Income from Salaries.

Income from Salaries

Overview INCOME FROM SALARIES BASIS OF CHARGE: [Section 15]
For services rendered in a previous year or preceding previous years : any salary due from an employer or a former employer; any salary received from an employer or a former employer; any arrears of salary received from an employer. Once salary is taxed on due/receipt basis, it will not be taxed again on receipt/falling due, as the case may be.

…Overview Income is chargeable under the head “salaries” only if employer-employee relationship exists. Examples : Income received by a consultant – taxable as “Profits and Gains of business or profession”. Commission received by a Director from a Company, as an employee – taxable as “salary”. Commission received by a Director from a Company, not as an employee – taxable as “Profits and Gains of business or profession” or “Income from other sources”. Salary, bonus, commission etc. paid to a partner of a firm - taxable as “Profits and Gains of business or profession”, since relationship between the firm and its partners is not that of an employer and employee.

…Overview Income from “salaries” is chargeable to tax on due basis or receipt basis, whichever is earlier. “Salaries” include monetary payments (e.g. basic salary, bonus, commission, allowances etc.) as well as non-monetary facilities (e.g. housing accomodation, medical facilities etc.) Employment may be part time or full time. Employment may be with more than one employer.

Computation of salary S. No. Head of income Exemption if any
Taxability 1. Basic salary Taxable Advance salary Arrears of salary Salary in lieu of notice period Bonus Annuity Overtime remuneration 2. Fees and commission

…Computation of salary
S. No. Head of income Exemption if any Taxability 3. Allowances a. To meet expenses for performance of duties Travelling allowance on tour ) Daily allowance on tour Transfer expenses Conveyance on office duty ) Exempt upto ) Balance taxable Helper allowance in office ) amount utilised Allowance for encouraging academic, research and training pursuits in educational and research institutions Uniform allowance

S. No. Head of income Exemption if any Taxability b. To meet personal expenses Leave travel allowance Exempt upto specified limits Balance taxable c. To meet increased cost of living Dearness allowance Taxable City compensatory allowance Entertainment allowance Specified limits House rent allowance

S. No. Head of income Exemption if any Taxability d. Special allowances Children Education Allowance Less : Exempt Rs.100 p.m. per child upto maximum 2 children ) Children Hostel Allowance Rs.300 p.m. per child upto maximum 2 children ) Exempt upto ) specified )limits )) Balance taxable Conveyance allowance between home and office Rs.1,600 p.m. for a normal person Rs.3,200 for blind or handicapped e. Other allowances Taxable

S. No. Head of income Exemption if any Taxability 4. Perquisites a. Taxable for all employees Taxable Rent free accomodation (furnished / unfurnished) Concession in rent Monetary obligation of employee discharged by employer e.g. life insurance premium paid on behalf of employee

S. No. Head of income Exemption if any Taxability Value of any other fringe benefit or amenity To the extent specified - Interest free or concessional loans Where the amounts of loans are petty, not exceeding in the aggregate Rs.20,000. Loans made available for medical treatment in respect of diseases specified in Rule 3A of the Income tax Rules.

S. No. Head of income Exemption if any Taxability - Value of free food and non-alcoholic beverages Free food and non-alcoholic beverages provided during working hours : at office or business premises or through paid vouchers which are not transferable and usable only at eating joints provided the value of such meal is Rs.50 per meal.

S. No. Head of income Exemption if any Taxability - Value of travelling, touring, accomodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any family member - Value of any gift, voucher or token - Expenses on credit card - Club membership and expenses incurred at a club - Use of moveable assets - Transfer of any moveable assets

S. No. Head of income Exemption if any Taxability Specified security or sweat equity shares allotted or transferred by the employer to the employee Contribution to approved superannuation fund Upto Rs.1,50,000 (w.e.f. AY ) Balance taxable b. Taxable only for specified employees (when provided in kind) Taxable Use of motor car If provided entirely for business use Services of sweeper, gardener, watchman or personal attendant

S. No. Head of income Exemption if any Taxability Gas, electricity, water provided free of cost or at concessional rate Educational facilities provided free of cost or at concessional rate Where educational institution is owned and maintained by the employer or where he has a preferential say – education cost upto Rs.1,000 p.m. per child is exempt

