Exemptions 1.

Leave travel allowance A) Leave travel allowance is exempt in following extent In the case of an individual The value of any travel concession or assistance received by or due to him From his employer for himself and his family, in connection with his proceeding on leave to any place in India Or, from his employer or former employer for himself and his family, for proceeding to any place in India after retirement from service or after termination of his service Subject to the conditions prescribed as to the number of journeys and the amount exempt per head. 2)Gratuity Gratuity is a lump sum amount paid to an employee, on the basis of the duuration of his employment, on termination of service due to retirement, rresignation, death ect. It is exempt from tax, either fully or partyly depending on the type of employee receiving it, gratuity received while still in servoce is not exempt, it is taxable as salary. 3)Pension Pension is monthly payment by the ex- employer to a retired employee which is taxed as salary.an employee may opt to get a one time lump sum payment in lieu of such monthy;ly payments. This is known as computation of pension, which is exempt fully or patrtly depending on the categoey of employee.

4)Encashment of leave salary Leave encashment means cash received by an employee against leave earned but not taken and accumulated. Leave encashment while in service is taxable. Leave encashment on leaving a job is exempt. 5)Retrenchment compensation This exemption is in respect of 1. Any compensation received by a workman under the industrial dispute act 1947 or under any other act, rules, ect 2. At the time of His retrenchment( dismissal of job) or The closing down of the undertaking in which he is employed or The transfer of services of the workman due to change in the management or ownership of the undertaking, if his service is interrupted due to such transferor his new service conditions are less favorable or the new employer is not liable to pay retrenchment compensation in respect of their earlier periods of service

6)House Rent Allowance 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.

7)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:

8)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.

9)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.

DETERMINATION OF ANNUAL VALUE

The basis of calculating Income from House property is the annual value. This is the inherent capacity of the property to earn income and it has been defined as the amount for which the property may reasonably be expected to be let out from year to year. It is not necessary that the property should actually be let out. It is also not necessary that the reasonable return from property should be equal to the actual rent realized when the property is, in fact, let out. Where the actual rent received is more than the reasonable return, it has been specifically provided that the actual rent will be the annual value. Where, however, the actual rent is less than the reasonable rent (e.g., in case where the tenancy is affected by fraud, emergency, close relationship or such other consideration), the latter will be the annual value. The municipal value of the property, the cost of construction, the standard rent, if any, under the Rent Control Act, the rent of similar properties in the same locality, are all pointers to the determination of annual value. Gross Annual Value [Section 23(1)]

The following four factors have to be taken into consideration while determining the Gross Annual Value of the property: 1. Rent payable by the tenant (actual rent) 2. Municipal valuation of the property. 3. Fair rental value (market value of a similar property in the same area). 4. Standard rent payable under the Rent Control Act.

Actual Rent: It is the most important factor in determining the annual value of a let out house property. It does not include rent for the period during which the property remains vacant. Moreover, it does not include the rent that the tax payer

is unable to realize, if certain conditions are satisfied. Sometimes a tenant pays a composite rent for the property as well as certain benefits provided by the landlord. Such composite rent is to be disintegrated and only that part of it which is attributable to the letting out of the house property is to be considered in the determination of the annual value.

Municipal Valuation: Municipal or local authorities charge house tax on properties situated in the urban areas. For this purpose, they have to determine the income earning capacity of the property so as to calculate the amount of house tax to be paid by the owner of the property. But this valuation cannot be treated as a conclusive evidence of the rental value of the property, although such valuation is given due consideration by the Assessing Officer.

Fair Rental Value: It is the rent normally charged for similar house properties in the same locality. Although two properties cannot be alike in every respect, the evidence provided by transactions of other parties in the matter of other properties in the neighborhood, more or less comparable to the property in question, is relevant in arriving at reasonable expected rent.

Standard Rent: Standard Rent is the maximum rent which a person can legally recover from his tenant under a Rent Control Act. This rule is applicable even if a tenant has lost his right to apply for fixation of the standard rent. This means that if a property is covered under the Rent Control Act, its reasonable expected rent cannot exceed the standard rent.

The Gross Annual Value is the municipal value, the actual rent (whether received or receivable) or the fair rental value, whichever is highest. If,

however, the Rent Control Act applies to the property, the gross annual value cannot exceed the standard rent under the Rent Control Act, or the actual rent, whichever is higher. If the property is let out but remains vacant during any part or whole of the year and due to such vacancy, the rent received is less than the reasonable expected rent, such lesser amount shall be the Annual value. For the purpose of determining the Annual value, the actual rent shall not include the rent which cannot be realized by the owner.