61364386 Income From Salaries

8/12/2019 61364386 Income From Salaries

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Income from Salaries

Masters of Commerce

(Accountancy)

Semester III

Submitted

In partial Fulfilment of the requirements

For the Award of Degree of

Masters of Commerce (Accountancy)

By

JIDNYASA B B!"I#

___________________________________________________________

$I$%& C"''%% " C"MM%#C%

I!" C#$$!%! AD' IDDA&* +A%A&

%#&!%A#+ , (-)' M.MBAI/011 1234

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$I$%& C"''%% " C"MM%#C%

$I$%& C"''%% #"AD* SIDD!A#+! NAA#

"#%A"N , (-)* M.MBAI/011 123

C%#+IICA+%

*his is to certify that 6ID+7AA B4 B#I& of

M4com/II Accountancy emester III (3158/3150) ha9e

uccessfully completed the pro:ect on


.nder the

%uidance of ;rof< ;radip athi

_________ __________

Internal %uide !=ternal %uide

_________ __________

Coordinator ;rincipal

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D%C'A#A+I"N

I JIDNYASA B B!"I#the student of M4 Com4/II

Accountancy emester III (3158/3150) here>y

Declare that I ha9e completed the pro:ects on


*he information su>mitted is true and original to

the >est of my "nowledge4

4444444444444444

JIDNYASA B B!"I# Date5

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IND%le 9alue of cash allowances

04 *a=a>le 9alue of perquisites

4 &etirement Benefits

Although' all the components of salary income are included in salary' thereare

certain incomes in each of these categories' which are either fully e=empt or

e=empt upto a certain limit4 *he aggregate of the a>o9e incomes' after the

e=emption(s) a9aila>le' if any' is ?nown as %ross alary4

Under the Incometa! Act "Salary" includes #

-ages

Annuity or pension

%ratuity

Fees'commission'perquisites or profits in lieu of salary

Ad9ance of alar G arrears of salaryH

&eceipt from ;ro9ident Fund

Contri>ution of employer to a &ecognised ;ro9ident Fund in e=cess of the

prescri>ed limit

$ea9e !ncashment

Compensation as a result of 9ariation in er9ice contract etc4

Salary $%e5 Any income due from an em:loyer to an em:loyee* 7;et;er

:aid or not +;is is also true if t;e income is due from a former

em:loyer

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Advance Salary5 Any salary :aid by an em:loyer to an em:loyee e?en t;ou8; it

7as not due or 7as :aid before t;e due date +;is is also true if t;e ad?ance

salary ;ad been :aid by a former em:loyer

Arrears o Salary5Any arrears of salary paid to an employee >y an

employer' for which income ta= had not >een pre9iously deducted4 *his is

also true in case the arrears are paid >y a former employee4

E!loyee# e!loyer and e!loy!en$ areessential components of income

from salary&'hich are defined as %nder# /

%m:loyee means an indi9idual engaged in

e!loy!en$4

%m:loyer means any person who engages and

remunerates an indi9idual engaged in

e!loy!en$4

%m:loyment includes ,

A directorship or any other office in9ol9ed

in the management of a company4

A position entitling the holder to a fi=ed or

ascertaina>le remunerationH or

*he holding or acting in any pu>lic office44

%HAT IS THE &LACE OF ACCRUAL OF SALARY'

+;e 8olden rule is t;at it accrues 7;ere t;e ser?ice is rendered 'ea?e salary

:aid to a :erson em:loyed in India on lea?e to a forei8n country is treated to be

t;e arisen in India !o7e?er* if a citi@en of India ser?ice outside India and

recei?es salary from t;e of India* it 7ould be ta>able as salary to ;a?e accrued in

India


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&ENSIONS TO (E TA)ED AS SALARY'

;ensions are ta=ed under the head alaries4 *he of standard deduction is also

a9aila>le on them4

IS AD*ANCE SALARY TO (E TA)ED IN THE YEAR OF RECEI&T'

