mod 2 salary income
TRANSCRIPT
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EXEMPTED INCOME U/S 10
1. Agriculture income 10(1)2. Receipt by a member from HUF 10(2)3. Share of profit from partnership firm 10(2a)4. Casual & non recurring receipts 10(3)5. Interest to non residents 10(4)6. Leave travel concession to an Indian citizen 10(5)7. Remuneration received by a foreign diplomat and other foreign nationals8. Foreign allowances 10(7)9. Gratuity 10(10)10. Commuted pension and leave salary 10(10a)11. Retrenchment compensation 10(10b)12. Payment on VRS 10(10c)
13. Amount received on life insurance policies 10()10d)14. Payment from PF 10(11)15. HRA 10(13a)16. Education scholarship 10(16)17. Daily allowance of MP 10(17)18. Awards 10(17a)19. Pension of galantry award winners20. Income of local authorities 10(20)21. Income of housing authorities 10(20a)22. Income of scientific research associations 10(21)23. Income of educational institutions 10(22)
24. Income of hospitals 10(22a)25. Income of specified news agencies 10(22b)26. Games association 10(23)27. Professional institutions 10(23a)28. Pension funds 10(23aab)29. Khadi or village industries 10(23b)30. European economic committee 10( 23bbb)31. SAARC 10( 23bbc)32. Insurance regulatory authority 10( 23bbe)
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INCOME FROM SALARY
Basic condition/norms for charging
1) Relationship between employer and employee must be proved
eg where the relationship between employer and employee cannot be
proved like: agents, partner, director, MP MLA etc..
2) Salary & wages there is no conceptual difference.
3) Salary from more than one source Both are taxed
4) No concept of tax free salary tax paid by employer constitutes perquisites
5) Any receipt from person other than employer is not taxed under this head-
exam remuneration by teachers, tech fees etc6) Salary taxable on due basis or receipt basis whichever is earlier
7) Deduction made from salary should be added back to determine actual
taxable salary
COMPUTATION OF SALARY INCOME
SALARY U/S 17(1)
1) Wages/ basic wages or basic pay
2) Any annuity or pension
3) Advance salary or arrears of salary
4) Any fees, commission, perquisites or profits in lieu or in addition to any
salary
5) Bonus
6) Leave salary or leave encashment
7) Employer contribution to RPF in excess of 12% of employees salary
(salary = BP+DA+fixed % commission on turnover)
8) Interest credited to employees RPF balance in excesss of 9.5% PA
9) Contribution made by the central govt in the PY to the pension fund of the
employees under pension scheme exceeding 10% of Salary (BP + DA)
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ALLOWANCES:-
Allowances refers to fixed sum of money paid by employer to employees to meet
some specific purposes like payment of house rent, childrens school fees,
transportation cost etc.
A ) Fully exempted allowances:-
1) Allowances to govt employees outside India(paid by govt)
2) Allowances to high court & supreme court judges (sumptuary allowance)3) Allowances received from UNO.
B ) Fully taxable allowance
1) Dearness allowance
2) City compensation allowance (CCA)
3) Lunch / Tiffin allowance
4) Servant allowance
5) Fixed Medical allowance
6) Deputation and project allowance
7) Non-practicing allowance
8) Water and electricity allowance
9) Overtime allowance
10) Warden ship allowance
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C ) Partly taxable \ partly Exempted Allowances
ALLOWANCE EXEMPTION LIMIT
Traveling / convergence allowance Exempted upto actual amount spent
Allowance received for cost of
transportation on transfer of
employee
Exempted upto actual amount spent
Daily allowance Exempted upto actual amount spent
Helper allowance Exempted upto actual amount spent
Academic / Research allowance Exempted upto actual amount spent
Uniform allowance Exempted upto actual amount spent
Children education allowance Rs. 100p.m. per child maximum of
Two childrens
Children education allowance Rs. 300 p.m. per child maximum of
Two childrens
Transportation allowance (fromResidence to workplace)
800 p.m. (1600 p.m. for physicallychallenged employees )
. Running/ Flying allowance
(allowance given to employees of
transport organization to meet their
exp on duty)
70% of Such Allowance or
Maximum 6000 p.m WEL
Special Allowance for Tribal Area Exempted upto 200 p.m.
Underground Allowance Exempted upto 800 p.m.
Island duty Allowance (armed forces) Exempted upto 3250 pm
High attitude Allowance (armed
forces)
Exempted upto 1060/1600 p.m.
