INCOME FROM INCOME FROM SALARYSALARY

THE FIRST HEAD OF INCOMETHE FIRST HEAD OF INCOME

Jolly JosephJolly JosephSt.Teresa’s Arts & Science CollegeSt.Teresa’s Arts & Science CollegeKottakkal – Mala, Thrissur - KeralaKottakkal – Mala, Thrissur - Kerala

BASIS OF CHARGE SEC.15BASIS OF CHARGE SEC.15

Salary due from the Salary due from the present or former employer present or former employer for the service rendered for the service rendered during the previous year.during the previous year.

Salary received before it Salary received before it becomes due. Advance becomes due. Advance salary.salary.

Arrears of salary, if it was Arrears of salary, if it was not assessed earliernot assessed earlier..

Principles of salaryPrinciples of salary

Voluntary Surrender of Salary:Voluntary Surrender of Salary:Salary is chargeable on due basis. Salary is chargeable on due basis.

It will become income only It will become income only after it has fallen due. after it has fallen due.

Therefore, voluntary surrender Therefore, voluntary surrender or forgoing of salary after it has or forgoing of salary after it has

become due will be mere become due will be mere application of incomeapplication of income and and

hencehence taxable. taxable. ..

Principles of salaryPrinciples of salary

Employer-Employee Employer-Employee Relationship: Relationship: A payment is A payment is treated as ‘salary’ only when treated as ‘salary’ only when there is relationship of employer there is relationship of employer and employee between assessee and employee between assessee and payee and payee

Payment received by M.Ps, Payment received by M.Ps, MLAs, examiner’s remuneration, MLAs, examiner’s remuneration, family pension and partners family pension and partners remuneration will not be treated remuneration will not be treated as “Salary Incomeas “Salary Income”. ”.

Principles of salaryPrinciples of salary

Tax-free salary:Tax-free salary: In In the case of tax free the case of tax free salary, the employee will salary, the employee will be taxable in respect of be taxable in respect of gross salary, i.e. gross salary, i.e. Aggregate of salary Aggregate of salary received and the amount received and the amount of tax paid by employer of tax paid by employer on behalf of employeeon behalf of employee

Principles of salaryPrinciples of salary

Deductions made by Employer:Deductions made by Employer:Salary is paid to an employee Salary is paid to an employee

after making some deductions in after making some deductions in respect of any loan advanced to him, respect of any loan advanced to him, employee’s contribution towards PF employee’s contribution towards PF and E.S.I, income tax, professional and E.S.I, income tax, professional tax, life insurance premium etc. tax, life insurance premium etc. Such Such deductions are treated as deductions are treated as application of salary income and application of salary income and tax is chargeable on the gross tax is chargeable on the gross salary without any deductionssalary without any deductions..

Principles of salaryPrinciples of salary Due date of Salary:Due date of Salary: In the In the case of government and case of government and semi government semi government employees, salary becomes employees, salary becomes due on the first day of next due on the first day of next month. In the case of other month. In the case of other employees, salary becomes employees, salary becomes due on last day of each due on last day of each monthmonth..

Salary includes….Sec. Salary includes….Sec. 17(1)17(1)

Wages;Wages; Annuity or pension;Annuity or pension; Gratuity;Gratuity; Fees, Commission, perquisites Fees, Commission, perquisites

or profits in lieu of salary;or profits in lieu of salary; Any advance salary;Any advance salary; Leave salary;Leave salary; Annual accretion; andAnnual accretion; and Transferred balance Transferred balance

TAX TREATMENT OF DIFFERENT TAX TREATMENT OF DIFFERENT KINDS OF SALARIESKINDS OF SALARIES

1.1. Basic Salary or WagesBasic Salary or Wages:: Both Both salary and wages mean a payment or salary and wages mean a payment or compensation of work done, or compensation of work done, or service rendered. Ordinarily salary service rendered. Ordinarily salary paid in respect of non-manual work paid in respect of non-manual work and wages for manual work. Basic and wages for manual work. Basic salary is taxable.salary is taxable.

2.2. Fees and CommissionFees and Commission from from Employer for doing any Extra Work: Employer for doing any Extra Work: These items are taxable as salary These items are taxable as salary income.income.

3.3. Leave SalaryLeave Salary:: Leave Leave salary received before salary received before retirement is taxable as retirement is taxable as salary income.salary income.

