PROJECT

INCOME
FROM
SALARIES
 Project Presented By:

Group Leader:

Maitrayee .R. Jadhav

Roll No.16

Name Roll no
Bhushan Dalvi 9
Mrunmayee Gaokar 10

Dinesh Gawade 11

Dipesh Gawas 12
Priyanka Ghag 13
Deepak Gupta 14
Ashmita Jadhav 15
 INTRODUCTION:

MEANING OF SALARY
Salary, in simple words, means remuneration of a person,
which he has received
from his employer for rendering services to him. But receipts
for all kinds of
services rendered cannot be taxed as salary. The
remuneration received by
professionals like doctors, architects, lawyers etc. cannot be
covered under salary
since it is not received from their employers but from their
clients. So, it is taxed
under business or profession head. In order to understand
what is included in
salary, let us discuss few characteristics of salary.

CHARACTERISTICS OF SALARY.

1. The relationship of payer and payee must be of employer

and employee
for an income to be categorized as salary income. For
example: Salary
income of a Member of Parliament cannot be specified as
salary, since it is
received from Government of India which is not his employer.
2. The Act makes no distinction between salary and wages,
though generally
salary is paid for non-manual work and wages are paid for
manual work.
3. Salary received from employer, whether one or more than
one is included
in this head.
4. Salary is taxable either on due basis or receipt basis which
ever matures
earlier:

Receipt basis – when it is received even if it is not earned in

the previous
year.
Arrears of salary- which were not due and received earlier are
taxable
when due or received, which ever is earlier.
5. Compulsory deduction from salary such as employees’
contribution to
provident fund, deduction on account of medical scheme or
staff welfare
scheme etc. are examples of instances of application of
income. In these
cases, for computing total income, these deductions have to
be added back.

INCOMES FORMING PART OF SALARY: I

Section 17 of the Act gives an inclusive definition of salary.

Broadly, it includes:
1. Basic salary
2. Fees, Commission and Bonus
3. Taxable value of cash allowances
4. Taxable value of perquisites
5. Retirement Benefits
Although, all the components of salary income are included in
salary, there are
certain incomes in each of these categories, which are either
fully exempt or
exempt upto a certain limit. The aggregate of the above
incomes, after the
exemption(s) available, if any, is known as ‘Gross Salary’.
Under the Income-tax Act "Salary" includes :-
 Wages

 Annuity or pension

 Gratuity

 Fees,commission,perquisites or profits in lieu of salary

 Advance of Salar / arrears of salary;

 Receipt from Provident Fund

 Contribution of employer to a Recognised Provident Fund

in excess of the prescribed limit

 Leave Encashment

 Compensation as a result of variation in Service

contract etc.
 Salary Due: Any income due from an employer to an
employee, whether paid or not. This is also true if the
income is due from a former employer
Advance Salary: Any salary paid by an
employer to an employee even though it was
not due or was paid before the due date. This
is also true if the advance salary had been
paid by a former employer

 Arrears of Salary: Any arrears of salary

paid to an employee by an employer, for
which income tax had not been
previously deducted. This is also true in
case the arrears are paid by a former
employee.

 Employee, employer and employment

areessential components of income from
salary,which are defined as under: -

Employee means an individual engaged in

employment.

Employer means any person who engages and

remunerates an individual engaged in
employment.

Employment includes –
 A directorship or any other office involved
in the management of a company.
 A position entitling the holder to a fixed or
ascertainable remuneration; or
 The holding or acting in any public office..

WHAT IS THE PLACE OF ACCRUAL OF

SALARY?
The golden rule is that it accrues where the service
is rendered. Leave salary paid to a person employed
in India on leave to a foreign country is treated to
be the arisen in India. However, if a citizen of India
service outside India and receives salary from the
of India, it would be taxable as salary to have
accrued in India.

PENSIONS TO BE TAXED AS SALARY?

Pensions are taxed under the head 'Salaries'. The of

standard deduction is also available on them.

IS ADVANCE SALARY TO BE TAXED IN THE YEAR OF

RECEIPT?

The I.T. Act contemplates tax on salary which is due,

whether paid or not, tax is attracted at the latest
possible point of time which is the date when the
salary accrues or becomes due. However, where any
salary paid in advance is assessed in the year of
payment, it cannot be taxed again when it becomes
due. Similarly, if arrears of salary have been assessed
on the 'due' basis in the past, they are not liable to be
taxed again when they are paid.
 WHAT IS TAX FREE SALARY AND HOW IS IT TAXED?

