Embed Size (px)
Citation preview
INCOME FROM SALARY
1) Relation between employer and employee is necessary to tax any income under salary head. For example exam fee received by a lecturer from university will be taxable under head “income from other sources”
2) Surrender of salary to Government is exempt from tax3) Salary foregone is taxable in the hands of employee4) Salary is deemed to accrue or arise at a place where service is rendered. The only
exception is individual who is citizen of India and sent to abroad for Government services
5) Any tax paid by employer on salary of employee shall be taxable in the hands of employee. The only exception is tax paid by employer on non-monetary perquisite
6) Salary is taxed on due or received whichever is earlier basis. Thus, advance salary will be taxable in the year of receipt. Further, arrears of salary and Bonus shall be taxed in the year of receipt
FORMAT
Basic salary Dearness allowance AmountOther allowances less exempt AmountBonus AmountCommission AmountEmployer’s contribution to RPF in excess of 12% of salary AmountInterest on RPF in excess of 9.5% p.a. AmountPension AmountGratuity AmountLeave salary AmountPerquisites from section 17(2)(i) to 17(2)(viii) AmountTotal AmountLess deduction under section 16(ii) & 16(iii) (Amount)
Taxable salary Amount
Computation of total taxable income
Income from salary Amount
Income from House property Amount
Profits and gain of Business or profession Amount
Capital Gain Amount
Income from other Sources Amount
Gross Total Income Amount
Less Deduction from Section 80C to 80U Amount
Total Taxable Income Amount
ALLOWANCES
FULLY TAXABLE
FULLY EXEMPT EXEMPT TO THE EXTENT OF OFFICIAL USE
EXEMPT TO THE EXTENT OF LIMIT
Dearness allowance
Allowances to citizen of India who is rendering services abroad on India Government service
Traveling allowance Children education allowance (Rs 100 p.m. up to max two child)
City compensatory allowance
Allowances to judge of High court and Supreme court
Daily allowance Children hostel allowance (Rs 300 p.m. up to max two child)
Medical allowance
Allowances to employee of UNO from his employer
Conveyance allowance Tribal area allowance(Rs 200 p.m.)
Lunch or Tiffin allowance
Helper allowance Transport allowance to employee of transport company(Rs. 800 p.m.)
Overtime allowance
Academic allowance House rent allowanceExempt least of three
a) Actual amountb) Excess of rent paid over
10% of salaryc) 40%/50%(MDKC) of
salarySalary means basic +DA(to the extent enters in computation of retirement benefit)+ commission on turnover
Servant allowance
Uniform allowance
Warden allowanceNon- practicing allowanceFamily allowance
PERQUISITES
Perquisites means additional benefit provided by the employer to employeesFollowing is the list of taxable perquisite
A) TAXABLE PERQUISITESAccommodation provided to employees Furnished or unfurnishedCar provided to employees with or without driverProvision of Gas, Electricity and WaterFacility of sweeper, gardener or watch man Private journey to employee or any member of his familyFree Educational facility to children or his other family memberAccommodation provided to employees
Interest free or concessional loan
Value of traveling for any holiday
Value of free food during working hours
Value of any gift, voucher or token to employee or any his family member.
Expenses on credit card
Club membership fee and expenses
Use of movable assets, other than laptops and computers
Transfer of movable assets
Specified security or sweat equity shares
B)TAX FREE PERQUISITES
Medical facility: Any medical facility provided by the employer to the employee and his family members in a hospital, dispensary or a nursing home maintained by the employer.
Medical reimbursement: Any medical expenses reimbursed by the employer for the treatment of his employee and his family members in an approved Hospital subject to maximum of Rs.15,000 per annum
Refreshments: Any refreshment like tea, snacks, provided to the employees during office hours at the place of work.
Use of Health club: provided uniformly available to all employees Subsidized lunch or dinner provided by the employer: When lunch or dinner is provided at
subsidized rates during official hours provided value of such meal is up to Rs 50 per meal Recreational facilities: Any recreational facility provided to a group of employees by the
employer is not taxable. These should not be restricted to only a few employees. Telephone Bills: Telephone bills of the telephone installed at the residence of the employee
for offiicial purposes , if paid/reimbursed by the employer, is not a taxable perquisite even if such telephone is used for official as well as personal benefit of the employee.
