Salary
Chapter IV-A of Income Tax Act 1961
Relationship of the receiver with payer
EMPLOYER- employee relationship must exist
Salary To Partners
Charging Section Section 15
Receipt or DUE basis whichever is earlier
Method Of Computation of Salary Section 17
1. Basic Pay = XXX
2. Allowances = XXX
3. Perquisite(Facility) = XXX
4. Retirement Benefits = XXX
5. Profits in Lieu of Salary = XXX
GROSS SALARY = xxxx
Less: Deduction Under Section 16(i) (now it is DELETED)
Under Section 16(ii) = xxx
Under Section 16(iii) = xxx
INCOME under head Salary = XXX
Personal Allowance Official Allowance Foreign Allowance HRA DA
I. Personal Allowance
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Allowance |
Maximum Exemption Limit |
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Children Education Allowance |
Rs 100 Per Month Per Child (Max 2 Children) |
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Hostel Allowance |
Rs 300 Per Month Per Child (Max 2 Children) |
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Transport Allowance |
Rs 1,600 Per Month—Disabled Person
Rs 800 Per Month-Any Other Person |
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Outstation Allowance
(Transport Co.) |
Lower Of:
ü 70% of Allowance
ü Rs.6,000 Per Month |
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Underground Allowance |
Rs.800 Per Month |
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Tribal area allowance |
Rs.200 Per Month |
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Compensatory Field Area Allowance |
Rs.2600 Per Month |
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Compensatory Modified Field Area Allowance |
Rs.1,000 Per Month |
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Allowance for Army Personnel working in Highly Active Field |
Rs.4,200 Per Month |
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Allowance for Army Personnel for |
Rs.3,250 Per Month |
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Medical Allowance |
No Exemption , Fully Taxable |
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Cash Allowance |
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Entertainment Allowance
[Also see Section 16(iii)] |
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City Compensatory Allowance |
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Servant Allowance |
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Overtime Allowance |
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Any Other Personal Allowance |
II. Official Allowance
Is Granted for Official Purpose.
Any Savings made by employee is Taxable
Þ Deduction = Amount ACTUALLY Spent
Examples
ü Traveling Allowance
ü Daily Allowance
ü Conveyance Allowance
ü Helper Allowance
ü Academic Allowance
ü Uniform Allowance
III. Foreign Allowance (Similarly for Perquisite)
ü Any Allowance
ü Paid by Government of
ü To Citizen Of
ü For rendering Services outside
ü Fully EXEMPT from tax.
IV. Dearness Allowance
Paid to Compensate for Increase in Prices
Fully TAXABLE
V. HOUSE RENT ALLOWANCE
Exemption allowed shall be
Lower of:-
Ø HRA Received
Ø Rent Paid - (10% of Retirement Benefits Salary)
Ø 50% of Retirement Benefits Salary Delhi/Mumbai/Calcutta/Chennai
40% of Retirement Benefits Salary Any Other State
“Retirement Benefits Salary” means
a) Basic Pay
b) DA (If it forms part of Salary)
c) Commission of Fixed % on SALES
PERQUISITES Section 17(2) Rule 3
1st. Rent free accommodation
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Govt. employees |
Others employees |
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As per govt. rules
(license fees) |
(i) owned by Employer
(ii) not owned by EMPLOYER
Taxable Amount is Lower of:-
(a) Actual Rent
(b) 15% of ”SALARY” |
“SALARY” means
Ø Basic Pay
Ø DA (If it forms part of Salary)
Ø Bonus/Commission
Ø Taxable Portion of all Allowances
Ø Any other Payment in Cash
Note:
(i) Furnished House: Add to value calculated above
i. OWNED furniture 10% p.a. of cost of furniture
ii. RENTED furniture actual hire charges
(j) In case of Transfer, If employee is given 2 Houses at both Places:-
a) For First 90 days one house with lower value Taxable
b) After 90 days Both Houses are taxable
2nd. Accommodation at Concessional Rent
Taxable Amount =Determine the value above & reduce the amount Recovered from
employee
3rd. Gardner/Watchman Sweeper & Gas/Water Electricity
Taxable only in case of “SPECIFIED employees”
Taxable Amount = Expenses incurred
“SPECIFIED employees” means
a) Director
b) employee having Voting Power >= 20%
c) employee having Salary more than Rs.50,000
4th. Obligation of employee met by EMPLOYER
Taxable Amount = Amount Spent
5th. Payment of Insurance Premium by EMPLOYER on behalf of employee
For assurance on the life of the assessee (Except Accidental Policy)
Taxable Amount = Amount Spent
6th. Interest Free Loans or Concessional Loans
For any Loan given By EMPLOYER TO employee
Taxable Amount=Interest @ “Charged by SBI” at “MAX. MONTHLY outstanding balance”
Exemption for Loans < Rs20,000
7th. Use of EMPLOYER’s Asset by the employees
Taxable Amount
-
Laptop & Computers NIL
-
Other Assets 10% p.a of Actual Cost or Hire Charges
8th.
