SALARY INCOME (Sec15,16 & 17)

What is salary?

Salaries mean and include remuneration in any form due for personal service as per the contract of employment or service.
Essential Element for Taxability of Income as Salaries is Employer Employee Relationship

Basis of Charge (Section 15)

Any salary due whether it is paid or not Any salaries paid or allowed whether it is due or not Arrears of salary paid to employee is chargeable to tax.

Salary means- Section 17 (i) Wages Annuity or Pension Gratuity Fees, Commission Perquisite or Profit in lieu of salary Advance salary Leave salary Employers contribution to RPF in excess of Limits Transfer Balance of RPF to the extent it is taxable Contribution made by Central Government to Pension scheme of New Government Employees.

House Rent Allowance (Section 10 (13A)

The least of the following is exempt from tax: 1.50% of Salary where the assessee lives in Mumbai, Delhi ,Chennai & Calcutta and 40% in other cases 2.Actual HRA received 3.Excess of rent paid over 10% of Salary. (Salary for HRA means basic salary , commission if based on fixed percentage of sale & DA ,if it is part of retirement benefits)

ALLOWANCES

Allowances Fully taxable in all cases: City Compensatory Allowance Fixed Medical Allowance Tiffin/Lunch/Dinner/Refreshment Allowance Servant Allowance Dearness Allowance Project Allowance Overtime Allowance Interim Allowance Any Other Cash Allowance

Allowances Not Charged to Tax

Allowance to Government Employees outside India : is exempt u/s 10 (7) Allowance to High Court or Supreme Court Judges u/s is also exempt Allowance paid by United Nations OrganizationExempt by virtue of Section 2 of United Nations (Privileges and Immunities) Act, 1974 Compensatory allowance under Article 222(e) of the Constitution of India received by a Judge- Exempt from tax.

Special Allowances 10(14)

Following allowances are not taxable to the extent they are utilized for the purpose specified

Transfer Allowance granted to meet the cost of travel on tour or on transfer including any sum paid for transfer, packing and transportation of personal effects on such transfer Tour/ Travelling Allowance whether granted on tour of for the period of journey to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty; Conveyance Allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit, Helper Allowance granted to meet the expenditure incurred on a helper where such helper is engaged for performance of the duties of an office or employment of profit Research Allowance granted for encouraging the academic, research and training pursuits in educational and research institutions; Uniform Allowance granted to meet the expenditure on the purchase or maintenance of uniform for wear during the performance of duties of an office or employment of profit

Special Allowances [10(14)]

Children education allowance @ Rs. 100 p.m. per child, maximum of 2 children. Children hostel allowance @ Rs. 300 p.m. per child maximum of 2 children Transport Allowance granted to an employee (other than in 10 below) to meet his expenditure for the purpose of Commuting between the place of his residence and the place of his duty @ Rs. 800 p.m. Transport Allowance granted to an employee who is blind or handicapped with disability of Lower extremities to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty @ Rs. 1,600 p.m.

PERQUISITES u/s 17 (2)

It means any benefit in addition to salary and wages. Any sum paid by the employer which otherwise would have been payable by the employee. Eg. Rent free house accommodation, car, amenities provided free of cost, concessional interest on housing loan, etc The benefit should be from the employer to be charged as salary It could be in cash or kind It should have a legal origin

Perquisites

i) value of rent free accommodation ii) value of any concession in the matter of rent iii) value of any benefit or amenity granted or provided free of cost or at concessional rate in respect of the specified persons iv) sum payable by the employer in respect of any obligation but for which payment would have been payable by the assessee himself. v) sum payable by the employer whether directly or through a fund to effect an assurance on the life of an assessee vi) value of any other fringe benefit or other benefit as may be prescribed ( i.e. interest free loan, Concessional loan from employer etc.)

SPECIFIED EMPLOYEE

A director is a specified employee An employee who holds 20% or more voting power (called substantial interest) Where an employee whose Taxable Monetary Salary is more than Rs.50,000 per year ( without considering non monetary benefit)

PROFIT IN LIEU OF SALARY [ U/S 17(3) ] includes

Any compensation due or received in connection with the termination of the employment of due to modification of the terms and conditions of his employment. Payments from an employer or former employer from provident fund or such other funds, excluding the amounts exempt from tax under Section 10 and excluding the amounts of contribution made by the assessee and the interest thereon Any sum received under a Keyman Insurance Policy including the sum allocated by way of Bonus on such policy. Amounts due to or received, whether in Lumpsum or otherwise by any assessee from any person.

Deductions from salary (Section 16)

(ii) Professional Tax paid in this year (iii) Entertainment allowance: available only for Government employees Least of the following is Exempt a) 1/5 of Basic Salary b) Rs 5,000 c) Amount Received as Entertainment Allowance during the year.

Leave Encashment
GOVERNMENT EMPLOYEES GETTING LEAVE ENCASHMENT AT TIME OF RETIREMENT:

Govt employee at that time is exempted from tax.

While leave encashment while in service is taxable

Leave Encashment( cont.)

NON GOVERNMENT EMPLOYEES are chargeable to tax on leave encashment while in service LEAVE ENCASHMENT AT TIME OF RETIREMENT: He is exempted on basis of least of the following: 1.period of earned leave (in no.of months) to the credit of employee at the time of his retirement or leaving the job)* average monthly salary 2.10 months *average monthly salary 3. the amt. specified by the government Rs.3,00,000 4. leave encashment actually received at the time of retirement

HOW TO FIND OUT AVERAGE MONTHLY SALARY?

Salary for this purpose means
1.basic salary and includes 2 .dearness allowances if terms of employment so provide 3.Commision if it is fixed % based on turnover

It is calculated on the basis of average salary drawn

during the period of 10 months immediately preceding the retirement.( date wise)

PENSION
1.Pension from UNO 2.Pension received by the family of armed forces 3.Family pension received by family members after the death of employee It is not chargeable to tax
Exempted

Taxable as in the hands of recipient as income from other sources

PENSION (cont.)

Pension received in any other case Tax treatment: Rules apply

PENSION (cont.)
Uncommuted Pension Commuted Pension Commuted Pension

Govt. /Non Govt Taxable Employee Govt. Employee Exempted from Tax Non-Govt. It is fully or partly Employee exempted

COMMUTED PENSION (cont.)

Central /state Govt, With or without Local authority Gratuity employee Gratuity is received Non Govt. Employee
Non Govt. Employee Gratuity is not received

Exempted Fully
1/3 of normal Exempted of normal is exempted

Pension scheme for employees joining Central Govt. or Other Employees after January 1, 2004

Contribution by Employer is added to salary Employers contribution along with the Employees contribution to Pension fund is deductible U/S 80CCD

Leave travel concession is exempted twice in a block of FOUR years. It is available to Indian citizen for proceeding on leave for himself and his family (family includes spouse, children, dependent parents ,brother and sister) Amount of exemption is the actual fare paid for travel anywhere in India by the economy class airfare of national carrier by shortest route, or first class air conditioned rail fare, or any other mode not exceeding the shortest first class rail fare. The Present Block is Jan 1,2010 Dec31,2013

Provident Fund
Statutory Recognised PF PF Employees Eligible for Contribution Deduction U/S 80C Employers Contribution Exempted upto 12% Interest Exempted as notifd Eg.9.5% Public Unrecognised PF PF No deduction U/S 80C
N.A. No tax No exemption Taxable