Professional Documents
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BASIS OF CHARGE
According to section 15, the following income shall be chargeable to tax under the head
Salaries.
Any salary due from an employer or former employer to an assessee in the previous year,
whether paid or not.
Any salary paid or allowed to him, in the previous year, by or on behalf an employer or
former employer, though not due or before it became due to him.
Any arrears of salary paid or allowed in the previous year, by or on behalf of employer or
former employer, if not charged to income-tax in any earlier previous year.
Salary income is chargeable to tax on DUE OR RECEIPT BASIS WHICHEVER IS EARLIER .
NON-TAXABLE PERQUISITES:
1.
Leave Travel Concession subject to conditions & actual spent only for travels.
2.
3.
4.
5.
6.
7.
8.
9.
TAXABLE PERQUISITES:
1. Rent Free Accommodation
2. Provision of Motor Car or any other Conveyance for personal use of Employee.
3. Provision of Free or Concessional Education Facilities.
4. Reimbursement of Medical Expenditure.
5. Expenditure on Foreign Travel and stay during medical expenditure.
6. Supply of Gas, Electricity & Water.
7. Sale of an Asset to the Employee at concessional price including sale of Share in the
Employer Company.
(i) The expenditure on medical treatment and stay abroad shall be exempt to the extent permitted
by the Reserve Bank of India.
(ii) The expenditure on travel shall be exempt in full provided the gross total income of the
employee (including this expenditure) does not exceed Rs.200000.
c. Medical Health Insurance within India
Following are exempted perquisites in respect of Medical Health Insurance
Premium paid by the employer on health insurance of the employee under an approved scheme
u/s 36(1)(ib).
Premium on insurance of health of an employee or his family members paid by employer on any
scheme approved u/s 80D (Mediclaim).
d. ESOP or Sweat Equity
Any benefit provided by a company free of cost or at a concessional rate to its employees by way
of allotment of shares, debentures or warrants directly or indirectly under any Employees Stock
Option Plan or Scheme ESOP/ESOS of the company offered to such employees in accordance
with the guidelines issued in this behalf by the Central Government. However, the difference
between the fair Market Value and the issue price will be treated, when such equity is issued at
concessional price, as the taxable perquisite value of ESOP
e. Transport
Amenity or benefit granted or provided free of cost or at concessional rate for use of any vehicle
provided by a company or an employer for journey by the assessee from his residence to his office
or other place of work, or from such office or place to his residence,
f. Refreshments
Refreshment provided by an employer to the employee during working hours in office
environment
g. Others:
a. Value of Leave Travel Concession in India.
b. Amount spent by the employer as its contribution to staff welfare schemes.
c. Laptops and computers provided for personal use.
d. Rent free official accommodation provided to a Judge of
High Court or Supreme Court or an official of Parliament including Minister and Leader of
Opposition in Parliament.
e. Recreational facilities extended not to a particular employee but to a class of employees.
f. Amount spent on training of employee or fees paid for refresher course.
g. Telephone provided to an employee at his residence.
h. Goods manufactured by the employer sold to employees at concessional rates
i. Allowances to employees of UNO
Since FBT has been discontinued, value of cars and other perquisites will be taxable in the hands
of the employees.
1948 or u/s 6C of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 to
effect an assurance on the life of the assessee or to effect a contract for an annuity;
III.
of Income Tax.
Unrecognised Provident Fund set up by others but not.
Medical treatment and stay expenses abroad (both for the patient and the attendant) is
exempt from tax, subject to the maximum amount permitted by the Reserve Bank of India.
2. Travel expenditure of the patient and the attendant:
Amount of Exemption
Fully exempted
Above Rs.200000
Fully taxable
Nature of Perquisite
(a)
owned by employer
employer
whichever is lower
Less Rent recovered from employee
Hotel Accommodation :
Accommodation provided in a hotel will not be a taxable perquisite if the following two
conditions are fulfilled:
a. The period of such accommodation does not exceed 15 days
b. Such accommodation has been provided on the transfer of the
employees from one place to another.
Value of Furnished Accommodation
Particulars
Value of unfurnished accommodation as above
`
xxx
xxx
(xxx)
xxx
Note : Furniture includes Television sets, radio, refrigerator, other household appliance,
air-conditioning plant or equipment.
Employees working at mining site, onshore oil exploration site, offshore site, project
execution site, dam site, power generation site.
2. Conditions to be fulfilled:
a) The accommodation should be of a temporary nature, and
b) Plinth area should not exceed 800 square feet
c) Accommodation should be located at least 8 kms away from local limits of
municipality/cantonment or located in a remote area.
Remote area means area located at least 40 kms away from town having a population not
exceeding 20,000 based on latest published All-India census.
Valuation of accommodation in case of Employees on transfer
1.