44.. PensionPension:: Pension received Pension received by assessee during the P.Y. is by assessee during the P.Y. is taxable as salary income. taxable as salary income.

55.. BonusBonus:: Bonus paid by Bonus paid by employer to employee is employer to employee is taxable on receipt basis as taxable on receipt basis as salary incomesalary income

Types of AllowancesTypes of Allowances

AllowanceAllowance

ExemptedExempted PartiallyPartiallyexemptedexempted TaxableTaxable

Exempted AllowancesExempted Allowances Foreign AllowanceForeign Allowance:: These are These are

the allowances granted by the allowances granted by Government of India to its citizens Government of India to its citizens who are working abroad on Indian who are working abroad on Indian Government Service.Government Service.

Sumptuary allowancesSumptuary allowances to to High Court or Supreme Court JudgesHigh Court or Supreme Court Judges

Allowances from U.N.OAllowances from U.N.O.. Per-diem AllowancesPer-diem Allowances:: It is paid It is paid

for the purpose of use of hotel, for the purpose of use of hotel, boarding and lodging facilities to an boarding and lodging facilities to an employee. employee.

Partially Exempted allowances

House Rent AllowanceSec.10(13A)

The least of the following is exempted…1. Actual H.R.A received,2. Rent paid – 10% of salary3. 40% of salary(50% in the case of Delhi,

Chennai, Mumbai & Kolkata.)

Salary = basic salary + D.A. if it form part of salary + Commission on turnover at fixed percentage.

… ….partially exempted.partially exempted allowancesallowances

2.Children Education Allowance: - It is exempt in whole of India @ Rs.100 p.m. per child up to a maximum of two children.

3.Children Hostel Allowance: - It is exempt in whole of India @ Rs.300 p.m. per child up to a maximum of two children.

4.Transport Allowance: - It is granted to meet expense on traveling from residence to work place and return back. It is exempted from tax @ Rs.800 p.m. In the case of physically handicapped employees, it is exempted up to Rs.1600 p.m.

…….partially exempted .partially exempted allowancesallowances

5.Any allowance granted by an employer, who is a transport undertaking to its employees to meet personal expenditure during his duties. (Flight or running allowance):- 70% of such allowance up to Rs.10000 p.m. is exempted from tax.

6.Underground allowance: - It is granted to an employee who is working in uncongenial and unnatural climate in underground mines. It will be exempted from tax up to Rs.800 p.m.

Taxable allowancesTaxable allowancesDearness Allowance

D.A. is allowed to employees to meet high cost of living. Sometimes it is given under the terms of employment and sometimes without it. When it is given under the terms of employment, it is included in the salary for determining the exemption limit of H.R.A, Gratuity, and P.F. etc. Sometimes D.A. is given as Dearness Pay. It means that it is being given under terms of employment.

…… ……taxable taxable allowancesallowances2. Fixed Medical Allowance.3. Tiffin allowance

5.5. Non-practicing allowanceNon-practicing allowance4. Servant allowance.6. Hill allowance in a place is

located at less than 1000 meter height from sea level.

…… ……taxable taxable allowancesallowances7. Warden/Procter allowanceWarden/Procter allowance

8.8. Deputation allowanceDeputation allowance

9.9. Overtime allowanceOvertime allowance

10.10. Project allowanceProject allowance

11.11. City compensatory allowanceCity compensatory allowance

12.12. Entertainment allowanceEntertainment allowance

13.13. Special qualification allowance Special qualification allowance

PERQUISITES

“any casual emolument, fee or any casual emolument, fee or profit attached to an office, in profit attached to an office, in addition to salary of wagesaddition to salary of wages”.”.

…….means a personal advantage to the .means a personal advantage to the employee.employee.

…….employee must have a vested right .employee must have a vested right to receive it.to receive it.