*he I4*4 Act contemplates ta= on salary which is due' whether paid or not' ta= is

attracted at the latest possi>le point of time which is the date when the salary accrues

or >ecomes due4 owe9er' where any salary paid in ad9ance is assessed in the year of

payment' it cannot >e ta=ed again when it >ecomes due4 imilarly' if arrears of salary

ha9e >een assessed on the due >asis in the past' they are not lia>le to >e ta=ed again

when they are paid4

%HAT IS TA) FREE SALARY AND HO% IS IT TA)ED'

-hen the salary is paid (ta!free( the employee has to return in his total income the

gross salary' i4e4 aggregate of the net/salary recei9ed plus the amount of ta= paid on

his >ehalf >y the employer4 It does not ma?e any difference whether the ta= is >orne

>y the employer 9oluntarily or under a contractual o>ligation

IS SALARY &AYA(LE FOR LEA*E+&ERIOD TO NON RESIDENTS TA)A(LE

E*EN IF LEA*E IS S&ENT OUTSIDE INDIA'

Yes*he salary paid for ser9ices rendered in India is regarded as income earned in

India' so as to specifically pro9ide that any salary paya>le for rest period or lea9e

period which is >oth proceeded or succeeded >y ser9ice in India forms part of the

ser9ice contract of employment will also >e regarded as income earned in India andso is to >e ta=ed4

Direc$ Co!ensa$ion

Basic :ay

Its the monthly >ase amount a person is entitled to4 *his is the >iggest part of the

pay' typically 1/21 per cent of the cost to the company (C*C)4 *he >asic tends to

form a higher portion of the salary at :unior le9els4 At senior le9els' the proportion of

>asic goes down and 9aria>le pay components such as target/lin?ed >onuses come

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into the picture4

Basic determines the other components of an employees pay such as pro9ident

fund (;F) contri>ution (>oth >y employee and employer) and house rent allowance'

entitlement to loans >y employers and' sometimes' designations and salary grades

are lin?ed to the >asic4

Dearness allo7ance

Dearness allowance is a part of a persons salary in India4 It is calculates as a percent

of the >asic salary4 *he amount calculated is then added to the >asic pay as well as

the &A to get the total salary4 It is calculated on the >asis of consumer price inde=4

Dearness allowance is >asically gi9en >y the company so that rise in prices of

consumer price inde= will >e compensated >y increase in dearness allowance4 As

consumer price inde= is 9ery 9olatile and 9aria>le dearness allowance is has a

separate heading in salary slip4

City com:ensatory allo7ance

City Compensatory allowance is an additional allowance4 It is not e=empted from ta=

li?e &A4 It ena>les the employee to >ear the high cost of li9ing pre9ailing in an

ur>an area or a city4 If an employee is stationed at a >igger city' the person is

required to spend more therefore the employer compensates the employee with

this allowance4

Indirec$ Co!ensa$ion

+ra?ellin8 allo7ance

It depends on area to area4 Con9eyance allowance is >asically paid to co9er an

employees wor?/related tra9el needs4 An employee has to tra9el during the :o> so

this ta?es care of the transportation e=penses4 .p to &s 11 is e=empt from ta=

e9ery month4

*his component helps ma?e the pay more ta=/efficient and influences the ta?e home

pay of those at lower le9els of pay4

9ro?ision for ne7s:a:er

In certain factoriesGesta>lishments the employees are reim>ursed the cost of

+ewspapers while in some other factoriesGesta>lishments the employees are paid

monthly newspapers allowance instead of reim>ursement of the cost of the

+ewspapers4 *his allowance is called newspaper allowance4

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+ele:;one allo7ance

All officers of M% III and a>o9e' all Branch Managers and other functionaries who

are permitted >y competent authority are eligi>le for this allowance4

In addition to free calls' reim>ursement will >e as undere defined as any casual emolument or >enefit attached to an office

or position in addition to salary or wages4 ;erquisite as defined in the Income ta= Act

includesy the

employer4

Any sum paid >y employer in respect of an o>ligation whichwas actually

paya>le >y the assessee4

alue of any >enefitGamenity granted free or at concessional rate to specified

employees etc4

*he followingperquisitesare not ta=a>le either under the e=ecuti9e instructions of the