When the salary is paid 'tax-free' the employee has to

return in his total income the gross salary, i.e.
aggregate of the net-salary received plus the amount
of tax paid on his behalf by the employer. It does not
make any difference whether the tax is borne by the
employer voluntarily or under a contractual obligation

IS SALARY PAYABLE FOR LEAVE-PERIOD TO NON-

RESIDENTS TAXABLE EVEN IF LEAVE IS SPENT
OUTSIDE INDIA?

Yes. The salary paid for services rendered in India is

regarded as income earned in India, so as to
specifically provide that any salary payable for rest
period or leave period which is both proceeded or
succeeded by service in India forms part of the
service contract of employment will also be regarded
as income earned in India and so is to be taxed.

PERQUISITE

"Perquisite" may be defined as any casual emolument

or benefit attached to an office or position in addition
to salary or wages. Perquisite as defined in the
Income tax Act includes:-

 Value of rent-free/concessional rent

accommodation provided by the employer.
 Any sum paid by employer in respect of an
obligation which was actually payable by the
assessee.
  Value of any benefit/amenity granted free or at
concessional rate to specified employees etc.

The following perquisites are not taxable either under

the executive instructions of the Central Board of
Direct Taxes or by virtue of specific provision in the
Act/Rules:-

 Rent-Free House

 Rent-free official residence provided to a

judge of a High Court or of the Supreme
Court.

 Rent-free furnished residence (including

maintenance thereof) provided to an official
of Parliament, a Union Minister or a Leader
of Opposition in Parliament

 Accommodation provided in a 'remote area'

to an employee working at a mining site or
an onshore oil exploration site, or a project
execution site or an accommodation
provided in an offshore site of similar
nature.

 Accommodation provided on transfer of an

employee in a hotel for not exceeding 15
days in aggregate.
 Car

 Reimbursement of expenses in respect of

car (which is owned by employee and used
for personal and official purpose) (amount
not taxable is up to Rs. 1,200 per month for
car having engine capacity of not more than
1600cc, Rs. 1,600 per month for car of
above 1600cc and Rs. 600 per month for
driver).

 Conveyance facility provided to High Court

Judges and Supreme Court Judges.

 Conveyance facility provided to an

employee to cover the journey between
office and residence.

 Interest-Free Loan

 Interest-free / concessional loan of an

amount not exceeding Rs.20,000

 Others

 Gift-in-kind up to Rs.5,000 in a year.

  Employer's contribution to staff group
insurance scheme

WHO IS A SPECIFIED EMPLOYEE AND WHAT

PERQUISITES ARE TAXABLE IN HIS HANDS?

The specified employees include the following:-         

a) Director employee, whether full time or part time.

b) Employee who is beneficial owner of equity in the

employer's company carrying 20% or more voting
power.

c) The employees other than those mentioned above,

drawing salary in excess of Rs. 24,000 (w.e.f. 13th
April 2002 this limit is Rs. 50,000) in monetary terms.

The value of any benefit or amenity granted or

provided free of cost or at concessional rates to
these specified persons would be a 'perquisite'
taxable in their hands.

WHAT ARE THE OTHER TAXABLE PERQUISITES?

LAW APPLICABLE, AT THE OPTION OF THE

ASSESSES, UPTO 30.9.2001.

The other taxable perquisites which are taxable in a

prescribed manner include the folio wing: -

a) Value of rent free accommodation provided to the

assessee by his employer.

b) Value of concession in rent of accommodation

provided to the assessee by his employer.
c) Amount payable by an employer directly or
indirectly to effect an assurance on the life of the
employee or to effect a contract for an annuity,  other
than payment made to recognised provident fund etc.

d) Amount paid by an employer in respect of any

obligation which otherwise would have been payable
by the employee, for example - payment of income-
tax.

Valuation of perquisites - The employer often gives

some perquisites to the employees. Value of these
perquisites is added to the income of employees. The
valuation of perquisites is done as follows :

Rent Free unfurnished Accommodation - -  In case of

private sector employees, value of perquisite of rent
free unfurnished accommodation is taken as follows -
(a) If owned by employer - If population of city
exceeds 25 lakhs - 15%, if population exceeds 10
lakhs but below 25 lakhs - 10% (c) In other cases -
7.5%.

