Expression Salary
Relationship between Payer and Payee: If this relationship does not exist then income generated will be taxable under other heads. No difference between salaries and wages. Salary from more than one source. Salary from former employer, present employer or prospective employers. Salary income must be real and not fictitious.
Who is employee
Who is employer
Salary
Allowance / Perks No
NRI
Any
Outside India No
No
Anywhere
Yes
Yes
Leave Salary
In case of a Central/State Government employee, any amount received as cash equivalent of leave salary in respect of period of earned leave at his credit at the time of retirement is exempted from tax. In case of leave encashment during continuity of employment it is chargeable to tax irrespective of Government or Non-Government Employees. In the case of a non Government employee leave salary is exempt from tax on the basis of the following rule:-
Gratuity in case of employee covered under payment of gratuity act, 1972 15 days salary(15/26)* X Length of service Rs. 3,50,000 Gratuity actually received
*For calculation purpose salary includes basic salary and dearness allowance
Calculation of Length of Service for employees covered under gratuity act, 1972
26 years, 5 months and 29 days 26 years and 6 months 26 years, 6 months and 1 day 26 years, 11 months and 29 days 26 years 26 years 27 years 27 years
Gratuity in case of employee not covered under payment of gratuity act, 1972 Half months average service(15/30) X Length of service Rs. 3,50,000 Gratuity actually received
*For calculation purpose salary includes basic salary and dearness allowance
Calculation of Length of Service for employees not covered under gratuity act, 1972
26 years, 5 months and 29 days 26 years and 6 months 26 years, 6 months and 1 day 26 years, 11 months and 29 days 26 years 26 years 26 years 26 years
Pension
Pension Uncommuted Pension Status of Employee Government /NonGovernment employee Government employee It is chargeable to tax Chargeable
Fully exempted
Pension
In the case of Government employees the entire amount (commuted) is exempt from tax. In the case of non-Government employees the maximum amount exempt from tax is restricted to the commuted value of 1/3rd of pension (gratuity received) In the case of non-Government employees the maximum amount exempt from tax is restricted to the commuted value of 1/2 of pension (gratuity not received)
X retires from Government employee on June 30, 2009. He gets pension of Rs. 20,000 per month up to January 31, 2010. With effect from February 1, 2010, he gets 60 percent of pension commuted for Rs. 10,71,000. He also receives gratuity. Does it make any difference if X is non government employee? Commuted Value - Government Employee Commuted Value of pension Rs.10,71,000 is not taxable. Uncommuted Value Government Employee Uncommuted Value of pension Rs. 20,000 is taxable. (20,000*12) = 2,40,000 (8000*2) = 16,000
Uncommuted Value (Non-Government Employee) 60% commuted value of pension is 10,71,000. Full value of pension is (10,71,000 / 0.6) = 17,85,000. If X receives gratuity then, Amount exempted (1/3 of commuted value of pension i.e. 1/3 x Rs.17, 85,000 = 8,92,500 Commuted pension chargeable to tax as salary (i.e. Rs. 10,71,000 Rs.8,92,500) = Rs.1,78,500
Provident Fund
Employees provident fund may be of the following types:
a. Statutory Provident Fund Government Employee b. Recognized Provident Fund NonGovernment Employee c. Unrecognized Provident Fund.
Employers Exempt from tax contribution to PF Deduction under Available 80cc Interest credited toExempted provident fund
Not Available
Exempted
Retrenchment Compensation[Sec.10(10B)] Compensation received by a workman at the time of retirement is exempted from tax.
Allowances
CCA, Tiffin Allowance, Fixed Allowance, Servant Allowance HRA Entertainment Allowance Special Allowance Foreign Allowance Any Other Cash Allowance Medical
Other Allowances
Tiffin Allowance Fixed Medical Allowance Servant Allowance Transport Allowance Washing Allowance Dating Allowance Stitching Allowance
Entertainment Allowance
1. a deduction in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less;]
Transport Allowance
It is exempted upto Rs. 800 per month (Rs.1600 per month in the case of an employee who is blind or handicapped)
Definition of Perquisites
Perquisites are benefits or amenities provided in kind by the employer free of cost or at a concessional rate.