Central Board of Direct *a=es or >y 9irtue of specific pro9ision in the ActG&ulesursement of e=penses in respect of car (which is owned >y

employee and used for personal and official purpose) (amount not

ta=a>le is up to &s4 5'311 per month for car ha9ing engine capacity of

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*he other ta=a>le perquisites which are ta=a>le in a prescri>ed manner include the

folio wing< /

a) alue of rent free accommodation pro9ided to the assessee >y his employer4

>) alue of concession in rent of accommodation pro9ided to the assessee >y his

employer4

c) Amount paya>le >y an employer directly or indirectly to effect an assurance on the

life of the employee or to effect a contract for an annuity' other than payment made

to recognised pro9ident fund etc4

d) Amount paid >y an employer in respect of any o>ligation which otherwise would

ha9e >een paya>le >y the employee' for e=ample / payment of income/ta=4

*alua$ion o er3uisi$es/ *he employer often gi9es some perquisites to the

employees4 alue of these perquisites is added to the income of employees4 *he

9aluation of perquisites is done as follows ut >elow 3 la?hs / 51L (c) In other cases / E4L4

In case of %o9ernment !mployees' 9alue will >e rent as per rules framed >y

%o9ernment' as reduced >y sum actually paid alary includes >asis' DA (if ta?en into

account for retirement >enefit)' >onus' commission' fees and all ta=a>le allowances4

*alua$ion o urnis4ed acco!!oda$ion / If accommodation is furnished' in addition

to a>o9e' 51L of cost of furniture (including *' radio' refrigerator' AC etc4)' if

owned >y employer' will >e treated as perquisite4 If the furniture is hired from third

party' actual hire charges less any amount reco9ered from employee will >e the

perquisite4

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5as elec$rici$y or 6a$er suly/ ome >enefits li?e gas' electricity' water are 9alued

at actual cost to employer4 If these are pro9ided from own sources' 9alue will >e

manufacturing cost incurred per unit' less amount reco9ered from employee4

Do!es$ic servan$s/ Actual cost to employer for sweeper' gardener' watchman or

personal attendant will >e 9alue of perquisite4

Use o !ova7le asse$s/ If some mo9a>le asset is pro9ided to employee' perquisite

will >e 51L of the cost of asset or rent paid' as reduced >y sum paid >y employee4

Loans $o e!loyees a$ concessional ra$e / Calculate interest on >asis of BI lending

rates' reduced interest paid >y employee and difference will >e the 9alue of

perquisite4

2+/ &er3uisi$es 64ic4 6ill 7e added $o salary

&emaining perquisites perquisites li?e motor car' lunch' refreshment' tra9elling'

touring' gift' credit card' clu> etc4 will >e added to salary and ta=ed in hands of

indi9idual (*ill 85/8/311J' FB* was paya>le >y employer and hence these were

e=empt at hands of employee)4

*alua$ion o !o$or car/4If car is owned or hired >y employer and pro9ided for

personal purposes of employees' 9aluation will >e e=penditure incurred >y employer

on running and maintenance plus remuneration of chauffer plus normal wear and tear

51L on actual cost less amount charged to employees4

If motor is partly for official and partly for personal purposes and e=penses are

reim>ursed >y employer' perquisite 9alue per month is &s 5'3111 per month if enginecu>ic capacity is upto 542 liters and &s 5'211 per month if cu>ic capacity of engine

e=ceeds 542 liters4

If motor is partly for official and partly for personal purposes and e=penses are

reim>ursed >y employer' perquisite 9alue per month is &s 5'311 per month if engine

cu>ic capacity is upto 542 liters and &s 5'211 per month if cu>ic capacity of engine

e=ceeds 542 liters4 If chauffer is pro9ided' 9alue of perquisite will >e &s 211 per

month4

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If motor is partly for official and partly for personal purposes and e=penses are met

>y employee' perquisite 9alue per month is &s 011 per month if engine cu>ic capacity

is upto 542 liters and &s 211 per month if cu>ic capacity of engine e=ceeds 542 liters4

If chauffer is pro9ided' 9alue of perquisite will >e &s 211 per month4

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CHA&TER /

ALLO%ANCE

KAllowanceK is defined as a fi=ed quantity of money or other su>stance gi9en

regularly in addition to salary for meeting specific requirements of the employees4