In case of Government Employees, value will be rent

as per rules framed by Government, as reduced by
sum actually paid

Salary includes basis, DA (if taken into account for

retirement benefit), bonus, commission, fees and all
taxable allowances.

Valuation of furnished accommodation - If

accommodation is furnished, in addition to above,
10% of cost of furniture (including TV, radio,
refrigerator, AC etc.), if owned by employer, will be
treated as perquisite. If the furniture is hired from
third party, actual hire charges less any amount
recovered from employee will be the perquisite.

Gas electricity or water supply - Some benefits like

gas, electricity, water are valued at actual cost to
employer. If these are provided from own sources,
value will be manufacturing cost incurred per unit,
less amount recovered from employee.

Domestic servants - Actual cost to employer for

sweeper, gardener, watchman or personal attendant
will be value of perquisite.

Use of movable assets - If some movable asset is

provided to employee, perquisite will be @ 10% of the
cost of asset or rent paid, as reduced by sum paid by
employee.

Loans to employees at concessional rate - Calculate

interest on basis of SBI lending rates, reduced
interest paid by employee and difference will be the
value of perquisite.

1-3 Perquisites which will be added to salary

Remaining  perquisites perquisites like motor car,

lunch, refreshment, travelling, touring, gift, credit
card, club etc. will be added to salary and taxed in
hands of individual (Till 31-3-2009, FBT was payable
by employer and hence these were exempt at hands
of employee).
Valuation of motor car -.If car is owned or hired by
employer and provided for personal purposes of
employees, valuation will be expenditure incurred by
employer on running and maintenance plus
remuneration of chauffer plus normal wear and tear @
10% on actual cost less amount charged to
employees.

If motor is partly for official and partly for personal

purposes and expenses are reimbursed by employer,
perquisite value per month is Rs 1,2000 per month if
engine cubic capacity is upto 1.6 liters and Rs 1,600
per month if cubic capacity of engine exceeds 1.6
liters.

If motor is partly for official and partly for personal

purposes and expenses are reimbursed by employer,
perquisite value per month is Rs 1,200 per month if
engine cubic capacity is upto 1.6 liters and Rs 1,600
per month if cubic capacity of engine exceeds 1.6
liters. If  chauffer is provided, value of perquisite will
be Rs 600 per month.

If motor is partly for official and partly for personal

purposes and expenses are met by employee,
perquisite value per month is Rs 400 per month if
engine cubic capacity is upto 1.6 liters and Rs 600
per month if cubic capacity of engine exceeds 1.6
liters. If  chauffer is provided, value of perquisite will
be Rs 600 per month.

ALLOWANCE
"Allowance" is defined as a fixed quantity of money
or other substance given regularly in addition to
salary for meeting specific requirements of the
employees. Most allowances are taxable like city
compensatory allowance, tiffin allowance, fixed
medical allowance and servant allowances.
Encashment of any concession is also taxable.

If ARE   THERE   ANY   ALLOWANCES,   WHICH   ARE  

ONLY : exempt when received at a particular place(s)
;pr area(s)? and do they have any upper ceilings : for
exemption?

For the new amended Rules contain other allowances

also .which are exempt (subject to ceilings) in
particular area(s) only. These special allowances
are :-

i) Any special Compensatory Allowance, in the nature

of Composite Hill Compensatory allowance or High
Altitude, Allowance or Uncongenial Climate
Allowance or Snow Bound Area Allowance or
Avalanche Allowance;

ii) Any special Compensatory Allowance given which

is in the nature of border area allowance or remote
area allowance or difficult area allowance or
disturbed area allowance;

ii) Tribal Area Allowance;

iii) Allowance granted to an employee working in any

transport system to meet his personal expenditure
during his duty performed in the course of running of
such transport from one place to another place,
provided that such employee is not in receipt of daily
allowance;

TAXABLE NON-TAXABLE ALLOWANCES

Children Education Allowance;

Any allowance granted to an employee to meet the

hostel expenditure of his child;

Compensatory Field Area Allowance;

Compensatory Modified Field Area Allowance;

City compensatory allowance :Fully taxable.

