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SALARIES (U/S 15 to 17)

The topic is discussed under, ‘ Who, When, Where & How’ of taxing Salary income.

Who is taxed:
1. Employees are taxed.
2. Employer- employee, Master Servant relation ship should exist. Person receiving remuneration for
services rendered is taxed under ‘Salary’ income. Payee must be working under an agreement of
service.
3. Payment should be received from the employer.
4. If received from a person other than an employer, the same would be considered under ’Income
from other sources’ and not under’ salaries’.

Remuneration to a Director, being an employee of the Company is taxable.


Salary, Bonus , commission paid to a partner is treated as distribution of ‘Profits from business’ and not as
‘Salaries’.
Remuneration to MP, MLAs are not employees of the Government, Parliament or Assembly. So cannot be
treated as ‘Salary’.

When is Salary taxed:

Salary is taxed in the following cases.

a. Any salary due from an employer in the previous Year, whether paid or not.
b. Any salary paid by an employer in the previous Year, whether due or not.
c. Any arrears paid / allowed in the previous Year, if it has not been taxed in the earlier year.

Example:Mr. Bilal, an employee of Indian Oil Company Ltd. Submitted the following information:

1. Salary is paid @8000 p.m on the last day of the month.


2. He received the April’08 salary Rs.8000 in advance on 31.3.08.
3. He also received salary arrears Rs.40000 pertaining to 2003-04.

Compute the amount of salary taxable during the previous year 2007-08.

Solution:

Mr. Bilal
Previous year: 2007-08 Assessment Year:2008-09
Particulars of Income Rs
.
A.Salary for the period 1.4.07 to 31.3.08 whether paid or due
Salary from April’07 to March’08 whether paid or not @8000 96000
p.m

B. Salary received in the previous year, whether due or not


Salary for April’08, received in advance in Mar.’08 (It won’t 8000
be taxed again in the following year)
C. Arrears of salary of 2003-04 received in the previous
year 40000
Arrears of salary of 2003-04 received (assuming that it was
not charged to tax in earlier years)
Total Taxable Salary in the Previous Year 2007-08 14400
0

Next question is determining where the salary accrues to the employee. Salary accrues in India if it is
earned in India. Salary paid for leave period and other benefits preceding or succeeding such services
rendered in India also is deemed to accrue in India.
However, salary earned by Indian Citizen from Government of India, is deemed to accrue in India.
E.G:Indian Diplomats. Perks & allowances are exempt.

Illustration:
Mr. Anil ,Ambassador from India posted to Washington is paid
Salary of Rs.180000 and
Allowances of Rs.45000.

Despite his being a non resident by status during the previous year, he cannot claim that his salary and
perks will be tax exempt as his services were rendered outside India.
U/S 9(1) (iii), salary paid to an Indian Citizen by the Indian Government is deemed to accrue in India and is
taxable. Allowances are exempt from tax.

What is included in’Salary’:


1. Salaries, wages and advance against salary / wages
2. Annuity / pension
3. Gratuity
4. Fees/ commission
5. Perquisites
6. Profits in lieu of / in addition to salaries/ wages
7. Incentive/ bonus
8. Contribution made by Central Government or any other employer in the account of the
employee under new pension scheme effective 1.4.04
9. Leave encashment
10. Annual accretion in RPF to the extent taxable
11. Transferred balance to a RPF to the extent taxable
To sum up,
I. It is the gross salary that will be taxed and not the net received by the employee
II.All voluntary payments will be added to taxable income.
III.Amounts recd. By way of remuneration exempted U/S 10 will be excluded while
computing salary income.
Perquisites: Perquisites is additional income / benefit in addition to regular salary derived by virtue of
employment in addition to salary.
Perquisites comprise of,
1.Perquisites taxable in case of all employees
2.Perquisites taxable in case of specific employees like directors etc.
3.Perquisites not taxed.

1.Perquisites taxable in case of all employees:


The following perquisites are taxable in the hands of all employees:
a. value of rent free accommodation
b. value of concession in rent in respect of accommodation provided.
Concession in rent will be as below:
Employer Own accommodation Hired Own Hired
accommodation Furniture Furniture
Govt. License Fee 10%p.a x Cost Hire Charges
Others Specified Percentage Lower of 15% 10%p.a x Cost Hire Charges
Of salary or Rent

1. If rates of recovery from employee is less than the ones shown above the difference is treated as
parks. % specified will vary as shown below:

Population above 25 lakhs 15% of salary


Population above 10 lakhs, but less than 25 lakhs 10% of salary
Population Less than 10 lakhs 7.5% of salary

2. Salary includes Basic, D A , Bonus, commission, fees, taxable allowances and monetary
payments. Exclusions: D A not considered for calculating retirement benefits, Employer’s
contribution to PF, exempt allowances and perks U/S 17(2).

