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DIRECT TAXATION I 4.1 Study Note - 4 INCOME FROM SALARIES 4.1 INTRODUCTION Any person employed gets compensated by way of remuneration for services rendered. This is called ¶Salary·. It is received in cash or in kind – by way of amenities, benefits, perTuisites. :hich emoluments are ¶salary· how to value perTuisites and what deductions are available from ¶salary· has been dealt with under this head of income. Certain tax-free items of remuneration have been enumerated under section 10 and are discussed in this chapter. 4.2 MEANING OF SALARY The meaning of the term ‘salary’ for purposes of Income tax is much wider than what is normally understood. Every payment made by an employer to his employee for service rendered would be chargeable to tax as income from salaries. The term ‘salary’ for the purposes of Income Tax Act will include both monetary payments (e.g. basic salary, bonus, commission, allowances etc.) as well as non-monetary facilities (e.g. housing accommodation, medical facility, interest free loans etc). (1) Employer-employee relationship: Before an income can become chargeable under the head ‘salaries’, it is vital that there should exist between the payer and the payee, the relationship of an employer and an employee. (2) Full-time or Part time employment: It does not matter whether the employee is a fulltime employee or a part-time one. Once the relationship of employer and employee exists, the income is to be charged under the head “Salaries”. If, for example, an employee works with more than one employer, salaries received from all the employers should be clubbed and brought to charge for the relevant Previous Years. (3) )oreJoinJ or sacrificinJ of salary: Once salary accrues, the subseTuent waiver by the employee does not absolve him from liability to Income- tax. Such waiver is only an application and hence chargeable. This Study Note includes 4.1 Introduction . 0eaninJ of Salary 4.3 Allowances . 'eatKCum5etirement Benefits . Profits in lieu of salary >Section @ 4.6 Deductions against salary . 9aluation Taxability of PerTuisites 4.8 Provident Funds . ´Salary under different circumstances – at a Jlance . Tax on Salary of Non5esident TecKnicians >Section B@ . 5elief under section

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DIRECT TAXATION I 4.1

Study Note - 4INCOME FROM SALARIES

4.1 INTRODUCTION

Any person employed gets compensated by way of remuneration for services rendered. This is called Salary . It is received incashor inkind–bywayofamenities,benefits,per uisites. hichemolumentsare salary howtovalueper uisitesandwhatdeductionsareavailablefrom salary hasbeendealtwithunder this head of income. Certain tax-free items of remuneration have been enumerated under section 10 and are discussed in this chapter.

4.2 MEANING OF SALARY

The meaning of the term ‘salary’ for purposes of Income tax is much wider than what is normally understood. Every payment made by an employer to his employee for service rendered would be chargeable to tax as income from salaries. The term ‘salary’ for the purposes of Income Tax Act will include both monetary payments (e.g. basic salary, bonus, commission, allowances etc.) as well as non-monetary facilities (e.g. housing accommodation, medical facility, interest free loans etc).

(1) Employer-employee relationship:Before an income can become chargeable under the head ‘salaries’, it is vital that there should exist between the payer and the payee, the relationship of an employer and an employee.

(2) Full-time or Part time employment:It does not matter whether the employee is a fulltime employee or a part-time one. Once the relationship of employer and employee exists, the income is to be charged under the head “Salaries”. If, for example, an employee works with more than one employer, salaries received from all the employers should be clubbed and brought to charge for the relevant Previous Years.

(3) ore oin orsacrificin ofsalary:Once salary accrues, the subse uentwaiver by the employee does not absolve him from liability toIncome- tax. Such waiver is only an application and hence chargeable.

This Study Note includes

4.1 Introduction. eanin ofSalary

4.3 Allowances. eat Cum etirementBenefits. Profitsinlieuofsalary Section

4.6 Deductions against salary. aluation TaxabilityofPer uisites

4.8 Provident Funds. Salary underdifferentcircumstances–ata lance. TaxonSalaryofNon esidentTec nicians Section B. eliefundersection

Income from Salaries

4.2 I DIRECT TAXATION

Surrenderofsalary:However, if an employee surrenders his salary to the Central Government u/s 2 of the Voluntary Surrender of Salaries (Exemption from Taxation) Act, 1961, the salary so surrendered would be exempt while computing his taxable income.

(5) Salarypaidtax free:This, in other words, means that the employer bears the burden of the tax on the salary of the employee. In such a case, the income from salaries in the hands of the employee will consist of his salary income and also the tax on this salary paid by the employer. This means both the salary and the tax paid thereon will be taxable in the hands of the employee.

