Salaries & Deductions Under Chpt Via

8/8/2019 Salaries & Deductions Under Chpt Via

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[ Income under the HeadSalaries

andDeductions under Chapter VIA ]

[ Income under the HeadSalariesand

Deductions under Chapter VIA ]


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ContentsContents

Perquisites (ESOPs Discussed)2e

Deductions under Chapter VIA List and imp deductions in brief3

Deductions under the head Salaries2d

Allowances and Exemptions2c

Profit in lieu of Salary2b

Basis Of Charge2a

Salary2

Heads of Income and Calculation of Total Income1


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1. Computation of Total Income1. Computation of Total Income

Computation

of TotalIncome

SalariesDeductions, Rebates and Relief

House Property

Business and Profession

Other Sources

Capital Gains


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2. Income under the head

Salaries

2. Income under the head

Salaries

4. Deductions

5. Perquisites

1. Basis ofCharge

2. Profitin lieu ofSalary

Sec 15 to 17Sec 15 to 17

Salaries

3.AllowancesandExemptions


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2a. Basis of Charge Sec 15 and 172a. Basis of Charge Sec 15 and 17

Salary is chargeable to tax on "due" or "receipt" basis whichever is earlier

andIncludes

wages, annuity or pension,

gratuity, fees, commission, perquisites or profits in lieu of salary, advance salary, leave encashment, etc.


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2b. Profits in lieu of Salary Sec 17 (3)2b. Profits in lieu of Salary Sec 17 (3)

anycompensationfrom employeror formeremployer ontermination ormodification ofthe terms of

employment

any receipt fromemployer/former

employer or fromprovident/otherFund to extent notconsisting ofcontributions byassessee / interest

on

such contributions.

any sumreceived under akey maninsurance policyincluding thesumallocated by wayof bonus on

such policy.

Any sum

received beforehis joining anyemployment orafter cessationof hisemployment.


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2c. Allowances2c. Allowances

House RentAllowance Leave TravelAllowance(Concession)

Special and

OtherAllowances


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2c. Allowances contd2c. Allowances contd

Salary = Basic + DA + Commission

3.The excess of rent paid over 10% ofsalary

2.HRA recd for the period

accommodation is occupied in the

Previous year

Same

1.An amount 50% of salary if residence

in Del/Mum/Cal/Mad & 40% of salaryif at any other place.

House Rent

AllowanceSec 10A rule2A1

Exemption Conditions 2010-11

Exemption Conditions 2009-

10Nature of Allowance

Sec and

RuleSr.No


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2c. Allowances contd2c. Allowances contd

Not for more than 2 children

Available for shortest route

Available only in respect of fare Same

Based on Actual Expenditure

Leave Travel Concession or

Assistance

Sec 10(5) and

Rule 2B3

Exemption Conditions

2010-11Exemption Conditions 2009-10Nature of AllowanceSec and RuleSr.No



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SameExempt up to Rs.3250/-pmIsland Duty Allowancek

Same

Exemption up to Rs.1060pm up to

15000 feet altitude and Rs.1600 for

altitude above 15000 feetHigh Altitude Allowancej

SameExemption limited up to Rs.800 pmUnderground Allowancei

Same

Exempt up to Rs.800 pm and Rs.1600

in case of blind employeeTransport Allowanceh

SameExemption limited to Rs.2600/-pmCompensatory field area allowanceg

SameRs.300 pm /per child max of 2 childrenHostel Expenditure allowancef

SameRs.100 pm /per child max of 2 childrenChildren Education allowancee

Same70% or Rs.6000 whichever is lower.Allowance for Transport Employeesd

SameRs.200 pmTribal Area Allowancec

Same

Exemption varies from Rs.200 to

Rs.1300 pmBorder Area allowanceb

Same

Exemption varies from Rs.300 to

Rs.7000 pm

Special Compensatory Allowance (hilly

areas)a

Exemption SpecifiedNature of Allowance

The amount of exemption is the amount of allowance or the amount utilised for

the specific purpose.Special Allowances

Sec 10(14)rule 2BB4


11



Sec and

Rule

Sr.N

o


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Not Taxable by virtue of Sec 2 of UN

