Professional Documents
Culture Documents
Salary Income
Salary Income
“SALARIES”.
WHAT IS “SALARY”?
An individual, firm,
Association of persons,
Company, and corporation,
Central Government,
State Government,
Public body or a local authority.
1
Salaries and wages not conceptually different.
(a) Wages;
2
Salary is taxable on “due” or “receipt” basis
which ever is earlier.
Mercantile basis or
Cash basis.
3
GRATUITY IS TAXABLE AS PER THE
FOLLOWING PROVISIONS:
4
2. In the case of employees covered by “payment of
gratuity act, 1972”, the exemption from tax is on the
following basis.
2. Rs. 3,50,000.
5
How to determine 15 days salary:
For example:
If salary last drawn is Rs 2500. p.m.,
1. Rs.3, 50,000
7
from tax under sec
10(10A)(ii)
What is uncommuted pension:
For example:
8
Commuted pension is taxable as under:
Government
employee (i.e., an
employee of central Gratuity may or may Entire commuted
or state government, not be received pension is exempt
local authority and from tax
statutory corporation
9
Any amount received in excess of above is taxable
.
10
PROFITS IN LIEU OF SALARY [SEC 17(3)]
Gratuity (exempt),
House Rent Allowance (exempt),
Commuted Pension (exempt),
Retrenchment Compensation (exempt),
Payment from approved Superannuating fund,
Payment from statutory Provident Fund or
Public Provident Fund,
Payment from recognized provident fund (exempt).
2. Local authority
3. University
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4. IIT
13
connected with the service rendered by the employee or as
Problem 1:
Mr. X, who resides in Chennai gets Rs. 3,00,000
per annum as basic salary during the assessment
year 2004-05.
Problem2:
16
Solution:
1.Actual HRA received Rs.9000
2.Excess of rent paid over 10% of salary Rs.6000
3.40% of salary Rs.24, 000.
Salary for a period other than the relevant previous year is not
taken into account while computing the exempt portion of house
rent allowance.
Problem3:
Mr. X a resident of Ajmer receives Rs. 1, 92,000 per annum as
basic salary during the previous year 2003-04.
17
He pays Rs 21,500 per annum as house rent.
Solution:
Total Rs 2,17,220
18
Problem 4:
Is he legally correct?
19
Solution:
The amount exempt from tax is Rs 1250 [Rs. 250 p.m for 5
months during which rented accommodation was occupied by X].
20
Amount to be included in salary income = Rs1750
(b) The amount utilized for the specific purpose for which
allowance is given
Research allowance
Uniform allowance
Transport allowance
23
The amount exempt is limited to Rs.100 per month
per child upto a maximum of two children.
Etc.
PERQUISITES
CAR
25
Provision of car or any other conveyance for
personal use by the employee w.e.f.1.4.2005
Reimbursement of expenses in respect of car is
treated as ‘nil’ in the hands of employee w.e.f
AY 2006-07
Education facility
Transport facility
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Interest free loan for medical treatment of the
nature given in rule 3A.
Free meals
Club
Medical facility
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Others
Gift.
Credit card facility.
Telephone/ mobile charges.
Traveling stay on a holiday, Etc.
A director employee
An employee who has substantial interest in the
employer company.
Example:
1. X is employed by A Ltd.
2. Y is employed by B Ltd.
29
He is a “specified employee” of B Ltd.
4. Z is employed by C Ltd.
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(a) Value of unfurnished accommodation provided
to:
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B. Value of unfurnished accommodation provided to
other employees.
Exceeding 10 lacs
but not exceeding 10% of salary Same as above
25 lacs
32
Salary for this purpose- How to calculate.
(iv)Value of perquisites.
33
VALUATION OF RENT-FREE FURNISHED
ACCOMMODATION
34
If the following two conditions are satisfied nothing is
chargeable to tax:
35
VALUATION OF DUAL ACCOMMODATION IN CASE OF
TRANSFER
36
Problem 1.
As per Government rules the licence fee of the flat is Rs. 1,250
per month.
37
Solution:
Problem2:
38
Solution:
39
Problem 3:
X is likely to receive during the previous year ending March 31,
2008,emoluments consisting of:
Employer pays Rs.10, 000 annually as hire charges for three air-
conditioners installed throughout the previous year in rent-free
flat.
Compute the value of perquisite if:
(a) X is a secretary in the Ministry of Law and Rs.4, 000
is the licence fee of unfurnished flat as per Central
Government rules.
40
Solution:
Rs. 4,000 being the licence fee is the taxable value of the
perquisite.
Valuation of furniture:
41
Valuation of furnished flat:
Valuation of
Unfurnished Furniture Furnished
Flat Rs Flat
Rs
If X is a secretary
to Central 4,000 13,000 17,000
Government
If X is Managing
Director of ABC 26,850 13,000 39,850
Ltd.
Problem 4:
Mr. B has been provided with a residential accommodation by
his employer for which the employer paid Rs. 42,000 as rent.
His employer has provided him with furniture the cost of which
is Rs2, 00,000. The employer has also hired an air conditioner,
the hire charges of which are Rs1,000 per month.
Find the perquisite value of residential accommodation.