3. Furniture will include TV, Radio, Fridge, Household appliances, A/Cs and similar equipments
and gadgets.

c.Sum paid by the employer of any obligation payable by the employee


d.Sum paid by the employer for any assurance on the life of the assessee, or a
contract for annuity other than contribution for (a) Recognised Provident Fund, (b)
Approved Superannuation Fund or (c) Deposit linked Insurance Fund.
e.Value of any other Fringe Benefit / amenity such as (i) Interest free / concessional loan (ii) use of
movable Assets and (iii) transfer of movable assets (excluding Fringe Benefits taxable in the hands of the
employer.

Perks Taxable In Case Of Specified Employees: -


Specified Employees:
I. A director
II.An employee having substantial interest interest in the company. ( holding more than 20% or more
voting power).
III.Any other employee with a salary of more than Rs.50000 in the previous year. The amount of
Rs.50000 is arrived at after excluding non monetary benefits, entertainment allowance and
profession tax U/S 16.
The perks that are taxable in case of specified employees are,
• Gas, electricity, water provided free of cost
• Free education facilities for employees, their family members
• Free domestic help such as sweeper, watchman, cook, gardner.

Taxfree perquisites:U/S 17

1. Cost of medical treatment in a hospital maintained by employer, provided to an employee or his


family.
2. Reimbursement of medical expenses incurred by a employee / his family in a hospital maintained by
Government or any other local authority.
3. Any sum paid by the employer direct to a hospital approved by Chief C I T for medical treatment to
an employee or his family.

4. Reimburement by employer of any expenses incurred by the employee on medical treatrment of self
or family in any hospital approved by CCIT provided that the employee will attach with his return of
income a certificate from the hospital specifying the disease or ailment for which medical treatment
was required and receipt for amount paid to the hospital for such treatment.

5. Reimburement of medical expenses upto Rs.15000 incurred by the employee on medical treatrment
of self or family in the previous year.

6. Premium on Employee Health Insurance under any Scheme approved by Central Government U/S
36(1) (ib).

7. Premium on Insurance (Medi Claim) on the health of the employee or his family members under
any Scheme approved for the purpose of S80D.

8. Expenditure incurred by employer on:


Medical treatment of the employee or his family members outside India.

i.Travel / stay abroad of the employee or his family members outside India for
medical treatment.

ii.Travel / stay abroad of one accompanying attendant in connection with the


treatment.

iii.Expenses of treatment and stay exempt only to the extent permitted by


Reserve Bank of India.

iv. Expenses on travel will be exempt only if gross total income of the employee does not exceed Rs.
200000 in the previous year.
9. Reimbursement of the expenses detailed above.

10. Value of benefit provided by the company under ESOP – Employees Stock Option Scheme or
Employees Stock Purchase Scheme in accordance with SEBI guidelines are exempt from tax. Under
such ESOP , shares, debentures or warrants are allotted by the company to its employees free of cost
or at a concessional rate.

11. Fringe Benefits. These are taxable in the hands of the employer and so are not taxed as perks in the
hands of the employees. ‘Fringe Benefits‘ as per section 115WB(1) means means any consideration
for employment provided by way of:
1. Any privilege, service, facility or amenity by way of reimbursement or otherwise to
employees.
2. Any free or concessional ticket provided by the employer for private journeys of his
employees/ family members.
3. Any contribution by employer to an approved superannuation fund for employees.
4. Entertainment
5. Provision of hospitality (excludes any expenditure on food / beverages in office or
factory or through non transferable paid vouchersusable only at eating joints).
6. Conference (not being participation fee by employees in any conference) including
expenditure on conveyance, tour and travel (including foreign travel), on hotel, boarding
and lodging in connection with any conference.
7. Sales promotion including publicity
8. Employees welfare (excluding expenditure on / payment made to fulfill any statutory
obligation or mitigate occupational hazards or provide first aid facilities in the hospital /
dispensary run by the employers).
9. Conveyance, tour and travel (including foreign travel).
10. Use of hotel, boarding and lodging facilities
11. Repair, running (fuel included), maintenance of motorcars and depreciation thereon.
12. Repair, running (fuel included), maintenance of aircrafts and depreciation thereon.
13. Use of phone (mobile phones)other tha expenditure on leased lines.
14. Maintenance of any accommodation in the nature of guest house (other than
accommodation used for training purposes).
15. Festival celebrations
16. Use of health club and similar facilities.
17. Use of any other club facilities.
18. Gifts
19. Scholarship
Perks not taxable at all as per CBDT Circular and directives:
1. Allowances to Judges of High Court & Supreme Court
2. Allowances to employees of U N O
3. Recreation provided to employees as a group
4. Expenses on training employees
5. Goods manufactured by employer sold to employees at concessional rates.