Specified employee Employee Director Employee having substantial interest in the Company (i.e. employee holding equity shares carrying more than 20% of voting power) Employee salary exceeds Rs.50,000 in the previous year “Salary” means Gross salary Less : non-monetary benefits Less : monetary benefits exempt u/s 10 Less : entertainment allowance (to the extent exempt) Less : profession tax paid

S. No. Head of income Exemption if any Taxability c. Exempt for all employees Specified limits Balance taxable Medical expenses paid or medical facilities provided Recreational facilities provided to a group of employees (not restricted to a select few) Training of employees Health club, sports and similar facilities provided uniformly to all employees Expenses on telephone including a mobile phone Scholarship to employee’s child

S. No. Head of income Exemption if any Taxability Perquisites provided by the Govt. to its employees who are citizens of India for rendering services outside India Rent free official residence provided to judges of Supreme Court / High Court Rent free accomodation provided to officials of Parliament

S. No. Head of income Exemption if any Taxability Use of laptops and computers belonging to employer or hired by him – by the employee or his family member Tax paid by an employer on non-monetary perquisites 5. Accretion to Provident Funds Specified limits Balance taxable 6. Central Government contribution to pension scheme Taxable 7. Profits in lieu of salary 8. Gratuity on retirement, resignation or termination of service

S. No. Head of income Exemption if any Taxability 9. Leave encashment on retirement, resignation or termination of service Specified limits Balance taxable 10. Pension (commuted and uncommuted) 11. Retrenchment compensation 12. Voluntary retirement scheme compensation 13. Any other cash payment voluntarily made by the employer (ex-gratia) Taxable Gross Salary Less : Entertainment allowance Profession tax paid Taxable salary

Bonus Bonus will be treated as salary and not as a perquisite, under the following circumstances – Bonus paid under a service agreement between the employer and employee. Bonus paid under the Payment of Bonus Act, 1965. Bonus paid in accordance with the decision of a trade association which is binding on its members. Bonus paid as an award by a Labour Tribunal where the award is binding on the employer and employees. Note : If bonus paid gratuitously, without there being any legal or contractual obligation, payment will be in the nature of perquisite or benefit.

Loan or advance against salary
Loan is different from salary. Loan is repayable in certain specified installments. Loan / advance against salary cannot be taxed as salary.

Annuity Annuity is a yearly grant. Annuity is treated as salary.
Annuity received from the present employer – taxable as salary. Annuity received from past employer – taxable as profit in lieu of salary. Annuity received from person other than an employer – taxable as income from other sources.

Compensatory allowance
Taxable allowances – Compensatory allowances to meet expenses wholly, necessarily and exclusively incurred by the employee in the performance of duties (conveyance allowance) Allowances to meet expenses at the place of employment (city compensatory allowance) or at a place where he resides. Exemption - Allowances prescribed under Rule 2BB are exempt u/s 10(14).

Specific exemptions Leave travel concession – Section 10(5)
Gratuities – Section 10(10) Payment in commutation of pension – Section 10(10A) Encashment of unutilised earned leave on retirement – Section 10(10AA) Retrenchment compensation – Section 10(10B) Voluntary retirement – Section 10(10C) Provident Fund – Section 10(11) & 10(12) Approved Superannuation Fund – Section 10(13) House rent allowance – Section 10(13A) Allowances exempt u/s 10(14)(i) read with Rule 2BB(1)

Leave travel concession – Section 10(5)
Section 10(5) read with Rule 2B Under Section 10(5), leave travel concession – received by or due to an employee (whether citizen of India or not) for himself and his family in connection with his proceeding on leave or on retirement or termination of service to any place in India is exempt from tax subject to conditions prescribed under Rule 2B - provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.

…Leave travel concession – Section 10(5)
Explanation - For the purposes of this clause, "family", in relation to an individual, means— (i) the spouse and children of the individual ; and (ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.

Rule 2B (1) The amount exempted under section 10(5) shall be the amount actually incurred on such travel subject to the following conditions – Mode of travel Exemption available By air Economy fare of the national carrier by the shortest route By other than air & places of origin of journey and destination are connected by rail places of origin of journey and destination are not connected by rail but recognised public transport system exists places of origin of journey & destination are not connected by rail and recognised public transport system does not exist Air-conditioned first class rail fare by the shortest route 1st class or deluxe class fare, on such transport by the shortest route Air-conditioned first class rail fare, by the shortest route, as if the journey had been performed by rail.

