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