SALARY - Meaning Salary includes – 1) Wages 2) Pension 3) Any gratuity 4) Any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages

5) Any advance salary 6) Encashment of un availed leave 7) Interest earned in excess of 9.5% on Recognized Provident fund 8) Amount transferred in excess of 12% on salary to RPF

9) New Amendment- Contribution made by Central Government or any other employer (w.e.f.AY ) in the previous year to the account of an employee under pension scheme u/s 80CCD

Chargeability of Salary – Sec. 15 1) Due or receipt whichever is earlier 2) No double taxation 3) Relief u/s 89(1) 4) Advance salary Vs Advance against salary 5) Govt. employees

Profits in lieu of Salary – Sec.17(3) 1) Compensation – Termination or modification of T & C 2) Amount due or received – Pre joining or after cessation of his employment with an employer 3) Payment received as employer’s contribution by assessee from employer or former employer or from PF or from any other fund

Features of Salary 1) Employer – Employee relation 2) No difference between salary and wages 3) Salary from more than one employer 4) Real and fictitious salary 5) Foregone Salary 6) Surrendered salary 7) Tax free salary

8) Foreign Salary and pension 9) Payments made to legal heirs / Widow 10) Family Pension 11) Salary to partner

Format for salary calculation See the word document

ALLOWANCES - Fixed amount of money given along with salary in order to meet some particular requirement connected with the services rendered by the employee Taxed on due or receipt basis Three types – a) Fully taxable b) Partly taxable c) Fully exempted

Partly exempted allowances - 1) Hostel Allowance – Rs.300 per month per child upto a maximum of two children 2) Transport Allowance – Exempted upto Rs.800 per month. 3) Uniform Allowance – Allowance given to purchase or maintain uniforms. Amount spent is exempted 4) HRA

Partly Exempted Allowances - Actual amount spent is exempted for – 5) Conveyance Allowance 6) Academic Research Allowance 7) Washing Allowance 8) Helper Allowance 9) Daily Allowance 10) Uniform Allowance

Fully Exempted - Out of pocket or out fit allowance for NCC officers Allowances to employees of UNO Foreign allowance to govt. servants for services outside India

Special Items – (1) Gratuity - Sec.10(10) - Retirement benefit Tax treatment to be based on whether he is – 1) Government employee 2) Non-government employee a. Covered by Payment of Gratuity Act,1972 b. Not covered by Act

Tax Treatment - Government employees – Gratuity is fully exempt in the hands of the assessee.

Non-Govt. Employees - 1) Covered by Act – Least of the following is exempted – a) Actual gratuity received b) Rs.3,50,000 c) 15 days’ salary for every year of completed service

Remember - Take days as 15/26 Take 7 days in case of employees in seasonal factories Fraction above 6 months be taken as - “one year” Salary = Basic + DA + % of commission

Not covered by Act – Least of the following is exempted – a) Actual gratuity received b) Rs.3,50,000 c) ½ month’s Average salary for every year of completed service

Remember - Average salary = Average salary of 10 months immediately preceding the month of retirement Fraction to be ignored

(2) Pension – Sec.10(10A) Amount received by an employee after his retirement Cannot receive pension while in service Types – a) Uncommuted Pension – Fully taxable in the hands of all employees

b) Commuted Pension - Lump sum received at the time of retirement One time payment Taxability – a) Govt. Employees – Fully exempt

Non – Govt. Employees – a) Those in receipt of gratuity – Amount taxable = Amount received Less: 1/3 rd of full value of pension that he is entitled to receive

b) Those not in receipt of gratuity – Amount taxable = Amount received Less: ½ of full value of pension that he is entitled to receive

Special Item – (3) Leave Encashment Earned Leave – where employee can convert his leave into cash provided he has not utilized the leave. Can encash at the time of retirement or while leaving the job. Known as Leave Salary Encashment fully taxable if during the service.