The following are taxable under the head profit in lieu of salary S17(3).
1. Compensation for termination of employment is taxable except compensation paid U/S 10.
2. Retrenchment compensation paid to workers U/S 10 (10B)
3. Voluntary Retirement Compensation paid to employees U/S 10 (10C)
4. Contribution to PF and interest in excess of specified % .

5. In case of statutory PF U/S 10(11) Employer’s contribution in Pr. Year is exempt. The interest
credited during the previous year and the lump sum payment on retirement is also exempt.

6. In case of Recognised PF U/S 10(12) Employer’s contribution in Pr. Year is exempt upto 12% of
Basic Salary. The interest credited during the previous year is exempt to the extent of 9.5% and the
lump sum payment on retirement is exempt subject to specified rules of the Fund.

7. In case of unrecognised PF U/S 17(3) Employer’s contribution in Pr. Year is exempt. The interest
credited during the previous year is also exempt. and the lump sum payment on retirement and
interest are taxable as ‘income from other sources’.

8. When unrecognized PF balance is transferred to RPF, transferred balance is taxable to the extent it is
taxable, i.e employer’s contribution over 12% and interest in excess of 9.5%. under the head
‘deemed income’ towards salaries.

Allowances:
All allowances are taxable unless specifically exempted.

Exempt U/S S10


Allowances for expenses on travel on tour or transfer, conveyance for office duties, outstation duties,
professional research, development, purchase and maintenance of uniform, to the extent of actual expenses
incurred.

LTA & HRA exempt to the extent of prescribed limits or actual expense whichever is less.

Allowances for duties in border area/ remote/ disturbed/ tribal area are exempt to the extent of actuals or
prescribed limits, whichever is lower.

EXEMPTIONS:
Leave Travel Concession U/S 10(5):
In the case of an individual, the value of any LTC received from employer for himself and his family
(comprising of spouse, children, parents and dependant brothers and sisters) in connection with his
proceeding on leave to any place in India.

On proceeding to any place in India after retirement from service or after termination of service.

This will be subject to conditions prescribed and will be limited to the actuals incurred or the limit stipulated
– lesser of the two.

Gratuity U/S 10(10)


Gratuity is exempt from salary, depending upon the classification / category of employee. Any gratuity paid
during employment is treated as salary and is taxed.
Gratuity received by employee of Central Government, Union Government, State Governments, Local
Authority and defense are entirely exempt from Income Tax.

All persons employed in shops, factories, establishments employing more than 10 persons are covered under
Payment of Gratuity Act. Under this Act,

Gratuity will be tax exempt to the extent of lesser of the following :


Amount received as gratuity
Rs.350000
Amount equivalent to last drawn salary @ 15 days for each 26 days completed per
year of service.
1. Basically gratuity is equal to 15 days salary (based on last drawn salary) for every completed year of
service. For Gratuity under the Payment of Gratuity Act part of year over 6 months will be treated as
an year.

2. In case of seasonal employment ‘7 days salary is considered instead of 15 days.

3. 26 days indicate working days of the month.

4. Salary includes basic & DA but excludes bonus, commission, overtime, other allowances etc.

PROBLEM:
‘X’ covered under Payment of Gratuity Act 1972 retired on 30.8.07. at the time of retirement he was
drawing a basic salary of Rs.20000 and 10% as DA.He joined the Company in 1.4.90. He was paid gratuity
of Rs.250000.
Compute taxable Gratuity for the financial year 2007-08.

