1. SALARY INCOME

2. The Basic Concepts Relationship b/w Payer & Payee More than one source
Director
Lecturer
MP/MLA
More than one source
Former/present/prospective employer
Foregoing salary is salary income
Surrender of salary u/s 2 of VSS Act,1961
Tax free salary
Voluntary payment v/s contractual payment
Comp for death, injury ??

3. Salary-basis of charge u/s 15
The following income shall be chargeable to income-tax under the head Salaries
(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;
(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;
(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.
[Explanation 1].For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due.
[Explanation 2.Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as salary for the purposes of this section.]

4. Basis of Charge
Salary is taxable on due or receipt basis whichever is earlier
Method of accounting of employee not relevant

5. Deductions from salaries
16. The income chargeable under the head Salaries shall be computed after making the following deductions, namely :
[(ii) a deduction in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less;]
[(iii) a deduction of any sum paid by the assessee on account of a tax on employment within the meaning of clause (2) of article 276 of the Constitution, leviable by or under any law.]

6. Salary defined u/s 17(1)
For the purposes of sections 15 and 16 and of this section, salary includes
(i) wages;
(ii) any annuity or pension;
(iii) any gratuity;
(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
(v) any advance of salary;
(va) any payment received by an employee in respect of any period of leave not availed of by him;
(vi) the annual accretion to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule;
(vii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; and
(viii) the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD

7. Salary means
Basic salary and allowances
Annuity
Gratuity
Commission
Perquisite in lieu of salary
Advance salary
Employers contribution to PF
Leave salary

8. Computation template
Income from Salary XXX Income by way of allowances YYY Taxable value of perquisites PPP Gross Salary GGG Less: Deduction u/s 16 Entertainment allowance AAA Professional tax BBB Income from salaries ZZZ

9. Leave Encashment
Fully chargeable to tax if received during continuity of employment (whether govt/non-govt employee)
Govt Employees: At time of retirement
is fully exempted from tax u/s 10(10AA)(i)
Non govt employee: fully or partly exempt if received at the time of retirement depending on conditions

10. Leave Encashment( cont.)
NON GOVT employees – leave encashment at the time of retirement:
Exemption is granted to the extent of least of the following:
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)
10*average monthly salary
The amt. specified by the government i.e Rs.3,00,000
Leave encashment actually received at the time of retirement

11. Terms defined Leave standing to credit:
[No of years of service(ignore fractions) * Leave allowed per year (max 30 days per yr) – leave encashed]/(30)
Salary for this purpose means
basic salary and includes
DA if terms of employment so provide
commission 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)

12. Gratuity 2. Gratuity is a retirement benefit
1.GRATUITY WHILE IN SERVICE IS FULLY TAXABLE
2. Gratuity is a retirement benefit
Government employee –fully exempt
Non-government employee covered by Payment of Gratuity Act -fully or partially exempt under section 10(10)(ii)
Non-government employees not covered by the Payment of Gratuity Act ,1972- fully or partially exempt under section 10(10)(ii)

13. Gratuity(cont.) IN CASE OF GOVT EMPLOYEES:
wholly exempt
In case of employees covered by 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)

14. 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 (excl bonus,comm,HRA,allowances)
how to determine 15 days salary –
calculated as
salary last drawn *15days/ 26 days

15. Gratuity (cont.)
In the case of non govt employee NOT covered by Payment of Gratuity Act , least of the following is exempt from tax:
Rs 3,50,000
Half month’s average salary for each completed year of service
Gratuity actually received

16. Gratuity (cont.)
Average monthly salary: Salary for 10 months immediately preceding the month in which the employee has retired
Salary for this purpose means- basic salary
- dearness allowance( if taken for benefits)
- Commission if it is fixed % on turnover
No of years in service is rounded of to full completed years in service

17. Pension Case 1. Pension from UNO It is not chargeable to tax Case 2.
Pension received by the family of armed forces
Case 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

18. Pension (cont.)
Case 4:
Pension received by employee who has joined employment after January 1, 2004.
Case 5:
Pension received in any other case
Tax treatment : New Pension Schemes rules apply
Tax treatment: Rules apply