Foreign Allowance :Exempt from tax if paid outside
India By the government to the Indian citizen for
rendering services outside India.
Fixed medical allownace:Taxable.
Project Allowance :taxable.
Allowances to Supreme court/High court Judges :Not
taxable.
Servant/helper Allowance :taxable ,if helper  used for
official purpose then exempted..
Transport Allowance: known also as LODA ,means
allowance to meet expenses incurred for office to
home and home to office is exempted up to 800 per
month maximum.
Tiffin Allowance :Taxable .
Allowance to meet the cost of travel on tour or on
transfer(including amount paid for packing and
transportation of personal effects on such
transfer):exempted  to the extent allowances used
for said purpose.
Allowance (know as DA in TA bill) paid for purpose
explained in point 11 above ,to meet the ordinary
daily charges on account of absence from his normal
place of duty):exempted to the extent allowance
used for the said purpose
Conveyance allowance:To meet the expenditure on
conveyance in performance of duties of an official
nature:exempted to extent allowance used for said
purpose
Uniform allowance : exempted to the extent used for
the said purpose
Children Education allowance :Rs 100 per month per
child up to maximum of two child is exempted if
expenses made in India
Children hostel allowance:Rs 300 per month per child
up to maximum of two child is exempted if expenses
made in India
Allowance granted to employee working in transport
system where no daily allowance has not been
allowed to meet daily expenses ,done to meet his
personal expenses during duty performance from one
place to other place :70 % of such allowable
exempted maximum up to 6000 per month.
Allowance granted for encouraging the academic
,research and other professional pursuits:exempted
to the extent used for said purpose
many hilly area,remote area,field allowances are
exempted on various rate
Any other allowance :generally Taxable.

HRA(House Rent Allowance ) house rent allowance

is exempted u/s 10(13A) of the income tax
act.Least of the following is exempted from Hra
Received

o HRA received
 o House rent paid minus 10 % of salary(salary
means basic plus dp plus da if term of
employment so provides)
o 50% of salary(same meaning as above)in
case of rented house situated in
Bombay,Madras,Delhi or calcutta
o 40 % of salary ,if rented house is situated in
any other places

Exemptions for salary income - Following are

exempt from income tax-

Transport allowance upto Rs 800 per month granted to an

employee to meet his expenditure for the purpose of
commuting between place of residence and the place of his
duty.

Conveyance and transport allowance granted to employee to

meet cost of travel on tour are exempt. Allowance granted to
meet expenditure incurred on conveyance in performance of
duties of an office or employment are exempt. In LIC Officers
v. LIC of India (2000) 112 Taxman 227 (Bom HC DB), it was
held that conveyance allowance is exempt only if expended
for meeting expenses wholly and necessarily incurred or to be
incurred in performance of duties of office. Conveyance
allowance at flat rate irrespective of place of residence, work
and posting will not be exempt from income tax.

Conveyance and transport allowance granted to employee to

meet cost of travel on transfer are exempt. Expenses granted
to meet cost of travel on transfer and cost of packing and
transportation of personal effects on such transfer are
exempt.
Use of employer’s vehicle or transport provided for journey of
employee from residence to his place of work and back is not
treated as perquisite and its cost is not treated as income.

Refreshments during office hours to employees and

recreational facilities provided to group of employees are not
treated as perquisites.

Gratuity - Gratuity for Government employees is fully

exempt [section 10(10)(i)]. In case of employees
covered under Payment of Gratuity Act, exemption is
upto Rs 3,50,000 to be reduced by such exemptions
claimed in the past or 15 days salary for every
completed year of service, whichever is lower..
Salary means basic plus DA (if forming part of
retirement benefits) [section 10(10)(ii) of Income Tax
Act]  Any other gratuity is also exempt to same
extent [section 10(10(iii)]of Income Tax Act]

LTA/LTC - Leave Travel Assistance/Leave Travel

Concession is allowed twice in a block of four years.
It is limited to amount actually spent on travelling of
employee and his family members. It is limited to
economy class of air fare or AC first class fare
[section 10(5) of Income Tax Act and rule 2B]

The allowance is exempt subject to amount of

expenses actually incurred by the employee for such
travel. The employee will have to keep account of
actual expenses incurred. It appears that actual
travel by air or AC is not required, but the overall
ceiling on expenses is subject to limit of air fare / rail
fare.
Medical treatment - Reimbursement of amount
actually spent for medical treatment upto Rs 15,000
is exempt in a financial year. In addition,
reimbursement of insurance premium for self, spouse,
children and dependent brothers, sisters and parents
is exempt.