Last drawn salary: Basic + DA = 20000+2000=Rs.22000 p.m


Service =17 years and 5 months +17Years
At the rate of 15 days salary =17 x 22000/26 =215770
Exempt Gratuity is the least of:
1. 15 days salary 215770
2. Rs.350000
3. Paid Rs.250000

Exempt Gratuity is Rs.215770. Taxable Gratuity is (250000-215770) Rs.34230.

GRATUITY TO OTHER EMPLOYEES:


(Other than under Payment of Gratuity Act)
Any gratuity received,
1.By an employee on retirement,
2. on becoming incapacitated before retirement,
3. ontermination of employment including by resignation
4.Payment received by widow, children or dependent on the employee’s death

Will be exempt to the extent of least of the following:


1. Actual gratuity recd.
2. Any sum notified by Government (now, Rs.350000)
3. Half months salary for each completed year of service, based on average salary of 10 months prior to
retirement.
If an employee receives gratuity from more than one employer in the same previous year, total
exemption cannot exceed (Rs.350000) specified limit.
Notified ceiling will cover any gratuity received and exempted in earlier years.
Salary would include, basic salary, D A, and commission at fixed%ge on turnover achieved by
employee

Completed years of service would mean only that. Part of the year, even more than 6 months is
excluded.

Average salary of last 10 months are considered, whereas under Payment of Gratuity Act, it is based on
last drawn salary.

PROBLEM:

Mr. Johar employee of a snooker club having staff of 7 people, retired on 31.1.07 after serving 20years
and 11 months. His basic was Rs.2500. DA Rs.1000 (50% eligible for retirement benefit) and
conveyance allowance Rs.500. He received commission of Rs.5000 during this period @1% of turnover
achieved by him. He was paid gratuity of Rs.38000. He had received gratuity of Rs.5000 from a
previous employer. Compute taxable gratuity.

Johar is not a government employee. Since staff strength is less than 10 he is not covered by Payment of
Gratuities Act.
So under S10(10)(iii) least of the following is exempt.
1. Actual received Rs.38000
2. Notified amount Rs.350000. This will be reduced by Rs.5000 recd. Earlier.
3. Half years salary for each completed year 20 years. 11 months , being part of the year is ignored.
Salary is (for the past 10 months) 2500x10=25000+ DA 50% eligible i.e Rs.500 x 10=5000+fixed
commission @1% of turnover 5000 = Rs.35000

Rs.35000 being the least is exempt. SO 38000-35000 Rs.3000 is taxable.

Commuted Pension:

Pension is monthly payment to retired employees and is taxed as ‘Salary’. If an employee opts to
commute his pension, i.e decides to receive in lumpsum part or the whole of his pension, it is exempt
fully or partly, based on the category of the employee.
Government employees:
Payment of commuted pension is fully exempt, if received under the following schemes:
1. Civil Pension (commutation) Rules of Central Govt.
2. Similar scheme as applicable to members of civil services of the Union, person holding
defence or civil posts under the Union.
3. Members of All India Services, State Civil Services, Defence Services
4. Holders of civil posts under State
5. Employees of Local Authority / statutory Corporation.
Paid to Other Employees:
Exempt portion will be
a. Full normal pension+ % pension commuted
b. commuted pension (Annual value)
rd
1/3 of will be exempt if gratuity is paid.
½ of if Gratuity is not received.

PROBLEM:

Thomas retired from Cromptons Ltd. On 30.6.2006. He had joined the company from 4.1.74. He
receivedpension Rs.2000p.m upto 30th Nov.2006. On 1.12.06 he requested xcommutation of 50%
of pension and received Rs.75000. If he had received Rs50000 as gratuity , fully exempt from
tax, calculate taxable salary.

Solution:
IF GRATUITY PAID

Uncommuted pension 2000x5 +1000x4 14000


Commuted pension recd 75000
Less exempt U/S 10(10A)
50% of commuted value 75000
100% - Annual value 150000
1/3exempt as gratuity is paid 50000 25000
Total taxable 39000

IF GRATUITY IS NOT PAID

Uncommuted pension 2000x5 +1000x4 14000


Commuted pension recd 75000
Less exempt U/S 10(10A)
50% of commuted value 75000
100% - Annual value 150000
1/2exempt as gratuity is not paid 75000
Total taxable 14000

Since exemption in respect of commutation an employee is normally entitled to receive, even if


part (here 50% in this problem) is commuted exemption (1/2 or 1/3) is worked out on whole
(100%) pension.