Goods sold by the employer at a concessional rate to his employees: When the employer sells the goods being manufactured by him to his employees at concessional rates, it is not a taxable perquisite e.g. a company, manufacturing fans, sells the fans to its employees at concessional rates, the concession given to the employees shall not be taxable. However, if the employer sells other goods to the employees at a value lower than the market value of
the goods, the benefit given to the employee is taxable. Educational facility: Educational facility in an educational institution owned by employer or
any other educational institution, provided value of such benefit does not exceed Rs 1,000 per child per month for any number of children
Loans to employees: If the employer gives a loan to an employee either without interest or at a concessional rate up to Rs 20,000 or for medical treatment of specified diseases
Transportation facilities: If an employer, engaged in the business of transport, provides transport facilities to its employees and his family members either free of cost or at concessional rate then it would not be a taxable perquisite. For example, free passes provided by the Indian Railways to its employees are not taxable in the hands of the employees.
Perquisites provided outside India: Perquisites provided by the Government to its employees, who are citizen of India for rendering services outside India, are not taxable.
Training of employees OR Refresher course: Any expenditure incurred by the employer, for providing training to the employees or by way of payment of fees of refresher management courses attended by the employee.
Vehicle provided for commuting from residence to office: any vehicle provided for commuting from residence to office and back is fully tax-free perquisite.
Rent-free House: Rent free official residence and conveyance facilities provided to a Judge of a High Court/Supreme Court is not a taxable perquisite.
Residence to officials of Parliament etc.: Rent free furnished residence (including maintenance thereof) provided to an officer of the Parliament, a Union Minister or Leader of Opposition in Parliament, is not a taxable perquisite.
Employers contribution: Employers contribution to pension, deferred annuity scheme and staff group insurance scheme of employees, is not a taxable perquisite in the hands of employees provided it does not exceed Rs 1 lakh per employee per year
Use of laptops and computers: Use of laptops and computers by employee or any of his family member
Tax paid by employer on non-monetary perquisites. Any tax paid by employer on non-monetary perquisites provided to employee.
VALUATION OF MOTOR CAR
I: OWNED OR HIRED BY EMPLOYER
Running and maintenance expenses paid by Employer
Running and maintenance expenses paid by Employee
Motor car used solely for official purposes
No value No value
Motor car used solely for private purposes
Actual running and maintenance expenses (including those paid to driver) +10% on cost of car
10% on cost of car
Motor car used partly for official and partly for private purposes (whether proportion determinable or not)
(1800 p.m. upto 1.6 litres 2400 p.m. exceeding 1.6 litres
+900 p.m. for driver)
(600 p.m. upto 1.6 litres 900 p.m. exceeding 1.6 litres
+900 p.m. for driver)
II : OWNED OR HIRED BY EMPLOYEE
Running and maintenance expenses paid by Employer
Running and maintenance expenses paid by Employee
Motor car used solely for official purposes
No value No value
Motor car used solely for private purposes
Actual running and maintenance expenses (including those paid to driver)
No question of perquisites
Motor car used partly for official and partly for private purposes (whether proportion determinable or not)
Actual ExpenditureMINUS
(1800 p.m. upto 1.6 litres 2400 p.m. exceeding 1.6 litres
+900 p.m. for driver)
No question of perquisites
In all cases amount recovered from employee shall be deducted
Where more than one car is being provided for use for employee or member of his family then valuation will be as under
Only one car will be valued as partly used for official purpose and partly for private purpose.
All other cars will be valued as fully used for private purpose.
VALUATION OF FACILITY OF SWEEPER, GARDENER, WATCH MAN
The value of services of a sweeper, a gardener, a watchman or a personal attendant by the employer, shall be the actual cost to the employer.
