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.

CHART SHOWING COMPUTATION OF INCOME FROM SALARIES Salary/wages Advance salary Dearness Pay Dearness allowance Bonus Fees Commission Perquisite in lieu of or in addition to salary/wages Amt. rec. in respect of Encashment of earned leave salary during service Contribution of employer in RPF in excess of 12% of salary Interest on RPF in excess of 9.5%

Cont. On retirement of employee : add Unrecognised provident fund (a)Share of employer (b)Interest on share of employer Taxable part of gratuity Taxable part of encashment of earned leave If retrenched- taxable part of retrenchment compensation In case of voluntary retirement- taxable part of voluntary retirement compensation

CONT. Pension: (a) Taxable part of commuted pension (b) Pension from the date of retirement till the end of P.Y. Gross salary income LESS: Entertainment allowance-Max rs.5000 Professional tax Taxable salary

House Rent Allowance The 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 cases 2.Actual HRA received 3.Excess of rent paid over 10% of Salary. Exempted Amount= least of the above Taxable Amount= Actual HRA Rec.- Exempted amt. (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 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

LEAVE TRAVEL CONCESSION Sec. 10(5) This exemption is available to indians as well as foreigners The amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel The value of any L.T.C. received by or due to an individual, (a) From his employer for himself & his family in connection with his proceeding on leave to any place in india is exempt

Cont. (b) From his employer or former employer for himself & his family in connection with his proceeding on leave to any place in india after retirement from his service or after the termination of his service is exempt 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.

PROVIDENT FUND Statutory provident fund Recognised provident fund Unrecognised provident fund Employees contribution Ded u/s 80 C No ded Employer’s cont. & interest exemptedAnnual accretion is taxable (a)employer’s cont.- in excess of 12% of salary (b)interest-in excess of 9.5% Not exempted per year Lumpsum at the time of retirement exempt Employer’s cont. & Interest thereon- taxable

PERQUISITES It 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 A Perquisites 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 accomodation B4 Free Food & Beverage ( Rs.50 within office hours exempted) B5 Gift voucher beyond Rs.5000 B6 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 lakhs 10% of salary for the period Same as above Any other7.5% 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 Hotel It 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 value Value 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

Perquisite of Motor Car Perquisite in respect of motor car is taxable only when the employer is not liable to fringe benefit tax (like sole proprietor, charitable institutions, etc) Private company employees will not pay any tax. 1.Car is owned by Employee 2. Car is owned or hired by Employer a) Expenses met by Employer b) Expenses met by Employee

Motor car perquisite Car owned by Employee a)Expenses met by Employee - No Tax b)Expenses met or reimbursed by Employer - Official purpose only No tax - Used for private purpose-actual expenses less recovery taxable -Partly used for private purpose (cont. next slide)

Motor car perquisite( Cont.) Car owned by employee (cont.) -Partly used for private purpose SMALL CARLARGE CAR EXPENDITURE INCURRED BY EMPLOYER Less: 1800 p.m.Less: 2400 p.m. Add: 900 p.m. for chauffer(if any) Value of perquisite

2.When Car is owned or hired by Employer I CASE: Car is used wholly for official duties value of perquisite is nil II CASE: Car is used wholly for private or personal purposes of employee or any member of his household Actual amount of expenditure on running & Actual amt. of expenditure on running & maintenance of car maintenance of car add: remuneration, if any, paid to chauffeur add: remuneration,if any, paid to chauffeur Add: 10%p.a. of actual cost of car less: amt. charged from employee Less: amt. charged from employee VALUE OF PERQUISITE VALUE OF PERQUISITE Car owned by employer Car taken on lease by employer

III CASE: CAR IS USED PARTLY IN THE PERFORMANCE OF DUTIES AND PARTLY FOR PRIVATE OR PERSONAL PURPOSES OF EMPLOYEE OR ANY MEMBER OF HIS HOUSEHOLD IF EXPENSES BORNE BY EMPLOYER SMALL CAR 1800 p.m+ 900 p.m(if chauffeur) LARGE CAR 2400 p.m p.m (if chauffeur) PRIVATE EXPENSES BORNE BY EMPLOYEE SMALL CAR 600 p.m p.m(if chauffeur) LARGE CAR 900 p.m p.m (if chauffeur)

IV CASE: EMPLOYEE USES MORE THAN 1 CAR FOR PRIVATE PURPOSES IN RESPECT OF 1 CAR SMALL CAR 1800 p.m p.m(if chauffeur) LARGE CAR 2400 p.m p.m(if chauffeur) IN RESPECT OF OTHER CAR(S) II Case will apply

Deductions from salary Professional Tax paid BY THE ASSESSEE [Sec.16(iii)] Entertainment allowance: available only for Government employees [sec.16(ii)] actual amt. received 1/5 th of basic salary limit- rs The least of the above will be the amount for deduction

INCOME FROM SALARIES (RETIREMENT) PENSION COMMUTED PENSION LEAVE ENCASHMENT SALARY GRATUITY RETRENCHMENT COMPENSATION COMPENSATION ON VOLUNTARY RETIREMENT

PENSION[sec.10(10A)] 1.Pension from UNO 2.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 case of non govt. employee -Taxable

COMMUTED PENSION Uncommuted Pension Commuted Pension Govt. /Non Govt Employee Govt. Employee Non-Govt. Employee Taxable Exempted from Tax It is fully or partly exempted

COMMUTED PENSION (cont.) Central /state Govt, Local authority employee Non Govt. Employee With or without Gratuity Gratuity is received Gratuity is not received Exempted Fully 1/3 of normal Exempted ½ of normal is exempted

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

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 salary 3. the amt. specified by the government Rs.3,00, leave encashment actually received at the time of retirement

Salary for this purpose means 1.basic salary and includes 2.dearness allowances if terms of employment so provide 3.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?

GRATUITY [SEC10(10)] 1. GRATUITY WHILE IN SERVICE IS FULLY TAXABLE 2. 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.10 LACS – 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,dearness pay, comm. on sales how to determine 15 days salary -calculated by dividing salary last drawn by 26 days

RETRENCHMENT COMPENSATION [SEC 10(10B)] Years of job * avg. Salary *15 Limit – rs 5lac Amount received least of the above will be exempt Taxable amount = amt received – exempted amount. NOTE- Years of job= completed years + 1year for excess over 6months. Average salary- (a) in case of monthly salary- on the basis of salary of last 3months pay (b)in case of weekly wages- on the basis of wages of last 4 weeks (c) in case of daily wages – on the basis of wages of last 12 full working days.

Cont. Salary means Remuneration in money. Allowances Value of house accommodation, supply of light, water, medical attendance, other amenity or service or any concessional supply of food grains or other articles. Travel concessions Salary does not exclude Bonus, contribution to pension fund or provident fund, gratuity

COMPENSATION ON VOLUNTARY RETIREMENT [Sec.10(10C)] The amount equivalent to 3 month’s salary for each completed year of service Salary at the time of retirement*balance months of service left before the date of his retirement Amount receieved Maximum statutory limit-rs Meaning of salary- basic salary, D.A. if it is given as per terms of employment, comm. Based upon fixed % of turnover