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Income tax is an annual tax on income. The Indian Income Tax Act (Section 4) provides
that in respect of the total income of the previous year of every person, income tax shall
be charged for the corresponding assessment year at the rates laid down by the
Finance Act for that assessment year. Section 14 of the Income tax Act further provides
that for the purpose of charge of income tax and computation of total income all income
shall be classified under the following heads of income:
A. Salaries
B. Income from house property
C. Profits and gains of business or profession.
D. Capital gains
E. Income from other sources.
The total income from all the above heads of income is calculated in
accordance with the provisions of the Act as they stand on the first day of April of any
assessment year. In this booklet an attempt is being made to discuss the various
provisions relevant to the salaried class of taxpayers as well as pensioners and
senior citizens.
The definition of income as per the Income-tax Act, 1961, begins with the words
Income includes. Therefore, it is an inclusive definition and not an exhaustive one.
Such a definition does not confine the scope of income but leaves room for more
inclusions within the ambit of the term. Certain important principles relating to income
are enumerated below
Income, in general, means a periodic monetary return which accrues or is
expected to accrue regularly from definite sources. However, under the Incometax Act, 1961, even certain incomes which do not arise regularly are treated as
income for tax purposes e.g. Winnings from lotteries, crossword puzzles.
Income normally refers to revenue receipts. Capital receipts are generally not
included within the scope of income. However, the Income-tax Act, 1961 has
specifically included certain capital receipts within the definition of income.
e.g. Capital gains i.e. gains on sale of a capital asset like land.
Income means net receipts and not gross receipts. Net receipts are arrived at
after deducting the expenditure incurred in connection with earning such receipts.
The expenditure which can be deducted while computing income under each head is
prescribed under the Income-tax Act, 1961.
Income is taxable either on due basis or receipt basis. For computing income
under the heads Profits and gains of business or profession and Income from
other sources, the method of accounting regularly employed by the assessee
should be considered, which can be either cash system or mercantile system.
The meaning of the term salary for purposes of income tax is much wider
than what is normally understood. 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, 1961 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).
GENERAL POINTS:
(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.
Examples: (a) Sujatha, an actress, is employed in Chopra Films, where she is paid a
monthly remuneration of ` 2 lakh. She acts in various films produced by various
producers. The remuneration for acting in such films is directly paid to Chopra Films
by the different producers. In this case, ` 2 lakh will constitute salary in the hands of
Sujatha, since the relationship of employer and employee exists between Chopra
Films and Sujatha.
(b) In the above example, if Sujatha acts in various films and gets fees from
different producers, the same income will be chargeable as income from profession
since the relationship of employer and employee does not exist between Sujatha and
the film producers.
(c) Commission received by a Director from a company is salary if the Director
is an employee of the company. If, however, the Director is not an employee of the
company, the said commission cannot be charged as salary but has to be charged
either as income from business or as income from other sources depending upon the
facts.
(d) Salary paid to a partner by a firm is nothing but an appropriation of profits.
Any salary, bonus, commission or remuneration by whatever name called due to or
received by partner of a firm shall not be regarded as salary. The same is to be
charged as income from profits and gains of business or profession. This is primarily
because the relationship between the firm and its partners is not that of an employer
and employee.
(2) Full-time or part-time employment: It does not matter whether the employee is
a full- time 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 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 to tax.
Ex: Mr. A, an employee instructs his employer that he is not interested in receiving
the salary for April 2013 and the same might be donated to a charitable institution. In
this case, Mr. A cannot claim that he cannot be charged in respect of the salary for
April 2013. It is only due to his instruction that the donation was made to a charitable
institution by his employer. It is only an application of income. Hence, the salary for
the month of April 2013 will be taxable in the hands of Mr. A. He is however, entitled
to claim a deduction under section 80G for the amount donated to the institution.
(4)Surrender of salary: However, if an employee surrenders his salary to the
Central Government under section 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.