VALUATION OF FACILITY OF GAS, ELECTRICITY OR WATER
IF IT HAS BEEN MANUFACTURED BY EMPLOYER
IF IT HAS BEEN HIRED BY EMPLOYER
Its value shall be the manufacturing cost per unit
Its value shall be the amount paid on that account by the employer.
VALUATION OF FREE OR CONCESSIONAL EDUCATIONAL FACILITY
IF IT HAS BEEN PROVIDED IN SCHOOL MAINTAINED BY EMPLOYER
IF IT HAS BEEN PROVIDED IN OTHER SCHOOL NOT MAINTAINED BY EMPLOYER
Its value shall be cost of such education in a similar institution in or near the locality.
Its value shall be the amount of expenditure incurred by the employer or
NOTES:
a) Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered:
b) Provided that where free educational facilities are provided to the children of the employee, nothing shall be taxable the value of such benefit per child does not exceed Rs. 1,000 p.m.
VALUATION OF FACILITY OF PRIVATE JOURNEY TO EMPLOYEE OR ANY MEMBER OF HIS FAMILY
It shall be actual expenditure incurred
VALUATION OF ACCOMMODATION PROVIDED FREE OR CONCESSIONAL RATE
A) Value of unfurnished accommodation
Union or State Government Employees - The value of perquisite is the license fee as
determined by the Govt. as reduced by the rent actually paid by the employee.
Non Government Employees –
I. IF ACCOMMODATION OWNED BY THE EMPLOYER
POPULATION OF CITY Exceeding 25 Lakhs More than 10 lakhs but less than 25 lakhs
Less than 10 lakhs
TAXABLE PERQUISITE 15% of salary 10% of salary 7.5% of salary
II. IF ACCOMMODATION HIRED BY THE EMPLOYER
Value of the perquisite would be the actual amount of lease rent paid/payable by the employer or 15% of the salary, whichever is lower.
VALUE OF FURNITURE FOR BOTH ABOVE CASES
i) Where furniture owned by employer -: 10% of cost of furnitureii) Where furniture hired by employer -: actual hire charges of furniture
In both of above cases, the value of the perquisite would be reduced by the rent, if any, actually paid by / recovered from the employee.
ACCOMMODATION PROVIDED IN HOTEL
24% of salary or the actual charges of hotel, whichever is lower. The above would be reduced by any rent actually paid by the employee.
It may be noted that no perquisite would arise, if the employee is provided such accommodation on transfer from one place to another for a period of 15 days or less.
Salary for accommodation means Basic +DA (If it enters in computation of retirement benefit) +allowances + Bonus + Commission
VALUATION OF FRINGE BENEFITS
Facility How much taxable When not taxable
Interest free or
concessional
loan
-: sum equal to interest computed at the rate charged by SBI on first day of
relevant previous year
-: interest to be computed on the outstanding balance on last day of each
month
-: does not exceed Rs
20,000 or
-:it is in respect of
medical treatment for
specified diseases
Value of
traveling for any
holiday
-: if facility maintained by employer, then value at which such facilities are
offered by outside agencies
-: in other cases expenses actually incurred
-: for official tour, or
-: if facility maintained
by employer available
to all employees
Value of free
food during
Actual value minus Rs 50 per meal -: in remote area , or
working hours -: value is up to Rs 50
per meal
Value of any gift,
voucher or token
to employee or
any his family
member.
-: Actual value of gift in kind minus Rs 5,000
-: if gift given by way of cash or cheque, then entire amount is taxable even if it
is less than 5,000.