ActAllowance recd from UNO10

Not taxable u/s 22A(2) & 22C of High

Court Act

Allowance to High Court & Supreme

Court Judges9

Wholly taxableServant allowance8

Wholly taxableFixed Medical allowance7

Wholly taxableTiffin Allowance

Sec 10(14)

rule 2BB6

Wholly exempt from Tax

Allowance to Govt Employees o/s

IndiaSec 10(7)5

Other Allowances


11



Sec and

Rule

Sr.

No


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2c. Exemptions2c. Exemptions

Not for more than 2 children

Available for shortest route

Available only in respect of fare Same

Based on Actual Expenditure

Leave Travel Concession or

Assistance

Sec 10(5) and

Rule 2B

3

Exemption Conditions

2010-11Exemption Conditions 2009-10Nature of AllowanceSec and RuleSr.No



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2d. Deductions Sec 162d. Deductions Sec 16

A. Standard Deduction (S. 16(i))

No standard deduction is allowed from A.Y.2006-07 onwards

B. Entertainment Allowance (S. 16(ii))

For government employees, the least of 1. Rs. 5,000; or2. 20% of salary; or3. actual amount of entertainment allowance.

C. Tax on employment on paid basis (S. 16(iii)).


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2e. Perquisites2e. Perquisites

Dictionary Meaning :

A Gain or Profit incidentally made fromemployment in addition to regular salary or

wages, especially one of a kind expected orpromised


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2e. Perquisites contd2e. Perquisites contdAs defined in I.T Act :

A. Perquisites taxable in hands of all employees:i. value of rent-free accommodation.ii. value of concession in rent.iii. amount paid by employer in respect of any obligation which otherwise would

have been payable by employee.iv. value of any fringe benefit or amenity (excluding the fringe benefits chargeable

to tax under Chapter XII-H) as prescribed.

W.e.f. 1-4-2010, following clauses are

substituted/added.

(a) value of any security or sweat equity shares allotted or transferred byemployer/former employer as free or concessional cost.

(b) an amount of contribution to an approved superannuation fund by the

employer, to an extent it excess Rs. 1,00,000/-.

v. any sum payable either directly or through a fund by employer (other thanrecognised PF, approved superannuation fund etc.) to effect an assurance onthe life of the employee or to effect a contract for an annuity.


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2e. Perquisites contd2e. Perquisites contd

Determination of the value of prescribed fringe benefit or amenity

Interest free or concessional loan

Value of perquisite w.e.f. 1-4-2000, of the loan given to the employee or any

member of his household shall be at the rates charged by State Bank of Indiain respect of the loans for the same purpose advanced by the employer, on themaximum outstanding monthly balance as reduced by interest actually paid byemployee However, perquisite value for loans (net of amount reimbursedunder medical insurance scheme) given for medical treatment of specified

disease or petty loans up to Rs. 20,000 is not taxable.


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2e. Perquisites contd2e. Perquisites contd

Employees Stock Option PlanESOP


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ESOP - IntroductionESOP - Introduction

Employee Stock Option is:

A right but not an obligation.

Granted to an employee. To apply for the specified security of a company.

At a predetermined price.

ESOP Objective

Attract, encourage and retain talented employees.

Compensation in terms of ownership and profit share.

A risk-based compensation need for lower taxation.

Nurtures entrepreneurship.


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ESOP Flow of EventsESOP Flow of Events

Grant of Options

Vesting of Options

Exercise of Options

Allotment of Shares

Sale of shares

Valuation of Shareson date of Vesting

Fringe Benefit Tax

Capital Gains

Tax Trigger


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Taxation of ESOPs - Pre Finance Act 2007Taxation of ESOPs - Pre Finance Act 2007

Prior to April 1, 1999 - No specific provision on taxability of ESOPs

April 1, 1999 to March 31, 2000 - Specific provision - Section

17(2)(iiia) inserted in the Income Tax Act, 1961 (Act) to tax benefiton exercise/allotment of shares issued free of cost or atconcessional price.