Pension (Commuted) received from LIC is fully exempt. 10(10A)(iii).

Leave encashment: U.S 10(10AA)


Encashment of leave while in service is taxable.

On leaving a job by virtue of retirement,superannuation, resignation,

A. Encashment of earned leave to the credit by an employee of Central / State Government


is fully tax exempt.

B. In case of other employees, least of the following is exempt:


1. Encashment of earned leave to credit, not exceeding 30 days per completed year of
service (with the employer from whose service the person is retiring).
2. 10 months average salary, based on salary drawn for 10 months preceding the retirement
3. Amount notified by Government – Rs.3 lakhs for the Asst Year 2007-08.
4. Amount actually received.
Note: The notified amount of Rs.3 lakhs include all amounts received, including those received
in previous years / previous employers.

Average Salary is calculated by salary for 10 months preceding the retirement and includes
Basic, DA + Commission/ incentives

‘Completed Years of service is calculated by calculating Date retired less date joined. Only
completed years are taken into account, ignoring part of the year (Even 11 months+ days).

“leave entitled is calculated @ 30 days per completed year of service.


Leave encashable is leave entitled as reduced by leave availed.’
Rules as to limit of leave accumulation are to be considered.

Leave encashment= Average salary x leave encashable

PROBLEM:
Mr. Tired received Rs.20000 per month of leave to his credit as leave encashment, on his
retirement on 31.3.07.
1. He served the company for 15 years and 6 months
2. He was eligible for 60 days leave for each year
3. He availed 3 months leave while in service.
4. His average salary for 10 months before retirement is Rs.20000

Calculate his taxable leave encashment.

SOLUTION:
Exempt figure is least of the following:
I. Encashment of earned leave to credit, not exceeding 30 days per completed year of
service.
Leave entitled for each year 30 days (limited to 30 days though actual is 60 days) = 15
months.
Leave availed = 3 months
Leave encashment exempt = 15 -3 =12 months.x Rs.20000=Rs.240000.
(The actual payment in excess on actual leave credit less availed will be taxable.)

II.10 months average salary, based on salary drawn for 10 months preceding the retirement
10 months @20000 =Rs.200000.

III.Amount notified by Government – Rs.3 lakhs for the Asst Year 2007-08.

IV.Amount received from employer Rs.560000


2months x 15 ½ Yrs=31months less availed 3 months =28 months x 20000)

Least of the four , Rs.200000 will be exempt. Balance Rs.360000 will be taxed under the head
‘Salaries’.

Retrenchment Compensation:
Retrenchment Compensation will be exempt if any compensation is received under the
Industrial disputes Act / any other Act /Rules Notification / Award / Contract by any workman
at the time of his retrenchment / the closure of the unit/ transfer of management or ownership
resulting in interruption of his service due to less favourable terms of service or the inability of
new employer to pay the workers retrenchment compensation.

This exemption will be limited to least of:


a. 15 days average salary per month of 26 days for each completed year of service (or part
more than 6 months).
b. Rs.500000
c. Compensation actually received
Average salary will be the average of three months prior to retrenchment for monthly paid, four
complete weeks prior to retrenchment for weekly paid and 12 full working days prior to
retrenchment for daily paid workers. The salary wages will include basic salary + all allowances
concessions (Travel etc) and amenities except employers contribution to Gratuity and retirement
benefit scheme.

Retirement benefit to employees U/S 10(10 C):


Any compensation under this head paid to employees of Private / Public sector company, any
statute recognized by university, Co-op Society, IIT, local authority, notified inst. Of
Management, Government (State / Central) or by any notified institution having importance
through out the states / country on his voluntary retirement under any scheme as per prescribed
guidelines will be exempt to the extent of Rs.500000 provided no such exemption was allowed in
the previous assessment years.

Tax on Perquisites: U/S 10(10 C):


In case of individual employees receiving non- monetary perks from the employer, the tax paid
by the employer at the option of the employer will be exempt from tax in the hands of the
employee. This is notwithstanding anything contained in Section 200 of the Companies Act-
1956.

Tax so paid cannot be claimed as business expenditure by the employer as provided u/s 40(a)
(vi).

Payments received from Statutory / Public Provident Fund:U/S 10(11)

Any payment received by a member from a fund covered by PF Act 1925 or any other
Provident Fund set up by Government (such as P P F) will be exempt.

Payments received from Recognised Provident Fund: U/S 10(12)

Receipt of accumulated balance due from RPF to a member will be exempt as per the stipulated
provisions.

