INCOME FROM SALARIES
INCOME FROM SALARIES
(sections 15 to 17)
SALARIES -
Meaning : Any remuneration paid by an employer to his employee in consideration of his service is called salary. It includes the monetary value of those benefits and facilities provided by the employer which are taxable.
Salary includes:
(i) wages;
(ii) any annuity or pension;
(iii) any gratuity;
(iv) any fees, commission, perquisites or profit in lieu of or in addition to any salary or wages;
(v) any advance or salary, but not loan for purchasing a car, scooter or a house, etc.
(vi) any payment received by an employee in respect of any period of leave not availed of by him;
[Note : Encashment of earned leave at the time of retirement whether on superannuation or otherwise is exempt subject to the provision of Sec. 10(10AA).]
(vii) the annual accretion to the balance at the balance at the credit of any employee participating in a recognised provident fund i.e., employer's contribution in excess of 12% of the employee's salary and interest on the provident fund in excess of 9.5% ( w.e.f. the Assessment Year 2002-03) rate;
(viii) taxable portion of the transferred balance;
(ix) the contribution made by the Government or other employer, in the previous year, to the account of an employee, under a pension scheme notified by the Central Government.
ALLOWANCES-
Payments in cash made by the employer to his employee monthly, other than salary, is called an allowance. It is a fixed sum of money paid regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by an employee. From the income tax point of view, there are three types of such allowances which are as under :
A. Taxable Allowances,
B. Allowances Exempt up to Specified Limit,
C. Fully Exempted Allowances.
[Note : Encashment of earned leave at the time of retirement whether on superannuation or otherwise is exempt subject to the provision of Sec. 10(10AA).]
(vii) the annual accretion to the balance at the balance at the credit of any employee participating in a recognised provident fund i.e., employer's contribution in excess of 12% of the employee's salary and interest on the provident fund in excess of 9.5% ( w.e.f. the Assessment Year 2002-03) rate;
(viii) taxable portion of the transferred balance;
(ix) the contribution made by the Government or other employer, in the previous year, to the account of an employee, under a pension scheme notified by the Central Government.
ALLOWANCES-
Payments in cash made by the employer to his employee monthly, other than salary, is called an allowance. It is a fixed sum of money paid regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by an employee. From the income tax point of view, there are three types of such allowances which are as under :
A. Taxable Allowances,
B. Allowances Exempt up to Specified Limit,
C. Fully Exempted Allowances.
A. FULLY TAXABLE ALLOWANCES -
1. Dearness Allowance or Dearness Pay2. Medical Allowance
3. Tiffin Allowance
4. Servant Allowance
5. Non-participating Allowance
6. Hill Allowance
7. Warden Allowance and Proctor Allowance
8. Deputation Allowance
9. Over-time Allowance
10. Other Allowance unless specially exempt
B. ALLOWANCES EXEMPTED UP TO SPECIFIED LIMIT -
1. House Rent Allowance
2. Entertainment Allowance
3. Special Allowances notified u/s (10)(14)(i) :
(a) Traveling Allowance
(b) Daily Allowance
(c) Conveyance allowance for performance of official duty
(d) Helper Allowance
(e) Academic Allowance
(f) Uniform Allowance
4. Special Allowances exempt u/s 10(14)(ii) :
(a) Special Hill Compensatory Allowance, High Altitude Allowance, Uncongenial Climate Allowance, Snow Bound Area Allowance, and Avalanche Allowance.
(b) Border Area Allowance, Remote Locality Allowance, Difficult Area Allowance, or Disturbed Area Allowance.
(c) Special Compensatory ( Tribal Areas/Scheduled Area/Agency Area ) Allowance.
(d) Allowance to an employee working in any transport system.
(e) Children Education Allowance.
(f) Children Hostel Allowance.
(g) Transport Allowance.
(h) Underground Allowance.
(i) Special Allowance to the members of armed forces.
C. FULLY EXEMPTED ALLOWANCE -
1. Foreign Allowance
2. Sumptuary Allowance to High Court/Supreme Court Judges
3. Allowance from U.N.O.
4. Per-diem allowance for use of the hotel, boarding and lodging.
H.R.A (HOUSE RENT ALLOWANCES):-
An Allowance granted to an assessee by his employer to meet exoenditure incurred on payment of rent in respect of residential accommodation occupied him is exempt from tax to a certain extent. [Sec. 10(13A)]
Rule 2A prescribes that the least of the following amounts shall be exempt :
(a) House Rent Allowance actually received by the assessee; or
(b) Excess of rent paid by the assessee over 10% of salary due to him for the relevant period; or
(c) (i) if the accommodation is situated at Mumbai, Kolkata, Delhi or Chennai- 50% of salary due to the assessee, and
(ii) if the accommodation is situated at any other place- 40% of salary due to the assessee.
[Salary includes- Basic Salary + D.A. (if part of salary)+ Commission (if fixed % of turnover)]
When employer gives any benefits to employee as thing is called perquisites.
These are of three types :
(i) Taxable perquisites for all employees. The facility of rent-free house or house at concessional rent, payment of employee's obligations, payment of life insurance premium of the employee, etc.
I. VALUE OF RENT-FREE HOUSE-
(1) Government :-
amount determined as per Government Rules ----
add : 10% p.a. of the cost of furniture or
Hire charges (if any) ----
Value of accommodation ----
(2) Non Government :-
Salary includes:
Basic ----
Dearness Pay ----
Commission ----
Bonus ----
Education Allowance (@Rs. 100 p.m.
per child to a maximum of 2 children) ----
Planning Allowance ----
Medical Allowance ----
City Compensatory Allowance ----
(salary) ----
(a) 15% of salary -----
(b) fair rent -----
least of a and b = ------
(+) 10% of furniture ------
(+) 10% of refrigerator ------
Value of rent-free house = ------
*Concession in rent :-
value of rent-free house ------
(-) rent paid ------
concession in rent ------
[important note :- (a) if population exceeding 25 lakh then, 15% of salary, (b) if population exceeding 10 lakh but not more than 25 lakh then, 10% of salary, and (c) if population is less than 10 lakh or up to 10 lakh then, 7.5% of salary.]
II. VALUATION OF CAR :-
(a) Small car:-
expenditure employee -600 p.m.
expenditure employer -1800 p.m.driver - 900 p.m. extra
(b) Large car :-
expenditure employee - 900 p.m.
expenditure employer - 2400 p.m.
driver - 900 p.m. extra
IMPORTANT :-
* Contribution to R.P.F. (Recognised provident fund) = 12%exempt
* Interest on R.P.F = 9.5% exempt
* Free lunch = Rs. 50 exempt* Hill area allowance = Rs. 300 p. m.
* Tribal area allowance = Rs. 200 p.m.
* Education allowance = Rs. 100 p.m. (up to 2 child)
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