Most allowances are ta=a>le li?e city compensatory allowance' tiffin allowance' fi=ed

medical allowance and ser9ant allowances4 !ncashment of any concession is also

ta=a>le4

If A&! *!&! A+7 A$$#-A+C!' -IC A&! #+$7 < e=empt when

recei9ed at a particular place(s) Hpr area(s)N and do they ha9e any upper ceilings < for

e=emptionN

For the new amended &ules contain other allowances also 4which are e=empt (su>:ect

to ceilings) in particular area(s) only4 *hese special allowances are order area

allowance or remote area allowance or difficult area allowance or distur>ed area

allowanceH

ii) *ri>al Area AllowanceH

iii) Allowance granted to an employee wor?ing in any transport system to meet his

personal e=penditure during his duty performed in the course of running of such

transport from one place to another place' pro9ided that such employee is not in

receipt of daily allowanceH

TA)A(L# NON+TA)A(LE ALLO%ANCES

Children !ducation AllowanceH

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Any allowance granted to an employee to meet the hostel e=penditure of his childH

Compensatory Field Area AllowanceH

Compensatory Modified Field Area AllowanceH

City com:ensatory allo7ancele4

orei8n Allo7ance

go9ernment to the Indian citi@en for rendering ser9ices outside India4

i>ed medicalallownacele4

9roect Allo7ancele4

Allowances to upreme courtGigh court 6udges le4

Ser?ant;el:er Allo7ancele 'if helper used for official purpose then

e=empted44

+rans:ort Allo7ance< ?nown also as '"DA'means allowance to meet

e=penses incurred for office to home and home to office is e=empted up to

11 per month ma=imum4

*iffin Allowance le 4

Allowance to meet the cost of tra9el on tour or on transfer(including amount paid for

pac?ing and transportation of personal effects on such transfer)ill) paid for purpose e=plained in point 55 a>o9e 'to

meet the ordinary daily charges on account of a>sence from his normal place of

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Allowance granted to employee wor?ing in transport system where no daily

allowance has not >een allowed to meet daily e=penses 'done to meet his personal

e=penses during duty performance from one place to other place le e=empted ma=imum up to 2111 per month4

Allowance granted for encouraging the academic 'research and other professional

pursuitsasic plus dp plus

da if term of employment so pro9ides)

o 1L of salary(same meaning as a>o9e)in case of rented house situated

in Bom>ay'Madras'Delhi or calcutta

o 01 L of salary 'if rented house is situated in any other places

!=emptions for salary income / Following are e=empt from income ta=/

*ransport allowance upto &s 11 per month granted to an employee to meet his

e=penditure for the purpose of commuting >etween place of residence and the place

of his duty4

Con9eyance and transport allowance granted to employee to meet cost of tra9el on

tour are e=empt4 Allowance granted to meet e=penditure incurred on con9eyance in

performance of duties of an office or employment are e=empt4 InLI) Officers94LI)

of India(3111) 553 *a=man 33E (Bom C DB)' it was held that con9eyance

allowance is e=empt only if e=pended for meeting e=penses wholly and necessarily

incurred or to >e incurred in performance of duties of office4 Con9eyance allowance

at flat rate irrespecti9e of place of residence' wor? and posting will not>e e=empt

from income ta=4

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Con9eyance and transport allowance granted to employee to meet cost of tra9el on

transfer are e=empt4 !=penses granted to meet cost of tra9el on transfer and cost of

pac?ing and transportation of personal effects on such transfer are e=empt4

.se of employers 9ehicle or transport pro9ided for :ourney of employee from

residence to his place of wor? and >ac? is not treated as perquisite and its cost is not

treated as income4

&efreshments during office hours to employees and recreational facilities pro9ided to

group of employees are not treated as perquisites4

LTA8LTC/ $ea9e *ra9el AssistanceG$ea9e *ra9el Concession is allowed twice in a

>loc? of four years4 It is limited to amount actually spent on tra9elling of employee

and his family mem>ers4 It is limited to economy class of air fare or AC first class