6 oluntaryPayments:hetherthepaymentfromanemployerisbasedonacontractornot,itconstitutessalaryinthehands

of the employee. However, many employers give personal gifts and testimonials to the employees. For example,employeeswhocomplete20yearsofservicemaybegivenawristwatch.The uestionariseswhether the value of the watch can be taxed in the hands of the employee. Courts have taken the view that such gifts are not taxable. However, in these cases it is important that such gifts must be given to employees pursuant to a scheme applicable to employees in general. If gifts are given purely on a selective basis they will become chargeable in the hands of the recipient.

C ar eabilityofSalaryint erele antPre ious ear: Sec.(1) Due or receipt whichever falls earlier: Salary is taxable on due basis or on receipt basis, whichever is

earlier.

Hence,

(a) Salary due in a Previous Year is taxable, even if it not received.

(b) Salary received in a Previous Year is taxable, even if it is not due.

(c) Arrears of salary received during the current Previous Year shall be taxable in the current year if not charged to tax in an earlier Previous Year.

(2) No double taxation: once salary is taxed on due/receipt basis, it will not be taxed again on receipt/falling due, as the case may be.

(3) The assessee can claim relief u/s 89(1) for arrears or advance salary.

(4) Loan from employer is not salary. Advance salary is taxable, while advance against salary is not taxable.

(5) For Government employees, the period of chargeability of salary is from March to February. For example, salary from 1st March 2014 to 28th February 2015 is chargeable as Income of the Assessment Year 2015-16.

PlaceofaccrualofSalary(1) The place of accrual of salary is the place of employment.

(2) Service rendered in India: U/s 9(1)(ii), salary earned in India is deemed to accrue or arise in India even if –

(a) it is paid outside India,

(b) it is paid or payable after the contract of employment in India comes to an end.

(3) If an employee gets pension paid abroad in respect of services in India, the same will be deemed to accrue or arise in India.

DIRECT TAXATION I 4.3

(4) Leave salary paid abroad in respect of leave earned in India is deemed to accrue or arise in India.

(5) Services rendered outside India: Sec. 9(1)(iii) provides that income chargeable under the head “Salaries” payable by the Government to a citizen of India for service provided outside India will be deemed to accrue or arise in India.

(6) s10(7),anyallowanceorper uisitespaidorallowedoutsideIndiabytheGovernmenttoaciti enof India for rendering services outside India will be fully exempted.

PlaceofaccrualofSalary ata lance:

Received / Earned in India Taxable in the hands of all persons /assessees whether resident or non-resident in India.

Deemed to be earned in India

The same would be taxable provided :1. The services are rendered in India.2. The leave period preceding / succeeding the tenure of services

rendered in India & forms part of the contract of service.

efinitionof Salary u sIn accordance with the provisions of Sec. 17(1) of Income Tax Act,1961, the term Salary includes:

ages Any annuity or pension Any gratuity Anyfees,commission,per uisiteorprofitsinlieuoforinadditiontoanysalaryorwages Any advance salary Encashment of leave-not-availed Interest earned in excess of 9.5% on Recognized Provident Fund (RPF) Amount transferred in excess of 12% of Salary to RPF Contribution made by Central Government or any other employer (w.e.f. A.Y. 2008-09) in the Previous

Year to the account of an employee under Pension Scheme u/s 80CCD Money embezzled by an employee constitutes his income.

tem iseapplicabilityof Salary :hiledecidingontheissueofapplicabilityoftaxablesalary,thefollowingmatrixwouldbeofimmense

help:

Particulars Treatmentagesfor orkers The same would be treated as “Salary” and would be taxable accordingly.