Payments received from Superannuation Fund: U/S 10(13)


Any amount paid paid from approved Superannuation Fund on the death of the beneficiary, or to
an employee in lieu of annuity/ commutation of annuity,
On retirement, or after stipulated age or
On becoming incapacitated prior to retirement
On leaving service otherwise
Of refund of contributions will be exempt.

House Rent Allowance: U/S 10(13A)


Any amount paid to an employee by the employer to meet expenditure on payment of rent for
residential accommodation will be exempt,keeping in consideration the area / place and other
considerations. This exemption will not be available, if the accommodation is owned by the
employee or
No expenditure is incurred by the employee in respect of such accommodation.

Other Special Allowances for Expenses: U/S 10(14)


This head includes allowances such as travel, transfer, outstation, conveyance, research,
professional development, uniforms etc. provided they are not in the nature of perquisites and are
incurred during the performance of ones duties of office / work.

Other Allowances exempt to prescribed limits: U/S 10(14)(ii)

1. Allowances such as Children Education Allowance (limited to 2 children upto Rs.100


p.m/child)
2. Children Hostel expenses (limited to 2 children upto Rs.300 p.m/child)
3. Transport between home and office (upto Rs.800p.m Rs1600 for blind/ handicapped)
are exempt.

Pension to Gallantry Award Winners U/S 10(18)


Pension to Gallantry Award Winners like ‘Param Vir Chakra’, ‘Maha vir Chakra’, ‘Vir Chakra’
are exempt.

Deductions from Salary:


U/S 16 only a. Entertainment expenses b. Profession tax are deductible. No other expenses are
deductible.

U/S 16 (ii), in respect of Government employees, entertainment allowances initially included


in taxable gross salary. Then a deduction of least of the following is allowed:
1. 1/5th of basic salary
2. Rs.5000
3. Amount received. (actuals)
Basic Salary includes DA if paid as part of salary, excludes other allowances, perks or bonus.
The deduction is allowed irrespective of actuals spent.
EXAMPLE:
A Government employee receives Salary of Rs.50000
Entertainment Allowance Rs.12000
Spent on entertainment Rs.3000
Exempt will be the least of
Rs.5000
Rs.10000 (1/5 of Rs.50000)
Rs.12000 actual received
i.e Rs.5000 will be exempt
In respect of Non Government employees entertainment allowance is not exempt.

Professional Tax will be exempt U/S 16(iii).

Rent free accommodation

SOLVED PROBLEMS:
John is an employee of Citibank.at Mumbai. During the financial year ending 31.3.09
He receives the following:
Salary 100000 p.m 1200000
DA (not eligible for retirement benefits) 20000 p.m 240000
Bonus equal to 2 months salary 200000
Entertainment Allowance 120000
Conveyance Allowance 60000
He is given furnished accommodation at Mumbai. Cost of furniture and appliances allowed for his use is
480000. Rent paid by him to the employer is Rs.120000.

Calcualte the value of taxable perquisites if the accommodation is


Owned by the company
The company rents it out at 150000.

Own accommodation of the company Rented accommodation by the company


15%* of Rs.1520000 1.Actual rent paid by
(Sal.Bonus,Ent.All) 228000 Citibank 150000
Add 10% of cost of 2. 15%* of Rs.1520000
Furniture 48000 (Sal.Bonus,Ent.All) 228000
276000 Lower of 1 or 2 above 150000
Rent paid by John Add 10% of cost of furniture 48000
to Citibank 120000 198000
Value of perquisites 156000 Rent paid by John
to Citibank 120000
Value of perquisites 78000

NOTE: Accommodation in a city having population of 25 lakh + it will be 15%; 10 lakh + ,less than 25
lakhs , it will be 10%, other places 7.5%

House Rent Allowance:

IT Act provides relief to employees who receive HRA.

Conditions: Not applicable to persons where,


1. The residential accommodation is owned by the employee
2. No expenditure is incurred by him as payment of rent.

Exemption Limit:
A.Actual allowance received.
B.Amount by which actual expense of the employee exceeds 1/10th of salary during the relevant period
i.Amount equal to ½ of the salary, where such accommodation is located in Mumbai,Kolkota, Chennai or
Delhi
ii.In any other place 2/5th of the salary

A is an employee of B Co.. His salary is (Excluding perks) Rs.144000 p.a


He pays rent of Rs.93600 p.a
He received HRA Rs.86400 p.a.
He received no other benefits. Calculate HRA perks.