Value of gift in kind
below Rs 5,000
Expenses on
credit card
Actual amount paid or reimbursed Fully spent for official
purposes
Club
membership fee
and expenses
Actual amount paid or reimbursed. However if employer has taken corporate
membership fee then initial amount shall not be taxable
Fully spent for official
purposes
use of movable
assets, other
than laptops and
computers
10% p.a. on cost of assets or rent paid by employer as the case may be Use of laptops and
computers by employee
or his family members
Transfer of
movable assets
For computers and other electronic items -: Actual cost to employer minus
50% depreciation for each completed year during which asset was put to use
by employer on reducing balance method
For motor car-: Actual cost to employer minus 20% depreciation for each
completed year during which asset was put to use by employer on reducing
balance method
For other assets-: Actual cost to employer minus 10% depreciation for each
completed year during which asset was put to use by employer on straight
line method
Specified
security or sweat
equity shares
Fair market value minus amount paid by employee
-: the fair market value shall be the average of the opening price and closing
price of the share on that date on the said stock exchange
VALUATION OF MEDICAL FACILITIES
I. MEDICAL TREATMENT IN INDIA
TAX FREE PERQUISITES TAXABLE PERQUISITE
I. HOSPITAL OWNED BY EMPLOYER
Value of any medical facility provided to employee
in any hospital maintained by employer
II. SUM PAID OR REIMBURSED
Medical treatment in any clinic, nursing home,
hospital up to Rs 15,000 to employee or any of his
family member
Family member means spouse, any child, and
dependent “brother, sister and parent”. Child may
be dependent, independent, married, or unmarried.
Medical treatment in any clinic, nursing home,
hospital exceeding Rs 15,000 to employee or any of
his family member (taxable value = expenditure
reimbursed minus Rs15, 000.)
Any amount of expenditure in Government hospital
or approved hospital by Government for its
employees
Medical treatment of any other person who do not
fall in definition of family of employee.
Any amount of expenditure on specified diseases in
any Hospital approved by chief commissioner of
income tax
Any premium paid or reimbursed by employer on a
scheme approved by central government or IRDA
II. MEDICAL TREATMENT OUT SIDE INDIA
TAX FREE PERQUISITES TAXABLE PERQUISITE
Expenses on medical treatment of employee or any
of his family member to the extent permitted by RBI
Expenses on medical treatment of employee in
excess of the limit permitted by RBI
Expenses on stay abroad of the employee or any of
his family members with one attendant to the
extent permitted by RBI.
Expenses on stay abroad of the employee or any of
his family members with one attendant in excess of
the limit permitted by RBI.
Travel expenses abroad of the employee or any of
his family members with one attendant if gross total
income of employee before this perquisite is up to
Rs 2, 00,000.
Travel expenses abroad of the employee or any of
his family members with one attendant if gross total
income of employee before this perquisite is
exceeds Rs 2, 00,000.
Any medical allowance is fully taxable irrespective
of actual expenditure
TREATMENT OF LEAVE TRAVEL CONCESSION
The exemption is available if employee or any of his family members actually performs
journey to any place in India during leave or after retirement
It will be allowed to the extent of economy fare where journey performed by air and
where journey performed by any other mode then first class air-conditioned fare. However exemption shall be limited to shortest distance only connecting to the destination
This exemption can be claimed for any two journey for a block of 4 years (2002-2005), (2006-2009), (2010 -2013)
Maximum one journey can be carried forward upto first calendar year (1ST Jan to 31st
December) of next block
Exemption is available for two children only after 1-10-1998. However, this limit will not apply for children born before 1-10-1998 or multiple births after 1-10-1998.
Family means spouse, any child, and dependent “brother, sister and parent”. Child may be dependent, independent, married or unmarried.(same as medical treatment)
PROFIT IN LIEU OF SALARY [section 17(3)]
Following amount received by employee from his employer will be taxable as profit in lieu of salary
1) TERMINAL COMPENSATION -: Compensation received for termination of his employment or modifying the terms of employment
2) PAYMENT FROM UNRECOGNISED PROVIDEND FUND
Employers contribution and interest thereon :- shall be taxable as profit in lieu of salary
Interest on employee’s contribution shall be taxable as income from other sources.
