INCOME FROM SALARIES MEANING OF SALARY Every payment made by an employer to his employee for service rendered would be chargeable to tax as income from salaries. The term ‘salary’ for the purposes of Income-Tax Act will include both monetary payments (e.g. basic salary, bonus, commission, allowances etc.) as well as non-monetary facilities (e.g. housing accommodation, medical facility, interest free loans etc). (1) Employer-employee relationship : Before an income can become chargeable under the head ‘salaries’, it is vital that there should exist between the payer and the payee, the relationship of an employer and an employee. (2)
Full-time or part-time employment: It does not matter whether the employee is a fulltime employee or a part-time one. Once the relationship of employer and employee exists, the income is to be charged under the head “salaries”. If, for example, an employee works with more than one employer, salaries received from all the employers should be clubbed and brought to charge for the relevant previous years. (3) Foregoing or Sacrificing of salary : Once salary accrues, the subsequent waiver by the employee does not absolve him from liability to income- tax. Such waiver is only an application and hence chargeable. (4) Surrender of salary : However, if an employee surrenders his salary to the Central Government u/s 2 of the Voluntary Surrender of Salaries (Exemption from Taxation) Act, 1961, the salary so surrendered would be exempt while computing his taxable income. (5) Salary paid tax-free : This, in other words, means that the employer bears the burden of the tax on the salary of the employee. In such a case, the income from salaries in the hands of the employee will consist of his salary income and also the tax on this salary paid by the employer. This means both the salary and the tax paid thereon will be taxable in the hands of the employee. (6) Voluntary payments : Whether the payment from an employer is based on a contract or not, it constitutes salary in the hands of the employee. However, many employers give personal gifts and testimonials to the employees. For example, employees who complete
20 years of service may be given a wrist watch. The question arises whether the value of the watch can be taxed in the hands of the employee. Courts have taken the view that such gifts are not taxable. However, in these cases it is important that such gifts must be given to employees pursuant to a scheme applicable to employees in general. If gifts are given purely on a selective basis they will become chargeable in the hands of the recipient. However, due to the levy of Fringe Benefit Tax, these gifts will now be exempt in the hands of the recipient, but will be taxable in the hands of the employer.
• • • •
Sec.15: Year of Chargeability of Salary Due or receipt whichever falls earlier: Salary is taxable on due basis or on receipt basis, whichever is earlier. Hence, (a) salary due in a previous year is taxable, even if it not received. (b) Salary received in a previous year is taxable, even if it is not due. (c) Arrears of salary received during the current previous year shall be taxable in the current year if not charged to tax in an earlier previous year. No double taxation: once salary is taxed on due/receipt basis, it will not be taxed again on receipt/falling due, as the case may be. The assessee can claim relief u/s 89(1) for arrears or advance salary. Loan from employer is not salary. Advance salary is taxable, while advance against salary is not taxable. For Government employees, the period of chargeability of salary is from March to February. For example, salary from 1st March 2008 to 29th February 2009 is chargeable as Income of the Assessment Year 2009-10.
“Place of accrual of salary”
1. The place of accrual of salary is the place of employment. 2. Service rendered in India: U/s 9(1)(ii), salary earned in India is deemed to accrue or arise in India even if – a. it is paid outside India, b. it is paid or payable after the contract of employment in India comes to an end. 3. If an employee gets pension paid abroad in respect of services in India, the same will be deemed to accrue or arise in India 4. Leave salary paid abroad in respect of leave earned in India is deemed to accrue or arise in India.
5. Services rendered outside India: Sec.9(1)(iii) provides that income chargeable under the head “Salaries” payable by the Government to a citizen of India for service provided outside India will be deemed to accrue or arise in India. 6. U/s 10(7), any allowance or perquisites paid or allowed outside India by the Government to a citizen of India for rendering services outside India will be fully exempted.
Items included under the head Salary u/s 17(1) Salary includes: Wages Any annuity or pension Any gratuity Any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages 5. Any advance salary 6. Encashment of leave-not-availed 7. Interest earned in excess of 9.5% on Recognized Provident Fund(RPF) 8. Amount transferred in excess of 12% of Salary to RPF 9. Contribution made by Central Government or any other employer (w.e.f. A.Y.2008-09) in the previous year to the account of an employee under Pension Scheme u/s 80 CCD. 10. Money embezzled by an employee constitutes his income. 1. 2. 3. 4.
Profits in Lieu of Salary u/s 17(3)
1. Compensation due or received from present/former employer in connection with (a) termination of employment, or (b) modification of terms and conditions of employment. 2. Any amount received from an Unrecognized Provident Fund, to the extent of Employer’s contributions, along with interest on such contribution. 3. Sum received under Keyman Insurance Policy, including Bonus on it. 4. Any sum received (either in lump sum or otherwise), either prior to employment or after cessation of employment.