In case of treatment in Government or approved

hospital, or expenditure on medical treatment outside
India, reimbursement of medical expenses is exempt
without any ceiling

VRS (Voluntary Retirement) - It is exempt upto Rs five

lakhs if VRS is as per prescribed conditions.

Leave encashment - Encashment of earned leave on

retirement of employees of Central/State Govt is fully
exempt [section 10(10AA)(i) of Income Tax Act] .
Leave encashment while in service is treated as part
of salary. In other cases, leave encashment of earned
leave on retirement will be lowest of 10 months’
salary, Rs three lakhs or actual sum received [section
10(10AA)(ii) of Income Tax Act]

RENUMERATION FOR CO-OPERATIVE TECHNICAL

ASSISTANCE PROVIDED AS PER AGREEMENT BETWEEN
GOVERNMENT OF INDIA & FOREIGN GOVERNMENT [SEC
10(8)]

COMMITED PENSION [SEC10(10A)]-COMMITED PENSION IS

THE DISCOUNTED AMOUNT RECEIVED IN ADVANCE,INSTEAD
OF MONTHLY PENSION.THIS EXEMPTION IS AVAILABLE TO
CENTRAL/STATE GOVERNMENT EMPLOYEES,DEFENCE
PERSONNEL, & EMPLOYEES OF LOCAL AUTHORITY.

INCASE OTHER EMPLOYEES (PRIVATE SECTOR) YHE

MAXIMUM LIMIT IS 1/3RD OF TOTAL PENSION,AS MAY BE
APPLICABLE.
 THE DEDUCTIONS FROM SALARY INCOME
UNDER SECTION 16

The  following deductions  are  available  from  salary

income:-

1. Standard deduction.
2. Deduction for professional or employment tax
3. Deduction of entertainment allowance.

STANDARD DEDUCTION

For A.Y. 1998-99, Standard deduction of a sum equal to 33-

1/3% of the salary or Rs.20,000 whichever is less, was allowed
to an individual having income from salary.

Then w.e.f. 1-4-99 this limit of Standard deduction for

assessees having salary income upto Rs. 1,00,000 was
increased from Rs.20,000 to Rs.25,000, However, the benefit
of standard deduction to assessees having salary income of
more than Rs. 5,00,000 was withdrawn. This implies that an
assessee earning salary income between Rs. 1 lac and Rs.5
lacs will only be entitled to a Standard deduction of a sum
equal to 33-1/3% of the salary or Rs.20,000 whichever is less.

IS STANDARD DEDUCTION ALLOWABLE TO PENSIONERS?

Yes.   The standard deduction is also allowable to pensioners.

DEDUCTION FOR PROFESSIONAL OR EMPLOYMENT TAX

Professional tax or employment tax, levied by a State

Government is eligible as a deduction. The amount so paid can
be deducted from the taxable salary.
 ENTERTAINMENT ALLOWANCE

Upto  A.Y.   2001-02   Entertainment  allowance is first ,

included in the employee's salary and then exemption is
allowed as given here-in-below:-

(a) In the case of Government employee the least of

(i) Rs.5000 or,

(ii) 20% of salary (exclusive of any other allowance), is

allowable as a deduction.

(b) In the case of non-Government employees least of the

following : -

(i) Entertainment allowance regularly received from his

present employer from a date prior to 1.4.1955 or,

(ii) A sum equal to 1/5th of salary (exclusive of any other

allowance, benefit or perquisite) or,

(iii) Rs.7,500, is allowed as a deduction.

HAS THERE BEEN A CHANGE IN ALLOWABILITY OF

ENTERTAINMENT ALLOWANCE?

