INCOME UNDER THE HEAD SALARY
1. TDS on salary vs Tax free salary: Under the concept of TDS employer will calculate and deduct tax on the monthly basis before handing over salary to employee. But in case of tax free salary employer will pay tax on the salary income of employee out of his own pocket and therefore such amount of tax is added in the salary of the employee.
2. Advance salary vs advance against salary: Under the concept of advance salary employee gets salary from the employer before salary gets due to him. But in case of advance against salary employer giver loan to employee on a condition that installment of such loan would be deducted from the monthly salary of employee.
3 Section 15: Salary income is taxable on due or receipt basis whichever is earlier. But if it is taxed on due basis it will not be again taxed when it is received.
4) Section 9(1): Salary is always accrued at a place where the services are rendered. However in case of government employee who is working outside India, his salary shall always be accrued in India.
5) Surrender and forgoing of salary: Is salary is surrendered in favor of the government then such salary is not taxed. However if employee forgoes his salary in favor of some other employee then such salary is taxable in hands of employee.
6) Salary from more than 1 employer: If salary is received from more than 1 employer then aggregate of salary from all employers shall be taxed.
7) Profits in lieu of salary: Amount of compensation from any person before assessee joining any employment with that person or after cessation of his employment with that person is profit in lieu of salary and taxable u/s 17(3).
8) Tax paid by employer on the perquisite value of non-monetary perquisites: If employer pays tax on behalf of employee then salary paid to employee will know as tax free salary. Such amount of tax paid by employer on behalf of employee shall be employee’s income and will be added to his gross salary. However if employer pays such amount of tax on non monetary perquisites then so much of tax shall NOT be included in gross salary of employee---Section 10(10CC).
9) Entertainment allowance is given a deduction only to government employees. Government employees mean employees of Central Government and State Government---Section 16(ii).
10) Professional tax is imposed by the State Government and never by Central Government. Professional Tax is allowed as deduction u/s 16(iii) on the payment basis and not on accrual basis. Professional Tax is given a deduction even if amount has been paid by employers although it will be first included in the gross salary.
11) Gratuity—Section 10(10) For government employees, gratuity is fully exempt from tax at the time of retirement. Government employees mean employees of Central Government, State Government, Local Authority. For other maximum exemption for the life time is Rs.350000. Gratuity received anytime before retirement shall be fully taxable and gratuity at death is exempt from tax.
12) Commuted Pension—Sec 10(10A): For government employees or non government employees uncommuted pension is always fully taxable. Pension is allowed to be commuted to the maximum of 40% of the future 100 months. Commuted pension is always fully exempt from tax for government employees but for non government employees its exemption depends on whether assessee has received gratuity or not at retirement. Government employees mean employees of Central Government, State Government, Local Authority and Statutory Corporation.
13. Family pension: After the death of the employee pension shall be paid to his family members and such pension is called family pension. After death of member of armed forces who was winner of gallantry award pension given to his family members shall be fully exempt from tax under section 10(18). If member of armed forces die during combat duties then pension given to his family members shall be fully exempt from tax under section 10(19). In all other cases family pension is regarded as income from other sources and is exempt from tax under section 57 to the lower of:
a) 1/3 of family pension received.
b) Maximum limit of Rs. 15000/
14. Leave salary--Sec10(10AA): Encashment of leave during tenure of job is always fully taxable for all kinds of employees whether government or non government. Encashment of leave at retirement is exempt for maximum of Rs.300000. Government employee means employee of Central Government and State Government. Leave encashment given to family members after the death of the employee shall be fully exempt from tax.
15. Provident Fund: Contribution of employer to SPF is fully exempt from tax. Further interest accrued on SPF is also fully exempt from tax under section 10(11). Contribution of employer to RPF account of employee is exempt up to 12% of salary and interest thereon is exempt up to 9.5% of total contribution. Contribution to URPF and interest thereon is fully taxable at the time of retirement or withdrawal.
16) LTC: Exemption u/s. 10(5) in respect of leave travel concession or allowance is with reference to 2 trips in a block of 4 calendar years.
17) Foreign allowances and perquisites: Any allowances or perquisite given to employee of government outside India shall be fully exempt from tax under section 10(7). Such an allowance is also known as foreign allowance.
18) ESOPs are not taxable as perquisite if issued in accordance with the guidelines specified by the Central Government.
