Salary Presentation 1

8/6/2019 Salary Presentation 1

http://slidepdf.com/reader/full/salary-presentation-1 1/56

Income under the head

“Salaries” and its computation



Expression “Salary”

• Relationship between Payer and Payee: If this

relationship does not exist then income generated

will be taxable under other heads.

• No difference between salaries and wages.• Salary from more than one source.

• Salary from former employer, present employer or

prospective employers.

• Salary income must be real and not fictitious.



Salary under section 17(1)

Under section 17(1), salary is defined to include thefollowing:

a. Wages.

b. Any gratuity or pension.

c. Any gratuity.d. Any fees, commission, perquisites or profits in lieu

of or in addition to any salary or wages.

e. Any advance of salary.

f. Any payment received by an employee in respectof any period of leave not availed by him.



Computation of Salary Income

• Basic, DA, Advance Salary, Arrears of Salary,

Salary in lieu of notice, fees, commission,

bonus and annuity, and remuneration for extra

work.• Gratuity

• Leave Encashment

• Pension• Retrenchment Compensation



Place of accrual of salary income

(ii )income which falls under the head “Salaries”, if it is earned in India.

(a) service rendered in India; and

(b) the rest period or leave period which ispreceded and succeeded by services renderedin India and forms part of the service contract of employment, shall be regarded as incomeearned in India ;]

(iii ) income chargeable under the head “Salaries”payable by the Government to a citizen of Indiafor service outside India ;



Who is

employee

Who isemployer

Where serviceis rendered

Is it taxable in India

Salary Allowance /Perks

1 Indian Citizen Government of India

Outside India Yes No

2 NRI Any Outside India No No

3 Resident andordinarilyresident

Any Anywhere Yes Yes



Leave Salary

• In case of a Central/State Governmentemployee, any amount received as cashequivalent of leave salary in respect of period of earned leave at his credit at the time of retirement is exempted from tax.

• In case of leave encashment during continuity of employment it is chargeable to tax irrespectiveof Government or Non-Government Employees.

• In the case of a non –Government employeeleave salary is exempt from tax on the basis of the following rule:-



Leave Salary for

Non-Government Employee• Period of earned leave (in number of months) to

the credit of the employee at the time of retirement or leaving the job X Average monthlysalary.

• 10 X Average Monthly Salary (For calculationssalary includes basic salary and dearnessallowance)

• The amount specified by the Government

[i.e.Rs.3,00,000 applicable from April 1, 1998• Leave encashment actually received at the timeof retirement



Gratuity (Retirement Benefits)

• Any death cum retirement gratuity

received by Government employees is

wholly exempt from tax.

• Any gratuity received by an employee

covered by the Payment of Gratuity

Act,1972 is exempted from the tax on

following basis



Gratuity in case of employee covered under

payment of gratuity act, 1972

• 15 days’ salary(15/26)* X Length of

service

• Rs. 3,50,000

• Gratuity actually received

*For calculation purpose salary includes

basic salary and dearness allowance



Calculation of Length of Service for

employees covered under gratuity act, 1972

26 years, 5 months and29 days

26 years

26 years and 6 months 26 years

26 years, 6 months and 1day

27 years


27 years



Gratuity in case of employee not covered

under payment of gratuity act, 1972

• Half months average service(15/30) X

Length of service

• Rs. 3,50,000

• Gratuity actually received

*For calculation purpose salary includes

basic salary and dearness allowance



Calculation of Length of Service for

employees not covered under

gratuity act, 197226 years, 5 months and29 days

26 years

26 years and 6 months 26 years

26 years, 6 months and 1day

26 years


26 years



Pension

Pension Status of Employee

It is chargeableto tax

Uncommuted

Pension

Government

/Non-Governmentemployee

Chargeable

CommutedPension

Governmentemployee

Fully exempted

CommutedPension

Non-Governmentemployee

Fully or partlyexempted



Pension

• In the case of Government employees the entireamount (commuted) is exempt from tax.

• In the case of non-Government employees the

maximum amount exempt from tax is restricted to the commuted value of 1/3rd of pension(gratuity received)

• In the case of non-Government employees the

maximum amount exempt from tax is restricted to the commuted value of 1/2 of pension(gratuity not received)



• X retires from Government employee on June 30, 2009. He

gets pension of Rs. 20,000 per month up to January 31, 2010.