19. Pension-Case 5 –u/s 17(1)(ii)
Uncommuted Pension
Commuted Pension
Govt. /Non Govt
Employee
Govt. Employee
Non-Govt.
Taxable
Exempted
from Tax u/s 10(10A)(i)
It is fully or partly
Exempt u/s 10(10A)(ii)

20. Commuted Pension(cont.)
Status of Employee
Govt employee
Non Govt. Employee
Gratuity recd/not
With or without
Gratuity
Gratuity is received
Gratuity is not
received
Exemption
u/s 10(10A)
Exempted
Fully
1/3 of normal
exempt
½ of normal
is exempt

21. PERQUISITES Any benefit in addition to salary and wages.
Any sum paid by the employer which otherwise
would have been payable by the employee.
Cash ?? or kind
Legal origin
Beneficiary:
Spouse
Parents
Children
Servants
Dependents

22. Perquisites defined u/s 17(2) (in brief)
Rent free acco
Concession in acco
Any benefit/amenity granted to specified employee
Employees obligation discharged by employer
Employee funding annuity/life ins (except by way of RPF/SF)
Any other fringe benefits or amenity as may be prescribed

23. 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)

24. 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)

25. Perquisites taxable ONLY when Employer is NOT liable to pay FBT
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

26. SPECIFIED EMPLOYEE A director - 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 . Exclude/deduct:
non monetary benefit and exemptions like HRA
Deduct entertainment allowance and prof. tax
but , since the minimum exemption limit is Rs.1,50,000, practically all tax payers are specified employees !!!

27. Perquisites not taxable in hands of non-specified employee
Sweeper/gardener/watchman/personal attendant
Gas/electricity/water for house
Education facility to family members
LTC (upto twice in block of 4 years).
Medical facility
Car or conveyance
Transport facility by transport undertaking (not railways/airline)

28. Rent Free Unfurnished Accomodation
Categories:
Central & State Government Employees
Excl local auth,incl on deputation
Private Sector Employees
Accommodation:
Farmhouse
Hotel/motel/guest house
Caravan
Ship
Floating str

29. Central & State Govt. Employees
Basis of valuation: equal to license fee set by the State/Cent Govt for allotment of houses to its employees
Accommodation provided to :
MPs
Judges of High Court
Supreme Court
Official of Parliament
Ministers

30. Private Sector Employees
Basis of valuation:
Population of the place exceeding 25 lakhs :
15 % of salary where employer owns acco
else - lower of lease rent or 15% of salary
Population between lakhs :
10% of salary where employer owns acco
Others :
7.5% of salary where employer owns acco

31. 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
Salary to be taken on accrual basis
More than one employer?

32. Exceptions to accommodation rules
It is not applicable to an accommodation located in a remote area (40 kms from town with population LT 20,000) and in a mining, project ,oil exploration site
Where on account of transfer, an employee is given two accommodations, only one will be taxed for 90 days. Beyond 90 days the lesser of the two will be taxed.

33. Rent free furnished accommodation (not being a hotel)
Step 1: Find out the value of the accommodation without the value of the furniture
Step 2 : Now 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)

34. Furnished accommodation in a Hotel
It includes accommodation in a motel, guest house.
The value of perquisite is the lower of the two.
24% of salary paid during the period when accommodation is taken or
Actual bills paid by the employer
(not taxable if provided for 15 days in a P.Y. and when an employee is transferred)

35. Accommodation at a concessional value
Value is determined as follows:
Find out the value of accommodation as if it is NOT provided at a concession
Deduct the value of rent charged from the employee

36. Perquisite of free domestic servants
Where value is actual cost to employer in all cases :
Sweeper/watchman/gardener/personal attendant
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 accommodation , they are not valued separately

37. Valuation of gas, electric energy or water supply
All assessees are taxable
Value = cost to employer (mfc. cost/amt paid to 3rd party) – amt recovered from employee

38. Free Education Training of employees
Education/Hostel allowance for children
100/300 pm pc (max2 )
School fees paid/reimbursed by employer
Education facility owned by employer
Exempt upto Rs1000 pm pc (max? )
Else: MV-amt recovered-1000
If beneficiary is not a child, then MV-amt recovered
Scholarship ??

