( 7 days in seasonal works ) Rs. 3,50,000 gratuity actually received salary includes basic+dearness allowance only

Different forms of Salary

Pension: uncommuted pension is a periodical payment taxable for Govt. and Non-Govt. employees commuted pension is a lump sum payment in lieu of periodical payment One-third of the commuted pension is exempt from tax when gratuity is received; otherwise onehalf of commuted pension is exempt from tax pension scheme in case of an employee joining Central Government on or after Jan. 1, 2004

Different forms of Salary

Annuity [ Section 17(1)(ii)]: annuity payable is taxable even if voluntarily paid annuity from an ex-employer is taxed as profit in lieu of salary annual accretion to credit balance in provident fund amount transferred from unrecognised provident fund to recognised provident fund remuneration for extra duties:

Different forms of Salary

retrenchment compensation [ Section 10(10B)]: amount calculated in accordance with Industrial Disputes Act, 1947 i.e. 15 days average pay amount as notified by the Govt. Rs. 5,00,000 amount received profits in lieu of salary [ Section 17(3)]: voluntary payments to employees salary received from UNO compensation received at time of voluntary retirement [ Section 10(10C)]:

Allowances- how taxed ?

City compensatory allowance house rent allowance [ Section 10(13A) & rule 2A ]: salary includes dearness allowance, commission based on fixed percentage of turnover salary is determined on due basis amount equal to 50% or 40% of salary house rent allowance received excess of rent paid over 10% of salary exemption not available in case of own house or no rent paid or rent not exceeding 10% of salary

Allowances- how taxed ?

entertainment allowance [ Section 16(ii) ]: Rs. 5,000 20% of basic salary amount of allowance granted during the year here, salary excludes any allowance, benefit or perquisites For Non-Govt. employee, it is not deductible allowance to Govt. employees outside India: wholly exempt from tax tiffin allowance

Allowances- how taxed ?

special allowances under section 10(14): amount of the allowance amount utilised for the specific purpose travelling/ transfer allowance, daily allowance, helper allowance, research allowance etc. hill area, border area, tribal area allowances fixed medical allowance servant allowance allowance to high court and supreme court judges allowance received from UNO

Perquisite when taxable

It is an casual emolument or benefit attached to an office or position in addition to salary or wages they are included in salary income only if they are received by an employee from his employer in case of perquisites being received from a person other than an employer, they are taxable under profits and gains of business & profession or income from other sources perquisite needs to have a legal origin, any unauthorised advantage by an employee is not taken as perquisite taxable under the act

Perquisite when taxable

Perquisites can be defined by following items: value of any rent-free accommodation value of any concession in the matter of rent value of any benefit or amenity granted or provided free of cost or at concessional rate any sum paid by the employer for an obligation which would have to be paid by the employee any sum payable by employer through a fund not being recognised provident fund or approved superannuation fund or effect contract for an annuity

Perquisite when taxable

Following perquisites are taxable in all cases: rent-free accommodation accommodation at concessional rent employees obligation met by employer amount payable by employer to effect an assurance on life of employee Some perquisites are taxable in the case of specified employees Valuation of rent-free unfurnished accommodation: according to licence fee prescribed by Govt.

Perquisite when taxable

Valuation of rent-free furnished accommodation: find for unfurnished accommodation then add value of furniture, which will be either 10% per annum of original cost of furniture or actual hire charges payable Valuation of accommodation at concessional rent: find the value of perquisite on assumption of no rent charged by the employer further deduct rent charged by employer If balance amount is positive, it is taxable

Perquisite when taxable

Valuation of perquisite in respect of motorcar: depends on the cubic capacity of the engine and whether driver is provided also its use has to be seen in terms of official only or private or official and private purposes rules change according to the ownership of car and how various expenses are met Valuation or perquisite for gas, electricity or water supply: depends on whether purchased from outside or supplied out of own sources by the employer

Perquisite when taxable

Valuation of perquisite for free education: fixed education and hostel expenditure allowance for maximum 2 children Valuation of perquisite in respect of free transport Valuation in respect of free domestic servants Valuation in respect of interest-free loan or loan at concessional rate when the loan id given for medical treatment and does not exceed Rs. 20,000, it is not taxable Interest rates charged by SBI are taken for valuation

Perquisite when taxable

Valuation in respect of lunch/refreshment Valuation in respect of travelling, tourist accommodation Valuation in respect of gift, voucher or token Valuation in respect of credit card Valuation in respect of club expenditure Valuation in respect of use of movable assets Valuation in respect of movable assets sold by an employer to its employees at a nominal price Valuation in respect of leave travel concession

Perquisite when taxable

Valuation of leave travel concession to a foreign citizen Valuation of medical facilities Issue of right shares to an employee-shareholder Allotment of shares/securities under stock option or sweat equity plan Valuation of other perquisites Permissible deductions from salary income: entertainment allowance deduction professional tax

Perquisite when taxable

Tax treatment of provident fund: employees provident fund may be statutory or unrecognised or recognised provident fund Tax treatment of approved superannuation fund: it means a fund that has been and continues to be approved by Commissioner with rules in part B of the fourth schedule

Is salaried employee entitled to relief w.r.t salary in arrears, advance etc.

Computation of relief in respect of compensation on termination of employment Computation of relief in respect of payment in commutation of pension Computation of relief in respect of other payments Procedure for claiming the tax relief Computation of relief in respect of arrears or advance Computation of relief in respect of gratuity