April 1, 2000 upto March 31, 2007 Section 17(2)(iiia) was

withdrawn and following proviso to Section 17(2)(iii) inserted

Provided that nothing contained in this sub-clause shall apply to the value ofany benefit provided by a company free of cost or at concessional rate to itsemployees by way of allotment of shares, debentures, or warrants directly

or indirectly under any Employees Stock Option Plan or Scheme of thecompany offered to such employees in accordance with the guidelinesissued in this behalf by the Central Government.


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Taxation of ESOPs - Pre Finance Act 2007

Contd

Taxation of ESOPs - Pre Finance Act 2007

ContdThe new proviso sought to introduce the following:

Single point taxation at the time of sale of shares in case of ESOPcompliant with Central Government guidelines

Character of income Capital Gains in the hands of the employee

No responsibility on the employer to report and/or withhold tax

However, ifthePlandidnot satisfytheCentral GovernmentGuidelines, theincomecontinuedtobetaxedasaperquisiteinthehandsof theemployeeat thetimeofexercise.


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Tax implication on ESOP when allotment or transfer of

shares is made on or after April 1, 2009.

Tax implication on ESOP when allotment or transfer of

shares is made on or after April 1, 2009. Case Mr. Vijay , an employee was allotted 10

shares. Market value of shares on allotment date 15-Apr-09- @ 1,000 - Rs. 10,000

Less: Purchase Price of Mr. Vijay - @ 500 Rs. 5,000

Taxable Perquisite for Mr. Vijay Rs. 5,000

Assuming Mr. Vijay is in highest tax bracket Tax @ 30.90 % Rs. 1,545

Mr. Vijay sold shares in July 09 - @ 1,300 13,000

Less : Market value on allotment date @ 1000 10,000

Short Term capital Gain 3,000

Short Term capital Gain Tax @ 15 % 450

If allotment is made prior to April 1, the same continues to attract FBT.


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3. Deductions under VI-A3. Deductions under VI-A

Upto Rs.20000

Insurance premium on the health

of dependent parent(senior citizen)

Upto Rs.15000

Insurance premium on the health

of self, spouse ,children or parentsSec 80 D2

Term Deposits with scheduled Bank

Invst in shares or debentures of

public co exclusively in

Infrastrucure of power sector

Tution Fees for education of 2

childn only

Mutual Fund

Annuity/Pension Schemes

Deposits National Housing Bank

Housing Loan Repayment(principal)

NSC

ULIP

Deposits in PO/Savings Bank

PF/SAF/PPF/RPF

Same100% of the amount invested /paid or Rs.100000/-

whichever is less.

LIPSec 80 C1

Deduction for 2010-11Deduction for 2009-10DescriptionSecSr.No


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3. Deductions under VI-A Contd3. Deductions under VI-A Contd

SameRs.75000/-Income of a person with disabilitySec 80U9

Same100.0%

Any sum contributed to any

political partySec 80GGC8

Same100.0%Donations for Scientific ResearchSec 80GGA7

Same

50 % Generally and 100 % in case of PM relief funds and

Gujrat earthquake relief fund.Donations for charitable purposesSec 80G6

SameEntire amount of Interest paid on this loan

Repayment on loan for higher

educationSec 80E5

SameRs.40000/- (Rs.60000/- for senior citizen)

Amount actually paid for such

disease or ailments as specifiedSec 80DDB4

Rs.50,000 for ordinary

disability, Rs. 1,00,000 for

severe disability w.e.f

01.04.2010

Rs.50,000 for ordinary disability, Rs.75,000 for severe

disability

Medical treatement &

rehabilitation of dependent.Sec 80DD3

Deduction for 2010-11Deduction for 2009-10DescriptionSec

Sr.N

o


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