(6)A Member of Parliament or State legislature is not treated as an employee of
Government: Salary and Allowance received by him are therefore, chargeable to
tax under the head of INCOME FROM OTHER SOURCES.
(7)Salary and Wages: Conceptually there is no difference between salary and
wages. Both are compensation for work done or services rendered, though ordinary
salary is paid in connection with service of non-manual type of work, while wages are
paid in connection to manual service, therefore, remuneration received by an
5
individual is taxable under the head Salaries whether the remuneration is termed
as salary or wages.
Definition of Salary
The term salary has been defined differently for different purposes in the Act. The
definition as to what constitutes salary is very wide. As already discussed earlier, it is
an inclusive definition and includes monetary as well as non-monetary items. There
are different definitions of salary say for calculating exemption in respect of gratuity,
house rent allowance etc.
Salary under section 17(1), includes the following:
(i) Wages,
(ii) Any annuity or pension,
(iii) Any gratuity,
(iv) Any fees, commission, perquisite or profits in lieu of or in addition to any salary or
wages,
(v) Any advance of salary,
(vi)Any payments received in respect of any period of leave not availed by him i.e.
leave salary or leave encashment,
(vii) The portion of the annual accretion in any previous year to the balance at the
credit of an employee participating in a recognised provident fund to the extent it is
taxable and
(viii) Transferred balance in recognized provident fund to the extent it is taxable,
(ix) The contribution made by the Central Government or any other employer in the
previous year to the account of an employee under a pension scheme referred to in
section 80CCD.
Basis of charge
1. Section 15 deals with the basis of charge. Salary is chargeable to tax either on
due basis or on receipt basis, whichever is earlier.
2. However, where any salary, paid in advance, is assessed in the year of
payment, it cannot be subsequently brought to tax in the year in which it
becomes due.
3. If the salary paid in arrears has already been assessed on due basis, the
same cannot be taxed again when it is paid.
Examples:
i. If A draws his salary in advance for the month of April 2014 in the month of March
2014 itself, the same becomes chargeable on receipt basis and is to be assessed as
income of the P.Y.2013-14 i.e., A.Y.2014-15. However, the salary for the A.Y.2015-16
will not include that of April 2014.
ii. If the
received by
2014, it is
on
will
whether he can claim exemption in respect of his salary paid by the Government of
India to him outside India. Under general principles of income tax such salary cannot
be charged in his hands. For this purpose, section 9(1)(iii) provides that salaries
payable by the Government to a citizen of India for services outside India shall
be deemed to accrue or arise in India. However, by virtue of section 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 exempt.
Profits in lieu of salary [Section 17(3)]
It includes the following:
(1) The amount of any compensation due to or received by an assessee from his
employer or former employer at or in connection with the termination of his
employment.
(2) The amount of any compensation due or received by an assessee from his
employer at or in connection with the modification of terms and condition of
employment; assessee can however, claim relief in term of section 89.
(3) Any payment, other than payments in form of Gratuity, Commuted pension,
Retrenchment compensation, or House rent allowance due to or received by an
assesse from his employer or former employer or from provident fund or from
other funds to extent to which it does not consist contribution by assesse or
interest on such contribution or any sum received under Keyman Insurance Policy
including the sum allocated by way of bonus or such policy.
(4) Any sum received in lumpsum or otherwise, by an assessee from any person
before joining any employment, or after cessation of such employement.
Example: A would be employer or an ex-employer giving some money to an
assessee so that he does not join anywhere else.
Advance Salary
Advance salary is taxable when it is received by the employee irrespective of the
fact whether it is due or not. It may so happen that when advance salary is included
and charged in a particular previous year, the rate of tax at which the employee is
assessed may be higher than the normal rate of tax to which he would have been
assessed. Section 89(1) provides for relief in these types of cases.