(2) The exemption referred to in sub-rule (1) shall be available to an individual in respect of two journeys performed in a block of four calendar years commencing from the calendar year 1986. (3) Where such travel concession or assistance is not availed of by the individual during any such block of four calendar years, an amount in respect of the value of the travel concession or assistance, if any, first availed of by the individual during first calendar year of the immediately succeeding block of four calendar years shall be eligible for exemption.

Explanation : The amount in respect of the value of the travel concession or assistance referred to in sub-rule (3) shall not be taken into account in determining the eligibility of the amount in respect of the value of the travel concession or assistance in relation to the number of journeys under sub-rule (2). (4) The exemption referred to in sub-rule (1) shall not be available to more than two surviving children of an individual after 1st October, 1998. Provided that this sub-rule shall not apply in respect of children born before 1st October, 1998, and also in case of multiple births after one child.

Gratuities – Section 10(10)
1. Gratuity is exempt only when it is received on — (a) retirement, or becoming incapacitated prior to such retirement; or resignation; or termination of services. 2. Gratuity received during the period of service is fully taxable. 3. Where gratuity is received from two or more employers in the same year, then aggregate amount of gratuity exempt from tax cannot exceed Rs.10 lakhs. Where gratuity is received in an earlier year from former employer and again received from another employer in a later year, the limit of Rs.10,00,000 will be reduced by the amount of gratuity exempt earlier. 5. Exemption is also available to gratuity received by the widow, children or dependants of the employee on his death.

…Gratuities – Section 10(10)
Particulars Exemption Gratuity received by Government employees Fully exempt u/s 10(10)(i) Gratuity in case of employees covered by Payment of Gratuity Act, 1972 Least of following amounts : [15 ÷ 26] x Salary last drawn x completed yrs. of service or part thereof in excess of 6 months Statutory limit Rs. 10,00,000 3. Amount actually received. Salary = Basic Pay + Dearness Allowance entire

…Gratuities – Section 10(10)
Particulars Exemption Gratuity in respect of any other employee. Least of following amounts: 1/2 x average salary x completed years of service (ignore fraction) Statutory limit Rs.10,00,000 3. Amount actually received. Average Salary = Average Salary of last 10 months preceding month of retirement. Salary = Basic Pay + Dearness Allowance (forming part of retirement benefits) + Commission based on the % of turnover

Particulars Exemption
– Section 10(10A) Payment in commutation of pension Particulars Exemption A) Uncommuted pension recd. by any employee. (Govt. or Non-Govt.) Fully taxable as salary. B) Commuted pension recd. by Govt. employee. Fully exempt from tax u/s 10(10A)(i) C) Commuted pension recd. by Non-Govt. employee 1) If such employee receives gratuity 1/3 of full value of commuted pension will be exempt from tax u/s 10(10A)(ii) 1/3 * commuted pension received * 100% commutation % 2) If such employee does not receive gratuity 1/2 of full value of commuted pension will be exempt from tax u/s 10(10A)(ii) 1/2 * commuted pension received * 100% Note : Uncommuted pension means pension received periodically. Commuted pension means lump sum amount taken by commuting the whole or part of the pension.

1. Cash equivalent of leave salary received –
Encashment of unutilised earned leave on retirement – Sec. 10(10AA) 1. Cash equivalent of leave salary received – - at the time of retirement - whether on superannuation or otherwise is exempt upto prescribed limits Leave encashment received during the period of service is fully taxable. Where leave encashment is received from two or more employers in the same year, then aggregate amount of leave encashment exempt from tax cannot exceed Rs.3 lakhs. 4. Where leave encashment is received in an earlier year from former employer and again received from another employer in a later year, the limit of Rs.3,00,000 will be reduced by the amount of leave encashment exempt earlier.

…Encashment of unutilised earned leave on retirement – Sec. 10(10AA)
Particulars Exemption Encashment of leave during service It is charged to tax. Encashment of leave at the time of retirement 1. If Central or State Government Employees Fully exempt from tax u/s 10(10AA)(i) 2. For other employees Least of following : Earned leave months x Average salary of preceding 10 months Preceding 10 months salary Statutory limit Rs.3,00,000 4. Amount actually received Notes :

…Encashment of unutilised earned leave on retirement – Sec. 10(10AA)
Leave balance = 30 days * completed years of service Less : leave actually taken Less : leave encashed Salary = Basic Pay + Dearness Allowance (forming part of retirement benefits) + Commission based on the % of turnover

Retrenchment compensation – Sec. 10(10B)
Retrenchment compensation received – by a workman from his employer under the Industrial Disputes Act, 1947 or under any other Act or award or contract of service is exempt u/s 10(10B). Retrenchment compensation includes compensation paid on transfer of employment u/s 25F or closing down of an undertaking u/s 25FF of the Industrial Disputes Act, 1947.