Tax free perquisitesTax free perquisites • Medical benefits,Medical benefits,• Tea, snacks, free food, free lunch or Tea, snacks, free food, free lunch or

beverages provided during office hours at beverages provided during office hours at work place,work place,

• Accommodation provided at site,Accommodation provided at site,• Telephone including mobile phone,Telephone including mobile phone,• Contribution to Staff Group Insurance Contribution to Staff Group Insurance

Scheme,Scheme,• Scholarship to employees or their children,Scholarship to employees or their children,• Conveyance facility from residence to Conveyance facility from residence to

office and return backoffice and return back

…… …….Tax free .Tax free perquisitesperquisites • Refresher courses,

• Tax on perquisite paid by employer (Fringe benefit tax paid),

• Perquisites to government employee who are posted abroad,

• Rent free house and conveyances to Judges of High Court and Supreme Court,

• Rent free house provided to a minister, specified officers of Parliament or a Leader of Opposition in parliament,,

…… …….Tax free .Tax free perquisitesperquisites

• Laptops and computers provided by Laptops and computers provided by the employer to employee or family the employer to employee or family members.members.

• Interest free or concessional loan Interest free or concessional loan (below Rs.20,000),(below Rs.20,000),

• Transfer without consideration to an Transfer without consideration to an employee of a movable asset (other employee of a movable asset (other than computers, electronic items than computers, electronic items and car) by the employer after using and car) by the employer after using it for a period of 10 yearsit for a period of 10 years or more,or more,

…… …….Tax free .Tax free perquisitesperquisites

• Leave travel concession,Leave travel concession,• Any benefit or amenity on Any benefit or amenity on

which employer is liable to pay which employer is liable to pay Fringe Benefit Tax Fringe Benefit Tax

• Periodicals and journals,Periodicals and journals,

Taxable perquisites in all casesTaxable perquisites in all cases

• The value of rent-free The value of rent-free accommodation [sec 17(2) (i)]accommodation [sec 17(2) (i)]

• The value of concessional The value of concessional accommodation [sec.17(2)(ii)]accommodation [sec.17(2)(ii)]

• Any sum paid by employer in Any sum paid by employer in respect of any obligation which, respect of any obligation which, but for such payment would have but for such payment would have been payable by employee been payable by employee [sec.17(2[sec.17(2) (iv)]

…… …….Taxable perquisites .Taxable perquisites in all casesin all cases Any sum payable by the Any sum payable by the

employer, whether directly or employer, whether directly or through a fund, other than through a fund, other than recognized P.F. or recognized recognized P.F. or recognized superannuation fund to effect superannuation fund to effect an assurance on the life of an assurance on the life of assessee or family members assessee or family members [sec.17(2)(v)].[sec.17(2)(v)].

Value of any other fringe Value of any other fringe benefits as may be prescribed benefits as may be prescribed under Sec .17(2) (vi)under Sec .17(2) (vi)

Perquisites taxable in Perquisites taxable in specified casesspecified cases

The value of any benefit The value of any benefit or amount granted to an or amount granted to an

employee (on which employee (on which employee has no employee has no

obligation) is taxable obligation) is taxable only in the hands of only in the hands of specified employees. specified employees.

[Sec. 17(2) (iii)]. [Sec. 17(2) (iii)].

Specified EmployeeSpecified Employee a person who satisfies any of the a person who satisfies any of the

following conditions:following conditions: By a company, an employee who By a company, an employee who

is a director thereof;is a director thereof; By a company, an employee who By a company, an employee who

has a substantial interest in the has a substantial interest in the company (i.e. Holding more company (i.e. Holding more than 20% of Equity shares);than 20% of Equity shares);

An employee whose salary, An employee whose salary, excluding value of perquisites, excluding value of perquisites, exceeds Rs.50000 during the exceeds Rs.50000 during the P.Y.P.Y.

AccommodationAccommodationGovernment EmployeesGovernment Employees

Value=The licence fee or value Value=The licence fee or value determined by Govt authoritiesdetermined by Govt authorities

Non Govt employeesNon Govt employeesIf house owned by employerIf house owned by employer, , the value will be 15% (above the value will be 15% (above 25 lakh)or10%(10-25lakh) or 25 lakh)or10%(10-25lakh) or 7.5%(below 10 lakh) of salary 7.5%(below 10 lakh) of salary as per population of the cityas per population of the city

………………………….Accommodation.Accommodation

House hired by the House hired by the employer….employer….

The value will be 15% of The value will be 15% of salary or rent paid by the salary or rent paid by the

employer whichever is employer whichever is lesserlesser

Car facilityCar facility

Car is owned by theCar is owned by the employer.employer.