With effect from February 1, 2010, he gets 60 percent of

pension commuted for Rs. 10,71,000. He also receivesgratuity. Does it make any difference if X is non government

employee?

Commuted Value - Government Employee

• Commuted Value of pension Rs.10,71,000 is not taxable.

Uncommuted Value – Government Employee

• Uncommuted Value of pension Rs. 20,000 is taxable.

(20,000*12) = 2,40,000

• (8000*2) = 16,000



• Uncommuted Value (Non-Government Employee)

• 60% commuted value of pension is 10,71,000.• Full value of pension is (10,71,000 / 0.6) = 17,85,000.

• If X receives gratuity then,

• Amount exempted (1/3 of commuted value of pension

i.e. 1/3 x Rs.17, 85,000 = 8,92,500• Commuted pension chargeable to tax as salary

(i.e. Rs. 10,71,000 – Rs.8,92,500) = Rs.1,78,500



Provident Fund

• Employees provident fund may be of the

following types:

a. Statutory Provident Fund – Government

Employee

b. Recognized Provident Fund – Non-

Government Employee

c. Unrecognized Provident Fund.



StatutoryProvident Fund

RecognizedProvident Fund

Unrecog.Provident

Fund

Employer’scontribution to PF

Exempt from tax Exempted upto12% of salary

Exempt from tax

Deduction under

80cc

Available Available Not Available

Interest credited toprovident fund

Exempted Exempted upto9.5%

Exempted

Lump sumpayment at time of retirement

Exempted Exempted in somecases

Interest of employee’scontribution istaxable



Retrenchment

Compensation[Sec.10(10B)]

• Compensation received by a workman at

the time of retirement is exempted from

tax.



Allowances

• CCA, Tiffin Allowance, Fixed Medical

Allowance, Servant Allowance

• HRA

• Entertainment Allowance

• Special Allowance

• Foreign Allowance• Any Other Cash Allowance



Other Allowances…

• Tiffin Allowance

• Fixed Medical Allowance

• Servant Allowance• Transport Allowance

• Washing Allowance

• Dating Allowance• Stitching Allowance



City Compensatory Allowance

• It is always taxable.



House Rent Allowance

• Exemption in respect of house rent allowanceis regulated as follows:

1. An amount equal to 50% of salary*, where

residential house is situated in Metros and an

amount equal to 40% of salary whereresidential house in non metros.

2. HRA received

3. Excess of rent paid over 10% of salary*Salary for calculation means basic salary,

dearness allowance and commission.



Entertainment Allowance

1. a deduction in respect of any allowance in the

nature of an entertainment allowance

specifically granted by an employer to the

assessee who is in receipt of a salary from theGovernment,

• a sum equal to one-fifth of his salary (exclusive

of any allowance, benefit or other perquisite)

• or five thousand rupees, whichever is less;]



Transport Allowance

• It is exempted upto Rs. 800 per month

(Rs.1600 per month in the case of an

employee who is blind or handicapped)



Definition of Perquisites

• Perquisites are benefits or amenities

provided in kind by the employer free of

cost or at a concessional rate.





Perquisites and Specified

Employee

The specified employees include the following:-

a) Director employee, whether full time or parttime.

b) Employee who is beneficial owner of equity inthe employer's company carrying 20% or morevoting power.

c) The employees other than those mentioned

above, drawing salary in excess of Rs. 24,000(w.e.f. 13th April 2002 this limit is Rs. 50,000) inmonetary terms.



Valuation of Rent Free

Accommodation

• In case of Government employees value

of the perquisites will be equal to the

licence fee which would have been

determined by the Central Govt.

• In case of Private Sector employees value

of the perquisites would depend upon

salary of the employee.



Population of city asper 2001 censuswhereaccommodation is

provided

Where the accomdn.Is owned by theemployer

Where theaccomodation istaken on lease or rentby employer

Exceeding 25 lakh 15% salary Amount of lease rentpaid or 15% of salary,whichever is lower

Exceeding 10 lakhbut not 25 lakh

10% salary Same as above

Any other 7.5% salary Same as above



Valuation of rent free furnished

accomodation

Case 1: A furnished accommodation (not

being a hotel accommodation)

Case 2: Accommodation provided in hotel



A furnished accommodation (not

being in a hotel)

Step 1: Find out value of the perquisite on theassumption that the accommodation isunfurnished.

