Income from Salary Basic ConditionsBasic Conditions –Master And servant or employer and employee relationship –Contract of employment is important

BASIS OF CHARGE Either accrual or receipt (which ever is earlier)Either accrual or receipt (which ever is earlier) Salary due from an existing and/or former employerSalary due from an existing and/or former employer Salary paid or allowed by the employer though not dueSalary paid or allowed by the employer though not due Arrears of salary paid or allowedArrears of salary paid or allowed

SALARY COMPONENTS Basic salaryBasic salary Advance salaryAdvance salary Arrears of salaryArrears of salary BonusBonus AllowancesAllowances Leave encashment on retirementLeave encashment on retirement

COMPONENTS Retrenchment compensationRetrenchment compensation PensionPension GratuityGratuity Voluntary retirement paymentsVoluntary retirement payments PerquisitesPerquisites Provident fund paymentsProvident fund payments

CONCEPT Gross salaryGross salary Deductions such as G.P.F., P.T.Deductions such as G.P.F., P.T. Net salaryNet salary

COMPUTATION Gross salaryGross salary Less:- exemption us. 10Less:- exemption us. 10 Less:-deduction us. 16Less:-deduction us. 16 Net salaryNet salary Deduction under chapter VI-ADeduction under chapter VI-A Net taxable salaryNet taxable salary

EXEMPTION UNDER SECTION 10 FOR SALARY LEAVE ENCASHMENT 10(10AA)LEAVE ENCASHMENT 10(10AA) GRATUITY 10(10)GRATUITY 10(10) PENSION 10(10A)PENSION 10(10A) HOUSE RENT PAID 10(13A)HOUSE RENT PAID 10(13A) TRANSPORT ALLOWANCE 10(14) –RULE 2BBTRANSPORT ALLOWANCE 10(14) –RULE 2BB LEAVE TRAVEL CONCESSION 10(5)LEAVE TRAVEL CONCESSION 10(5)

Leave Encashment Sec.10(10AA) Meaning – Leave SalaryMeaning – Leave Salary – Salary standing / accumulated to the credit of an employee at the time of retirement is Leave Salary –Encashment of the same at the time of retirement is referred to as leave encashment –Tax treatment for the same – next slide

Leave encashment – tax treatment Nature of Leave encashment Status of the employee Tax treatment Leave encashment during continuity of employment Government/ Non- government Taxable Leave encashment at the time of retirement or leaving of job Government Fully Exempt Leave encashment at the time of retirement or leaving of job Non- government Fully or partly exempt

Non government Employee exemption - detail 1 Period of earned leave to the credit of the employee * average monthly salary 2 10 * average monthly salary 3 Rs (specified amount by government) 4 Leave encashment actually received In case of non-government employee (including an employee of local authority or public sector undertaking – exemption is least of the followings.In case of non-government employee (including an employee of local authority or public sector undertaking – exemption is least of the followings.

Gratuity – Section 10 (10) It is a retirement benefit.It is a retirement benefit. Payable at the time of cessation of employment & on the duration of service.Payable at the time of cessation of employment & on the duration of service. Government employees i.e. Central Government employees, State government employees, employees of local authority but not of statutory corporationsGovernment employees i.e. Central Government employees, State government employees, employees of local authority but not of statutory corporations Tax treatment - next slideTax treatment - next slide

Tax treatment Status of the employee Whether Gratuity is taxable Government employee Fully exempt U/s. 10(10)(i) Non Government employee covered by Payment of Gratuity Act, 1972 Fully or partly exempt from tax U/s. 10(10)(ii) Non Government employee not covered by Payment of Gratuity Act, 1972 Fully or partly exempt from tax U/s. 10(10)(iii)

Employees covered by Payment of Gratuity Act, 1972 Any gratuity received is exempt to the least of the following:Any gratuity received is exempt to the least of the following: days salary (7 days in case of seasonal establishment) based on salary last drawn for each year of service.(15 days salary * length of service) (6 months & above = full year) (Salary= last drawn salary =Basic + D.A.) (days in month=26) 2.Rs Gratuity actually received

Employees not covered by Payment of Gratuity Act, 1972 In case of other employee gratuity received is exempt to the least of the following:In case of other employee gratuity received is exempt to the least of the following: 1.Rs Half month’s Salary for each completed year of service ( only complete year, part of the year to be ignored; salary based on average salary for last 10 months immediately preceding; Salary=Basic + D.A.) 3. Gratuity actually received

Pension Pension received from UNO by an employee or his family members is not chargeable to tax.Pension received from UNO by an employee or his family members is not chargeable to tax. Family pension received by the family members of armed forces is exempt under section 10(19).Family pension received by the family members of armed forces is exempt under section 10(19). Family pension received by others (not covered in 2 above) after the death of the employee is taxable in their hands under section 56 – income from other sources.Family pension received by others (not covered in 2 above) after the death of the employee is taxable in their hands under section 56 – income from other sources.

