SALARY INCOME

(Sec15,16 & 17)

What is salary?

Payer & Payee

More than one source
Foregoing salary is salary income
Tax free salary should include the tax paid
by the employee

Basis of Charge

Salary is chargeable to tax when it is due to

be paid whether it is paid or not
Salary is chargeable to tax when any amount
is paid whether it is due or not
Arrears of salary paid to employee is
chargeable to tax.

Salary means Basic salary and allowances

Annuity
Gratuity
Commission
Perquisite in lieu of salary
Advance salary
Employers contribution to PF
Leave salary

House Rent Allowance

The least of the following is exempt from tax:
1.50% of Salary where the assessee lives in Mumbai,
Delhi ,Chennai & Calcutta and 40% in other cases
2.Actual HRA received
3.Excess of rent paid over 10% of Salary.
(Salary for HRA means basic salary , commission if
based on fixed percentage of sale & DA ,if it is part
of retirement benefits)

Allowances:

Conveyance: Exempted upto Rs.800 per month if

used for travel between home and place of work
Medical expenses: Exempted when it is a
reimbursement of actual expenses upto Rs.15000
Beyond this limit, it is taxable.
Fixed Medical allowance is taxable
City compensatory allowance is taxable in all cases

Allowances(cont.)

Tiffin allowance: It is taxable

Tea & snacks during office hours are not
charged to tax as perquisite while free meals
in excess of Rs50 per meal is a perquisite
Servant allowances: It is taxable
Gifts: Perquisite in respect of gift where it is
below Rs.5000, the value is taken as nil

PENSION
1.Pension from UNO
2.Pension received
by the family of
armed forces
3.Family pension
received by
family members
after the death of
employee

It is not chargeable to tax

Exempted
Taxable as in the hands
of recipient as income from
other sources

PENSION (cont.)

Pension received in any other case

Tax treatment: Rules apply

PENSION (cont.)
Uncommuted
Pension
Commuted
Pension
Commuted
Pension

Govt. /Non Govt Taxable

Employee
Govt. Employee Exempted
from Tax
Non-Govt.
It is fully or partly
Employee
exempted

COMMUTED PENSION (cont.)

Central /state Govt, With or without
Local authority Gratuity
employee
Gratuity is received
Non Govt.
Employee
Non Govt.
Employee

Gratuity is not
received

Exempted
Fully
1/3 of normal
Exempted
of normal
is exempted

Pension scheme for employees joining

Central Govt. or Other Employees
after January 1, 2004

Contribution by Employer is added to salary

Employers contribution along with the
Employees contribution to Pension fund is
deductible U/S 80CCD

Leave Encashment
GOVERNMENT EMPLOYEES GETTING LEAVE ENCASHMENT
AT TIME OF RETIREMENT:
Govt employee at that time is exempted from tax.
While leave encashment while in service is taxable

Leave Encashment( cont.)

NON GOVERNMENT EMPLOYEES are chargeable to tax on
leave encashment while in service
LEAVE ENCASHMENT AT TIME OF RETIREMENT:
He is exempted on basis of least of the following:
1.period of earned leave (in no.of months) to the credit of
employee at the time of his retirement or leaving the job)*
average monthly salary
2.10 months *average monthly salary
3. the amt. specified by the government Rs.3,00,000
4. leave encashment actually received at the time of retirement

HOW TO FIND OUT

AVERAGE MONTHLY SALARY?
Salary for this purpose means
1.basic salary and includes
2 .dearness allowances if terms of employment so provide
3.Commision if it is fixed % based on turnover

It is calculated on the basis of average salary

drawn
during the period of 10 months immediately preceding the
retirement.( date wise)

Leave travel concession is exempted twice in a block

of FOUR years.
It is available to Indian citizen for proceeding on leave
for himself and his family (family includes spouse,
children, dependent parents ,brother and sister)
Amount of exemption is the actual fare paid for
travel anywhere in India by the economy class
airfare of national carrier by shortest route, or first
class air conditioned rail fare, or any other mode not
exceeding the shortest first class rail fare.
The Present Block is Jan 1,2010 Dec31,2013

GRATUITY
1. GRATUITY WHILE IN SERVICE IS FULLY
TAXABLE
2. GRATUITY AS RETIREMENT BENEFITS
Government employee fully exempt
Non-government employee-fully or partially exempt
under section 10
Non-government employees not covered by the
Payment of Gratuity Act ,1972- fully or partially
exempt under section 10

GRATUITY (cont.)