42
Solution:
Valuation of furniture:
43
Valuation of perquisite in respect of free education:
Training of employees:
44
Education facility in employer’s institute.
2.If bills are issued in the name of employee and paid by the
employer, then the perquisite is taxable in the hands of all
employees; otherwise it is taxable in the hands of specified
employees.
46
If however the domestic servant is engaged by the
employer, the perquisite is taxable in the hands of
specified employees only
Steps are:
47
However where any part of such loan has been
reimbursed to the employee under medical insurance
scheme, such amount shall be reduced.
Problem1:
Solution:
Problem 2:
48
Y is employed by B Ltd. On April 30th 2004, he takes a loan
of Rs 25,000 from B Ltd. B Ltd. recovers 7% per annum
from Y.
SBI lending rate for similar loan is 13.35% on 1st April 2004
Solution:
The perquisite value is 13.35-7%=6.35% on Rs
25,000=Rs 1588 and is chargeable in the hands of Y.
49
10% of the actual cost or amount of hire charges paid or
payable by the employer minus amount if any paid by the
employee for such use.
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Statement of perquisite/profit in lieu of salary.
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(b) from his employer or former employer for himself
and his family in connection with his proceeding
to any place in India after retirement from
service or after termination of his service.
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(b) where no recognized public transport system exists,
an amount equivalent to the air–conditioned first
class rail fare, for the distance of the journey as if
performed by rail.
(c) The fare shall be computed for the journey to the
place of destination by the shortest route.
(d) The exemption is available to an individual in respect
of two journeys performed in a block of four calendar
years; the first block being of 1986 to 1989 and the
second being of 1990 to 1993 and so on-
2002-2005, 2006-2009 (Jan1, 2006 to Dec 31 st
2009).
53
The employer also, generally, contributes
simultaneously same amount out of his pocket to the
fund.
54
(a) Statutory Provident Fund:
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Alternative Additional formalities to Status for
scheme get the approval of the Income Tax
available Provident purpose
Commissioner
1. Scheme
of the Such a fund is
Govern- No recognized
-ment set provident fund
up under
the PF Act,
1952
56
© Unrecognised Provident Fund:
57
Tax treatment
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The total amount of deduction shall not exceed Rs 1 lac.
Amount of deduction
Maximum deduction Rs.15, 000.
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one or more dependent person with disability;
and
(ii) amount deposited under an approved scheme of
LIC of India or other insurance company for the
benefit of a dependent person with disability.
Amount of Deduction:
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Amount of deduction:
(from the A.Y 2008-09 the loan taken for the purpose of
higher education of spouse, children is also eligible.)
DONATIONS [SEC80G]
Conditions:
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serve the national purpose directly and are referred to in the
rules exceeds 10% of his income. Such excess shall not
qualify for deduction.
Conditions:
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(ii) Rs. 2,000 p.m.; or
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Condition: The assesse shall furnish a certificate from the
approved medical authority in the prescribed form along
with return of income.
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(i) Calculate the tax on total income of the previous year in
which additional salary (i.e. salary in arrears or advance) is
received.
(iii) From the amount of tax arrived in step (i) reduce the
amount of tax arrived at step (ii), to arrive at tax on
additional salary.
(vii) From the amount in step (v), deduct the amount arrived
at step (vi), to calculate aggregate tax on additional salary.
(viii) The relief under sec89 (1) is the difference of (iii) and
(vii)
Problem:
69
Rs.63, 450 as arrears of salary for the previous 3 years as
under:
Solution:
Rs.
Gross salary including arrears 3,15,740
Less: deduction u/c 80C of eligible
investment of Rs.1, 00,000 1,00,000
-------------
Taxable Income 2,15,740
-------------
Tax liability on Rs.2, 15,740 (Note1) 18,148
Add: Education Cess@2% 363
------------
Total Tax liability (A) 18,511
-------------
Gross salary without arrears (3,15,740-63,450) 2,52,290
Less deduction u/s 80C of eligible
investment of Rs.1 lac 1,00,000
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Gross Income 1,52,290
3.Balance (1-2)
4.Deductions:
a. Entertainment allowance sec16 (ii).
b. Tax on employment sec16 (iii)
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5. Aggregate of 4 (a & b)
74
Problem1:
75
Solution:
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Tax :
On Rs. 1,10,000 Nil
On next Rs. 40,000 @ 10% 4,000
On next Rs. 90,200 @ 20% 18,040
-------------- --------------
On total Rs. 2,40,200 22,040 22,040
Problem 2:
Mr. A receives the following salary and perquisites during
the previous year 2007-08.
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Solution: Rs.
Bonus 12,375
Reimbursement of
medical treatment Rs.13,500
Less : Exempt Rs.13,500 -
78
Tax on salary:
79
Problem 3:
Mrs. X who lives in Mumbai, gets the following emoluments
during the previous year 2007-08.
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Solution:
Rs.
Basic Salary ( Rs 540012) 64,800
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Deduction under sec 80 C
9564
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Note1
Calculation of House Rent Allowance (HRA) exempt:
Rs.
1.HRA received: 10,800
2.Rent paid-10% of salary (Rs.19,200- Rs.6,720): 12,480
3. 50% of salary: 33,600
83