Perquisites
Rent-free Accommodation Concession in Rent Gas, Electricity and Water Supply Free Education Free Domestic Servant Movable assets Interest-free or concessional loan
Population of city as Where the accomdn. per 2001 census Is owned by the where employer accommodation is provided Exceeding 25 lakh 15% salary
10% salary
Same as above
Any other
7.5% salary
Same as above
Exception
Condition 1: Not chargeable to tax if provided in a remote area Condition 2: Hotel Accommodation for 15 days (in aggregate in a previous year) can be provided immediately after transfer at the new location. Condition 3: If it is provided to a High Court Judge, Supreme Court Judge, Union Minister, Leader of Opposition in Parliament and an Official in Parliament.
Amount spent for providing free education facilities to, and training of the employee, is not taxable. Fixed Education Allowance given in cash by the employer to meet the cost of education of the family members of the employee is exempt from tax to the extent of Rs. 100 per month per child (up to maximum of two children). Moreover, any allowance granted to an employee to meet hostel expenditure of his child is exempt from tax to the extent of Rs. 300 per month per child for a maximum of two children. School fees of the family members of the employees, paid by the employer directly to the school, is taxable as a perquisite in all cases. Reimbursement of expenditure incurred for the education of the family members of the employee is taxable as perquisite in all cases.
Different Situation a. Where education facility is provided to the employees children: 2. Where cost of education does not exceed Rs.1000/3. It exceed Rs.1000/b. Where educational facility is provided to member of family.
---Nil--Amount excess than Rs.1000/Actual cost of education in vicinity institution minus amount recovered from employee
Step 1- Find out Amount payable cost to the by the employer employer Step 2 Amount Recovered from recovered from an employee employee
Valuation of perquisite in respect of interest free loan or loan at concessional rate of interest
Step 1: Find out the maximum outstanding monthly balance Step 2: Find out rate of interest charged by the State Bank Of India. Step 3: Calculate interest for each month of the previous year on the outstanding amount mentioned in Step 1 at the rate of interest given in Step 2. Step 4: From the total interest calculated for the entire previous year under Step 3, deduct interest actually recovered, if any, from the employee during the previous year. Step 5: The balancing amount is taxable value of the perquisite.
Step 2: Less: Nil Amt. recovered from employee Taxable value Nil of perquisite
Balancing Amount
Balancing Amount
*All the above perqs are taxable to employer as fringe benefit tax.
Other Valuations
Valuation of perquisite in respect of free transport. Valuation of perquisite in respect of travelling, touring, accomodation.
Valuation of the perquisite in respect of movable assets sold by an employer to employees at a nominal price
Motor cars
Step1: Find out Actual cost to the Actual cost to the Actual cost to the cost of the asset employer employer employer to employer Step2: Less: 50% for each Normal wear and completed year tear for completed years Step3: Less: Amt. Consideration recovered from recovered from employee the employee Step4: Taxable Balancing value of the perq Amount 20% for each completed year 10% for each completed year
c. If the car is used partly for official and partly for private purposes of the employee or any member of the household. A sum calculated at the rate of Rs.1200 per month where the cubic capacity of the engine does not exceed 1.6litres(1600cc) and Rs.1600 if it exceeds 1.6litres and Rs.600 if chauffeur is provided Note: In this case nothing is deductible in respect of any amount recovered from the employee.
c. If the car is used partly for official and partly for private purposes of the employee or any member of the household. A sum calculated at the rate of Rs.1200 per month where the cubic capacity of the engine does not exceed 1.6litres(1600cc) and Rs.1600 if it exceeds 1.6litres and Rs.600 if chauffeur is provided Note: In this case nothing is deductible in respect of any amount recovered from the employee.