3) Payment received under key man insurance policy including bonus
4) Any amount received before joining or after cessation of employment
5) Any other sum received by employer from employee
TREATMENT OF RETIREMENT BENEFITS
Gratuity received by employee after his retirement shall be taxable under the head “salary”
Gratuity received by legal heirs of employee after his death shall be taxable under the head “income from other sources”
Gratuity received by Government employees or employees of local authority
Employees covered by the payment of gratuity act 1972
Employees not covered by the payment of gratuity act 1972
Fully exempt in both above cases
Exemption in both above cases shall be lower of following three: -
a) actual amount of gratuity received
b) 15 days salary for every completed year of service or part thereof in excess of 6 months
c) Rs 10,00000
Exemption in both above cases shall be lower of following three: -
a) actual amount of gratuity received
b) half months average salary for every completed year of service
-: 15 days salary shall be calculated by dividing with 26 and multiplied by 15
-: Salary means Basic + DA, and is to be computed based on last months salary
c) Rs 10,00000
-: average salary to be computed based on last 10 months IMMEDIATELY PRECEDING THE MONTH OF HIS RETIREMENT OR DEATH
-:Salary means Basic + DA (to the extent it is included in computation of retirement benefit) + commission based on turnover
TREATMENT OF PENSION
Monthly pension Commuted pension or lump sum pension
Family pension (pension received by legal heirs) after death of employee
Fully taxable in the hands of all employees, whether Government or Non- Government
For Government employees or employees of local authority -: fully exempt
For other employees, 1/3 rd will be exempt if he receives gratuity also. However if he does not receive gratuity then ½ will be exempt
Will be taxable under income from other sources. A deduction of 1/3rd of pension or Rs 15,000, whichever is less shall be allowed
LEAVE SALARY
Received during tenure of service
Received after retirement Notes
Fully taxable for all types of employees
Government employees-: fully exempt
1) Salary means Basic + DA (to the extent it is included in computation of retirement benefit)
2) Last 10 months means 10 months completing exactly on date of retirement. For example if employee retires on 15-1-2010, then 10 months means from 16-4-2009 to 15-1-2010
3) Unavailed leave shall be computed as under-:
> (30 or actual days for which he is entitled to leave salary, which is less ×completed year of service
MINUS
Number of days for which leave availed
> If this difference is D, then D/30 x average salary = ) cash equivalent of unavailed leave based on maximum 30 days
Other employees (including employees of public sector and local authority)
Exemption shall be least of following four alternatives:
a) actual amount received
b) 10 months average salary
c) cash equivalent of unavailed leave based on maximum 30 days for each year of completed service
d) Rs. 3,00,000
RETRECHMENT COMPENSATION
Any retrenchment compensation received as per industrial dispute act 1947 shall be exempt least of following thee
a) actual amount received
b) 15 days average pay for each of the completed year of service or part thereof in excess of 6 months ( computed in the same way as gratuity for covered employees)
c) Rs 5,00,000
The employee can claim relief under section 89
TREATMENT OF PROVIDEND FUND
NATURE RPF URPF PPF SPF
Employer’s contribution
Exempt up to 12% of
salary. The excess is
Taxable at the time
of its actual receipt in
Not applicable as
employer does not
Fully exempt
taxable on yearly
basis
lumpsum (and not on
yearly basis) under
head salary
contribute
Interest Interest credited in
excess of 9.5% is
taxable on yearly
basis
Taxable at the time
of its actual receipt in
lumpsum (and not on
yearly basis) under
head salary
Not applicable as
employer does not
contribute
Fully exempt
Employees contribution
Deduction under
section 80C is
available
No Deduction under
section 80C is
available
Deduction under section
80C is available
Deduction
under
section 80C
is available
Accumulated sum received
Fully exempt
provided employee
has rendered
continuous service at
least for 5 years
except in case of
abnormal situation
beyond his control
like illness or
discontinuance of
employer’s business
etc
Already written
above
Fully exempt Fully exempt
Deductions under section 16
16(i) : standard deduction = nil
16(ii): deduction for entertainment allowance-:
allowed only to government employees
deduction shall be least of three alternatives:
a) actual entertainment allowance received
b) 20% of basic salary
c) Rs. 5000
16(iii): deduction for professional tax paid
Where paid by employer: first add in salary and then give deduction
Where paid by employee: directly gives deduction.