Loan or Advance against salary
Loan is different from salary. When an employee takes a loan from his employer,
which is repayable in certain specified instalments, the loan amount cannot be
brought to tax as salary of the employee. Similarly, advance against salary is different
from advance salary. It is an advance taken by the employee from his employer. This
advance is generally adjusted with his salary over a specified time period. It cannot be
taxed as salary
Arrears of salary
9
Normally speaking, salary arrears must be charged on due basis. However, there are
circumstances when it may not be possible to bring the same to charge on due basis.
For example if the Pay Commission is appointed by the Central Government and it
recommends revision of salaries of employees, the arrears received in that
connection will be charged on receipt basis. Here, also relief under section 89(1) is
available.
Annuity
1. As per the definition, annuity is treated as salary. Annuity is a sum payable in respect
of a particular year. It is a yearly grant. If a person invests some money entitling him to
series of equal annual sums, such annual sums are annuities in the hands of the
investor.
2. Annuity received by a present employer is to be taxed as salary. It does not matter
whether it is paid in pursuance of a contractual obligation or voluntarily.
3. Annuity received from a past employer is taxable as profit in lieu of salary.
4. Annuity received from person other than an employer is taxable as income from
other sources.
10
Amount(Rs)
Basic
Amount(Rs)
XX
Dearness Allowance
DA(R)
XX
DA(O)
XX
XX
Commission
On Turnover (%)
XX
Normal
XX
XX
Wages
XX
Annuity
XX
Pension
XX
Bonus
XX
Advance salary
XX
Arrears of Salary
XX
80CCD
XX
XX
XX
XX
(X)
XX
XX
(X)
XX
Pension
A) Non Commuted (Periodic)
Fully Taxable before& after
commutation in the hands of
government as well as non
government employees
XX
B) Commuted (Lumpsum)
Received upon commutation
XX
XX
XX
XX
(X)
XX
XX
11
(X)
XX
(X)
Allowance
XX
(X)
XX
XX
XX
XX
Deduction u/s 16
(XX)
XXX
12
Deduction u/s 16
The Income Chargeable under the head Salaries is computed after making the
following deductions:
16(ii) Entertainment Allowance:
In the case of a government employee, the least of:
(a) Maximum Rs5,000/(b) 20% of basic salary.
(c) Actual amount of entertainment allowance granted during the previous year.
Actual expenditure spent or not towards entertainment is absolutely irrelevant.
Entertainment allowance granted to non-government employees is fully taxable.
16(iii) Professional tax or tax on employment:
Professional tax or tax on employment levied by a state is allowed as deduction to all
employees, if paid.
If any amount is borne by employer towards Professional tax/Employment Tax of
employee it will be added to salary u/s 17(2)(iv).
13
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Important point:
15
service period).
1) For Government Employees:
Government employee means State & Central Government Employees,
Employees from Local Authorities but not Employees of Statutory Corporation.
2) In the Case of Employees covered by the Payment of Gratuity Act 1972. Gratuity
received by an employee covered by the payment of Gratuity Act, is exempt from
tax to the extent of least of the following:
a) *15 days salary based on last salary drawn for every completed year of
service or part thereof in excess of 6 months.
b) Rs 10,00,000/c) Gratuity actually received.
Salary = Basic+ D.A only (whether in term or not in term)
15 days salary=salary last drawn x
15 days
26 days
3) In case of any other employee: Gratuity received by any other employee is
exempt from the tax to the extent of least of the following.
a) Rs 10,00,000/- maximum over a life of an assessee.
b) Half month average salary for each completed year of service (fraction of
service period at the end ignored).
c) Gratuity actually received.
Half months Average Salary= Average SALARY of last 10 completed months
preceding the month of retirement/2
*SALARY=Basic+ D.A. (in terms) + Fixed % commission on turnover.
16
17
Case Law: Commissioner of Income Tax Vs Dr P.L. Narula on 1st Dec 1983
Equivalent citation : 1984 150 ITR 21 Delhi
Bench: H Goel, S Chadha
Judgement Chadha J.
