Salary Income Significant features LECTURE 22 Salary Income Significant features

Salary and Its Computation Significant Points Salary may be from former employer, present employer or prospective employer. In case of Tax Free Salary by the employer, the amount of tax paid by employer shall be added back to employee’s salary. It tantamount to Tax on Tax.

Salary and Its Computation Significant Points No deductions are allowed under the head “Income from Salary” Tax year of a salaried Person shall be Normal Tax year. Scope of Salary.

Salary and Its Computation The amount of any expenditure incurred by an employee that is paid or reimbursed by the employer, other than expenditure incurred on behalf of the employer in the performance of the employee’s duties of employment; The amount of any profits in lieu of, or in addition to, salary or wages, including any amount received:

Salary and Its Computation --As consideration for a person’s agreement to enter into an employment relationship; --As consideration for an employee’s agreement to any conditions of employment or any changes to the employee’s conditions of employments;

Salary and Its Computation --On termination of employment, whether paid voluntarily or under an agreement, including any compensation for loss of employment and golden handshake payments;

Salary and Its Computation --From a provident or other fund, to the extent to which the amount is not a repayment of contributions made by the employee to the fund in respect of which the employee was not entitled to a deduction; and --as consideration for an employee’s agreement to a restrictive covenant in respect of any past, present or prospective employment;

Salary and Its Computation Any pension or annuity, or any supplement to a pension or annuity; and Any amount chargeable to tax as “Salary” under Section 14.” (Employee Share Schemes)

Salary and Its Computation Sec. 13 Value of Perquisites: Sub Sec (1) for the purpose of computing the income of an employee for a tax year, chargeable to tax under the head “salary”, the value of any perquisite provided by an employer to the employee in that year that is included in the employee’s salary under section 12 shall be determined in accordance with this section.

Salary and Its Computation Sub Sec. (2) this section shall not apply to any amount referred to in clause ( c) or (d) of sub section 12. Sub Sec.(3) Where, in a tax year, a motor vehicle is provided by employer to an employee wholly or partly for the private use of the employee the amount chargeable to tax to the employee under the head “Salary” for that year shall include an amount computed as may be prescribed.

Salary and Its Computation Sub Sec.(5) Where, in a tax year, the services of a housekeeper, driver, gardener or other domestic assistant provided by an employer to an employee, the amount chargeable to tax to the employee under the head “ salary” for that year shall include the total salary paid to [such housekeeper, driver, gardener or other domestic assistant] in that year for services rendered to the employee, as reduced by any payment made by the employee [to the employer] for such services.

Salary and Its Computation Sub Sec. (6) where, in a tax year, utilities are provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the utilities provided, as reduced by any payment made by the employee for the utilities.

Salary and Its Computation Sub Sec. (7) Where a loan is made, on or after the 1st day of July, 2002, by an employer to an employee and either no profit on loan is payable by the employee or the rate of profit on loan is less than benchmark rate, the amount chargeable to tax to the employee under the head “Salary’ for a tax year shall include an amount equal to;

Salary and Its Computation Sub Sec. 7(a) the profit on loan computed at the benchmark rate, where no profit on loan is payable by the employee, or (b) the difference between the amount of profit on loan paid by the employee in that tax year and the amount of profit on loan computed at the benchmark rate, as the case may be.

Salary and Its Computation Sub Sec. (8) For the purpose of the Ordinance not including sub-section (7), where the employee uses a loan refer to in sub Sec. (7) wholly or partly for acquisition of any asset or property producing income chargeable to tax under any head of income, the employee shall be treated as having paid an amount as profit equal to the bench mark rate on the loan or that part of the loan used to acquire any asset or property.

Salary and Its Computation Sub Sec. (9) where, in a tax year, an obligation of an employee to pay or repay an amount owing by the employee to the employer is waived by the employer that shall be included under the head Salary. Sub Sec. (10) where, in a tax year an obligation of an employee to repay an amount owing by the employee to an other person is paid by the employer that amount shall be included in salary income.

Salary and Its Computation Sub Sec. (11) where in a tax year property is transferred or services are provided by an employer to an employee the fair market value of the property or services determined at the time the property is transferred or services are provided shall be included in salary income for the year, as reduced by any payment made by the employee for the property or services.

Salary and Its Computation Sub Sec. (12) where, in the tax year, accommodation or housing is provided by an employer to an employee, the amount chargeable to tax to the employee under the head “salary” for that year shall included an amount computed as may be prescribed.

Salary and Its Computation Sub Sec. (13) where, in a tax year an employer has provided an employee with a perquisites which is not covered by sub section (3) through (12), the amount chargeable to tax to the employee under the head “salary” for that year shall include the fair market value of the perquisites except where the rules, if any, provide otherwise, determined at the time it is provided, as reduced by any payment made by the employee for the perquisites.

Salary and Its Computation Sub Sec. (14) in this section: “benchmark rate” means: For the tax year commencing on the first day of July 2002, a rate of 5% per annum; and

Salary and Its Computation For the tax year next following the tax year refer to in sub clause (i), the rate for each successive year taken as 1% above the rate applicable for the immediately preceding tax year but not exceeding such rate, if any, as the federal Govt., may , by notification, specified in respect of any tax year. “Services” includes the provision of any facility; and “Utilities” includes electricity, gas, water, and telephone.

Salary and Its Computation Employee Share Schemes sec 14: The value of a right or option to acquire share under this scheme shall be not chargeable to tax. Where shares issued are subject to a restriction on transfer of the shares- a) no amount shall be chargeable to tax under the head Salary until the earlier of- i. the time the employee has a free right to transfer the shares; or ii. the time the employee disposes of the shares & b) the amount chargeable to tax to the employee shall be fair market value of shares at the time employee has free right to transfer as reduced be any amount given as consideration for the grant of a right or option to acquire the shares.

Salary and Its Computation Where in a tax year an employee disposes of a right or option to acquire shares under an employee share scheme, the amount chargeable to tax shall include the amount of any gain made on the disposal computed accordance with the following formula: A-B

Salary and Its Computation Employee Share Scheme Where A is the consideration received from the disposal of the right or option. B is the employee’s cost in respect of the right or option.