…Retrenchment compensation – Sec. 10(10B)
Amount of exemption Retrenchment compensation paid under a scheme approved by the Central Govt., the whole of the compensation is exempt – no monetary limit. In other cases, lower of the following 3 limits – - amount actually received amount calculated in accordance with the provisions of Section 25F(b) of the Industrial Disputes Act, 194 i.e. 15/26 * completed yrs. of service or any part in excess of six months * average salary of last 3 months. - notified limit of Rs.5,00,000.

Illustration Mr. A received retrenchment compensation of Rs.10,00,000 after 30 years 4 months of service. At the time of retrenchment, he was drawing basic salary of Rs.20,000 p.m., dearness allowance of Rs.5,000 p.m.. Compute his taxable retrenchment compensation.

…Illustration Solution Retrenchment compensation received Rs.10,00,000 Less : Exemption u/s 10(10B) Least of the following limits – Compensation received Rs.10,00,000 Statutory limit Rs. 5,00,000 Amount calculated in accordance with Industrial Disputes Act 15/26 * 30 * (20,000*3) + (5,000*3) Rs. 4,32,692 3 Rs. 4,32,692 Taxable retrenchment compensation Rs. 5,67,308

Voluntary retirement – Sec. 10(10C)
Any amount received or receivable (i.e. in instalment) by an employee of any of the aforesaid entities on his voluntary retirement in accordance with any scheme or schemes of voluntary retirement / voluntary separation as per guidelines prescribed under Rule 2BA is exempt to the extent of Rs.5,00,000. Where exemption has been allowed u/s 10(10C) for any assessment year, no exemption available for any other assessment year [2nd proviso to Section 10(10C)]. If relief claimed u/s 89 re. VRS payments, no exemption u/s 10(10C) in relation to that or any other assessment year [3rd proviso to Section 10(10C)].

...Voluntary retirement – Sec. 10(10C)
Exempted amount Exemption is least of the following amounts - 1) actual amount received under VRS 2) Rs. 5 lakhs in total from one or more employers 3) last drawn salary multiplied by 3 months for each completed year of service last drawn salary multiplied by balance number of months of service left. “Salary” = Basic + DA (forming part of retirement benefits) + commission based on percentage of turnover

...Voluntary retirement – Sec. 10(10C)
Guidelines Rule 2BA prescribes the guidelines for the purposes of the above clause. They are as follows : Employee should have completed 10 years of service or 40 years of age. This requirement not applicable in case of an employee of a public sector company. It applies to all employees, including workers and executives except directors of a company or a co-operative society. VRS scheme should result in overall reduction in the existing strength of the employees. The vacancy caused by the voluntary retirement should not be filled up. The retiring employee shall not be employed in another company or concern belonging to the same management.

Provident Fund – Section 10(11) & 10(12)
Provident Fund (PF) scheme is a scheme intended to give substantial benefits to an employee at the time of his retirement. The credit balance in a PF account of an employee consists of – Employee’s contribution Interest on employee’s contribution Employer’s contribution Interest on employer’s contribution Accumulated balance is paid to – the employee at the time of his retirement or resignation the legal heirs of the employee, in case of death of the employee.

…Provident Fund – Section 10(11) & 10(12)
Types of Provident Funds Recognised Provident Fund (RPF) Constituted under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 or Recognised by the Commissioner of Income tax Governed by Part A of Schedule IV to the Income tax Act. Unrecognised Provident Fund (URPF) - Not recognised by the Commissioner of Income tax Statutory Provident Fund (SPF) - Governed by Provident Funds Act, 1925 - Applies to employees of Government, railways, semi-government institutions, local bodies, universities and all recognised educational institutions

Public Provident Fund Operated under Public Provident Fund Act, 1968 Open to every individual, including self employed people Salaried employee can contribute to PPF in addition to the fund operated by his employer Individual may contribute on his own behalf as also on behalf of his spouse or on behalf of a minor of whom he is the guardian Minimum contribution – Rs Maximum contribution – Rs.1,50,000 8.7%