IN CASE OF GOVT EMPLOYEES:

wholly exempt

IN CASE OF EMPLOYEES COVERED UNDER

PAYMENT OF GRATUITY ACT:
15 days salary based on last drawn for each year of
service (26 days a month as working days)
Rs.3,50,000
gratuity actually received
(the least of the above 3 is exempt from tax and the balance
is taxable)

GRATUITY (cont.)

how to find length of service -if 6mths or

less then ignored else taken as 1 full year
what is salary: Salary means last drawn by
employee and includes dearness allowance
how to determine 15 days salary -calculated
by dividing salary last drawn by 26 days

Provident Fund
Statutory Recognised
PF
PF
Employees
Eligible for
Contribution Deduction U/S 80C
Employers
Contribution
Exempted
upto 12%
Interest
Exempted as notifd
Eg.8.5%

Public Unrecognised
PF
PF
No deduction
U/S 80C
N.A.
No tax

No exemption
Taxable

PERQUISITES
It means any benefit in addition to salary and wages.
Any sum paid by the employer which otherwise
would have been payable by the employee.
Eg. Rent free house accommodation,
car, amenities provided free of cost,
concessional interest on housing loan, etc
The benefit should be from the employer to be
charged as salary
It could be in cash or kind
It should have a legal origin

Perquisites taxable (Category A

Perquisites taxable in the hands of all employees
(fringe benefit tax whether payable or not by employer)

Furnished /Unfurnished house without rent or at a

concession (not in a remote area, house for MPs, and
stay in hotel on transfer not exceeding 15 days)
Service of sweeper, gardener( not taxable for non
specified employee)
Education facility to employees family members (not
taxable for non specified employee)

Perquisites taxable (with or without FBT)

Contribution by employer to effect an

assurance on the life of the employee or to
effect an annuity
Interest free loan( exempted for loan not
exeeding Rs.20000, or loan for medical
treatment)
Use of Employers movable assets are taxable
except laptop, desktop & car

Perquisites taxable (Category B)

B1.Car or other automotive conveyance ( not taxable for
non specified employee)
B2. Transport facility by a Transport undertaking( not
railways & airlines)
B3 Traveling touring accomodation
B4 Free Food & Beverage ( Rs.50 within office hours
exempted)
B5 Gift voucher beyond Rs.5000
B6 Club Membership & credit Card

SPECIFIED EMPLOYEE

A director is a specified employee

An employee who holds 20% or more voting power
(called substantial interest)
Where an employee is drawing salary of more than
Rs.50,000 per year ( without considering non
monetary benefit and exemptions like HRA) but ,
since the minimum exemption limit is Rs.1,10,000,
practically all tax payers are specified employees.

Rent Free Unfurnished Accomodation

Classified as Central & State Government

Employees
Private Sector Employees

Central & State Govt. Employees

Accomodation provided to MPs, judges of

High court & Supreme Courts, employees
who are in Govt. service being provided
accomodation by virtue of their employment
is exempted from any tax

Valuation of Rent Free Unfurnished

Accommodation (private sector)
Population
as per 2001
census

Property owned by
Employer

Leased or rent

Above 25
lakhs

15% of salary for

the period

Amount of lease
rent or 15% of
salary

Between
10% of salary for
10- 25 lakhs the period

Same as above

Any other

Same as above

7.5% of salary for

the period

Meaning of salary for House

accomodation
Salary includes
- basic salary
- DA ( if terms of employment provide)
- bonus, commission, fees
- all other taxable allowances
- any monetary payment chargeable to tax, but
not monetary payments in the nature of
perquisite

Exception to accomodation rules

It is not applicable to an accomodation

located in a remote area( 40 kms from town)
and in a mining, project ,oil exploration site
Where on account of transfer, an employee is
given two accomodation , only one will be
taxed for 90 days. Beyond that the lesser of
the two will be taxed.

Furnished accomodation
Step 1: Find out the value of the
accomodation without the value of the
furniture
Add 10% of the value of furniture if owned
by employer or actual hire charges when hired
( Furniture includes TV, fridge, radio and any
household appliances)

Furnished accomodation in a Hotel

It Includes accomodation in a motel, guest
house.
The value of perquisite is the lower of the two.
24% of salary paid during the period when
accomodation is taken or
Actual paid by the employer
(not taxable if provided for 15 days in a P.Y. and
when an employee is transferred)

Accomodation at a concessional value

Value is determined as follows:
Find out the value of accomodation as if it is
not provided at a concession
Deduct the value of rent charged from the
employee

Perquisite of free domestic servants

When servants are engaged by employee and

reimbursed by employer, taxable in all cases
When engaged by employer only specified
employees are taxable
Servant allowances are always taxable
If servants are provided in a rent free
accomodation , they are not valued separately

Valuation of gas, electric energy or

water supply

All assesses are taxable except non specified

employees

Deductions from salary

Standard Deduction- No deduction is

available now.
Professional Tax paid in this year
Entertainment allowance: available only for
Government employees