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Salary Income
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SALARY INCOME(Sec15,16 & 17)
What is salary? Payer & Payee More than one source Foregoing salary is salary income Tax free salary should include the tax paid by the employee
Basis of Charge Salary is chargeable to tax when it is due to
be paid whether it is paid or not Salary is chargeable to tax when any amount
is paid whether it is due or not Arrears of salary paid to employee is
chargeable to tax.
Salary means- Basic salary and allowances Annuity Gratuity Commission Perquisite in lieu of salary Advance salary Employers contribution to PF Leave salary
House Rent AllowanceThe 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 cases2.Actual HRA received3.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: Conveyance: Exempted upto Rs.800 per month if
used for travel between home and place of work Medical expenses: Exempted when it is a
reimbursement of actual expenses upto Rs.15000 Beyond this limit, it is taxable.
Fixed Medical allowance is taxable City compensatory allowance is taxable in all cases
Allowances(cont.) Tiffin allowance: It is taxable Tea & snacks during office hours are not
charged to tax as perquisite while free meals in excess of Rs50 per meal is a perquisite
Servant allowances: It is taxable Gifts: Perquisite in respect of gift where it is
below Rs.5000, the value is taken as nil
PENSION1.Pension from UNO2.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
PensionCommuted
Pension
Govt. /Non GovtEmployee
Govt. Employee
Non-Govt. Employee
Taxable
Exempted from TaxIt is fully or partlyexempted
COMMUTED PENSION (cont.)Central /state Govt,
Local authority employee
Non Govt. Employee
Non Govt. Employee
With or without Gratuity
Gratuity is received
Gratuity is not received
ExemptedFully
1/3 of normalExempted
½ 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
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
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 salary3. the amt. specified by the government Rs.3,00,000 4. leave encashment actually received at the time of retirement
Leave Encashment( cont.)
• Salary for this purpose means 1.basic salary and includes 2 .dearness allowances if terms of employment so provide3.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)
HOW TO FIND OUT AVERAGE MONTHLY SALARY?
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
GRATUITY1. GRATUITY WHILE IN SERVICE IS FULLY
TAXABLE2. GRATUITY AS RETIREMENT BENEFITS Government employee –fully exempt Non-government employee-fully or partially exempt
under section 10 Non-government employees not covered by the
Payment of Gratuity Act ,1972- fully or partially exempt under section 10
GRATUITY (cont.) IN CASE OF GOVT EMPLOYEES:
wholly exempt IN CASE OF EMPLOYEES COVERED UNDER
PAYMENT OF GRATUITY ACT: 15 days salary based on last drawn for each year of
service (26 days a month as working days) Rs.3,50,000 gratuity actually received (the least of the above 3 is exempt from tax and the balance
is taxable)
GRATUITY (cont.)
how to find length of service -if 6mths or less then ignored else taken as 1 full year
what is salary: Salary means last drawn by employee and includes dearness allowance
how to determine 15 days salary -calculated by dividing salary last drawn by 26 days
Provident Fund Statutory Recognised Public Unrecognised PF PF PF PFEmployees Eligible for No deduction Contribution Deduction U/S 80C U/S 80CEmployers Contribution Exempted N.A. No exemption upto 12%Interest Exempted as notifd No tax Taxable Eg.8.5%
PERQUISITESIt 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 taxable (Category APerquisites taxable in the hands of all employees (fringe benefit tax whether payable or not by employer) Furnished /Unfurnished house without rent or at a
concession (not in a remote area, house for MPs, and stay in hotel on transfer not exceeding 15 days)
Service of sweeper, gardener( not taxable for non specified employee)
Education facility to employees family members (not taxable for non specified employee)
Perquisites taxable (with or without FBT)
Contribution by employer to effect an assurance on the life of the employee or to effect an annuity
Interest free loan( exempted for loan not exeeding Rs.20000, or loan for medical treatment)
Use of Employers movable assets are taxable except laptop, desktop & car
Perquisites taxable (Category B)B1.Car or other automotive conveyance ( not taxable for
non specified employee)B2. Transport facility by a Transport undertaking( not
railways & airlines)B3 Traveling touring accomodationB4 Free Food & Beverage ( Rs.50 within office hours
exempted)B5 Gift voucher beyond Rs.5000B6 Club Membership & credit Card
SPECIFIED EMPLOYEE
A director is a specified employee An employee who holds 20% or more voting power
(called substantial interest) Where an employee is drawing salary of more than
Rs.50,000 per year ( without considering non monetary benefit and exemptions like HRA) but , since the minimum exemption limit is Rs.1,10,000, practically all tax payers are specified employees.
Rent Free Unfurnished Accomodation Classified as Central & State Government
Employees Private Sector Employees
Accomodation provided to MPs, judges of High court & Supreme Courts, employees who are in Govt. service being provided accomodation by virtue of their employment is exempted from any tax
Central & State Govt. Employees
Valuation of Rent Free Unfurnished Accommodation (private sector)Population as per 2001 census
Property owned by Employer
Leased or rent
Above 25 lakhs
15% of salary for the period
Amount of lease rent or 15% of salary
Between 10- 25 lakhs
10% of salary for the period
Same as above
Any other 7.5% of salary for the period
Same as above
Meaning of salary for House accomodation Salary includes – - basic salary - DA ( if terms of employment provide) - bonus, commission, fees - all other taxable allowances - any monetary payment chargeable to tax, but
not monetary payments in the nature of perquisite
Exception to accomodation rules It is not applicable to an accomodation
located in a remote area( 40 kms from town) and in a mining, project ,oil exploration site
Where on account of transfer, an employee is given two accomodation , only one will be taxed for 90 days. Beyond that the lesser of the two will be taxed.
Furnished accomodation Step 1: Find out the value of the
accomodation without the value of the furniture
Add 10% of the value of furniture if owned by employer or actual hire charges when hired
( Furniture includes TV, fridge, radio and any household appliances)
Furnished accomodation in a HotelIt Includes accomodation in a motel, guest
house.The value of perquisite is the lower of the two. 24% of salary paid during the period when
accomodation is taken or Actual paid by the employer(not taxable if provided for 15 days in a P.Y. and
when an employee is transferred)
Accomodation at a concessional valueValue is determined as follows: Find out the value of accomodation as if it is
not provided at a concession Deduct the value of rent charged from the
employee
Perquisite of free domestic servants When servants are engaged by employee and
reimbursed by employer, taxable in all cases When engaged by employer only specified
employees are taxable Servant allowances are always taxable If servants are provided in a rent free
accomodation , they are not valued separately
Valuation of gas, electric energy or water supply All assesses are taxable except non specified
employees
Deductions from salary Standard Deduction- No deduction is
available now. Professional Tax paid in this year Entertainment allowance: available only for
Government employees