Special compensatory (Hilly area
allowance)
Exemption varies from 300 to 7000
pm.
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Border area allowance Exemption varies from 200 to 1300
pm.
Highly active field area allowance Exempted upto Rs 4200 pm
House Rent Allowance H.R.A. received
Less:-
a) Actual H.R.A.
b) Rent Paid 10% of Salary
c) 50% of Salary for D.M.K.C.
40% of Salary for other cities
(whichever is less among them
is Exempted )
Salary = Basic Pay + D.A. (entering
into retirement benefit) + Fixed % of
commission
If employee resides in own house for
which he does not pay any rent, No
exemption is allowed.
Entertainment Allowance While calculating gross total income it
is fully taxable & later a deduction is
allowed only for central / state Govt.
employees u/s 16(ii).
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PERQUISITES
Specified Employee
a) A employee who is a director of the company.
b) Employee with substantial interest in the company( atleast 20% voting
rights)
c) Employee drawing salary in excess of Rs. 50,000 p.a.(excluding amenities benefits not provided by way of monetary benefits)
1. Free medical benefits
a) Free treatment is provided by employer to employee or his
family member at
Hospital maintained by
employer
Fully exempted
Hospital maintained by central
Govt , State Govt, or
approved hospitals
Fully exempted
Pvt hospitals/ nursing homes Upto 15000 p.a. is exempted
Bill issued in name of
employee but paid by
employer
Upto 15000 p.a. is exempted
Medical Insurance Premium
paid by employer
Fully exempted
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b) Treatment provided outside India
Cost of treatment of employee or his family members and
Cost of stay for patient & one attendant is exempted upto
limit permitted by RBI
Cost of traveling of patient and 1 attendant - exempted if
G.T.I. does not exceed Rs. 2,00,000 p.a.
2. Leave travel concession provided to employee
- fully exempted
3. Free education
Expenses on training the
employee
Fully exempted
Education Allowance Already discussed
Payment or reimbursement of
school fees by employer
Fully taxable in all cases
(specified or non-specified
employee)
Free education in own institution Exempted if value does not
Exceed Rs.1000 p.m./child (no
limit)
If it exceeds Rs 1000 pm ;
Cost of education in similar
institution Less Rs 1000 pm is
taxed
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4. Providing free use of computer / laptop to the employee or any
other member of household. -
Fully exempted
5. Free use of any other movable assets by employee -
Taxable value of perquisites is
10% of actual cost p.a.
OrAmount of rent paid or payable
(Perquisite is taxable in the hands of the both specified or non-
specified employees)
6. Transfer of movable assets by employer to employee at free of
cost or at nominal rates.
W.D.V. of the assets
(original cost dep. By reducing
balance method)
xxx
Less:- amount received by
employee (if any)
xxx
Taxable value xxx
Note : Depreciation Rates:-
1. Electronics and computer items - 50%
2. Motor Car - 20%
3. Other Assets - 10%
(Perquisite is taxable in the hands of the both specified and non-specified
employees)
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7. Interest free loan or loan at concessional rate of interest :-
(taxable in all cases)
When original loan amount is upto Rs. 20000 its fully exempted
If its above 20,000 -- its fully Taxable.
[ any amount of loan taken for medical purpose is fully exempted ]
ValuationCalculate the interest on the basis of
rate of int charged by SBI as on 1-4-
07
xxx
(-) any int charged by employer to
employee
xxx
Taxable value xxx
8 Amount paid / payable by employer towards L.I.C. premium of
employee or his family member.
fully taxable in all cases
(Group insurance, ESI, accident insurance paid by employer is
not considered as perquisites.)
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9 . Free Domestic Servents:-
(Service of sweeper, gardener, watchman, or personal attendant.)
Taxable value of perquisites is actual cost to the employer.
