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Basic Concepts of
Income from Salary
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Chargeability
Employer employee relationships
Charged on receipt or accrual basis
Taxable if received from one or more employers
Advance salary
Leave salary
Arrear salary
Bonus
Commission
Ex gratia
Retrenchment compensation
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Allowance
City compensatory allowance Taxable
House Rent allowance taxable (least of the following is
deductible from actual HRA received) Actual HRA received
40% or 50% of salary
Rent Paid 10% of Salary
Entertainment allowance taxable (exempt for Government
employee)
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Allowance Contd
In the following cases unutilised amount is taxable, if the
amount is utilised for the purpose it has been given, it will not
be taxable
Travelling allowance/ transport allowance Daily allowance
Helper allowance
Research allowance
Uniform allowance Conveyance allowance for official purpose
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Allowance contd..
Conveyance allowance to commute between office andresidence Rs.800 p.m. is exempt
Children education allowance is exempt Rs.100 per monthper child, max. 2 children
Hostel allowance is exempt Rs.300 per month per child,max. 2 children
Some specific type of allowance paid to army personnel areexempt
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Allowance contd
Tiffin allowance taxable
Fixed medical allowance taxable
Servant allowance taxable
Allowance paid to High Court and Supreme Court judges is
exempt from tax
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Perquisites
Furnished/
unfurnished house
without rent or at
concessional rent
1. Not chargeable to tax if it is provided in remote area
2. After transfer hotel accommodation for 15 days is exempt
3. House of High Court and Supreme Court judges not
taxable
4. For others it is taxable as per the rules
5. (a) for governemnt employees taxable as per government
rules
(b) for non government employees depending on
population of the town the ownership of house
Service of a sweeper,Gardner, watchman or
personal attendant
Taxable only for specific employees
Supply of gas,
electricity or water for
household purposes
Taxable only for specific employees
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Perquisites Contd.
Education facility to
employees family
members
Taxable only for specific employees
Leave travel concession 1. Not taxable twice in a block of 4 years
2. Taxable for specific employees
Amount paid by an
employer in respect of any
obligation which otherwise
would have been payable
by the employee
1. Lic Premium
2. Tax borne by employer
3. Bill in the name of employee paid by employer
Interest free loans or
concessional loans
1. If aggregate amount of original loan does not exceed
Rs.20,000, the perquisite is not taxable
2. Loan for medical treatment (as per rule 3A) is not
taxable subject to few conditions
3. Other loans are taxable as per the rates of SBI
Providing use of movable
asset
Not taxable e.g. Laptop, mobile etc.
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Perquisites
Transfer of movable
asset
Taxable as per rules
Medical facility Taxable as per rules
Car facility Taxable as per rules
Free food, beverage 1. Not taxable2. Meals (lunch and/or dinner) taxable if the cost of meal to
employer is in excess of Rs.50 per meal
Travelling / touring
accommodation
Not taxable, In certain cases taxable
Gift or gift voucher 1. Gifts above Rs.5000 are taxable whether cash or kind2. Gifts in cash are always taxable
Credit card and club
facility
If in the name of company, not taxable
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Free House
Population of city as per
2001 census where
accommodation is
provided
where the
accommodation is
owned by the employer
where the accommodation
is taken on lease or rent by
the employer
Exceeding 25 lakhs 15% of salary Lease rent payable or 15% of
salary whichever is lower
Exceeding 10 lakhs upto 25
lakhs
10% of salary Same as above
Any other 7.5% of salary Same as above
Houses situated in remote areas are exempt, (areas located at least 40Km away
from a town having population not exceeding 20,000
for government employees, house is taxable as per government rules
10% of the cost of furniture is added in all the employee cases as perquisite
of furniture
Any rent charged by the employer is deducted from the calculation as per rules
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Perquisites in respect of movable assets
Mode of valuation Perquisite in respect of sale of movable assets to
employees
Electronic items/
computers
Motor car Any other asset
Step 1 find out cost of theasset to employer
Actual cost to theemployer
Actual cost tothe employer
Actual cost tothe employer
Step 2 Less normal wear
and tear for completed years
during which the asset was
used by the employer for his
business
50% for each
completed year
by reducing
balance method
20% for each
completed year
by reducing
balance method
10% for each
completed year
by fixed method
or on actual cost
Step 3 Less amount
recovered from employee
Consideration
received
Consideration
received
Consideration
received
Taxable value of the
perquisite Step 1 Step 2
Step3
Balancing
amount if it is
positive
Balancing
amount if it is
positive
Balancing
amount if it is
positive
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Medical Facility
Type of hospital/
clinic
Nature of medical facility
to employee and his
family members
Expenditure Is it chargeable to
tax
Maintained by
employer
Any Incurred by
employer
Not chargeable to
tax any limit
Maintained or
approved by
Government
Any Incurred or
reimbursed by
employer
Not chargeable to
tax any limit
Approved by chief
commissioner for
specific disease
For treatment of
prescribed diseases
Incurred or
reimbursed by
employer
Not chargeable to
tax any limit
Maintained by any
other person
Any Incurred or
reimbursed by
employer
Not chargeable to
tax upto Rs.15,000
excess taxable
Outside India Any No limit Not chargeable *
Treatment outside India is exempt for employee whose income is less than Rs.2,00,000
Expenditure should be permitted by Reserve Bank of India
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Car facility
Car owner Expenses Wholly personal Partly personal partly
official
Employee Employer Actual expenses
incurred
Up to 1.6cc 1600 p.m
Above 1.6cc 1800 p.m.
Driver Rs.900 p.m.
Employer Employee Wear and tear or
hire charges anddriver salary
Up to 1.6cc 600 p.m
Above 1.6cc 900 p.m.Driver Rs.900 p.m.
Employer Employer Running and
maintenance exp
and driver salary
Up to 1.6cc 1800 p.m
Above 1.6cc 2400 p.m.
Driver Rs.900 p.m.
1. Where the car is owned by the employee and the expenses are met by him there
is no perquisite
2. if the car is used wholly for official purpose it is not perquisite whether expenses
are born by employer or employee