Car is used only for Car is used only for official purpose- it is official purpose- it is

not a perquisite.not a perquisite.

…………car is owned by the car is owned by the employeremployer

Car is used exclusively for the Car is used exclusively for the private or personal purpose of private or personal purpose of employee or household employee or household members- members-

The value = the actual amount The value = the actual amount met by the employer including met by the employer including driver’s salary + normal driver’s salary + normal depreciation @ 10% of original depreciation @ 10% of original cost of the carcost of the car

Car for personal Car for personal and official useand official use

Small CarSmall Car

(Below (Below 1.6 liter. 1.6 liter. CC)CC)

Large CarLarge Car

(Above (Above 1.6 Liter. 1.6 Liter. CC)CC)

If entire expense If entire expense of running and of running and maintenance of maintenance of the car are borne the car are borne by employerby employer

1,800 1,800 p.mp.m..

2,400 2,400 p.mp.m..

Rs. 900 pm is to be added if free driver is Rs. 900 pm is to be added if free driver is providedprovided

Car for Car for personal and personal and official useofficial use

Small CarSmall Car

(Below (Below 1.6 liter. 1.6 liter. CC)CC)

Large CarLarge Car

(Above (Above 1.6 Liter. 1.6 Liter. CC)CC)

If expense of If expense of personal use personal use of the car are of the car are borne by borne by employee employee

600 600 p.mp.m..

900 900 p.mp.m..

Rs. 900 pm is to be added if free driver is Rs. 900 pm is to be added if free driver is providedprovided

PROVIDENT FUNDPROVIDENT FUND

Statutory Provident Fund,Statutory Provident Fund, Recognized Provident Fund,Recognized Provident Fund, Unrecognized provident Unrecognized provident

fund,fund, Public Provident Fund.Public Provident Fund.

Statutory Provident FundStatutory Provident Fund

Indian Provident Fund Act, Indian Provident Fund Act, 1925 applies1925 applies

Employee’s contribution:Employee’s contribution:

Eligible for deduction U/S 80CEligible for deduction U/S 80C

Employer’s contribution:Employer’s contribution:

Exempted from taxExempted from tax

Interest: Interest: ExemptedExempted

Lump sum amount received: Lump sum amount received:

Not taxableNot taxable

Recognized Provident Recognized Provident FundFund Employees’ Provident Fund Act, 1952Employees’ Provident Fund Act, 1952 applies applies & &

recognized by C.I.Trecognized by C.I.T.. Employee’s contribution:Employee’s contribution: Eligible for deduction U/S 80CEligible for deduction U/S 80C

Employer’s contribution:Employer’s contribution: Exempted up to 12% of Exempted up to 12% of

salarysalary Interest: Interest:

Exempted up to 9.5% p.a.Exempted up to 9.5% p.a. Lump sum amount received: Lump sum amount received:

Not taxableNot taxable

NOT RECOGNIZED by C.I.TNOT RECOGNIZED by C.I.T.. Employee’s contribution:Employee’s contribution:

NOTNOT Eligible for deduction U/S Eligible for deduction U/S 80C80C

Employer’s contribution:Employer’s contribution:FULLY TAXABLE WHEN LUMPSUM FULLY TAXABLE WHEN LUMPSUM

AMT RECEIVEDAMT RECEIVED Interest: Interest: FULLY TAXABLE AS SALARY INCOME FULLY TAXABLE AS SALARY INCOME

AND OTHER SOURCESAND OTHER SOURCES Lump sum amount received: Lump sum amount received:

EMPLOYER’S CONTRIBUTION & EMPLOYER’S CONTRIBUTION & INTEREST THEREON IS TAXABLEINTEREST THEREON IS TAXABLE

Unrecognized Provident Unrecognized Provident FundFund

Deductions from gross Deductions from gross salarysalary

Entertainment Allowance [Sec.16 (ii)]Entertainment Allowance [Sec.16 (ii)] 1/5th of Basic salary;1/5th of Basic salary; Rs.5000; andRs.5000; and Actual Entertainment allowance Actual Entertainment allowance

receivedreceived

…………the least is deductible (only for the least is deductible (only for Govt employees)Govt employees)

Employment or Professional tax paid Employment or Professional tax paid [sec.16 (iii)][sec.16 (iii)]

THANK THANK YOUYOU