For the first 90 days of transfer: Where accommodation is provided both at existing
place of work and in new place, the accommodation, which has lower value, shall be
taxable.
Salary excludes
Other D.A
Employers contribution to PF
benefits)
Leave salary
As per Service rules every employee is entitled to certain no. of leaves per annum. If an
employee does not utilize all his leaves available to him per annum such unutilized either get lapsed or
get carry forward which can be enchased later. If such carry forward leaves are liquidated in cash form
during the continuity of employment or on retirement, it is known as leave salary.
The taxation of Leave salary for various categories of employees is shown here under:
Status of Employee
Nature of Leave
Encashment
Taxability
Government/ NonGovernment
employee
Government
employee
Non-Government
employee
In Simple words from the above tabloid summary we can conclude that Leave Salary is
chargeable to tax only in two cases first accumulated leave being enchased by any class of
employee- Govt. or Non Govt. during the continuation of employment whereof it is fully
chargeable to tax.
Second being accumulated leaves enchased by a non govt. employee on his/ her retirement
whereof the complicated part of calculation of exempted leave salary comes into picture which
can be calculated as LEAST of the following:
1.
Period of earned leave (in no. of months) to the credit of the employee at the
time of his retirement leaving the job Average monthly salary.
2.
3.
4.
2. PENSION
1. Taxability of Uncommuted Pension or Monthly Pension:
(a) Pension is received periodically by the retired employee
(b) It may be received by Government or non-government employees
(c) Amount received shall be fully taxable under the head salaries
2. Taxability of Commuted Pension:
(a) Pension is received in lumpsum as per the terms of the employment on
retirement or superannuation.
(b) Full Value of Commuted Pension = Amount received on commutation /
percentage of commutation.
(c) Taxability:
Recipient
Amount Taxable
Government employee(Central/
Amount Received
Amount Received
4. GRATUITY
GOVERNMENT EMPLOYEE
Fully exempted from tax u/s 10(10)(i).
Employee covered by payment of Gratuity Act,1972
Amount Received as Gratuity
xxx
xxx
xxx
c) Maximum Limit
1000000
Taxable Gratuity
xxx
xxx
xxx
xxx
service
c) Maximum Limit
1000000
Taxable Gratuity
xxx
Note: Salary =
10 months average salary preceeding the month of retirement.
= Basic Pay + Dearness Allowance considered for retirement benefits + commission (if
received as a fixed percentage on turnover)
Very Important :
1. Where an individual receives retirement gratuity from more than one employer, he can claim
exemption in respect of both of them.
2. However, the maximum amount of exemption should not exceed Rs.350000.
3. When gratuity is received from more than one employer during different periods of time, the
maximum exemption claimed by an assessee during his entire life should not exceed Rs.350000.
Salary for HRA= Basic Pay + DA (considered for retirement benefits) + Commission ( if received as a
fixed percentage on turnover as per terms of
employment)
Taxable HRA:
PARTICULARS
Rs.
Rs.
xxx
xxx
xxx
xxx
Taxable HRA
xxx
6. LEAVE ENCASHMENT
1. Leave encashment while in service is fully taxable as income of previous year in which it is
encashed.
2. Leave encashment on retirement: if an individual receives leave encashment on his retirement, then
the amount received will be eligible for exemption. The amount of exemption is based on his
employment:
a. Government employee: fully exempted from tax
b. Non-Govt. employee: An individual who is not a Government employee is also entitled for
exemption in respect of Leave Encashment compensation received by him.
Step 1 : Computation of Salary = 10 months average salary preceeding the month of retirement.
Step 2 : Salary = Basic Pay + Dearness Allowance (forming a part of salary for retirement benefits) +
Commission (if received as a fixed percentage on turnover)
Step3 : This calculation is only applicable where the employer has sanctioned leave to the employee in
excess of 30 days for every completed year of service.
PARTICULARS
Rs.
xxx
xxx
(Leave sanctioned by the employer per year 30 days per year) No. of
completed years of service)
Leave credit on the basis of 30 days credit for completed years of service
xxx
(ii) Leave salary on the basis of 30 days credit = Step (i) x Step 1
xxx
Note: In case the employer sanctioned leave of 30 days or less for completed year of service then the
salary for actual leave balance shall be considered and Step (i) shall not apply.
Rs.
Rs.
xxx
xxx
ii. Average salary of the individual for the past 10 months 10 months
iii. Maximum Limit
30000
0
iv. Leave at credit at the rate of 30 days p.a. for every Completed year
xxx
xxx
Note: (a) If the individual receives leave encashment from more than one employer, the quantum of
exemption will be computed independently in respect of each employer.
(b) The total amount of exemption should not exceed Rs.300000 during his life time.