Specified Employee An Individual will be considered as a Specified Employee if : 1. He is a director of a company, or
2. He holds 20% or more of equity voting power in the company, 3. Monetary salary in excess of ` 50,000: His income under the head salaries, (from any employer including a company) excluding non-monetary payments exceeds ` 50,000. For the above purpose, salary, should be arrived at after making the following deductions: (a) Entertainment Allowance (b) Professional Tax TAXABILITY OF ALLOWANCES Fully taxable allowances without any exemptions : 1. Basic Salary 2. Dearness Allowance 3. Advance Salary 4. Arrears of Salary 5. City Compensatory Allowance 6. Bonus 7. Commission as a percentage on turnover 8. Fixed Medical Allowance 9. Fees 10. Lunch/Tiffin Allowance 11. Overtime Allowance 12. Servant Allowance 13. Warden Allowance 14. Non-practicing Allowance 15. Family Allowance 16. Leave encashment during service Specific allowances that are fully exempt in the hands of employees Allowance 1. Travelling allowance
Conditions to claim full exemption Should be provided by the employer and spent by the employee to meet the cost of official tour or transfer expenses.Cost of travel or transfer includes payments for transfer, packing and transportation of personal effects.
2. Daily Allowance
Should be spent by the employee for meeting the daily charges incurred on a tour or transfer.
3. Conveyance allowance
Should be used by the employee to meet the expenditure on conveyance in performance of official duties.
4. Helper allowance
Should be used by an employee to meet the expenditure on a helper who assists him in the performance of official duties.
5. Academic allowance
Should be used by the employee for his academic research and training pursuits.
6. Uniform allowance
Should be spent by the employee for purchasing/maintaining office uniform for official duties.
7. Allowances and perks Fully exempted paid by Government of India to an Indian citizen outside India
Various items of Salary for which exemptions are available subject to limitations : 1. Leave travel assistance (lta) u/s 10(5) rule 2b 2. House rent allowance [sec. 10(13a) rule 2a] 3. Children education allowance 4. Children hostel expenditure allowance 5. Running allowance 6. Transport allowance 7. Gratuity 8. Pension 9. Leave encashment 10. Retrenchment compensation 11. Voluntary retirement compensation 1. LEAVE TRAVEL ASSISTANCE (LTA) U/S 10(5) Rule 2B Conditions for claiming the benefit:
1. An individual can avail the benefit of LTA offered by his employer, twice in a block of four years. 2. The present block of four years applicable for A.Y.2008-09 is calendar years 2006-2009. 3. LTA may be provided by the employer to the employee and his family: a. In connection with his proceeding on leave to any place in India, while in service. b. Proceeding to any place in India after retirement or termination from service. When Taxable : 1. LTA encashed without performing journey is fully taxable 2. Expenses reimbursed other than the fare like boarding or lodging is fully taxable. 3. Amount received from employer in excess of the cost of traveling on the shortest route. Family of an Individual means: 1. Spouse and children of the individual, and 2. Parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual. 2. HOUSE RENT ALLOWANCE [Sec. 10(13A) Rule 2A] Conditions for claiming exemption: 1. Assessee is in receipt of HRA 2. Pays rent 3. Rent paid is more than 10% of salary. Very Important: 1. The exemption shall be calculated on the basis of where the accommodation is situated. 2. If the place of employment is the same for the whole year, then exemption shall be calculated for the whole year. 3. If there is a change in place during the previous year, then it will be calculated on a monthly basis 4. Exemption should be calculated in respect of the period during which rental accommodation is occupied by the employee during the previous year. 5. Salary for the period during which rental accommodation is not occupied shall not be considered.
Salary for HRA= Basic Pay + DA(considered for retirement benefits) + Commission ( if received as a fixed percentage on turnover as per terms of employment) Taxable HRA: `
Particulars
xxx
Amount received during the financial year for HRA Less: Exemption u/s 10(13A) Rule 2A Least of the followings: Actual amount received
xxx
50% (for metro cities) / 40% of Salary for other places)
xxx
Rent paid less 10% of Salary
`
xxx
xxx
Taxable HRA
xxx
OTHER ALLOWANCES Allowances 3. Children Education Allowance
Exemption u/s 10(14) Rule 2BB ` 100 p.m.per child restricted upto 2 children
4. Children Hostel Expenditure Allowance
` 300 p.m.per child restricted upto 2 children
5. Running Allowance ( for transport sector employees for meeting personal expenditure incurred during transport from one place to another) 6. Transport allowance (given to meet the employee’s expendi- ture for traveling from his residence to offfice and back)
Least of : (a) 70% of the amount received, or (b) ` 10,000 p.m.