1) Under Sec256(1) of the IT act,1961 (for short called as the Act), at the instance
of the department, raise one common question for the opinion of the court
namely;
Whether, on the facts and the circumstances of the case, the Tribunal was
legally right in holding the amounts received by the assessed as pensionable
remuneration from the United Nations Joint Staff Pension Fund after retirement,
is exempt from Taxation?
2) It is necessary to state the facts mentioned in the statement of the cases. The
mentioned in the statement of the cases. The decision of Income tax Appellate
Tribunal, Delhi, in the case of assessed in the case was considered by a Bench
of Karnataka High Court in CIT V RAMIAH (1980) 126 ITR 638. The Karnataka
High Court held that the interpreted the relevant statutory provision of the Act as
well as the United Nations (Privileges and Immunities) Act, 1947read with s.18,
clause (b) of article V of the Schedule thereto. After the decision of the Karnataka
High Court, The Central Board of Direct Taxes issued circular no 293 dates
10.02.1981 ( sec (1981) 130 ITR (St.) 5) reading as follows :
Section2 of the U.N (Privileges and Immunities) Act, 1947, read with section 18,
clause (b) of article V of the schedule thereto, inter alia, grants exemption from
taxation to salaries and emoluments paid by the United Nations to its officials.
The question whether pension received by the erstwhile officials of the United
Nations form it would be exempt from Income tax was considered by Karnataka
High Court in the case of Commissioner of Income Tax v. K Ramaiah (1980) 126
ITR 638. The High Court held that since under s.17 of the Income Tax Act 1961,
salary has been defined from tax, so shall be pension. The board have accepted
the decision of the Karnataka High Court.
In view of the foregoing, apart from salary received by employees of United
Nations Organisation or any person covered under the U.N. (Privileges and
Immunities) Act,1947, pension received by them from U.N will also be exempted
from income tax. Pending appeals on this point may be conceded and reference
application withdrawn.
Not only the Department accepted the decision of the Karnataka High Court, but
issued a circular for the guidance of the authorities under the Act. It is unfortunate
authorities under the Act. It is unfortunate that the Department has withdrawn the
reference application in the case of assessed.
The view taken by the Tribunal in these references is correct. We accordingly
answer these references against department and in the favor of the assessed
with no order as to costs.
18
a) If
gratuity received
Computed pension
XX
LESS: Exempted
1/3rd x Amount Received
% of Commutation
b)
Gratuity not received.
Commuted Pension XX
LESS: Exempted
1/2th x Amount Received
% of Commutation
19
Government
Others
Employee
Fully Exempt
of the Followings
Least
a) Balance of leave as per income
tax* Average Salary.
b) 10 months Average Salary.
c) Actual Leave Salary Received.
d) Maximum
over
lifetime
employee Rs 3,00,000/-
of
Central Government OR
j)
22
Sec 10(11) and 10(12): Taxability of Provident Fund- Recognised, Unrecognised &
Statutory.
Sec 10(11) & 10(12) of the Act deal with exemption on payment from provident funds,
while section 80c of the act deals with allowance of deductions on contributions to
provident funds. The following are types of Provident Funds.
1) Recognised Provident Fund (RPF): This scheme is applicable to an organisation
which employees 20 or more employees. An organisation can also voluntary opt
for this scheme. All RPF scheme must be approved by The Commissioner of
Income Tax. Here by company can either opt for government approved scheme
or the employer and the employee can together start a PF scheme by forming a
trust. The Trust so created shall be invests fund in a specific manner. The income
of the trust shall also be exempt from income taxes.
2) Unrecognised Provident Funds (UPF): Such Schemes are those that are started
by employer and employees in an establishment, but are not approved by the
Commissioner of Income Tax. Since, they are not recognised, URF schemes
have a different tax treatment as compared to RPF
3) Statutory
Provident
Fund:
The
Fund
is
mainly
meant
for
Government/University/Educational Institutes (affiliated to university) employees.
