INCOME FROM SALARY

DIGAMBAR SAMEEN SAMAR ASIL ASIL HALGE

AKHIL NAIR

ANIKET HARPREET KHOT PANESAR

SALARY
Salary is a periodical payment for Services rendered by an employee to an employer. However under sec.17(1) of the Income Tax Act, following items are also included : Wages Any annuity or pension Any Gratuity Any Fees, commission, perquisites or profits in lieu of or in addition to any salary or wages. Any advance for Salary. Any payment received by an employee while in service in respect of any period of leave not availed of by him. ( i.e. leave encashment)

Other items included under Salary

Dearness Allowance :
It is an additional payment over & above the basic Salary for meting the high cost of living.

Bonus :
It is a payment made under a service agreement between the employer & employee, which may be in the form of Diwali Bonus, Performance Bonus etc.

Commission / Incentive :
If an employee is appointed on a fixed monthly salary plus commission as a percentage of revenue or sales then the said commission shall also be included in his Salary.

PENSION
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment.

Pension

Commuted

Uncommuted

Govt. employees

Non Govt. employees

Taxable for all employees

Fully exempt

Other Cases

Receiving Gratuity

1/2 is exempt

1/3 is exempt

PERQUISITES
Perquisite may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages.

(i) Value of rent-free/concessional rent accommodation provided by the employer.

(ii) Any sum paid by employer in respect of an obligation which was actually payable by the assessee.

(iii) Value of any benefit/amenity granted free or at concessional rate to specified employees etc. (iv) The amount of any contribution to an approved superannuation fund by the exployer in respect of the assessee, to the extent it exceeds one lakh rupees; (v) the value of any other fringe benefit or amenity as may be prescribed.

ALLOWANCES
Allowance is defined as a fixed quantity of money or other substance given regularly in addition to salary for meeting specific requirements of the employees.

Exemptions under Sec.10(14)

Nature of Allowance Extent to which Exempt

1. Conveyance Allowance

Rs.800/- per month

2. Children Education Allowance

Rs.100/- per month per child upto max. of 2 children

3. Allowance to meet the hostel expenditure of the child

Rs.300/- per month per child upto max. of 2 children

House Rent Allowance

least of the following : (i) HRA received. (ii) Rent paid less 10% of salary. (iii) 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi)

Leave Travel Allowance

The amount actually incurred on performance of travel on leave to any place in India by the shortest route to that place is exempt.

Deductions available from Salary (Way to save your TAX )

1.Deduction U/s.80C:
Amount invested in specified savings like Life Insurance Premium, PF, PPF, NSC, ELSS Mutual Fund & Housing Loan principal repayment.

2.Deduction U/s.80CCC:
Contribution towards pension plans subject to a maximum payment of Rs.10000/- It may however be noted that the overall ceiling for investment U/s.80C & 80CCC is restricted to Rs.1.00 Lac p.a.

3.Deduction U/s.80D:
Medical insurance premium paid for the health of the individual and spouse or dependent parents or dependent children subject to a maximum of Rs.10000/-p.a.

4.Deduction U/s.80DD:
Expenditure incurred for maintenance and medical treatment of a dependent who is a person with disability subject to deduction of Rs.50000/- p.a. or Rs.75000/-p.a. if such person has severe disability as mentioned in the provision.

5.Deduction U/s.80E:
Expenditure incurred on interest on loan (and not repayment of principal amount) taken from any financial institution for the purpose of higher education.100% of interest repayment is allowed as a deduction for 8 successive years beginning from the year in which the repayment starts.

GRATUITY
1.GOVERNMENT EMPLOYEES :
Gratuity received by Central and State Govt. employees, Defence employees and employees in Local authority shall be exempt.

2. OTHER EMPLOYEES : (covered under payment of gratuity act )

(a)For every completed year of service or part thereof, gratuity shall be exempt to the extent of fifteen days Salary based on the rate of Salary last drawn by the concerned employee.

(b) The amount of gratuity as calculated above shall not exceed Rs.3,50,000
(c) Amount recieved

3. OTHER EMPLOYEES : (not covered under payment of gratuity act )

Gratuity received shall be exempt subject to the following limits whichever is the least:1. Exemption shall be limited to half month salary for each completed year of service. 2. Rs.3.5 Lakhs 3. Amount received

LEAVE ENCASHMENT
1. 2. Any leave encashment when employee is in service Fully taxable Any leave encashment when the employee has resigned or retired : (A) Govt. employees Fully exemt (B) Other employees (Exemption will be least of the following) : (a) Cash equivalent of unutilized earned leave (earned leave entitlement can not exceed 30 days for every year of actual service) (b) 10 months average salary (c) Leave encashment actually received. This is further subject to a limit of Rs.3,00,000

PROVIDENT FUND
Statutory Provident Fund Employers Contribution Employee Contribution Interest Income (both employer and employee ) Lump sum Payment on Retirement or Termination Exempt Recognised Provident Fund Exempt upto 12% of salary Claim Section 80C Unrecoganised Provident Fund Exempt

Claim Section 80C

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Exempt

Exempt upto 9.5%

Exempt

Exempt

Exempt, if specified Employee Exempt conditions are Employer Taxable fulfilled Interest on both - Taxable

PROFITS IN LIEU OF SALARY

1. Any compensation due to an assessee from his employer in conection with the termination of his employment or the modification relating thereto. Any payment for gratuity, pension , retrenchment compensation or provident fund Any sum received under a keyman insurance ploicy including the sum allocated by the way of bonus on such policy. Any amount due to or received , whether in lumpsum or otherwise, by any assessee from any person Before his joining any employment with the person or After cessation of his employment with that person.

2.

3.

4. (a) (b)