` 800 p.m. (in case of handicapped or blind employees, ` 1,600 p.m.)
7.
GRATUITY GRATUITY
Government Employee
Non- Govt.Employee
Fully exempted from tax u/s 10(10)(i).
Employee covered by Payment of Gratuity Act,1972
Employee not covered by Payment of Gratuity Act,1972 xxx
Amount received as Gratuity
Less: Exemption u/s 10(10)(iii) Least of the followings:
Less: Exemption u/s 10(10)(ii) Least of the followings: a) Actual amount received b) 15/26 × Last drawn salary × No. of years of completed service or part thereof in excess of 6 months
xxx
Amount received as Gratuity
xxx xxx xxx
a) Actual amount received
xxx
b) 1/2 × Average salary × No. of fully completed years of service
xxx
xxx
10,00,000 c)
Maximum Limit
10,00,000 c)
Maximum Limit Taxable Gratuity
Taxable Gratuity
xxx
Note: Salary = Basic Pay + Dearness Allowance In case of seasonal employment, instead of 15 days, 7 days shall be considered.
xxx
Note: Salary = 10 months average salary preceeding the month of retirement. = Basic Pay + Dearness Allowance considered for retirement benefits + commission (if received as a fixed percentage on turnover)
Very Important : 1. Where an individual receives retirement gratuity from more than one employer, he can claim exemption in respect of both of them. 2. However, the maximum amount of exemption should not exceed ` 3,50,000 3. When gratuity is received from more than one employer during different periods of time, the maximum exemption claimed by an assessee during his entire life should not exceed ` 3,50,000.
8. PENSION 1. Taxability of Uncommuted Pension or Monthly Pension: (a) Pension is received periodically by the retired employee (b) It may be received by Government or non-government employees (c) Amount received shall be fully taxable under the head salaries 2. Taxability of Commuted Pension: (a) Pension is received in lumpsum as per the terms of the employment on retirement or superannuation. (b) Full Value of Commuted Pension = Amount received on commutation / percentage of commutation. (c) Taxability: Recipient
Amount Taxable
Government employee(Central/ State/Local Authority or Statutory Corporation)
Fully exempted u/s 10(10A)(i)
Non-Govt. employee who has also received Gratuity u/s 10(10A)(ii)
Amount Received Less: 1/3 of Full Value of Commuted Pension
Non-Govt. employee who has not received Gratuity u/s 10(10A)(iii)
Amount Received Less:1/2 of Full Value of Commuted Pension
9. LEAVE ENCASHMENT 1. Leave encashment while in service is fully taxable as income of previous year in which it is encashed. 2. Leave encashment on retirement: if an individual receives leave encashment on his retirement, then the amount received will be eligible for exemption. The amount of exemption is based on his employment: a. Government employee: fully exempted from tax b. Non-Govt. employee: An individual who is not a Government employee is also entitled for exemption in respect of Leave Encashment compensation received by him. 3. Computation of exemption from Leave Encashment: Step 1 : Computation of Salary = 10 months average salary preceeding the month of retirement. Step 2 : Salary = Basic Pay + Dearness Allowance (forming a part of salary for retirement benefits) + Commission (if received as a fixed percentage on turnover) Step3 : This calculation is only applicable where the employer has sanctioned leave to the employee in excess of 30 days for every completed year of service. Particulars
`
(i) Leave credit available on the date of retirement
xxx
Less: Excess leave sanctioned by the employer (Leave sanctioned by the employer per year – 30 days per year) × No. of completed years of service)
xxx
Leave credit on the basis of 30 days credit for completed years of service
xxx
(ii) Leave salary on the basis of 30 days credit = Step 3(i) x Step 1
xxx
Note: In case the employer sanctioned leave of 30 days or less for completed year of service then the salary for actual leave balance shall be considered and Step 3(i) shall not apply.
4. Taxable Leave Salary on Retirement : Particulars Amount Received on Leave Encashment
`
` xxx
Less: Exemption u/s 10(10AA) Least of the followings: i.
Actual amount of Leave encashment received
xxx
ii.
Average salary of the individual for the past 10 months ×10 months
xxx
iii.
Maximum Limit
3,00,000
iv.