4) Public Provident Fund: This is a scheme under The Public Provident Fund Act
1968. In this scheme even self-employed person can make a contribution. The
minimum contribution is Rs.500 per annum and the maximum contribution is
Rs.1,50,000pa. The Contribution made along with interest earned is repayable
after 15 years, unless extended.
Tax treatment of Provident Fund can be discussed under two scenarios:
1) During continuity of job
2) Upon receipt of accumulated balance of provident fund at the time of retirement
or resignation.
In the Below table
*SALARY= BASIC+ DA(R)+ FIXED COMMISSION ON TURNOVER.
*IFOS=INCOME FROM OTHER SOURCE
Salary Includes:
80 CCD
Employers Contribution to RPF
(-) Exempt upto 12% of salary
Interest Accrued on RPF
XX
XX
(XX)
XX
XX
23
(XX)
XX
Employees Cont
Int on Employees
Employers
Cont.
Cont.
Int on Employers
Cont
Not Taxable
*IFOS
Income from salary sec17 (3)
Profit in lieu of salary.
Particulars
1
Employees
Contribution
2
Employers
Contribution
Interest on
Employee
Contribution
Exempt
Interest on
Employers
Contribution
Lumpsum
Exempt
RPF
Deduction
u/s
80C
available
Exempt up
to 12% of
salary
Excess
Shall
be
added
to
*Salary
Exempt up
to 9.5% p.a.
Excess
shall
be
added
to
*Salary.
-
Exempt u/s
10(11)
Exempt u/s
10(12)
SPF
Deduction
u/s
80C
available
Exempt
from Tax
UPF
PPF
NO
Deduction
deduction
u/s
80C
u/s 80C
available
Exempt
Employer
From
Tax Does
not
Initially
Contribute
Exempt u/s
10(11).
Exempt
Exempt
from
Tax from tax
Initially
Exempt
from
tax
initially
Taxable**
24
(ii)
(iii)
25
II.
III.
When an employee works for extra hours over and above his normal hours of
duty, he is given overtime allowance as extra wages. It is fully taxable.
(viii) Fixed Medical Allowance
Medical allowance is fully taxable even if some expenditure has actually been
incurred for medical treatment of employee or family.
(ix) Servant Allowance
It is fully taxable whether or not servants have been employed by the employee.
(x) Other allowances
There may be several other allowances like family allowance, project allowance,
marriage allowance, education allowance, and holiday allowance etc. which are not
covered under specifically exempt category, so are fully taxable.
II. PARTIALLY EXEMPT ALLOWANCES
This category includes allowances which are exempt up to certain limit. For certain
allowances, exemption is dependent on amount of allowance spent for the purpose for
which it was received and for other allowances, there is a fixed limit of exemption.
(i) House Rent Allowance (H.R.A.)
An allowance granted to a person by his employer to meet expenditure incurred
on payment of rent in respect of residential accommodation occupied by him is exempt
from tax to the extent of least of the following three amounts:
a) House Rent Allowance actually received by the assessee
b) Excess of rent paid by the assessee over 10% of salary due to him
c) An amount equal to 50% of salary due to assessee
(If accommodation is situated in Mumbai, Kolkata, Delhi and Chennai)
Or
Amount equal to 40% of salary (if accommodation is situated in any other place).
Salary includes Basic Salary, Dearness Allowance (if it forms part of salary for the
purpose of retirement benefits), Commission based on fixed percentage of turnover
achieved by the employee.
*SALARY=BASIC+DA(R)+FIXED % COMMISSION OF TURNOVER
The exemption of HRA depends upon the following factors:
(1) Basic Salary
If an employee is living in his own house and receiving HRA, it will be fully taxable.
