Income from Salaries

Income from Salaries
Presentation
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INCOME FROM SALARIES
The following rules are applied in case of salary
income :-
1. Those income are taxable as salary income where
the relationship between the receiver and giver of
salary is employee & employer.
2. Salary is taxable on due or receipt basis whichever
comes earlier.
3. Advance salary is taxable in the year of receipt.
4. Arrears of salary are taxable on receipt basis if they
are not taxed earlier on due basis.
5. Bonus is taxable on actual receipt basis only.

6. Whenever net salary is given then we have to add the followings to arrive as a gross
basic salary :-
● Tax Deducted at Source (TDS)
● Employee contribution to statutory as well as non statutory funds.
● Any deduction from salary by the employer towards recovery of any loan or advance
given by him to employee.
● Any deduction from salary at the request of the employee such as outside loan
repayment.
● Insurance premium, etc.
7. Foregoing of salary – chargeable to tax.
8. Surrender of salary to govt. – not taxable.

9. Profit in lieu of salary includes :-
● compensation due or received by an assessee in connection with the termination
of employment.
● modification of the terms & condition of employment.
● sum received in lump sum or otherwise by an assessee from any person before
joining any employment or after cessation of such employment.
10. Dearness Allowance :-
It is an allowance given by the employer to the employee to compensate him for
the rise in the cost of living. This is of 2 type :-

a) Dearness Allowance (in terms of employment/ included for retirement benefits/
forming part of basic salary)
They all means the same. DA here is a taxable item of salary but forms part of basic
salary for all purpose except for “salary” for deduction u/s 16(ii) {here salary means
only gross basic salary}.
b) Dearness Allowance (not in terms of employment/ not included for retirement
benefits/ not forming part of basic salary)
DA is a taxable item of salary but does not form part of basic salary for any purpose
except for the meaning of “salary” for calculating exemption u/s 10(10) i.e. gratuity
exemption – covered by POGA {here salary means basic salary+DA weather in terms
or not in terms

11. The following are fully taxable under the heads salaries if given by the employer to employee
in relation to the employment :-
a) Fixed medical allowances
b) Project allowances
c) Lunch/dinner allowances
d) Servant allowances
e) Telephone allowances
f) Warden allowance
g) Entertainment allowance
h) City compensatory allowance

13. Perquisites u/s 17(2) :-
A) Taxable Perquisite for All Employees :-
a. Value of rent free accommodation u/s 17(2)(i) – Facility
b. Value of concession in rent u/s 17(2)(ii) – Facility
c. Amount paid by an employer in respect of any obligation which
otherwise would have been payable by the employee u/s17(2)(iv) –
Reimbursement
d. Any payment by employer towards life insurance/ securing an annuity
for employee other than group insurance scheme, employee state
insurance scheme since these are not regarded as perquisite u/s
17(2)(v) – Reimbursement
e. Fringe benefits u/s 17(2)(vi) – Facility

B) Taxable Perquisite for Specified Employees :-
Facility such as motorcar, servants, gas, water etc. are taxable only in the
hands of the following specified employees u/s 17(2)(iii) -- Facility
a) Director Employee
b) Employee having 20% or more voting power
c) Employee drawing salary in excess of Rs. 50,000/- i.e.
[Gross salary – value of any perquisite –employers contribution to RPF in
excess of 12% of salary – interest accrued to RPF in excess of 9.5%pa –
entertainment allowance u/s 16(ii) – professional tax u/s 16(iii)]

Salary (bonus, commission,
allowance), but does not
include :-
1. DA (not in terms)
2. Employers contribution
to provident fund in
excess of 12% of salary
3. Exempted allowance
4. Taxable perquisite
5. Arrears salary
6. Advance salary
7. Deduction u/s 16(ii)

e) Perquisite of Free/ Subsidised meal :-
Taxable u/s 17(2)(vi) i.e, all employees
Expenditure by employer per meal XX
Less : Rs. 50 per meal (XX)
Less : Amount recovered from employee (XX)
Taxable Perquisite XX
# Free Snacks = Fully Exempt (during working hours)
# Meals in Remote Area = Fully Exempt
f) Perquisite of travel/ touring/ accommodation/ Other expenses provided by employer for holiday
etc. :-
g) Perquisite of Free/ Concessional education facilities for any member of employee's household :-
1. For Assessees Children :-
Cost to employer (per month per child) XX
Less : 1000 per month per child (XX)
Taxable perquisite u/s 17(2)(iii) XX

2. For Other Relatives :-
Cost to employer (per month per child) XX
Taxable Perquisite u/s 17(2)(iii) XX
3. Reimbursed by employer :-
Fully Taxable u/s 17(2)(iv)
4. Bills directly in the name of employer :-
Fully Taxable u/s 17(2)(iii)
h) Perquisite of Gift etc. :-
Perquisite Value
Gift Voucher/ Token Cheque/ Cash Gift
Excess of Rs. 5000/- Fully Taxable

i) Perquisite of Credit Card expenses/ Meal Entertainment expenses :-
Fully Taxable u/s 17(2)(vi) i.e, all employees
j) Perquisite of Club Fees :-
Fully Taxable u/s 17(2)(vi) i.e, all employees
k) Perquisite of Free/ Concessional Transport Facilities by an employer engaged in
business of passenger/goods :-
Taxable u/s 17(2)(iii) i.e, specified employees only
Market Value XX
Less : Amount paid by the employee (XX)
# Perquisite is not taxable for employees of Railways & Airlines

l) Perquisite of Movable Assets sold by an employer to its employees at nominal price :-
Estimated cost on the date of such assets XX
# Depreciate Computer @ 50% on wdv.
# Depreciate Motorcar @ 20% on wdv.
# Depreciate Other Asset @ 10% on original cost.
# Depreciation has to be calculated for completed years prior
to acquisition by employee.
m) Perquisite of use of Movable Assets :-
10%pa of the Actual Cost/ Amount of Rent/
Charges paid or Payable XX
# Asset other than laptops, computer & cellular phone.