Leave at credit at the rate of 30 days p.a. for every Completed year of service as calculated in Step 3(ii)
xxx
Taxable Value of Leave Encashment Note:
xxx
xxx
(a) If the individual receives leave encashment from more than one employer, the quantum of exemption will be computed independently in respect of each employer. (b) The total amount of exemption should not exceed ` 3,00,000 during his life time. 10. RETRENCHMENT COMPENSATION Compensation is received by a workman at the time of: 1. Closing down of the undertaking. 2. Transfer (irrespective of by agreement/compulsory acquisition) if the following conditions are satisfied: a. Service of workmen interrupted by transfer b. Terms and conditions of employment after transfer are less favourable c. New employer is not under a legal obligation whether under the terms of transfer or otherwise to pay compensation on the basis that the employee’s service has been continuous and has not been interrupted by transfer.
Note: (a) Retrenchment compensation received in accordance with any scheme, which is approved by the Central Government, is fully exempt from tax. (b) An individual who receives retrenchment compensation, is entitled for exemption u/s 10(10B). Computation of Taxable Retrenchment Compensation : xxx
Amount received as Retrenchment Compensation Less:Exemption u/s 10(10B): Least of the followings: (i) Actual amount receive
xxx
(ii) Amount determined under the Industrial Disputes Act,1947
xxx
(iii) Maximum Limit
5,00,000
xxx
Taxable Value
xxx
11. VOLUNTARY RETIREMENT COMPENSATION Conditions for claiming exemption: 1. An individual, who has retired under the Voluntary Retirement scheme, should not be employed in another company of the same management. 2. He should not have received any other Voluntary Retirement Compensation before from any other employer and claimed exemption. 3. Exemption u/s 10(10C) in respect of Compensation under VRS can be availed by an Individual only once in his lifetime. Computation of Exemption: Step 1: Salary = Last drawn salary = Basic Pay + D.A.(considered for retirement benefits Step 2: Taxable VRS compensation
Particulars
`
`
Amount received as VRS Compensation
xxx
Less: Exemption u/s 10(10C): Least of the followings:
xxx
(i) Actual amount received (ii) Maximum Limit (iii) The highest of the following: • Last drawn salary ×3×No. of fully completed years of service • Last drawn salary×Balance of no. of months of service left.
xxx 5,00,000 xxx
Taxable Value
xxx
DEDUCTIONS AGAINST SALARY 1. Entertainment Allowance: Applicable only for Government Employees [Sec.16(ii)] Least of the following will be allowed as a deduction: (i) Actual amount of entertainment allowance received (ii) 20% of Basic salary of the Individual (iii) ` 5,000 2. Professional Tax [Sec.16(iii)] 1. Professional tax or tax on employment paid by an employee, levied under a State Act shall be allowed as deduction 2. such deduction is available only on actual payment 3. If an employer pays professional tax on behalf of his employee, then it will first be included in the Salary as a perquisite and then, allowed as a deduction. VALUATION & TAXABILITY OF PERQUISITES Perquisite: Perquisite includes any amount due to or received in lump sum or otherwise by an assessee from an employer which is usually attached to a position.
Perquisite includes: a) value of rent free accommodation given by the employer b) value of accommodation given at concessional rate c) value of benefit given free of cost or at concessional rate in the following cases: a. given by employer to his Director Employee; b. given by employer to his employee who owns 20% or more of voting power in the company, and c. given by any employer (including company) to his employees whose monetary salary exceeds ` 50,000
d) any sum paid by the employer on behalf of the employees e) sum paid/payable by the employer towards insurance on the life of the individual or annuity payments f) Value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H as may be prescribed. [Sec.17(2)(vi)] PERQUISITES WHICH ARE FULLY EXEMPTED FROM TAX The following perquisites are exempt from tax in all cases and hence not includible for the purpose of tax deduction at source under section 192 during the financial year 2008-09: 1. Tea or snacks provided during working hours 2. Free meals provided during working hours in a remote area or an offshore installation 3. Perquisites allowed outside India by the Government to a citizen of India for rendering service outside India. 4. Employer’s contribution to staff group insurance scheme. 5. Payment of annual premium by employer on personal accident policy effected by him on his employee 6. Free educational facility provided in an institute owned/maintained by employer to children of employee provided cost/value does not exceed ` 1,000 per month per child (no limit on no. of children) 7. Interest-free/concessional loan of an amount not exceeding ` 20,000 8. Computer/laptop given(not transferred) to an employee for official/personal use. 9. Transfer without consideration to an employee of a movable asset (other than computer, electronic items or car) by the employer after using it for a period of 10 years or more. 10. Traveling facility to employees of railways or airlines. 11. Rent-free furnished residence (including maintenance thereof) provided to an Official of Parliament, a Union Minister or a Leader of Opposition in Parliament. 12. Conveyance facility provided to High Court Judges u/s22B of the High Court Judges (Conditions of Service) Act,1954 and Supreme Court Judges u/s 23A of the Supreme Court Judges (Conditions of Service) Act,1958. 13. Conveyance facility provided to an employee to cover the journey between office and residence. 14. Accomodation provided in a remote area to an employee working at a
15. 16. 17. 18. 19.