If accommodation is located in If accommodation is located in


Mumbai,Kolkota,Chennai or Delhi any other place
Annual Salary excluding Annual Salary excluding
Perquisites 144000 Perquisites 144000
HRA Received 86400 HRA Received 86400
Less Exempt U/S10(13A) Less Exempt U/S10(13A)
iHRA recd. 86400 iHRA recd. 86400
iiActual Rent 93600 iiActual Rent 93600
Less1/10of Less1/10of
Salary 14400 79200 Salary 14400 79200
iii1/2 Salary 72000 Iii2/5 Salary 57600
Least of I,ii,iii 72000 14400 Least of I,ii,iii 57600 28800
Net Salary Income 158400 Net Salary Income 127800

COMPUTATION OF SALARY INCOME


Summary

Particulars Amt. in
Rs.
Income from Salary
1 Salary
1.1 Gross Salary
1.2 Salary Due/ Deemed to accrue in India
1.3 Salary Advances / Arrears of pay recd.
1.4 Voluntary payments by employer
Less Exempt U/S 10 xxxxx
2 Allowances
2.1 Dearness Allowance
2.2 Entertainment Allowance
2.3 LTA (Exempt U/S10(10)
2.4 HRA(Exempt U/S10(13A)
2.5 Expenses allowed U/S 10(14) xxxxx
3 Annuity xxxxx
4 Pension
4.1 Not Commuted Monthly Pension
4.2 Commuted Pension
Less: Commuted Pension Exempt U/S 10(10A)
i.Government Employees (Fully exempt)
ii.Non Government Employees
a.With gratuity 1/3 of commuted value
b.W/O gratuity 1/2 of commuted value xxxxx
5 Gratuity (Gross less exempt U/S10(10)
I. Government Employees (Fully exempt)
II. Employees under Payment of Grat. Act- Least of
a. Monthly Sal. x 15/26 x Completed Yrs of Service
b. Rs.350000
c.Gratuity received
III Other Employees –Least of
a. Avg. of last 10 month Salary x ½ x No. of Yrs of Service
b. Rs.350000
c.Gratuity received
Fees & Commission xxxxx
6 Perquisites: xxxxx
7 7.1 Taxable Perquisites
7.1.1 Rent – free accommodation
7.1.2 Concessional Rent
7.1.3Payment of employee’s obligation by Employer
7.1.4 Premium paid for ins. of life or for annuity
7.1.5 Prescribed amenities
(Interest free loans, transfer of movable assets)
7.2 Tax free Perquisites xxxxx
7.2.1 Medical Treatment in Employer’s Hospital
7.2.2 Medical Treatment in Govt./ approved Hospital
7.2.3 Medical expenses upto 15000
7.2.4 Premium on employees health insurance
7.2.5 Premium on Medicalim insurance
7.2.6 Medical treatment, travel & stay abroad
7.2.7 FBT at the hands of Employer
Profit in lieu of Salary xxxxx
8 Termination compensation
Compensation for modified terms of employment
Employer’s Cont. to PF + interest
Keyman Insurance Policy
Less: exempt U/S 10:
Compensation to Workmen/Retrenchment/ V R S
Payment from Statutory P F , R P F
Payment from Superannuation Fund
Contribution by Govt. under New Pension Scheme Leave Encashment xxxxx
9 (Gross – exempt U/S 10(10AA) xxxxx
1 I Govt. Employee – Fully exempt.
0 II Non Govt Employee – Least of
a. Leave encashment @30 days p.a
b. 10 x average salary of last 10 months
c. Rs.300000
d. Actual Receipt
Taxable annual accretion in RPF xxxxx
11.1 Employer’s cont. in excess of 12% of Basic Salary
1 11.2 Interest in excess of 9.5% p.a
1 Taxable transferred balance in RPF xxxxx
xxxxx
Gross Taxable Salary
1 Less: Deductions U/S 16 xxxxx
2 14.1 Entertainment Allowance
14.1.1 Government Employee - Least of
1 a.1/5th of Basic Salary
3 b. Rs.5000
1 c. Actual Allowance
4 14.1.2 Other Employees - Nil xxxxxx
14.2 Profession Tax xxxxxx
xxxxx
Net Taxable Dalary (13 – 14)
xxxxxx

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