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I NCOME FROM SALARY
SALARY - MeaningSALARY - Meaning Salary includes –1) Wages2) Pension3) Any gratuity4) Any fees, commission, perquisite or
profits in lieu of or in addition to any salary or wages
5) Any advance salary
6) Encashment of un availed leave
7) Interest earned in excess of 9.5% on Recognized Provident fund
8) Amount transferred in excess of 12% on salary to RPF
9) New Amendment-
Contribution made by Central Government or any other employer (w.e.f.AY 2008-09) in the previous year to the account of an employee under pension scheme u/s 80CCD
Chargeability of Salary – Sec. 15Chargeability of Salary – Sec. 15
1) Due or receipt whichever is earlier
2) No double taxation
3) Relief u/s 89(1)
4) Advance salary Vs Advance against salary
5) Govt. employees
Profits in lieu of Salary – Sec.17(3)Profits in lieu of Salary – Sec.17(3)
1) Compensation – Termination or modification of T & C
2) Amount due or received – Pre joining or after cessation of his employment with an employer
3) Payment received as employer’s contribution by assessee from employer or former employer or from PF or from any other fund
Features of SalaryFeatures of Salary
1) Employer – Employee relation
2) No difference between salary and wages
3) Salary from more than one employer
4) Real and fictitious salary
5) Foregone Salary
6) Surrendered salary
7) Tax free salary
8) Foreign Salary and pension
9) Payments made to legal heirs / Widow
10) Family Pension
11) Salary to partner
Format for salary calculationFormat for salary calculationSee the word document
ALLOWANCES -ALLOWANCES -Fixed amount of money given along with
salary in order to meet some particular requirement connected with the services rendered by the employee
Taxed on due or receipt basisThree types –a)Fully taxableb)Partly taxablec)Fully exempted
Partly exempted allowances Partly exempted allowances --1) Hostel Allowance –
Rs.300 per month per child upto a maximum of two children
2) Transport Allowance –Exempted upto Rs.800 per month.
3) Uniform Allowance –Allowance given to purchase or maintain
uniforms. Amount spent is exempted4) HRA
Partly Exempted Allowances -Partly Exempted Allowances -
Actual amount spent is exempted for –
5) Conveyance Allowance
6) Academic Research Allowance
7) Washing Allowance
8) Helper Allowance
9) Daily Allowance
10) Uniform Allowance
Fully Exempted -Fully Exempted -Out of pocket or out fit allowance for
NCC officersAllowances to employees of UNOForeign allowance to govt. servants for
services outside India
Special Items – Special Items – (1) Gratuity - Sec.10(10) -(1) Gratuity - Sec.10(10) -Retirement benefitTax treatment to be based on whether he
is –
1)Government employee
2)Non-government employee
a. Covered by Payment of Gratuity Act,1972
b. Not covered by Act
Tax Treatment -Tax Treatment -Government employees –
Gratuity is fully exempt in the hands of the assessee.
Non-Govt. Employees Non-Govt. Employees --
1) Covered by Act –
Least of the following is exempted –
a) Actual gratuity received
b) Rs.3,50,000
c) 15 days’ salary for every year of completed service
Remember Remember --Take days as 15/26Take 7 days in case of employees in
seasonal factoriesFraction above 6 months be taken as
-“one year”Salary = Basic + DA + % of commission
Not covered by Act –
Least of the following is exempted –
a) Actual gratuity received
b) Rs.3,50,000
c) ½ month’s Average salary for every year of completed service
Remember Remember --Average salary = Average salary of 10
months immediately preceding the month of retirement
Fraction to be ignored
(2) Pension – Sec.10(10A)(2) Pension – Sec.10(10A)Amount received by an employee after
his retirementCannot receive pension while in serviceTypes –
a) Uncommuted Pension –
Fully taxable in the hands of all employees
b) Commuted Pension b) Commuted Pension --Lump sum received at the time of
retirementOne time paymentTaxability –
a) Govt. Employees –
Fully exempt
Non – Govt. Employees –
a) Those in receipt of gratuity –
Amount taxable =
Amount received
Less: 1/3rd of full value of pension that he is entitled to receive
b) Those not in receipt of gratuity –Amount taxable =
Amount received
Less: ½ of full value of pension that he is entitled to receive
Special Item – Special Item – (3) Leave Encashment(3) Leave EncashmentEarned Leave – where employee can
convert his leave into cash provided he has not utilized the leave.
Can encash at the time of retirement or while leaving the job.
Known as Leave SalaryEncashment fully taxable if during the
service.