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. Interest free loan for medical treatment of the nature given in Rule 3A. Periodicals and journals required for discharge of work. Tax on perquisite paid by employer [Sec.10(10CC)] Other Exempted Payments: a. Bonus paid to a football player after the World Cup victory to mark an exceptional event b. Payment made as a gift in appreciation of the personal qualities of the employee. c. Payment of proceeds of a benefit cricket match to a great cricket player after he retired from test match. d. Trust for the benefit of employee’s children.
MEDICAL TREATMENT IN INDIA 1. Local treatment to employee or any member of his family in: a. Hospital maintained by employer b. Government Hospital c. Notified hospital for prescribed diseases [Sec.17(2)(v)] 2. Family includes spouse, children (whether dependent or independent) and parents, brothers and sisters wholly dependent on the employee. 3. Group Medical insurance paid u/s 36(1)(ib) & Medical Insurance paid u/s 80Dwhich are approved by the Central Govt. or IRDA w.e.f. A.Y.2007-08. 4. Any other medical expenditure reimbursed subject to a maximum of ` 15,000 MEDICAL TREATMENT ABROAD (for the patient and the attendant) If the employee underwent medical treatment abroad and the expenditure is met by the employer, the exemption will be subject to the following: 1. Medical treatment and stay expenses abroad(both for the patient and the attendant) is exempt from tax, subject to the maximum amount permitted by the Reserve Bank of India. 2. Travel expenditure of the patient and the attendant:
Gross Total Income, before including reimbursement of Foreign Travel Expenditure
Amount of Exemption
Upto ` 2,00,000
Fully exempted
Above ` 2,00,000
Fully taxable
3. Computation of exemption for foreign travel expenditure Step 1: Compute Gross Total Income of the assessee without considering foreign travel reimbursement but after set-off loss and unabsorbed depreciation. Step 2: If the Gross Total Income does not exceed ` 2 lakhs, Foreign Travel Reimbursement is not taxable otherwise fully taxable. Step 3: If Foreign Travel reimbursement is taxable as per Step 2, recomputed the income under the head Salary after including foreign travel reimbursement and Gross Total Income must also be recomputed. ACCOMODATION FACILITIES 1. Value of unfurnished accomodation: 2. Value of furnished accommodation 3. Valuation not applicable: 4. Valuation of accommodation in case of employees on transfer : 5. Salary for valuation of accommodation facilities 1.
Value of Unfurnished Accomodation: Explanation 1 to Sec.17(2), Rule 3(1)
Nature of Perquisite Taxable Value of Perquisite Provided by Central Govt. or State Govt. Licence fee determined by the Government Less: Rent recovered from employee Provided by Employer other than Central or State Government
(a)
owned by employer
In cities having population exceeding 25 lakhs as per 2001 census: 5% of Salary Less Rent actually paid by employee In cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census: 10% of Salary Less Rent actually paid by employee In other places: 7.5% of Salary Less Rent actually paid by employee
(b) taken on lease by the employer
Rent paid by the employer or 15% of Salary whichever is lower Less Rent recovered from employee
(c) Accommodation in a hotel
24% of salary paid/payable or actual charges paid/payable whichever is lower Less Amount paid or payable by the employee
Hotel Accommodation : Accommodation provided in a hotel will not be a taxable perquisite if the following two conditions are fulfilled: a. The period of such accommodation does not exceed 15 days b. Such accommodation has been provided on the transfer of the employees from one place to another. 2. Value of Furnished Accommodation
Note :
Particulars Value of unfurnished accommodation as above
` xxx
Add : Value of Furniture provided: • If owned by employer, 10%p.a. of original cost of such furniture Less: Any from charges paid or payable by the employee • If hired third party, then Actual hire charges
xxx
Value of Furnished Accommodation
xxx
(xxx)
Furniture includes Television sets, radio, refrigerator, other household appliance, air-conditioning plant or equipment.