Particulars RPF URPF SPF PPF Employer’s contribution Amount > 12% of salary - taxable Not taxable yearly Fully exempt N.A. Employee’s contribution Eligible for deduction u/s 80C Not eligible for deduction Interest credited Amount in excess of 9.5% p.a. is taxable Amount received on retirement etc. Notes (1) & (2) Note (3) Fully exempt u/s 10(11)

Notes : Amount received on the maturity of RPF is fully exempt if employee has rendered continuous service for 5 years or more. Also exempt even if employee has rendered continuous service for less than 5 years, if service had been terminated due to employee’s ill health or discontinuance or contraction of employer’s business or other reason beyond employee’s control. In any other case, amount received will be taxable in the same manner as in the case of URF. Accumulated balance transferred from a RPF from one employer to another, exempt. In such a case, period of service with the former employer shall also be taken into account for computing the period of 5 years’ continuous service with the second employer. Employee’s contribution is not taxable but interest thereon is taxable under “Income from other sources”. Employer’s contribution and interest thereon is taxable as “profits in lieu of salary”. “Salary” means basic salary and dearness allowance, if provided in the terms of employment for retirement benefits and commission as a percentage of turnover.

Approved Superannuation Fund – Sec. 10(13)
Any payment from an approved superannuation fund - (i) on the death of a beneficiary to his widow, children or dependents (ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement (iii) by way of refund of contributions on the death of a beneficiary is exempt u/s 10(13) upto the specified limits.

…Approved Superannuation Fund – Sec. 10(13)
Notes Superannuation fund to be approved by the Chief Commissioner or Commissioner of Income tax . Procedure for approval prescribed in Part B of the Fourth Schedule to the Income tax Act read with Rules 82 to 97 of the Income tax Rules. Employee’s contribution to Superannuation Fund qualifies for deduction u/s 80C. Employer’s contribution cannot exceed 27% of the employee’s salary for each year as reduced by employer’s contribution to the provident fund of such employee for that year [Rule 87 of the Income tax Rules]. Employer’s contribution will not be treated as perquisite upto Rs.1.5 lakhs p.a. (w.e.f. AY ) [Section 17(2)(vii)] Interest on accumulated balance is exempt from tax. If any payment out of the fund is liable to be taxed, the trustees will have to deduct tax at source u/s 192(5). Amount transferred by one employer to another is not treated as income of the employee but will be exempt u/s 10(13) [CBDT Circular dt ]

House rent allowance – Section 10(13A)
Section 10(13A) read with Rule 2A Provides relief to employees who receive House rent allowance from their employers, subject to certain limits and conditions. Employees who are not in receipt of house rent allowance from their employers, but who pay rent for their residential accomodation, are entitled to claim deduction u/s 80GG. Section 10(13A) Any special allowance - - specifically granted to an assessee - by his employer - to meet expenditure actually incurred on payment of rent (by whatever name called) - in respect of residential accommodation occupied by the assessee - to such extent as may be prescribed - having regard to the area or place in which such accommodation is situate and other relevant considerations.

…House rent allowance – Section 10(13A)
Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where— the residential accommodation occupied by the assessee is owned by him ; or the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him

Delhi, Kolkata, Mumbai, Chennai
…House rent allowance – Section 10(13A) Rule 2A The amount which is not to be included in the total income of an assessee in respect of the special allowance referred to in clause (13A) of section 10 shall be the least of the following : Delhi, Kolkata, Mumbai, Chennai Other cities (a) the actual amount of such allowance received by the assessee in respect of the relevant period (b) rent paid – 10% of salary for the relevant period (c) 50% of salary for the relevant period (c) 40% of salary for the relevant period

…House rent allowance – Section 10(13A)
“Salary” means basic salary, dearness allowance, if the terms of employment so provide and commission as a fixed percentage of turnover. “Relevant period" means the period during which the said accommodation was occupied by the assessee during the previous year. Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance upto Rs. 3,000 per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent - Circular No. 798, dated

Allowances exempt u/s 10(14)(i) read with Rule 2BB(1)
Any allowance granted to meet the cost of travel on tour or on transfer, including any sum paid in connection with transfer, packing and transportation of personal effects on such transfer. Any allowance, whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty. Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit, provided that free conveyance is not provided by the employer. d) Any allowance granted to meet the expenditure incurred on a helper, where such helper is engaged for the performance of duties of an office or employment of profit.