14. Deduction u/s 16 :-
a) Entertainment Allowance u/s 16(ii)
Govt. Employee Non-govt. Employee
Deduction least of :-
a) Actual Amount Received
b) 1/5th
of Basic + DA
c) Rs. 5000/-
No Deduction
b). Professional Tax u/s 16(iii) :-
Any amount paid by the employee as professional tax or deducted by the
employer from the salary of the employee is allowed as deduction to the
employee u/s 16(iii)

Format

From XYZ Ltd.
A) Salary:
1. Basic Salary XXX
2. Commission XXX
3. Gratuity XXX
Less: Exempt u/s 10(10) (XXX) XXX
4. Pension XXX
Less: Exempt u/s 10(10A) (XXX) XXX
Name of Assessee : _________________
Assessment Year : _________________
Previous Year : _________________
Legal Status : _________________
Residential Status : _________________
Computation of Income from Salaries
Particular Rs Rs

5. Leave Salary Encashment XXX
Less: Exempt u/s 10(10AA) (XXX) XXX
6. Bonus XXX
B. Allowances:
1. Dearness Allowance XXX
2. H.R.A XXX
Less: Exempt u/s 10(13A) (XXX) XXX
3. Conveyance Allowance XXX
Less: Exempt u/s 10(14) (XXX) XXX
4. City Compensatory Allowance XXX
5. Special Allowance XXX
6. Lunch Allowance XXX
7. Fixed Medical Allowance XXX
8. Servant Allowance XXX
9. Entertainment Allowance XXX
Particular Rs Rs

Particular Rs Rs
C. Perquisites:
1. Rent free Accommodation XXX
2. Concession in Rent XXX
3. Benefit granted free of cost to spec-
ified employee XXX
4. Employee's obligation discharged by
employer XXX
5. Premium for period for Life of Employee XXX
6. Fringe Benefits XXX
D. Profits in lieu of Salary:
1. Compensation received from the
employer. XXX
2. Employers contribution to RPF XXX
3. Interest credited in RPF XXX
4. Employers contribution to URPF XXX

Particular Rs Rs
Gross Salary (A+B+C+D) XXX
Less: Deduction u/s 16:
a. Entertainment Allowance u/s 16(ii) XXX
b. Professional Tax u/s 16(iii) XXX (XXX)
Net Salary XXX

Mr. Patki retires on 30-11-2016 under the Voluntary Retirement Scheme of Bank of Baroda duly
approved u/s 10(10C) of the Income Tax Act, 1961. Following are the details of his Salary Income for
A.Y. 2017-18.
1.Salary Rs.6,000 p.m.
2.Dearness Allowance Rs.1,500 p.m.
3.Compensation under VRS Rs.4,52,000 {Maximum amount exempt u/s 10(10C) is Rs.5,00,000}.
4.He receives a monthly pension of Rs.4,000 till 28th
February, 2017 thereafter he commutes 60% of
his pension for Rs.90,000.
5.He Receives encashment of Leave Salary of Rs.7,400. Exempt u/s 10(10AA) is Rs.2,500.
6.Professional tax paid during the year is Rs.2,500.
Compute the taxable salary of Mr. Patki for the A.Y 2017-18.
Solution:
Name of the Assessee : Mr. Patki
Assessment Year : 2017-18
Previous Year : 2016-18
Status : Individual
Residential Status : R & O.R.
Pan No. :

From Bank of Baroda (1/4/2016 to 30/11/2016):
1. Basic Salary (6000 X 8) 48,000
2. Dearness Allowance (1,500 X 8) 12,000
3. Voluntary Retirement Scheme 4,52,000
Less: Exempt u/s 10(10C) (4,52,000) NIL
4. Pension :
a. Commuted
Received 90,000
Less: Exempt u/s 10(10A)
[1/2 of FCV is exempt]
(90,000 X 100/60) X ½ (75,000)
a 15,000
b. Uncommuted
01/12/2016 to 28/02/2017 (4,000 X 3) 12,000
01/03/2017 to 31/03/2017 (4,000 X 40% X 1) 1,600
b 13,600
Taxable Pension (a + b)
28,600
Particular Rs Rs
Computation of Income From Salary

Particular Rs Rs
Computation of Income From Salary
5. Leave Salary Encashment Received 7,400
Less: Exempt us 10(10AA) (2,500) 4,900
Gross Salary 93,500
Less: Deduction u/s 16
a. Entertainment Allowance u/s 16(ii) NIL
b. Professional Tax u/s 16(iii) 2,500 (2,500)
Income from Salary 91,000
Note:
Since Gratuity is not received by the assessee, ½ of full value of commuted pension is exempt from tax u/s
10(10A).

Thank You!

Income from Salaries

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