3. Valuation not applicable: 1. Employees working at mining site, onshore oil exploration site, offshore site, project execution site, dam site, power generation site. 2. Conditions to be fulfilled: a) The accommodation should be of a temporary nature, and b) Plinth area should not exceed 800 square feet c) Accommodation should be located at least 8 kms away from local limits of municipality/cantonment or located in a remote area Remote area means area located at least 40 kms away from town having a population not exceeding 20,000 based on latest published All-India census. 4. Valuation of accommodation in case of Employees on transfer : 1. For the first 90 days of transfer: Where accommodation is provided both at existing place of work and in new place, the accommodation, which has lower value, shall be taxable. 2. After 90 days : Both accommodations shall be taxable. 5. Salary for Valuation of Accommodation facilities : Salary includes Salary excludes • Basic Salary • Other D.A • D.A. (if considered for retirement • Employer’s contribution to PF benefits) • Exempted allowances • All taxable allowances • Perquisites u/s 17(2) • Bonus or commission or ex-gratia • Perquisites u/s 17(2)(iii) or its OTHER FACILITIES PERQUISITES provisions TO EMPLOYEE AND HIS HOUSEHOLD • Any other monetaryAND payment Rule 3(3)
Nature of Perquisite Service of sweeper, gardener or watchman or personal attendant
Taxable Value of Perquisite(TVP) Actual cost to the employer Less: Amount paid by employee
3(4)
Supply of gas, electricity or water for household consumption
Procured from outside agency Amount paid to outside agency Resources owned by employer himself Manufacturing cost per unit Less: amount paid by the employee
3(5)
Education facilities to members of his household (a) free education to children in the school maintained by the employer or the school sponsored by the employer (b) other schools (c) for other members of the household
3(7)(i)
If the cost of education per child does not exceed ` 1,000 p.m.- then not taxable For points (b) & (c) In other case, cost to the employer Less: amount recovered from employee
Housing Loan/Vehicle Loan- for Other Loans acquiring capital assets and not for Interest charged by employer is equal to repairs. or higher than SBI Rate= SBI Rate prevailing on SBI rates. It is not a taxable perquisite the first day of the previous year Interest charged is lower than SBI rates: Interest charged at SBI rates on maximum outstanding balance Less: Interest paid by the employee on that loan Similar treatment as above. Exceptions : (a) Medical loan for treatment of diseases specified in Rule 3A except loan reimbursed by medical insurance (b) Loan not exceeding ` 20,000 in aggregate 3(7)(vii)
Less: Amount recovered from employee Use of any movable asset other than computer or laptops or other assets already mentioned 10% of Actual Cost if owned by the employer; or Actual rental charge paid/payable by the employer
TRANSFER OF MOVABLE ASSETS TO EMPLOYEES [Rule 3(7)(viii)] Particulars
Computer & Car Electronic Gadgets
Other Movable Assets
Method of Depreciation
WDV
WDV
SLM
Rate of Depreciation for every completed 50% year
20%
10%
Actual Cost XXXXX Less : Depreciation for completed years (XXXXX)
XXXXX XXXXX (XXXXX) (XXXXX)
WDV at the end of completed years XXXXX Less : Sale Value taken from Employee (XXXXX) Taxable Value of Perquisite XXXXX
XXXXX XXXXX (XXXXX) (XXXXX) XXXXX XXXXX
Note : i. Electronic gadgets include computer, digital diaries and printers, but excludes washing machines, microwave ovens, hot plates, mixers, ovens, etc. ii. Transfer of Assets, which are 10 years old, shall not attract tax liability. iii. Member of household includes: Spouse(s), children and their spouses, parents, servants and dependents. iv. Completed year means actual completed year from the date of acquisition of the asset to the date of transfer of such asset to the employees. TAXABILITY OF PERQUISITES PROVIDED BY EMPLOYERS Taxability of Motor Car Benefits Owner of Car
Expenses borne by
Purpose
1(a) Employer
Employer
Fully official
Taxable Value of Perquisite Not a perquisite provided the documents as specified in Rule 3(2)(B) are maintained.
1(b) Employer
Employer
Fully private Total of: (i) Actual expenditure on car (ii) Remuneration to chauffeur (iii) 10% of the cost of car (normal wear & tear) Less: Amount charged from employee
1(c)(i) Employer
Employer
Partly official and partly personal
1(c)(ii) Employer
Employee
Partly for official and partly for personal
2(i) Employee
Employer
Fully official use
Not a perquisite provided the documents as specified in Rule 3(2)(B) are maintained.
2(ii) Employee
Employer
Partly official and partly personal
Subject to Rule 3(2)(B) Actual expenditure incurred. Less: Car cubic capacity upto 1.6 litres [i.e. value as per 1(c)(i)] OR Car cubic capacity upto 1.6 litres above 1.6 litres [i.e. value as per 1(c )(i)
3(i) Employee owns other auto-motive but not car
Employer
Fully official use
Not a perquisite provided the documents as specified in Rule 3(2)(B) are maintained.