Contd. Un-commuted Pension – It is periodical payment of pension- i.e. monthly pensionUn-commuted Pension – It is periodical payment of pension- i.e. monthly pension Commuted Pension – It is the lump sum payment in lieu of periodical payment.Commuted Pension – It is the lump sum payment in lieu of periodical payment. Pension Status of the employee Is it chargeable to tax? Un-commuted Government / non government It is chargeable to tax CommutedGovernment It is fully exempt from tax under 10(10A)(i) Commuted Non government It is fully or partly exempt from tax under 10(10A)(ii)

Commuted pension & non government employee Non government employee Gratuity is received 1/3 rd of the pension received is exempt Non government employee Gratuity is not received ½ of the pension received is exempt.

HRA Section 10(13A) & Rule 2A Least of the following is exemptLeast of the following is exempt Salary = Basic + D.A.( if terms of employment so provide)Salary = Basic + D.A.( if terms of employment so provide) 1 An amount equal to 50% of Salary (For Metro cities) and 40% of Salary ( For non- Metro cities) 2 The HRA received by the employee in respect of the period during which rental accommodation is occupied by the employee during the previous year 3 The excess of rent paid over 10% of Salary

Transport Allowance –10(14) Rule 2BB Allowance is granted to an employee to meet his expenditure for the purposes of commuting between the place of his residence and the place of his dutyAllowance is granted to an employee to meet his expenditure for the purposes of commuting between the place of his residence and the place of his duty It is exempt up to Rs.800 per monthIt is exempt up to Rs.800 per month In case of blind or orthopaedically handicapped it is Rs.1600 per month.In case of blind or orthopaedically handicapped it is Rs.1600 per month.

Leave Travel Concession 10(5) Leave Travel assistance extended by an employer for going anywhere in India along with his family is exempt on the basis of the provisions given in table.Leave Travel assistance extended by an employer for going anywhere in India along with his family is exempt on the basis of the provisions given in table. Family includes spouse, children, parents, brothers and sisters (who are dependent on the employee)Family includes spouse, children, parents, brothers and sisters (who are dependent on the employee) Only two journeys in a Block of Four years is exempt.Only two journeys in a Block of Four years is exempt. Amount of exemption is limited to the actual expenditureAmount of exemption is limited to the actual expenditure

Contd. Where journey is performed by air Amount of economy class air fare of the national carrier by the shortest route or the amount spent whichever is less Where journey is performed by rail Amount of air conditioned first class rail fare by the shortest route or amount spent whichever is less Where the places of origin & destination of journey are connected by rail and the journey is performed by any other mode of transport Amount of air conditioned first class rail fare by the shortest route or amount spent whichever is less Where the places are not connected by rail & recognized public transport system exist First class or deluxe class fare by the shortest route or amount spent which ever is less

Perquisites - Taxable Any residential accommodation given to the employee without charging any rent or at a concessional rateAny residential accommodation given to the employee without charging any rent or at a concessional rate Free supply of gas, electricity or water for household consumptionFree supply of gas, electricity or water for household consumption Wages paid by the employer for the domestic servants employed by the employeeWages paid by the employer for the domestic servants employed by the employee Value of free boarding & lodging expenses.Value of free boarding & lodging expenses. Free educational facilities to the childrenFree educational facilities to the children

Contd. Subscription & Bills paid to the club houses by the employerSubscription & Bills paid to the club houses by the employer Vacation at the holiday homes or holiday trips at the cost of the employerVacation at the holiday homes or holiday trips at the cost of the employer Income tax due on salary but paid by employerIncome tax due on salary but paid by employer Use of motor car with or without a driver at the cost of the employer for personal use.Use of motor car with or without a driver at the cost of the employer for personal use.

DEDUCTIONS FROM SALARY ENTERTAINMENT ALLOWANCE [16(2)]ENTERTAINMENT ALLOWANCE [16(2)] –If granted by the employer it is included in the Salary income –From A.Y the allowance deduction is allowed only to Government employees. –The least of the following is exempt Actual amount receivedActual amount received Rs.5000 per yearRs.5000 per year 1/5 th of the basic salary1/5 th of the basic salary

DEDUCTIONS FROM SALARY PROFESSIONAL TAX [16(3)]PROFESSIONAL TAX [16(3)] –Tax deducted from the Salary under Maharashtra State Tax on professions, trade, callings and Employment Act 1975.