39. Any Questions ???
Thank you

40. 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, HUF, 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

41. Motor car perquisite Car owned by Employee
Expenses met by Employee - Not taxable
Expenses met or reimbursed by Employer
- Official purpose only Not taxable
Conditions apply 
- Used for private purpose
Value= actual expenses – amt recovered

42. Motor car perquisite( Cont.)
Car owned by employee (cont.)
-Partly used for private purpose
Find actual expense incurred by employer
Less amount used for official purpose ie.Rs.1200pm up to 1.6lts engine cubic capacity & Rs.1600 above 1.6 lts CC
Also add Rs 600pm for chauffeur (if any)
Value = Actual exp. – deemed(official) -- amt. recovered from employee

43. 2.When Car is owned or hired by Employer
Expenses met/reimbursed by employer
Wholly used for official purpose - Not taxable
Conditions apply 
Wholly used for personal purpose
Value= Actual exp+10% cost of car-recovery
Partly official & partly personal-
-sum of Rs.1200 up to 1.6 ltrs engine capacity
-sum of Rs.1600 beyond 1.6 ltrs capacity
-add Rs 600pm for chauffeur
ignore recovery

44. 2.When Car is owned or hired by Employer (cont.)
B. Expense & maintenance by Employee
a) Used only officially, not perquisite so no tax
b) Wholly used for personal- 10% of cost for wear & tear - recovery
c) Partly official & partly personal-
-sum of Rs.400 upto 1.6 ltrs engine capacity
-sum of Rs.600 beyond 1.6 ltrs capacity
-add Rs 600pm for chauffeur
ignore recovery

45. When Vehicle (except car)is owned by Employee and exp met by employer
Official purpose only Not taxable
Conditions apply 
Partly official & partly personal-
Value= Actual exp - Rs 600pm (or higher) - recovery

46. Misc issues – free car perquisite
Month – means full month- ignore part of month
Where 2 or more cars are allowed
One car valued as partly official
Rest valued as used for personal use only
Car at concessional rate
Car facility b/w office and residence
Conveyance facility for judges (HC/SC)

47. Amt payable by employer to effect assurance on life of employee
Taxable except in case of
RPF
SAF
Grp Ins scheme
ESIS
Fidelity guarantee schemes

48. Interest free loan (or concession)
Loan is a perquisite
To calculate value, find:
Max O/S amt on the last day of each month
Benchmark similar SBI rate as on 1st April of PY
Find interest o/s on monthly balance
Value=such interest – recovery
2 Exemptions:
Loan for medical treatment
Loan amt LT Rs 20,000

49. Use of movable assets Value = cost to employer – recovery
Cost = 10% of actual cost or rental
Computers/laptops are excluded

50. Movable assets sold to employee at nominal price
Value = Cost – DEP – recovery
DEP:
Electronic items/ Computers
50% for each completed year by reducing balance method
Motor cars
20% for each completed year by reducing balance method
Other items
10% of actual cost for each completed year

51. Perquisites taxable ONLY if Employer is not liable to pay FBT
Employers not liable to pay FBT:
Individual/sole proprietor
HUF
Govt
Political party
RBI/SEBI
Charitable institute

52. 1. Free Transport Value= cost to employer – recovery
NIL for employees of railways/airlines
If employer is any other transport undertaking
FMV-recovery

53. 2. Lunch/Refreshment Any allowance is fully taxable
Value = cost to employer – recovery
In remote area/offshore location-NIL
Tea/snacks in working hrs-NIL
Non transferable paid vouchers: Rs 50 exempt per meal
Else, Value = cost- Rs.50-recovery

54. 3.Travelling,touring,accommodation
Value = cost to employer – recovery
What about?
Spouse accompanying on official tour?
Official visit extended to personal tour?

55. 4. Gift, voucher or token Exempt up to Rs. 5000 provided
It is not in cash/equivalent
Ex. Diwali gift of a watch+cash of Rs.10,000

56. 5. Credit card Value = cost to employer – exp on official use-recovery
Exp incurred by employer:
Membership fee
Annual fee
Cost of add on cards
Official use subject to conditions

57. 6.Club expenditure
Value = cost to employer – exp on official use-recovery
Imp issues:
employee or household
Paid/reimbursed by employer
Health club/sports facilities to all employees??
Corporate membership fees?
Official use subject to conditions

58. Any Questions ???
Thank you