Example:
Mr. X is employed in A Ltd. getting basic pay of Rs.20, 000 per month and dearness
allowance of Rs.7, 000 per month (half of the dearness allowance forms part of salary for
the purpose of retirement benefits). The employer has paid bonus @Rs.500 per month,
27
Commission @1% on the sales turnover of Rs.20 lakhs, and house rent allowance of
Rs.6, 000 per month. X has paid rent of Rs.7, 000 per month and was posted at Agra.
Solution:
Computation of Gross Salary
Amount(rs)
2,40,000
84,000
6,000
20,000
18,200
Gross Salary
3,68,200
personal expenses in performance of his duty in the course of running of such transport
from one place to another is exempt up to 70% of such allowance or Rs.6000 per
month, whichever is less.
III. FULLY EXEMPT ALLOWANCES
(i) Foreign allowance
This allowance is usually paid by the government to its employees being Indian citizen
posted out of India for rendering services abroad. It is fully exempt from tax.
(ii) Allowance to High Court and Supreme Court Judges of whatever nature are exempt
from tax.
(iii) Allowances from UNO organisation to its employees are fully exempt from tax.
E n te r a i l o w a n c e
C ity o m p e n sa t ry A l o w a n c e
D e a rn s A l o w a n c e
Lunch/Tiffi DnerAlowance
Fix M e d ca l A o w n ce
O v e r t im A l o w a n c e
S e rv a n t A l o w n c e
P r o je c t A l w a n c e
N in - P r a c t e A l o w a n c e
A n y o th e r C a s A l o w n ce
W a rd e n A l o w a c e
In t e r i A l o w a n c e
H o u se R n t al o w ce
S p e c ia l A o w n c e S 1 0 ( 4 ) .
A l o w a n c e g r t d b y g o v t e m p l o y s u t id e I n a u / s 1 0 ( 7 ) .
A l o w a n c e b y U N O to i s e m p lo y .
A n y l o w a c e r iv d b y H g h c o u rt & s p e m C o u r t j d g e
Al
lowance
29
Sec-17(2) Perquisite
Perquisite may be defined as any casual emolument or benefit attached to an office or
position in addition to salary or wages. In essence, these are usually non-cash benefits
given by an employer to employees in addition to cash salary or wages. However, they
may include cases where the employer reimburses expenses or pays for obligations
incurred by the employee. Perquisites are also referred to as fringe benefits. Broadly,
perquisite is defined in the section 17(2) of the Income-tax Act as including:
1) Value of rent-free or concessional rent accommodation provided by the employer.
2) Value of any benefit/amenity granted free or at concessional rate to specified
employees etc.
3) Any sum paid by employer in respect of an obligation, which was actually payable
by the assessee.
4) Any sum paid by the employer for assurance on life of the employee or to effects
a contract for an annuity.
5) Value of any other fringe benefit as may be prescribed.
Taxable Perquisite:
a) u/s 17(2)(i) : The value of Rent Free Accommodation provided to the assessee,
taxable in the hands of all employees, i.e. specified as well as non-specified
employees u/s 17(2)(i).
b) u/s 17(2)(ii) : The value of any concession in the matter of rent in respect of any
accommodation provided to the assessee by his employer , taxable in hands of
all employees i.e. specified employer, taxable in the hands of all employees i.e.
specified as well as non-specified u/s 17(2)(ii).
c) u/s 17(2)(iii) : The value of any benefit or amenity granted or provided free of cost
or at concessional rate by the employer to the employee, these are in the nature
of mere facilities such as servants, gas-water-electricity, education & medical,
which are taxable in the hands of only specified employees u/s 17(2)(iii)
The word provided signifies that once such facility is made available by the
employer to the employee, it will be taxable whether the employee actually uses
this facility or not, provided the employee has not foregone or waived his right
there to.
d) u/s 17(2)(iv) : Any amount paid an employer in respect of any obligation which
otherwise would have been payable by the employee, i.e. Employees liability met
by the employer. For Example, if the servant is appointed by employee or Gas,
water electricity bills are in the name of employee; and subsequently such
payments by employee is reimbursed by employer or directly paid by employer it
is taxable perquisite in the hands of all employees, i.e. specified as well as nonspecified employees u/s 17(2)(iv).