7. RETRENCHMENT COMPENSATION
xxx
xxx
xxx
500000
Taxable Value
xxx
Computation of Exemption:
Step 1: Salary = Last drawn salary = Basic Pay + D.A.(considered for retirement benefits
Step 2: Taxable VRS compensation
Particulars
Rs.
Rs.
xxx
xxx
500000
xxx
xxx
PROVIDENT FUNDS
Particulars
Statutory
Recognized
Unrecognized
Public
Constituted
Provident
Under
Funds
Act, 1952
Provident
Fund Act,1968
Account in SBI
PF and CIT
or
Post Offices
Employer and
Employer and
All assessees
Employee
Employee
Independently
No Income Tax
Deduction u/s
Benefit
80C
Employee
Assessees
Deduction u/s
Contribution
80C
Employers
Not taxable
Contribution
Interest credited
Amount exceeding
12% of salary is
taxable
Fully
Exempted up to
On Employees
exempted
contribution
taxable under the
head Other
Withdrawal at
Exempted u/s
Exempted u/s
Employees
Exempted u/s
the time of
10(11)
10(12) Subject to
conditions
contribution and
interest thereon is
not taxable.
Employers
10(11)
retirement /
resignation /
Fully exempt
Note: Sum received by an Employee under approved Superannuation Fund is also exempt from tax
u/s 10(13).
HRA received.
Rent paid less 10% of salary.
40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi) Salary
to
any
place in India by the shortest route to that place is exempt. This is subject to a
maximum of the air economy fare or AC 1st Class fare (if journey is performed by
mode other than air) by such route, provided that the exemption shall be available only
in respect of two journeys performed in a block of 4 calendar years. Certain
allowances given by the employer to the employee are exempt u/s 10(14). All these
exempt allowance are detailed in Rule 2BB of Income-tax Rules and are briefly given
below:
For the purpose of Section 10(14)(i), following allowances are exempt, subject to
actual expenses incurred:
(i) Allowance granted to meet cost of travel on tour or on transfer.
(ii) Allowance granted on tour or journey in connection with transfer to meet the daily
charges incurred by the employee.
(iii) Allowance granted to meet conveyance expenses incurred in performance of duty,
provided no free conveyance is provided.
(iv) Allowance granted to meet expenses incurred on a helper engaged for
performance of official duty.
(v) Academic, research or training allowance granted in educational or research
institutions.
(vi) Allowance granted to meet expenditure on purchase/ maintenance of uniform for
performance of official duty.
OTHER ALLOWANCES
Allowances
Children Education Allowance
children
Running Allowance ( for transport sector
employees
one
place
to
Least of :
(a) 70% of the amount received, or
(b) Rs. 10,000 p.m.
another)
Transport allowance (given to meet the employees Rs.800 p.m. (in case of handicapped
expenditure for traveling from his residence to office or blind employees,
and back)
Allowance is a fixed monetary amount paid by the employer to the employee over and
above basic salary for meeting certain expenses, whether personal or for the
performance of his duties. As a rule, all allowances are taxable and included in gross
salary unless specific exemption is provided in respect of such allowance.
Accordingly, the allowances are of three types: categories
1. Fully taxable,
2. Partially exempt and
3. Fully exempt cash allowances.
Moreover, some allowances are unconditionally exempted but in other cases
such as HRA, exemption is subject to fulfillment of some conditions. Then In some
f. Overtime Allowance paid as extra wages paid to an employee putting in extra working
hours over and above his normal hours of duty.
g. Servant Allowance, if paid in cash even if servants may have been employed by the
employee.
h. Other Allowances by whatever name called such as family allowance, project
allowance, Marriage allowance, education allowance, and holiday allowance as these
allowances are not specifically exempt.
Entertainment Allowances
Exemption on receipt of this allowance is allowable only to Central/ State Govt.
Employees and not to Private Sector employees. Exemption being calculated as
least of the following:
Rs.5000/-
Profession Tax:
The Profession Tax, paid by an employee in a given previous year, will be deducted
from the gross salary in order to get the taxable amount of salary. Profession Tax is
levied by state government on employment.
ILLUSTRATION
Mr. Manish is the area manager of M/s. N.Steels Co. Ltd. During the financial year
2013-14, he gets the following emoluments from his employer:
Basic Salary
Up to 31-8-2013
Rs.20000 p.m
From 1-9-2013
Rs.25000 p.m
Transport Allowance
Rs.2000 p.m
Rs.300 p.m
Rs.5000 p.a
Rs.2500.
SOLUTION
COMPUTATION OF INCOME FROM SALARIES OF Mr. MANISH
PREVIOUS YEAR: 13-14
PARTICULARS
Rs.
Rs.
275000
24000
9600
12000
2400
14400
9600
3600
9120
7200
1920
5000
2500
8250
(i.e. 3% of Rs.275000)
Gross Salary
320270
2500
Taxable Salary
317770