1. If domestic servents are appointed by employee and paid /
reimbursed by employer - fully taxable in all cases
2. If servents are provided by employer - taxable only for specified
Employee
( If employer provides a rent free accommodation (owned by employer)
Gardeners salary is not taxed separately)
10. Free Gas, electricity & water :-
Valuation
Provided from own source Manufacturingcost/unit incurred
by employer is taxable
Provided from outside agency amount paid or payable by
employer is taxable
If connection is in name of
employee & bill paid or
reimbursed by employer
taxable in all cases
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11. Rent Free Accommodation:-
Accommodation House, Flat, Farmhouse, Service apts. Hotel,
Guest house, Mobile home, Ship etc.
a) Govt employees ( central and
state)
License fees (value fixed by
govt.) is the taxable value of
perquisites
b) Non-Govt. employees
If Accommodation is owned by
employer
Population upto 10 lacs 7.5 % of salary for the period
is taxable
Population above 10 lacs but
not more than 25 lakhs
10% of salary for the period is
taxable
Population above 25 lacs 15% of salary for the period is
taxable
If Accommodation taken by
employer on lease or rent
Amount of rent paid / payable
by employer or
15% of Salary WEL is taxable
Salary = Basic Pay + D.A. (if entering into RB) + Bonus +Commission + fees + Taxable portion of all allowances + any monetarypayment chargeable to tax.[ Not includes PF contribution, Perquisites ]
Furnished Accommodation
Calculate taxable value of unfurnished Accommodationxxx
Add :- 10% of original cost of furniture if its owned by employerOR Actual rental charges of furniture paid / payable byEmployer if its taken on hire.
xxx
Taxable value of furnished house xxx
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Concessional rent Accommodation
Calculate taxable value of unfurnished or furnished
Accommodation xxx
Less:- Rent charged / paid by employee xxx
Taxable value of concessional rent accommodation house xxx
Hotel Accommodation on transfer
Upto 15 days is exempted
If Beyond 15 Days :-
24% of salary for the period of stay
OR
Actual rental charges WEL is taxable
Notes:-
1. Accommodation in remote area. ( 40 km away from town & population
less Than 20000) is fully exempted.
2. Temporary Accommodation (upto 800sq.ft.) given at mining site, etc
fully exempted
3. Rent free Accom given to high court & supreme court Judges, union
ministers, officers of parliament leader of opposition - fully
exempted
4. On transfer employee can maintain 2 accom for 90 days, beyond 90
days both the accommodation will be taxed.
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12 Issue of securities under employees stock option, sweat equity plan /
issue of bonus shares / right shares - fully exempted
13 Any obligation of the employee met by employer (taxable in all cases)
a) Domestic servents appointed by employee - paid or reimbursed
by employer
b) Gas, electricity connection in the name of employee but paid by
employer etc
c) Professional tax, income tax paid be er on behalf of employee,
etc
14 Other Perquisites
Car & other conveyance , Free food and beverage, traveling &
touring, gifts & gift vouchers, credit card, club. -- not taxed in the
hands of employee for assessment year 2006-07 onwards if employer is
covered under fringe benefit tax.
Following perks taxable only if employer is Individual (Sol prop), HUF,
Political party, Government
(These employers are not covered under Fringe benefit tax)
A Free Food and Beverage.
Lunch or Tiffin allowance Fully taxable
Tea or snacks during working hours Fully exempted
Food in office premises / Vouchers Exempted up to Rs 50 per meal.
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B Traveling touring, accommodation.
Full amount of expenditure incurred is fully taxable
C Gifts
Cash gift - Fully taxable
Other Gifts Exempted up to 5000 pa , beyond Rs 5000 it is taxable.
D Club Facility
Expenditure incurred by employer for providing club facility for employee or
family members for personal use ( not official ) is fully taxable
E Credit Card
Expenditure incurred by employer for providing club facility for employee or
family members for personal use ( not official ) is fully taxable.
F Motor Car
(i) Car Owned by Employee. Expn By Employer
Purpose Taxable value
Full Official Exempted
Fully Personal Full expenditure is taxable
Partly Actual Expenditure
(-) Expn claimed to be for official
purpose
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(ii) Car Owned / Hired by Employer. Expn By Employer
Purpose Taxable value
Full Official Exempted
Fully Personal Full expenditure is taxable
Partly Rs 1200 pm is taxable if car is upto 1.6 ltr
Rs 1600 pm is taxable if car is above 1.6 ltr
Rs 600PM is taxable if driver is provided
(iii) Car Owned / Hired by Employer. Expn By Employee
Purpose Taxable value
Full Official Exempted
Fully Personal 10% of actual cost of car / Rental
charges of Car.
Partly Rs 400 pm is taxable if car is upto 1.6 ltr
Rs 600 pm is taxable if car is above 1.6 ltr
Rs 600PM is taxable if driver is provided
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DEDUCTIONS U/S 16
16(i) Standard deduction :- Not available from A.Y. 2006-07
16(ii) Entertainment Allowance:- Ist its included in salary income & thereafter a
deduction is allowed.