Calculation Calculation --For Government servants =
Fully exempted
Calculation –Calculation –Non Government Employees -Non Government Employees -Least of the following is exempted –
1)Actual leave salary received
2)10 months’ average salary
3)Rs.3,00,000
4)Salary for unutilized eligible leave
(Consider 30 days per year)
(Ignore fraction)
(4) Provident Fund-(4) Provident Fund-Employer’s contribution to RPF is taxable
beyond 12% of salaryInterest credited is taxable beyond 9.5%
p.a.Assessee’s contribution is deductible u/s
80C
Income from SalaryIncome from Salary
PERQUISITES
Perquisites – Meaning – Sec.17(2)Perquisites – Meaning – Sec.17(2)
Any amount due to or received in lump sum or otherwise by an assessee from an employer which is usually attached to a position
May be in cash or in kind (measurable in terms of money)
Personal advantage
Perquisites -Perquisites -
I) Taxable for all –
a) Rent free house
b) House at concessional rent
c) Obligation of employee paid by
employer
d) Fringe Benefits –
Free meal, gifts, credit card, club
facility, interest free/other loans
aa) Accomodation facilities –) Accomodation facilities –Rent free -UnfurnishedRent free -Unfurnished Owned by employer / Rent paid by
employer– Chargeable to tax as follows-
1. Popln > 25 lakhsLeast of 15% of salary or Rent paid
2. >10 lakhs but <25 lakhs –Least of 10% of salary or Rent paid
3. Other places – Least of 7.5% of salary or Rent paid
Rent free –Rent free –Furnished AccommodationFurnished AccommodationValue of unfurnished accommodation
Add: 10% cost of furniture or full hire charges=Value of taxable perquisite
Salary for this purpose:-Gross salary before value of perquisites,
exempted allowances and before taxable value of PF
Exempted Accommodation Exempted Accommodation In a hotel for a period of upto 15 days for
an employee on his transfer
Free accommodation facility given to SC/HC judge, parliament officials
Housing/Vehicle/Other loans -Housing/Vehicle/Other loans -Int by employer =>SBI Interest rate:
=Nothing is taxableInterest charged is lower than SBI rates:
=Difference chargeable
Where,
SBI Rate = as on 1st day of PY
Interest free Housing Loans Interest free Housing Loans --Taxable perquisiteInterest recovered by the employer will be
allowed as a deduction
II) Taxable for Specified Employees only
a) Motor Car
b) Domestic Servants
c) Gas, Electricity, water
d) Education facility
a) Motor Car –
Taxable in the hands of empoyer as FBT
b) Domestic Servants –
Taxable value =
Total salary paid /payable by employer Less paid by employee
c) Gas, Electricity, Water –Actual amount paid by employer
net of what is paid by the employee is taxable
Actual amount paid to supplier or spent on production. Any amount charged from the employee deducted
d) Education facility –
1) School fees of family members of employees paid by the employer directly to the school or reimbursed is taxable as perquisite for all employees
2) If education in employer’s institute, then cost in similars less 1000 p.m. per child
Specified Employee -Specified Employee -
1) Director – Employee
2) Employee having substantial interest in the company (i.e.20% of the paid up capital or more , 20% of voting power or more)
3) Employee whose monetary salary exceeds Rs.50,000 p.a.
(Basic + DA + taxable A/w – PT)
III) Exempted for all (with conditions)–
a) Medical facilities
b) Interest free / concessional loans –
If loan amount is not exceeding Rs.20,000 or if given for medical treatment for specified diseases
a)Medical Facilities -a)Medical Facilities -Fixed medical allowance – fully taxableAny medical expenditure reimbursed
subject to a maximum of Rs.15,000Medical treatment abroad –
Treatment and stay expenses exempt from tax , subject to the maximum amount permitted by RBI
Travel expenses of patient and attendant =
Fully exempt if GTI is upto Rs. 2 lacs
Fully taxable above that
Tax Free medical benefits -Tax Free medical benefits -Local treatment to employee or any
member of his family in hospital maintained by employer,govt. hosp.,notified hospital for prescribed diseases
Family = spouse, children, parents, dependent brothers / sisters
Deductions under chapter VI-ADeductions under chapter VI-AShall not exceed the GTI of assesseeNot available in respect of –
1) LTCG – Sec.112
2) STCG s.to STT – Sec.111A
Medical Insurance Policy –Medical Insurance Policy –Sec.80D -Sec.80D -In case of individual himself, or spouse,
dependent parents & childrenDeduction:-
1) Normal- Lower of Rs.15000 or the premium paid
2) Senior Citizen – Lower of Rs.20000 or premium paid
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