Calculation - For Government servants = Fully exempted

Calculation – Non Government Employees - Least of the following is exempted – 1) Actual leave salary received 2) 10 months’ average salary 3) Rs.3,00,000 4) Salary for unutilized eligible leave (Consider 30 days per year) (Ignore fraction)

(4) Provident Fund- Employer’s contribution to RPF is taxable beyond 12% of salary Interest credited is taxable beyond 9.5% p.a. Assessee’s contribution is deductible u/s 80C

Income from Salary PERQUISITES

Perquisites – Meaning – Sec.17(2) Any amount due to or received in lump sum or otherwise by an assessee from an employer which is usually attached to a position May be in cash or in kind (measurable in terms of money) Personal advantage

Perquisites - I) Taxable for all – a) Rent free house b) House at concessional rent c) Obligation of employee paid by employer d) Fringe Benefits – Free meal, gifts, credit card, club facility, interest free/other loans

a ) Accomodation facilities – Rent free -Unfurnished Owned by employer / Rent paid by employer– Chargeable to tax as follows- 1. Popln > 25 lakhs Least of 15% of salary or Rent paid 2. >10 lakhs but <25 lakhs – Least of 10% of salary or Rent paid 3. Other places – Least of 7.5% of salary or Rent paid

Rent free – Furnished Accommodation Value of unfurnished accommodation Add: 10% cost of furniture or full hire charges =Value of taxable perquisite Salary for this purpose:- Gross salary before value of perquisites, exempted allowances and before taxable value of PF

Exempted Accommodation In a hotel for a period of upto 15 days for an employee on his transfer Free accommodation facility given to SC/HC judge, parliament officials

Housing/Vehicle/Other loans - Int by employer =>SBI Interest rate: =Nothing is taxable Interest charged is lower than SBI rates: =Difference chargeable Where, SBI Rate = as on 1 st day of PY

Interest free Housing Loans - Taxable perquisite Interest recovered by the employer will be allowed as a deduction

II) Taxable for Specified Employees only a) Motor Car b) Domestic Servants c) Gas, Electricity, water d) Education facility

a) Motor Car – Taxable in the hands of empoyer as FBT b) Domestic Servants – Taxable value = Total salary paid /payable by employer Less paid by employee

c) Gas, Electricity, Water –  Actual amount paid by employer net of what is paid by the employee is taxable  Actual amount paid to supplier or spent on production. Any amount charged from the employee deducted

d) Education facility – 1) School fees of family members of employees paid by the employer directly to the school or reimbursed is taxable as perquisite for all employees 2) If education in employer’s institute, then cost in similars less 1000 p.m. per child

Specified Employee - 1) Director – Employee 2) Employee having substantial interest in the company (i.e.20% of the paid up capital or more, 20% of voting power or more) 3) Employee whose monetary salary exceeds Rs.50,000 p.a. (Basic + DA + taxable A/w – PT)

III) Exempted for all (with conditions)– a) Medical facilities b) Interest free / concessional loans – If loan amount is not exceeding Rs.20,000 or if given for medical treatment for specified diseases

a)Medical Facilities - Fixed medical allowance – fully taxable Any medical expenditure reimbursed subject to a maximum of Rs.15,000 Medical treatment abroad – Treatment and stay expenses exempt from tax, subject to the maximum amount permitted by RBI

Travel expenses of patient and attendant = Fully exempt if GTI is upto Rs. 2 lacs Fully taxable above that

Tax Free medical benefits - Local treatment to employee or any member of his family in hospital maintained by employer,govt. hosp.,notified hospital for prescribed diseases Family = spouse, children, parents, dependent brothers / sisters

Deductions under chapter VI-A Shall not exceed the GTI of assessee Not available in respect of – 1) LTCG – Sec.112 2) STCG s.to STT – Sec.111A

Medical Insurance Policy – Sec.80D - In case of individual himself, or spouse, dependent parents & children Deduction:- 1) Normal- Lower of Rs or the premium paid 2) Senior Citizen – Lower of Rs or premium paid