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SALARY INCOME (Sec15,16 & 17)

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.

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SALARY INCOME (Sec15,16 & 17)

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  1. SALARY INCOME(Sec15,16 & 17)

  2. 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

  3. Basis of Charge • Salary is chargeable to tax when it is due to be paid whether it is paid or not (salary paid on 1.4.2009) • 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.

  4. Salary means- • Basic salary and allowances • Annuity • Gratuity • Commission • Perquisite in lieu of salary • Advance salary • Employers contribution to PF • Leave salary

  5. 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)

  6. 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

  7. 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

  8. 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

  9. PENSION (cont.) • Pension received in any other case Tax treatment: Rules apply

  10. PENSION (cont.) Govt. /Non Govt Employee Govt. Employee Non-Govt. Employee • Uncommuted Pension • Commuted Pension Commuted Pension Taxable Exempted from Tax It is fully or partly exempted

  11. COMMUTED PENSION (cont.) Central /state Govt, Local authority employee Non Govt. Employee Non Govt. Employee With or without Gratuity Gratuity is received Gratuity is not received Exempted Fully 1/3 of normal Exempted ½ of normal is exempted

  12. 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

  13. 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

  14. 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

  15. 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)

  16. 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 1,2006 – Dec31,2009

  17. 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

  18. 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)

  19. 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

  20. Provident Fund Statutory Recognised Public Unrecognised PF PF PF PF Employees Eligible for No deduction Contribution Deduction U/S 80C U/S 80C Employers Contribution Exempted N.A. No exemption upto 12% Interest Exempted as notifd No tax Taxable Eg.8.5%

  21. 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

  22. 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)

  23. 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

  24. 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

  25. 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.

  26. Rent Free Unfurnished Accomodation • Classified as Central & State Government Employees • Private Sector Employees

  27. 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

  28. Valuation of Rent Free Unfurnished Accommodation (private sector)

  29. 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

  30. 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.

  31. 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)

  32. 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)

  33. 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

  34. 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

  35. Valuation of gas, electric energy or water supply • All assesses are taxable except non specified employees

  36. Perquisite of Motor Car Perquisite in respect of motor car is taxable only when the employer is not liable to fringe benefit tax (like sole proprietor, charitable institutions, etc) Private company employees will not pay any tax. • 1.Car is owned by Employee • 2. Car is owned or hired by Employer a) Expenses met by Employer b) Expenses met by Employee

  37. Motor car perquisite • Car owned by Employee • Expenses met by Employee - No Tax • Expenses met or reimbursed by Employer - Official purpose only No tax - Used for private purpose-actual expenses less recovery taxable -Partly used for private purpose (cont. next slide)

  38. Motor car perquisite( Cont.) Car owned by employee (cont.) -Partly used for private purpose • Find actual expense incurred by employer • Less amount used for official purpose ie.Rs.1200 upto 1.6lts engine capacity & Rs.1600 above 1.6 lts • Balance is the value less if any recovered from employee

  39. 2.When Car is owned or hired by Employer • A. Expense by employer a) Used only officially No tax b) Wholly used for personal- all expense paid by employer c) Partly official & partly personal- -sum of Rs.1200 upto 1.6 ltrs engine capacity -sum of Rs.1600 beyond 1.6 ltrs capacity

  40. 2.When Car is owned or hired by Employer (cont.) • B. Expense & maintenance by Employee a) Used only officially, not perquisite so no tax b) Wholly used for personal- 10% of cost for wear & tear c) Partly official & partly personal- -sum of Rs.400 upto 1.6 ltrs engine capacity -sum of Rs.600 beyond 1.6 ltrs capacity and Rs.600 for chauffeur

  41. Deductions from salary • Standard Deduction- No deduction is available now. • Professional Tax paid in this year • Entertainment allowance: available only for Government employees

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