Actual Cost of EMPLOYER
Less: Depreciation, for each COMPLETED year
In Case of:
ü Computer& Electronic items 50% WDV
ü Motor Car 20% WDV
ü Any other Asset 10% SLM
Less: Amount Recovered
Taxable Amount
9th. Medical Facility Proviso to Sec17(2)
Whether given to employee or Members of his Family
Taxable Amount
1. Treatment is done in any Hospital:- NIL
ü maintained by EMPLOYER
ü maintained by Govt.
ü maintained by Local Authority
ü Approved for Specified Diseases, by Specified Authority
2. Payment Of Health Insurance Premium NIL
3. Reimbursement of Actual Expenditure in Any Other Hospital In excess of Rs.15,000
10th. TAX Free Perquisites
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FACILITY |
Remarks |
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Foreign Perquisites |
ALWAYS |
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RFA to Judge of HC or SC |
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Conveyance Facility to Judge of HC or SC |
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Children Education upto Rs1,000 P.m |
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Telephone Facility |
Superannuation Benefits
Gratuity Section 10(10)
1. GOVT. employees Fully exempt
2. Others employees
(i) employees covered by the Payment Gratuity Act, 1972:-
Exemption shall be Least of the following
(a) 15 days Salary for each Completed Year of Service or part in excess of 6 months (26 days in a month)
(b) Rs. 3,50,000
(c) Amount received
Meaning of salary: Last drawn Salary {Basic Pay + DA}
(ii) employees not covered by gratuity Act:-
Exemption shall be Least of the following
(a) 15 days Salary for each Completed Year of Service (30 days in a month)
(b) Rs. 3, 50,000
(c) Amount received
Meaning of salary: Average Salary for 10 Months immediately preceding the Month of Retirement {Same as in HRA}
Pension Section 10(10A)
I. Uncommuted pension- Taxable ALL employees
II. Commuted pension-
(i) GOVT. employees Fully exempt
(ii) NON GOVT. employees Following is exempt:-
(a) Receiving GRATUITY 1/3
(b)Other Cases 1/2
Leave Encashment Section 10(10AA)
1.Any Leave Encashment when employee is in Service Fully Taxable
2.Any Leave Encashment when employee has RESIGNED/RETIRED
A GOVT. employees Fully exempt
B Others employees
Exemption shall be Least of the following
(i) Leave Salary Received
(ii) Rs. 3,00,000
(iii) 10 x AVERAGE SALARY
(iv) Leave at Credit x AVERAGE SALARY
Leave Entitlement {Maximum 30days for each completed year of Service}
Less: Total Leave Availed
Less: Total Leave Encashed
Meaning of salary: Average Salary for 10 Months immediately preceding the Month of Retirement {Same as in HRA}
Retrenchment compensation Section 10(10B)
Exemption shall be Least of the following
(a) Amount Received
(b) an amount calculated under Section 25F(b) of the Industrial Disputes Act, 1947
[i.e 15 days Salary for each Completed Year of Service or part in excess of 6 months (26 days in a month)]
(c) Rs 5,00,000
Compensation voluntary retirement Section 10(10C)
Exemption shall be Least of the following
(i) Amount receivable or
(ii) Rs. 5,00,000
Conditions for claiming exemption:-
(i) Any employee [except: Director of Co.]
(ii) Maximum amount
(a) 3 x Salary p.m x completed years of Service
(b) Salary p.m x Months left for Service
Salary [same as in HRA]
Provident Fund Section 10
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Statutory Provident Fund |
Recognised Provident Fund |
Unrecognised Provident Fund |
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EMPLOYERS Contribution |
Exempt |
Exempt upto 12% of Salary |
Exempt |
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employee Contribution |
Claim Section80C |
Claim Section 80C |
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Interest Income (both EMPLOYER & employee) |
Exempt |
Exempt upto 9.5% |
Exempt |
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Lump sum Payment on Retirement or Termination |
Exempt |
Exempt, if specified conditions are fulfilled |
#* |
#*
employee Contribution- Exempt
EMPLOYERS Contribution- taxable [U/h Salary]
Interest on EMPLOYERS Contribution- taxable [U/h Salary]
Interest on EMPLOYERS Contribution- taxable [U/h Other Sources]
Profits in lieu of salary Section 17(3)
1. Any compensation due to an assessee from his EMPLOYER in connection with the termination of his employment or the modification of the terms and conditions relating thereto;
2. Any payment for gratuity, pension, retrenchment compensation or provident fund
3. Any sum received under a keyman insurance policy including the sum allocated by way of bonus on such policy.
4. Any amount due to or received, whether in lump sum or otherwise, by any assessee from any person—
(a) before his joining any employment with that person; or
(b) after cessation of his employment with that person.
Professional Tax Deduction U/s 16(ii)
Deduction = Any amount paid by
à employee
à EMPLOYER on behalf of employee
Entertainment Allowance Deduction U/s 16(ii)
GOVT employees
Deduction shall be Least of the following:
1. Amount Received
2. Rs.5,000
3. 20% Of Basic Pay
Meaning of Salary in different Cases
HRA
Gratuity {employees not covered by Gratuity Act}
Voluntary Retirement + DA [forming part]
Recognised Provident Fund + Comm. on fixed% of Turnover
Gratuity {employees covered by Gratuity Act} Basic Pay + DA
RFA Basic Pay + DA[forming part]+Bonus+ Commission
+ Taxable portion of all allowances
+ Monetary Payment from EMPLOYER
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