Cubic Capacity of Car Engine upto 1.6 litres ` 1,800 p.m+ ` 900 p.m. for chauffeur Cubic Capacity of Car Engine above 1.6 litres ` 2,400 p.m. + ` 900 p.m. for chauffeur Cubic Capacity of Car Engine upto 1.6 litres ` 600 p.m + ` 900 p.m. for chauffeur Cubic Capacity of Car Engine above 1.6 litres ` 900 p.m. + ` 900 p.m. for chauffeur
3(ii) Employee owns other auto-motive but not car
Employer
Partly for official use
Subject to Rule 3(2)(B) Actual expenditure incurred by employer. Less: ` 900 p.m.
Note : 1. Using cars from pool of cars owned or hired by Employer: The employee is permitted to use any or all cars for both official and personal use: For one car Valued as per 1(c )(i) For more than one car Valued as per 1(b) as if fully used for personal purpose 2. Documents to be maintained for claiming ‘not taxable perquisite’ or higher deduction wherever applicable [Rule 3(2)(B)] (a) Employer should maintain complete details of journey undertaken for official purpose, which includes date of journey, destination, mileage and amount of expenditure incurred thereon. (b) Certificate of supervising authority of the employee, wherever applicable, to the effect that the expenditure incurred for wholly and exclusively for performance of official duties, should be provided. TAXABILITY OF OTHER BENEFITS Rule 3(6)
Nature of Perquisite Taxable Value of Perquisite (TVP) Transportation of goods or Value at which offered to public passengers at free or concessional Less: amount recovered from the rate provided by the employer employee engaged in that business (other than railways/ airlines)
3(7)(ii) Traveling, touring, accommodation Amount recovered by employer or and other expenses met by the Value at which offered to public employer other than specified in Less: amount recovered from the Rule 2B. (this shall be calculated employee only for the period of vacation)
3(7)(iii) Free meals during office hoursFree Actual cost to the employer in excess of ` meal in remote area or offshore 50 per meal or tea or snacks Less: amount recovered from the installation area is not a taxable perquisite employee. Tea or non-alcoholic beverages and snacks during working hours is not taxable. 3(7)(iv) Value of any gift or voucher or taken other than gifts made in cash or convertible into money (e.g. gift cheques) on ceremonial occasion
Value of gift In case the aggregate value of gift during the previous year is less than ` 5,000, then it is not a taxable perquisite
3(7)(v) Expenditure incurred on credit card or Actual expenditure to employer is taxable add on card including membership fee Less: amount recovered from employee and annual fee If it is incurred for official purpose and supported by necessary documents then it is not taxable. 3(7)(vi) Expenditure on club other than health Actual expenditure incurred by the employer club or sports club or similar facilities Less: amount recovered from employee provided uniformly to all employees If the expenditure is incurred exclusively for official purposes and supported by necessary documents then it is not taxable. Initial fee of corporate membership of a club is not a taxable perquisite 3(7)(ix) Any other benefit or amenities or service or right or privilege provided by the employer other than telephone or mobile phone
Cost to the employer Less: amount recovered from employee
Note: Members of household includes: spouse(s), children and their spouses, parents, servants and dependents.
PROVIDENT FUNDS Particulars Constituted under
Statutory Provident Funds Act, 1952
Contribution by Employer
Recognized EPF and Misc, Provisions Act, 1952 & recognized by the Commissioner of PF and CIT Employer and an Em- ployee
Unrecognized Not recognized by the Commissioner of Income Tax
Public Public Provident Fund Act,1968 Account in SBI or Post Offices
Employer and Employee
All assessees independently
d Employee Assessee’s Contribution
Deduction u/s Deduction u/s 80C No Income Tax 80C Benefit
Employer’s Contribution
Not taxable
Deduction u/s 80C
Amount exceeding Not taxable at the Not applicable 12% time of contribution of salary is taxable
Exempted upto On Employee’s Fully exempt contri- bution 9.5% p.a. Any excess is taxable taxable under the head “Other Sources” Employee’s Withdrawal at Exempted u/s Exempted u/s Exempted u/s On Employer’s the time of 10(11) 10(12) Subject to contribution and 10(11) contribution not retire-ment/ conditions interest thereon is taxable at the time not taxable. resignation/ of credit Employer’s termination, etc andFund is also Note: Sum received by an Employee under approved contribution Superannuation interest thereon is exempt from tax u/s 10(13). taxable as Profits in lieu of Salary, under“ Salaries” Interest credited Fully exempted