…Allowances exempt u/s 10(14)(i) read with Rule 2BB(1)
Any allowance granted for encouraging the academic, research and training pursuits in educational and research institutions. f) Any allowance granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit.

Name of allowance/places where exempt
Allowances exempt u/s 10(14)(ii) read with Rule 2BB(2) Allowances exempt upto specified limits Rule 2BB(2) enumerates the allowances and the limits upto which they are exempt. These allowances are as follows : S. No. Name of allowance/places where exempt Extent of exemption 1. Any special compensatory allowance in the nature of Special Compensatory (Hilly Areas) Allowance or High Altitude Allowance or Uncongenial Climate Allowance or Snow Bound Area Allowance or Avalanche Allowance Rs.800 p.m. or Rs.7,000 p.m. or Rs.300 p.m. (depending on the area)

….Allowances exempt u/s 10(14)(ii) read with Rule 2BB(2) S. No. Name of allowance/places where exempt Extent of exemption 2. Any special compensatory allowance in the nature of Border Area Allowance or Remote locality allowance or Difficult Area Allowance or Disturbed Area Allowance— Rs.1,300 p.m. or Rs.1,100 p.m. or Rs.1,050 p.m. or Rs.750 p.m. or Rs.300 p.m. or Rs.200 p.m. (depending on the area) 3. Special Compensatory (Tribal Areas/Schedule Areas/Agency Areas) Allowance in specified States

….Allowances exempt u/s 10(14)(ii) read with Rule 2BB(2) S. No. Name of allowance/places where exempt Extent of exemption 4. Any allowance granted to an employee working in any transport system to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place, provided that such employee is not in receipt of daily allowance (whole of India) 70 per cent of such allowance upto a maximum of Rs. 10,000 per month 5. ** Children Education Allowance (whole of India) Rs. 100 per month per child upto a maximum of two children

….Allowances exempt u/s 10(14)(ii) read with Rule 2BB(2) S. No. Name of allowance/places where exempt Extent of exemption 6. ** Any allowance granted to an employee to meet the hostel expenditure on his child (whole of India) Rs. 300 per month per child, upto a maximum of two children 7. Compensatory Field Area Allowance, at specified places Rs.2,600 per month 8. Compensatory Modified Field Area Allowance at specified places Rs.1,000 per month

….Allowances exempt u/s 10(14)(ii) read with Rule 2BB(2) S. No. Name of allowance/places where exempt Extent of exemption 9. Any special allowance in the nature of counter insurgency allowance granted to the members of the armed forces operating in areas away from their permanent locations (whole of India) Rs.3,900 per month 10. ** Transport allowance granted to an employee [other than an employee referred to in (11)] to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty (whole of India) Rs.1,600 per month w.e.f. AY 11. ** Transport allowance granted to an employee, who is blind or orthopaedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty (whole of India) Rs.3,200 per month w.e.f. AY

….Allowances exempt u/s 10(14)(ii) read with Rule 2BB(2) S. No. Name of allowance/places where exempt Extent of exemption 12. Underground allowance granted to an employee who is working in uncongenial, unnatural climate in underground coal mines (whole of India). Rs.800 per month 13. Any special allowance in the nature of high altitude (uncongenial climate) allowance granted to the member of the armed forces operating in high altitude areas (a) For altitude of 9,000 to 15,000 feet (b) For altitude above 15,000 feet Rs.1,060 per month Rs.1,600 per month 14. Any special allowance granted to the members of the armed forces in the nature of special compensatory highly active field area allowance (whole of India) Rs.4,200 per month

….Allowances exempt u/s 10(14)(ii) read with Rule 2BB(2) S. No. Name of allowance/places where exempt Extent of exemption 15. Any special allowance granted to the member of the armed forces in the nature of island (duty) allowance (Andaman & Nicobar and Lakshadweep Group of Islands) Rs.3,250 per month Note : Any assessee claiming exemption in respect of allowance at S. Nos. 7, 8 and 9, shall not be entitled to exemption in respect of disturbed area allowance at S. No. 2.