Yes. With effect from 1 st April, 2002, i.e. in relation to the

assessment year 2002-2003 and subsequent years, this
provision relating to deduction of entertainment allowance
stands omitted in the case of employees in continuous
employment since the 1 st April, 1955 under section 16.
 FORMAT OF INCOME FROM SALARY

NAME OF ASSEESSEE

PANSMENT YR- ASSESMENT YEAR-2009-10

PREVIOUS YEAR-31-3-2009

STATUS:INDIVIDUAL:
RESIDENT AND ORDINARILY RESIDENT

COMPUTATION OF INCOME FROM SALARIES

NAME AND ADDRESS OF THE EMPLOYER RS RS

SALARYBASIC SALARY/WAGES

ARREARS OF SALARY

ADVANCE SALARY

BONUS

LEAVE SALARY

COMMISSION

PENSION

GRATUITY(TOTAL EXTWNT NOT EXEMPT

U/S 10)

COMMITED VALUE OF PENSION(TO

EXTENT NOT EXEMPT U/S 10)

ALLOWANCES(TO EXTENT EXEMPT U/S

10)

ENTERTAINMENT ALLOWANCES

DEARNESS ALLOWANCE
CITY COMPENSATORY ALLOWANCE

HOUSE RENT ALLOWANCE

OTHER ALLOWANCE(TO EXTENT NOT

SPENT)

PERQUISITES(TO THE EXTENT

TAXABLE)

PROFIT IN LIEU OF SALARY

GROSS SALARY

LESS:DEDUCTION U/S 10

1) ENTERTAINMENT
ALLOWANCE

(U/S 16(2)

2) PROFESSIONAL TAX(U/S
16(3))

NET SALARY CHARGEABLE TO TAX

How can I calculate my Salary Income?

These calculations are best left to your internal

human resource or accounts department.
Nevertheless, here is a quick table that can guide
you to getting an understanding of how to calculate
your salary income. But some of you might find the
terms and words used a little technical, so don’t say
we didn’t warn you….for simplification purposes, we
have used round numbers for the table.

Example
  Item Amount (in
Rs.)
Basic Salary, Pension, Annuity,
Bonus, Dearness Allowance,
  100,000
Commission, Advance Salary,
Arrears of Salary
Gratuity Leave Encashment,
Add 10,000
Commuted Pension,
Perquisites and Profits in addition
Add 5,000
to or in lieu of Salary
Employer’s contribution to
Add recognized Provident Fund in 300
excess of 12% of salary
  Gross Salary 115,800
Deduction for Entertainment
Less -5,000
Allowance
Less Deduction for Employment Tax -1,000
  Salary Income 109,800
Please recognize that not all these line items might
be applicable to you, the above is just an illustrative
example to demonstrate how one can calculate one’s
Salary Income.

EXAMPLE:MS Urmilla is employed with DREAM WORK

LTD as a secretary since 1st april 2006 during the
year ended 31st march 2009, she received the
following
 Basic salary RS 15,000 per month
 House rent allowance RS 2,500 per month
 Amount received for meeting conveyance
expenses RS 500 per month .She has spend RS
7000 in the year for commuting on business
work
 Reimbursement of medical bill RS 2,800
Perquisite in respect of concessional lunch during
office hours RS 4,500

COMPUTE THE INCOME CHARGEABLE TO TAX OF

MS URMILLA FOR THE AY 2009-10

SOLUTION:

MS URMILLA
PAN: ASST YR-
2009-10
PRV YR-31-3-
09
STATUS-INDIVIDUAL
RESIDENT AND ORDINARILY RESIDENT
 COMPUTATION OF INCOME FROM SALARY

RS RS
SALARIES
SALARIES 1,80,000
(15,000X 12)
HOUSE RENT 30,000
(2,500X12)
MAKE UP 12,000 42,000
ALLOWANCE
(1,000X12)

RECEIVED FOR
MEETING
CONVEYANCE
CONVEYANCE
ALLOWANCE 6,000
(1,500X12)
LESS: EXEMPT U/S 7,000 -
10 (14)
GROSS SALARY 2,22,000
LESS: DEDUCT U/S -
10 (14) TO EXTENT
SPENT
INCOME FROM 2,22,000
SALARIES

NOTE-LUNCH –RS 4,500, SINCE THIS ALLOWANCE

IS PAID DURING
OFFICE .THUS HOURS THIS WILL NOT BE
TREATED AS SALARY
MEDICAL BILL-RS 2,800,SINCE IT IS A
REIMBURSEMENT IT WILL
NOT BE TREATED AS SALARY.
BIBLOGRAPHY

WWW.GOOGLE.COM

REF (TAXATION TEXT BOOK)