Deduction is allowed only to Govt. Employees (central and state).
The amount of deduction.
a) Amount of E.A. received during P.Y.
b) Rs. 5000
c) 20% of Basic Pay
(whichever is less)
16(iii) Professional tax on employment:- (tax collected by state Govt.)
Actual amount of Professional tax paid by employee is allowed as
deduction.
If employer pays Professional tax on behalf of employee:-
Ist it is taxed in computing Gross Salary as a perquisite (obligation
of Employee met by employer). Then deduction is allowed for full amount.
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RETIREMENT BENEFITS
1. GRATUITY (DEATH CUM RETIREMENT GRATUITY):-u/s 10 (10)
Its a payment made by employer to employee in recognition of services.
Its made compulsory after passing of payment of Gratuity act of 1972
In Case of Govt
employees ( State
Govt, Central Govt,
Local authorities)(Statutory corps are
not included here)
Gratuity received is
fully exempted
Non government
Employees covered
under payment of
Gratuity act of 1972
Amount of Gratuity
received
xxx
Less deductions
a) Gratuity actually
received
xxx
b) Maximum limit 3,50,000
15/26 x last month
salary x years of
completed service
WEL
Xxx xxx
Taxable gratuity xxx
Salary = Basic Pay + D.A.(entering into Retirement Benefits)
Any Fractions of the year more than 6 months shall be taken as one full
year and 6 months or less than that will be ignored.
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Employees not
covered under
payment of Gratuity
act
Amount of Gratuity
received
xxx
Less deductions
a) Gratuity actually
received
xxx
b) Maximum limit 3,50,000
1/2 x average salary x
years of completed
service WEL
Xxx xxx
Taxable gratuity xxx
Salary = Basic Pay + D.A.(entering into Retirement Benefits) + fixed % of
commission
Average Salary = Avg of last 10 month immediately preceding the month
of retirement.
Any Fractions of the year is ignored
2) COMMUTED PENSION u/s 10 (10A)
Uncommuted or monthly pension
--- fully exempted in the hands of employees
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Commuted Pension
Commutation of pension is a process where by an employee sacrifice
certain portion of his pension for a lump sum amount.
Govt employee:-
(state, central, local
authorities& statutory
corps)
full amount of
commuted pension
is exempted from tax
Non-Govt.
employee:-Gratuity received:- Amount of
Commuted pension
received
xxx
Less:- total
commuted value of
pension x 1/3
xxx
Taxable value xxx
Gratuity not
received:-
Amount of
Commuted pension
received
xxx
Less:- total
commuted value of
pension x 1/2
xxx
Taxable value xxx
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3 LEAVE SALARY / LEAVE ENCASHMENT AT THE TIME OF RETIREMENT
10(10AA)
Govt. (state or central)
Fully exempted
Non-Govt.
Amount received xxx
(-) deduction
i. actual amount
received
xxx
ii. Maximum of Rs. 3,00 000
iii. Avg Salary x 10 xxx
Iv Avg Salary x period of
earned Leave(months)
to the credit Of
employee
Xxx
WEL
xxx
Taxable value xxx
Salary = B.P. + D.A.(entering into RB) + Fixed % of Commission
Avg Salary = Average of salary of last 10 months immediately preceding
previous year in which employee retires.
Leave to credit of employee
Calculate duration of service in years (ignore fractions)
Each year leave entitlement cannot exceed 30 days
Deduct any period of leave used or en cashedduring the service
(Leave encashment received by legal heirs is fully exempted)
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4 REFUND FROM PROVIDENT FUND
GPF / STATUTORY PF Fully exempted from taxRPF Fully exempted from tax if employee completed a
service of 5 years ormore with the sameemployer)
URPF:- Own Contribution:- ExemptedInt on own Contribution
-taxable under the headincome from othersources
Employer contributionand Int there on
taxable under the headsalary
PPF Fully exempted
5RETRENCHMENT COMPENSATION 10(10B)
Compensation received xxxLess:-
a) actual amount received xxxb) Maximum of RS 5,000 00
c) Amount calculated inaccordance with provisionsof industrial dispute act.
Xxx WEL xxx
Taxable amount xxx
6) COMPENSATION ON VRS 10(10C)
Compensation received is as per govt provisions and VRS is taken fromorganizations which are approved for that purpose.
Compensation is exempted upto Rs. 5,00,000********