fare Osection 51() of Income *a= Act and rule 3BP

*he allowance is e=empt su>:ect to amount of e=penses actually incurred >y the

employee for such tra9el4 *he employee will ha9e to ?eep account of actual e=penses

incurred4 It appears that actual tra9el >y air or AC is not required' >ut the o9erall

ceiling on e=penses is su>:ect to limit of air fare G rail fare4

edical $rea$!en$/ &eim>ursement of amount actually spent for medical treatment

upto &s 5'111 is e=empt in a financial year4 In addition' reim>ursement of insurance

premium for self' spouse' children and dependent >rothers' sisters and parents is

e=empt4

In case of treatment in %o9ernment or appro9ed hospital' or e=penditure on medical

treatment outside India' reim>ursement of medical e=penses is e=empt without any

ceiling

*RS 9*olun$ary Re$ire!en$:/ It is e=empt upto &s fi9e la?hs if & is as per

prescri>ed conditions4

Leave encas4!en$/ !ncashment of earned lea9e on retirement of employees of

CentralGtate %o9t is fully e=empt Osection 51(51AA)(i) of Income *a= ActP 4 $ea9e

encashment while in ser9ice is treated as part of salary4 In other cases' lea9e

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encashment of earned lea9e on retirement will >e lowest of 51 months salary' &s

three la?hs or actual sum recei9ed Osection 51(51AA)(ii) of Income *a= ActP

RENUMERA*ION FOR )OO+ERA*I,E *E)-NI)AL ASSIS*AN)E +RO,I$E$

AS +ER AGREEMEN* .E*/EEN GO,ERNMEN* OF IN$IA 0 FOREIGN

GO,ERNMEN* 1SE) 234567

)OMMI*E$ +ENSION 1SE)23423A67)OMMI*E$ +ENSION IS *-E

$IS)OUN*E$ AMOUN* RE)EI,E$ IN A$,AN)E&INS*EA$ OF MON*-LY

+ENSION8*-IS E9EM+*ION IS A,AILA.LE *O )EN*RAL:S*A*E

GO,ERNMEN* EM+LOYEES&$EFEN)E +ERSONNEL& 0 EM+LOYEES OF

LO)AL AU*-ORI*Y8

IN)ASE O*-ER EM+LOYEES 4+RI,A*E SE)*OR6 Y-E MA9IMUM LIMI* IS

2:;R$OF *O*AL +ENSION&AS MAY .E A++LI)A.LE8

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CHA&TER ;

THE DEDUCTIONS FRO SALARY INCOE UNDER SECTION 2le from salary income


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CHA&TER =

ENTERTAINENT ALLO%ANCE

.pto A474 3115/13 !ntertainment allowance is first ' included in the employees

salary and then e=emption is allowed as gi9en here/in/>elowle as a deduction4

(>) In the case of non/%o9ernment employees least of the

following < /

(i) !ntertainment allowance regularly recei9ed from his present employer from a date

prior to 54045J or'

(ii) A sum equal to 5Gth of salary (e=clusi9e of any other allowance' >enefit or

perquisite) or'

(iii) &s4E'11' is allowed as a deduction4

!AS +!%#% B%%N A C!AN% IN A''"-ABI'I+Y "

%N+%#+AINM%N+ A''"-ANC%

7es4 -ith effect from 5 st April' 3113' i4e4 in relation to the assessment year 3113/

3118 and su>sequent years' this pro9ision relating to deduction of entertainment

allowance stands omitted in the case of employees in continuous employment since

the 5 st April' 5J under section 524

-;at e>em:tions are made in salary

%>em:tions under section =1

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/-here as no e=emption is a9aila>ley the Assesse is owned >y

him

34 *he Assesse has not actually incurred any e=penditure on payment

of the rent in respect of such accommodation occupied >y him4

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"#MA+ " INC"M% #"M SA'A#Y

+AM! #F A!!!!

;A+M!+* 7&/ A!M!+* 7!A&/311J/51

;&!I#. 7!A&/85/8/311J

*A*.


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C#M;.*! *! I+C#M! CA&%!AB$! *# *AR #F M .&MI$$A F#&

*! A7 311J/51

#$.*I#+

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61364386 Income From Salaries