The word paid signifies that the perquisite will be taxable in the year of actual
payment / reimbursement.
e) u/s 17(2)(v) : Any sum payable by the employer to the effect an assurance on
the life of the assessee or to effect a contract for an annuity, taxable in the hand
30
u/s 17(2)(vi) : The value of any specified security or sweat equity shares allotted
or transferred, directly or indirectly, by the employer, or former employer, free of
cost or at concessional rate to the assessee, which is taxable in the hands of all
employees i.e. specified as well as non-specified u/s 17(2)(vi)
7.5% of Salary
10% of Salary
15% of salary
XXX
XXX
XXX
Education
33
Facility 17(2)(iii)
Reimbursement sec17(2)(iv)
Specified Employee
For All Employee
Employee
Not Taxable
by ER
Children of employee
(as mentioned in above para)
Other MOH
Expenses incurred
Less: Amount
recovered by EE
(same as
children of employee)
34
Valuation: Rate as prescribed by State Bank of India as on 1st day of the relevant previous year in
which loan has been given.
Note 1:- The above valuation should be reduced by the interest, if any paid by employee
or his family member.
Note 2:- Value of perquisite shall not be charged to tax in following cases:(i)
(ii)
35
xxx
Less: Depreciation
xxx
WDV
xxx
36
Employee
Employer
Use
Employee
Employee
Obligation
Employee
Employer
Pay by
Employer
Employer
Taxable in case
Of all employees
Taxable in case
of specified Employee
Valuation of Perquisite
37
Owned resources
outside Resource
Cost of Production
Employee
Employer
Use by
Employee
Employee
Obligation
Employee
Employer
Paid by
Employer
Taxable in case of
Employer
Taxable in case of specified
All employees
Employees
Valuation of Perquisite
Amount paid by employer
XX
XX
XX
(XX)
XX
38
Basic Salary
1,80,000
Dearness allowance
24,000
10,000
Arrears of bonus
6,000
30,000
(22,800)
24,300
(17,100)
14,400
(5,760)
7,200
7,200
8,640
183.3312m3C
39
Less: exempt
(10012m2C)
4,200
42,426
(3,000+4,000+5,000)
12,000
2,45,000
(Wn2)
GROSS SALARY
5,46,666
Nil
TAXABLE SALARY
5,46,666
Working note 1:
Value of RFA
Salary for RFA=1,80,000 + 10,000+ 8,640+4,200 = 2,02,840
Value: Least of the following (When RFA is taken on lease by employer):
a) 15% of Salary [ 2,02,840 ] = ` 30,426 b)
b) Rent payable = ` 90,000
Value of furnished RFA = 30,426 + 12,000 [value of furnishing (rent)]
5,30,000
Less:
Depreciation @ 10% (SLM) (5 Years)
(2,65,000)
WDV
2,65,000
(20,000)
Value of Facility
2,45,000
Computation of Total Taxable Income & Tax liability
Particulars Amount
(in Rs`)
5,46,666
2,80,000
8,26,666
40
32,000
5,000
NSC subscription
34,000
(71,000)
7,55,666
NIL
Up to 5,00,000
25000 (2,50,000*10%)
5,00,000 to 7,55,666
151133 (255666*20%)
Basic Tax
76133
+Education cess
2284 (76133*3%)
+SHEC @1%
761 (76133*1%)
Tax Liability
79178
79180
41
:Bibliography
Books:
ICAI- IPCC Study Material AY 14-15
J.K Shah Taxation Text Book
J.K Shah Class Notes
Internet:
http://taxgururanjeetkunwar.com/
http://libvolume8.xyz/taxation/bcom/2ndyear/taxation/incomefromsalary/incomefro
msalarynotes1.pdf
42