Other fringe benefits or amenities
Substituted Rule 3(7) read with clause (viii) of sub-section (2) of section 17 The following other benefits or amenities are taxable as perquisites: Interest free or concessional loan Expenditure on travelling, touring etc. Free food and non-alcoholic beverages Gift, voucher or token Credit card payments Club fees / expenditure Use of moveable asset by employee Transfer (sale) of moveable asset to an employee Any other benefit or amenity, service, right or privilege

Tax paid by employer on non-monetary perquisites provided to employee – Sec. 192(1A) r.w.s. 10(10CC)
From AY onwards, Sec. 10(10CC) provides that tax paid by an employer on non-monetary perquisites provided to employee, will be exempt and will not be added as perquisite of an employee. Tax so paid will not be deductible as expenditure from business or professional income of the employer [Section 40(a)(v)]. Employer has an option to pay tax on whole or part of such income and the tax so paid is not deductible at source from employee’s salary [Section 192(1A)].

…Tax paid by employer on non-monetary perquisites provided to employee – Sec. 192(1A) r.w.s. 10(10CC) Employer has to pay tax on such perquisites at the average rate of income tax in force for the financial year on salary income, including the non-monetary perquisites [Section 192(1B)]. The tax so paid by the employer will be deemed to be tax deducted at source from salary income. The tax so payable by the employer u/s 192(1A) is to be paid within the time prescribed under Rule 30 [Sec. 200(2) / (3)] For failure to pay whole or part of tax payable u/s 192(1A),, interest u/s 201(1A) and penalty u/s 271C(1)(a) is leviable.

The following shall not be treated as perquisite —
Valuation of reimbursement of medical expenses / medical facilities – 1st proviso to Sec. 17(2) The following shall not be treated as perquisite — Medical treatment for the employee and family members in a hospital, dispensary, nursing home maintained by employer. Payment by an employer for treatment in a Government hospital. Payment by an employer for treatment of prescribed diseases in any hospital aproved by the Chief Commissioner. Medical reimbursement incurred privately by employee (family doctor, medicines from local shops) – upto Rs.15,000 p.a. Medical insurance premium paid by employer on the health of employee. “Family” means spouse and children of the individual. Children may be dependent / independent, married / unmarried. Also includes parents, brothers, sisters of the individual, if wholly or mainly dependent on him.

…Valuation of reimbursement of medical expenses / medical facilities – 1st proviso to Sec. 17(2)
Medical treatment outside India Medical expenses and stay abroad for patient and one attendant — to the extent permitted by RBI. If Gross Total Income (before including the travel expenditure) of the employee, does not exceed Rs. 2,00,000/-, then - travel abroad for patient and one attendant — fully deductible.

Profits in lieu of salary – Sec. 17(3)
“Profits in lieu of salary” includes— 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 or the modification of the terms and conditions relating thereto; any payment - other than any payment referred to in clause (10) - gratuity, clause (10A) – commutation of pension, clause (10B) – retrenchment compensation, clause (11) – P.F., clause (12) – R.P.F., clause (13) – superannuation fund or clause (13A) – HRA of Section 10 due to or received by an assessee from an employer or a former employer or

…Profits in lieu of salary – Sec. 17(3)
from a provident or other fund to the extent to which it does not consist of contributions by the assessee or interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. Explanation.—For the purposes of this sub-clause, the expression “Keyman insurance policy” shall have the meaning assigned to it in clause (10D) of Section 10. U/s 10(10D) “Keyman insurance policy” means – a life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with the business of the first mentioned person.

…Profits in lieu of salary – Sec. 17(3)
any amount due to or received, whether in lump sum or otherwise, by any assessee from any person— before his joining any employment with that person; or (B) after cessation of his employment with that person.

Deductions from “salaries”
Entertainment allowance - Sec. 16(ii) Entertainment allowance – Sec. 16(ii) Only Government servant can claim the least of the following limits as a deduction— 1. Rs. 5000/- 2. 1/5th of salary (20% of salary) [Salary = Basic Pay] 3. Actual entertainment allowance received during the F.Y. Amount actually spent by the employee out of the entertainment allowance received by him is not a relevant consideration.

Deductions from “salaries” Tax on employment - Sec. 16(iii)
Professional tax paid by an employee is allowed as deduction from his Salary income. Deduction is available in the year in which professional tax is actually paid. If Profession Tax is reimbursed by the employer, then Profession Tax reimbursed by the employer will first be included in salary (in case of all employees whether specified or not) as perquisite & then the same amount is allowed as deduction u/s 16(iii) from gross salary. Note: If an employee has paid Profession Tax of more than one year in a particular year then entire Profession Tax so paid is allowed as deduction.

Income from Salaries.

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Income from Salaries.

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