Step 2: To the value so arrived at, add value of furniture. Value of the furniture for this purposeis as follows:

a. 10 per cent per annum of the original cost of

furniture, if furniture is owned by the employer.b. Actual hire charges payable (whether paid or payable), if furniture is hire by the employer



A furnished accommodation in a

hotel

1. 24% of salary paid or payable for the

period during which such

accommodation is provided in the

previous year.

2. Actual charges paid or payable by the

employer to such hotel.



Exception

Condition 1: Not chargeable to tax if provided in a

“remote area”

Condition 2: Hotel Accommodation for 15 days (in

aggregate in a previous year) can be providedimmediately after transfer at the new location.

Condition 3: If it is provided to a High Court Judge,

Supreme Court Judge, Union Minister, Leader of

Opposition in Parliament and an Official in

Parliament.



Valuation of accommodation provided

at concessional rent [sec. 17(2) (ii)]

Step 1: Find out the value of perquisite on

the assumption that no rent is charged by

the employer.

Step 2: From the value so arrived at, deduct

the rent charged by the employer from the

employee.



• Amount spent for providing free education facilities to,and training of the employee, is not taxable.

• Fixed Education Allowance given in cash by the

employer to meet the cost of education of the familymembers of the employee is exempt from tax to theextent of Rs. 100 per month per child (up to maximumof two children). Moreover, any allowance granted toan employee to meet hostel expenditure of his child is

exempt from tax to the extent of Rs. 300 per month per child for a maximum of two children.

• School fees of the family members of the employees,paid by the employer directly to the school, is taxable

as a perquisite in all cases.• Reimbursement of expenditure incurred for theeducation of the family members of the employee istaxable as perquisite in all cases.



Different Situation Amount chargeable to tax

a. Where educationfacility is provided tothe employee’schildren:

2. Where cost of education does notexceed Rs.1000/-

3. It exceed Rs.1000/-

---Nil---

Amount excess thanRs.1000/-

b. Where educationalfacility is provided tomember of family.

Actual cost of educationin vicinity institution minusamount recovered from

employee



• Exception:

• Not taxable if employee is a non-specified.



Valuation of perquisite in respect of

free domestic servants• Value of free service of all personal attendants

including a sweeper, gardener, or watchman isto be at actual cost to the employer. Whereattendant(s) is provided at the residence of

employee, full cost will be taxed as perquisite inthe hands of employee irrespective of degree of personal service rendered to him. Any amountpaid by the employee for such facilities shall bereduced from the above amount.

Exception:Not taxable if the employee is a non-specified

employee.





gas, electricity energy or water

supplyMode of Valuation

Purchased byemployer fromoutside

Supplied byemployer

Step 1- Find outcost to theemployer

Step 2 – Amountrecovered fromemployee

Amount payableby the employer

Recovered froman employee

Manufacturingcost per unit

Recovery froman employee





gas, electricity energy or water

supplyException:

Not taxable if the employee is non –

specified.



Employee’s obligation met by

employer [sec. 17(2) (iv)]

• Amount paid by an employer in respect of

any obligation which otherwise would have

been payable by the employee is taxable

in all cases.

Valuation of perquisite in respect of interest



Valuation of perquisite in respect of interest

free loan or loan at concessional rate of

interestStep 1: Find out the “maximum outstanding monthly

balance”

Step 2: Find out rate of interest charged by the State BankOf India.

Step 3: Calculate interest for each month of the previousyear on the outstanding amount mentioned in Step 1 atthe rate of interest given in Step 2.

Step 4: From the total interest calculated for the entireprevious year under Step 3, deduct interest actuallyrecovered, if any, from the employee during the previousyear.

Step 5: The balancing amount is taxable value of theperquisite.



When loan is not chargeable to tax

Exemption 1: If loan is made available for

medical treatment in respect of diseases

specified in rule 3A.