Section 80C Section 80C of the Income-tax Act provides for a deduction of up to Rs. One lakh to an individual or a Hindu undivided family (HUF) for:(i) making investments in certain savings instruments; or (ii) incurring expenditure on tuition fee and repayment of housing loan. 2. With a view to encourage small savings, the Government has taken a policy decision to include the investments made in the following two deposit instruments within the ambit of Section 80C:(i) Five Year Post Office Time Deposit Account; and (ii) Senior Citizens Savings Scheme. 3. Therefore, the investment by an individual or a Hindu undivided family (HUF) in these two instruments during the previous year 2007-08 (relevant to assessment year 2008-09), and subsequent years, shall be eligible for deduction under section 80C of the Income-tax Act, subject to the overall ceiling of Rs. One lakh in that section. It is further clarified that investments made on or after 1.4.2007 (i.e. from the beginning of the financial year 2007-08) shall be eligible for this deduction. 4. Drawing and Disbursing Officers (DDOs) may take such investments into consideration while determining the TDS liability of an employee for the previous year 2007-08 (relevant to assessment year 2008-09) and subsequent years. EMPLOYERS CONTRIBUTION TO RPF IS EXCLUDED FROM SALARY 1. If the employee has rendered continuous service with his employer for a period of 5 years or more. 2. If he has not rendered such continuous service of 5 years, then the service has been terminated: (a) by reason of such employee’s ill health, or (b) by the contraction or discontinuance of the employer’s business, or (c) any other cause beyond the control of the employee 3. If, on the cessation of his employment, the employee obtains employment with another employer, to the extent, the accumulated balance due and becoming payable to him is transferred to his individual account in any recognized fund maintained by such employer. The period of service rendered under the previous employer(s) should also be included in determining the period of continuous service in (3) above.
TAXABILITY OF PERQUISITES (At a glance) Perquisites
Specified Employee
Non-specified Employee
Rent free/concessional accommodation
Taxable
Taxable
Watchman, gardener, sweeper, personal attendan engaged by employee and expenses met by the employer
Taxable
Taxable
The aforesaid mentioned servants provided in any other manner
Taxable
Non-taxable
Gas, electricity, water, etc. for household consumption Taxable and the connection in the name of employee but expenses paid by the employer Above facilities provided in any other manner Taxable
Taxable
Education expenses, if the bills are in the name of employee, the but met by employer
Taxable
Taxable
Above facilities provided in any other manner
Taxable
Non-taxable
Non-taxable
Transport facility provided by transport undertakings Taxable Railways and other than Airlines
Taxable
Interest free loans or loans provided at concessional rates by the employer to employee
Taxable
Taxable
Holiday home facilities provided
Taxable
Taxable
Club facility provided by employer(other than official Taxable purposes)
Taxable
Computer/laptop provided by the employer for use by the employee
Non-taxable
Non-taxable
Other movable assets provided by the employer for use by the employees
Taxable
Taxable
Sale/transfer of movable assets to employees
Taxable
Taxable
Magazines, periodicals, journals, etc. for official work Not taxable
Not taxable
Medical facilities, if the bills are in the name of employee, employer upto but met by ` 15,000
Taxable
Taxable
Above facility in any other manner
Taxable
Non-taxable
Leave Travel Concession
Not taxable subject to Sec.10(5)
Not taxable subject to Sec.10(5)
Stock option under approved scheme
Not taxable
Not taxable
SALARY For the purpose of
Means
1. Deduction for Entertainment Allowance Basic pay u/s16(ii) in case of Govt.employees 2. Voluntary Retirement Compensation u/s Basic Pay + D.A.(forming part of salary 10(10C) for etirement benefits) 3. Exemption for Gratuity covered under Payment of Gratuity Act u/s 10(10)(ii) 4. Exemption for Gratuity not covered under Payment of Gratuity Act u/s 10(10)(iii) fixed percentage on turnover
Basic Pay + D.A Basic Pay + D.A. (forming part of salary for retirement benefits) + Commission as a
5. Exemption for Leave Salary u/s Same as above 10(10AA) 6. Exemption for House Rent Allowance u/s Same as above 10(13A) 7. Contribution to Recognized Provident Fund
Same as above
8. Determination of Specified employee Income under u/s 17the head salaries without benefits including the value of non-monetary 9.
Rent-free accommodation
Salary excludes • D.A. (forming part of salary) • Employer’s contribution to PF
Salary includes • Basic pay • D.A. (not forming part of salary) • Exempted allowances
• All taxable allowances • Bonus or commission or ex-gratia
• Perquisites u/s 17(2) or (2)(iii) or its provisions
• Any other monetary payment
• Any allowance in the nature of medical facility to the extent not taxable.