19) The following is the tax treatment for various allowances:
A) HRA u/s 10(13A) RWR 2A—Exempt up to the least of
1. Actual HRA received.
2. Rent paid in excess of 10% of salary i.e. rent paid –10% of salary.
3. 50% of the salary in metros and 40% in other places.
Salary would mean BS+DA(R)+commission on fixed % basis of sales.
B) Official allowances u/s 10(14): all these allowances are exempt up to the lower of:
a) amount received or
b) Actual amount spent for the official purposes
Conveyance Allowance, Academic Allowance, Traveling Allowance, Helper Allowance, Uniform Allowance, Daily Allowance
C) Allowances which are exempt to the lower of amount received and limit set by law.
(i) Hostel Expenditure Allowance: exempt up to Rs.300 p.m. per child up to a maximum of two children. Children will include adopted and step children but shall not include grand-children. That means allowance for grand-children shall be fully taxable.
(ii) Underground Allowance: exempt up to Rs.800 Per month.
(iii) Tribal Area Allowance: It is exempt up to Rs.200 per month.
(iv) Children Education Allowance: It is exempt up to Rs.100 p.m. per child for maximum of 2 children. Children may include adopted or step children but shall not include grandchildren. Children can be any 2 children.
(v) Counter Insurgency allowances: Exempt up to Rs.3900 pm.
(vi) Transport Allowance: Exempt to the extent of Rs.800 p.m. but if the employee is physically handicapped then the amount exempt is Rs.1600 pm.
(vii) Outstation allowance: The amount of exemption shall be: (a) 70% of such allowance or (b) Rs.6 000 p.m. Whichever is less.
D) Allowances which are fully taxable are
Dearness allowances (DA), Overtime allowance, City compensatory allowance (CCA), Servant allowance/ warden allowance, Lunch allowance/Tiffin allowance, Family allowance, Medical allowance is always fully taxable irrespective of any amount spent on medical treatment, Entertainment allowance, Deputation allowance, Split duty allowance, dating allowance etc.
20) The following are exempt perquisites:
(i) Interest free loan in respect of medical treatment for specified ailments.
(ii) Holiday home Health club sports and similar facilities made uniformly available to all employees.
(iii) Hotel accommodation up to 15 days on transfer.
(iv) Motorcar and Conveyance facility.
(v) Medical facility in own hospital; public hospital; Government hospital or approved hospital.
(vi) Car credit card and club facility.
(vii) Use of computers and laptop.
(viii) Expenses on phones including mobile phones i.e. telephone facility.
(ix) Newspapers and periodicals.
(x) Meals Tea coffee snacks etc provided.
(xi) Amount spent on the training of employee or on refreshment course.
(xii) Any kind of good of which employer is a producer and is supplied by him to his employee at concessional rate.
(xiii) Recreational facility provided by employer to employee.
(xiv) Perquisites outside India to citizen of India who is government employee.
(xv) Payment of the premium on the accidental policy of employee.
(xvi) RFA provided to judges of HC or SC or official of parliament or union minister or leader of opposition in parliament.
(xvii) Conveyance provided to judges of HC or SC.
21) The following perquisites are exempt if the value does not exceed the prescribed limit.
1. Interest on petty loans not exceeding Rs. 20000 in aggregate
2. Educational benefit not exceeding Rs. 1000 per child per month.
3. Medical reimbursement up to Rs. 15000 in a year.
25) Perquisites taxable only for specified employees-----section 17(2) (iii)
1. Gardner, watchman, sweeper or any other personal attendant--------Rule 3(3).
2. Gas, electricity, water facility---------Rule 3(4).
3. Educational facility---------------------Rule 3(5).
26) Employee is specified employee if he falls under any 1 of the following 3 categories:
(a) He is any director of the company and is also employee of company.
(b) He is the employee with the substantial interest in the company i.e. he holds 20% or more of the voting power.
(c) His income under the head “salaries” excluding non monetary perquisites exceeds Rs.50000.
22) Perquisites taxable for all kinds of employees:
1. RFA----------------------------------------------------Section 17(2)(i) RWR 3(1).
2. Accommodation at concessional rate --------Section 17(2)(ii) RWR 3(1).
3. Employee’s obligation met by employer-----------------Section 17(2)(iv)
4. Amount of premium paid by employer on behalf of employee--------Section 17(2)(v)
5. Fringe benefits---------Section 17(2)(vi) RWR 3(7)
a) Interest free or concessional loan
b) Use of movable asset belonging to employer
c) Transfer of a movable asset by employer to employee.
Sunday, February 22, 2009
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