Exemption 2: Where the amount of original

loan (or loans) does not exceed in the

aggregate Rs. 20000



Mode of valuation

Computers/

Laptops/

Cars

Owned byemployer

Taken on hireby employer

Step 1: Findout cost toemployer

Nil 10%per annum of actual cost

Amount of rentpaid or payable

Step 2: Less:Amt.recovered fromemployee

Nil Recovery fromthe employee Recovery fromthe employee

Taxable valueof perquisite

Nil BalancingAmount

BalancingAmount

*All the above perqs are taxable to employer as fringe benefit tax.

V l i f i i i f




lunch / refreshment

• Anything which costs to the employer inexcess of Rs.50 per meal minus amountrecovered from an employee equal to

balancing amount is taxable.• Tea or snacks in working hours provided

to an employee not taxable.

•Food and non-alcoholic beveragesprovided in working hours in remote areais not taxable.

V l ti f i it i t f




gift, voucher or token

1. Gifts made in cash or convertible into

money (like gift cheques) are taxable.

2. Gifts up to Rs.5000 in aggregate per

annum would be exempted.

V l ti f i it i t f




credit card

Step 1: Find out expenditure incurred by the

employer in respect of credit card used by

the employee.

Step 2: Less: Expenditure on use for official

purposes.

Step 3: Less: Amount recovered from the

employee.



Other Valuations…

• Valuation of perquisite in respect of free

transport.

• Valuation of perquisite in respect of

travelling, touring, accomodation.

Valuation of the perquisite in respect of movable assets sold by an employer to



Mode of valuation Electronic items Motor cars Any other asset

Step1: Find outcost of the assetto employer

Actual cost to theemployer



Step2: Less:Normal wear andtear for completedyears

50% for eachcompleted year



Step3: Less: Amt.recovered from

employee

Considerationrecovered from

the employee


the employee


the employee

Step4: Taxablevalue of the perq

BalancingAmount

BalancingAmount

BalancingAmount

employees at a nominal price

Wh i d b th



Where car is owned by the

employeeA. When car expenses are met by the employee – Not

taxable.

B. When maintenance or running expenses are met or reimbursed by the employer.

c. If the car is used for official purpose – Not taxable.

d. If the car is used wholly for private purposes –(Actualexpenditure – amount recovered)

e. If the car is used partly used for official purposes andpartly for private purposes (actual expenditure –amount used for official purpose* – amount recoveredfrom an employee)

*A sum calculated at the rate of Rs.1200 per month wherethe cubic capacity of the engine does not exceed1.6litres(1600cc) and Rs.1600 if it exceeds 1.6litresand Rs.600 if chauffeur is provided

Wh i d hi d b



When car is owned or hired by

employer A. When maintenance and running expenses are met or

reimbursed by employer.

a. If the car is used wholly for official purposes –Exempted.

b. If the car is used for private purposes of the employee.Step 1: Find out actual expenditure incurred by the

employer (i.e expenditure on running and maintenanceincluding remuneration of the chauffeur plus normalwear and tear of the car @10% per annum)

Step 2: Find out the amount recovered from the employee.

Balancing amount is taxable value of the perquisite.



c. If the car is used partly for official and partly for private purposes of the employee or any member of the household.

A sum calculated at the rate of Rs.1200 per monthwhere the cubic capacity of the engine does notexceed 1.6litres(1600cc) and Rs.1600 if it exceeds1.6litres and Rs.600 if chauffeur is provided

Note: In this case nothing is deductible in respect of any amount recovered from the employee.

Wh i t d i



When maintenance and running

expenses are met by the employeea. If the car is used for official purpose – Not taxable.

b. If the car is used for private purpose –

Step 1: Find out actual expenditure incurred by theemployer (i.e expenditure on running and maintenance

including remuneration of the chauffeur plus normalwear and tear of the car @10% per annum)

Step 2: Find out the amount recovered from the employee.

Balancing amount is taxable value of the perquisite.



c. If the car is used partly for official and partly for private purposes of the employee or any member of the household.

A sum calculated at the rate of Rs.1200 per monthwhere the cubic capacity of the engine does notexceed 1.6litres(1600cc) and Rs.1600 if it exceeds1.6litres and Rs.600 if chauffeur is provided

Note: In this case nothing is deductible in respect of any amount recovered from the employee.

Salary Presentation 1

Documents