There arises no difference between wages & salarySalary received by a partnerofafirm

Such remuneration would be treated as “Business Income” since the partner is not an employee of the entity

Director Fees Sitting fees paid to directors for attending Board Meeting is not a salary but taxable as “ Other Income”

Salary received by a proprietor

Proprietor is not an employee and hence any amount received by him would not be treated as salary

Director Remuneration Any amount payable to any whole time directors who are also an employee of the company would be treated as salary.In any other case, the same would be treated as “Other Income”

Income from Salaries

4.4 I DIRECT TAXATION

Pension to retired employee

Pension is paid in pursuance to the terms of employment. Hence any amount received as pension would be considered as “Salary” in the hand of the recipient

Pension to legal heir of the deceased employee

Amount received by legal heir of the deceased employee, who is not an employee of the organization, would be considered as “Income from Other Sources” and not as “Income from Salary”

Remuneration paid to teacher of any University / College

Any such remuneration would be treated as “Salary” if the terms of employment provide a condition for checking such any paper. However, in any other case, such income shall be considered as “Other Income”

Voluntary Retirement payment by employer to employees

Since the employee would get the amount in accordance with the terms of employment obligation, the same would be considered as “Salary”

Remuneration to the MP / MLA

Such income shall be considered as “Income from Other Sources” as there exist no employer / employee relationship

ullytaxablecomponentsof Salary :

1. Basic Salary 10. Fees2. Dearness Allowance 11.Lunch TiffinAllowance3. Advance Salary 12. Overtime Allowance4. Arrears of Salary 13. Servant Allowance5. City Compensatory Allowance 14. ardenAllowance6. Bonus 15. Non-practicing Allowance7. Commission as a percentage on turnover 16. Family Allowance8. Fixed Medical Allowance 17. Leave encashment during service9. Project Allowance 18. Holiday Allowance

Profitsin ieuofSalary u s(1) Compensation due or received from present/former employer in connection with

(a) termination of employment, or

(b) modificationoftermsandconditionsofemployment.

(2) Any amount received from an Unrecognized Provident Fund, to the extent of Employer’s contributions, along with interest on such contribution.

(3) Sum received under Keyman Insurance Policy, including Bonus on it.

(4) Any sum received (either in lump sum or otherwise), either prior to employment or after cessation of employment.

Specified mployeeAnIndividualwillbeconsideredasaSpecifiedEmployeeif

(1) He is a director of a company, or

(2) eholds20 ormoreofe uityvotingpowerinthecompany,

DIRECT TAXATION I 4.5

(3) Monetary salary in excess of ̀ 50,000: His income under the head salaries, (from any employer icluding a company) excluding non-monetary payments exceeds ` 50,000. For the above purpose, salary, should be arrived at after making the following deductions:

(a) Entertainment Allowance

(b) Professional Tax

4.3 ALLOWANCES

Allowanceisafixedmonetaryamountpaidbytheemployertotheemployeeformeetingsomeparticularexpenses, whether personal or for the performance of his duties. These allowances are generally taxable andaretobeincludedinthegrosssalaryunlessspecificexemptionhasbeenprovidedinrespectofanysuch allowance.

. . Taxabilityof llo ancesAllowancesreceivedbyanemployeemaybeclassifiedasfollows

. ullytaxableallo ances it outanyexemptions:

1. City Compensatory Allowance 8.Lunch TiffinAllowance2. Dearness Allowance / Pay 9. Overtime Allowance3. Fixed Medical Allowance 10. Servant Allowance4. City Compensatory Allowance 11. ardenAllowance5. Deputation Allowance 12. Non-practicing Allowance6. Family Allowance 13. Leave encashment during service7. Project Allowance 14. Holiday Allowance

.Specificallo ancest atarefullyexemptint e andsofemployees

Allowance Conditionstoclaimfullexemption1. Travelling Allowance Should be provided by the employer and spent by the employee to

meet the cost of official tour or transfer expenses. Cost of travel ortransfer includes payments for transfer, packing and transportation of personal effects.

Income from Salaries

4.6 I DIRECT TAXATION

2. Daily Allowance Should be spent by the employee for meeting the daily charges incurred on a tour or transfer.

3. Conveyance Allowance Should be used by the employee to meet the expenditure on conveyanceinperformanceofofficialduties.

4. Helper Allowance Should be used by an employee to meet the expenditure on a helper whoassistshimintheperformanceofofficialduties.

5. Academic Allowance Should be used by the employee for his academic research and training pursuits.

6. Uniform Allowance Shouldbespentbytheemployeeforpurchasing maintainingofficeuniformforofficialduties.

7. Allowances and perks paid by Government of India to an Indian citizen outside India

Fully exempted

Example: During the Previous Year 2014-15, the following allowances are given to X by the employer company

Natureof llo ance

mountofAllowance

(`)

Amount actually spentfort epurpose (`)

Amount c ar eableto

tax(`)

Travellingallowanceforofficialpurpose 36,000 32,000 4,000Travelling allowance given at the time of transfer of X from Delhi to Ajmer

40,000 41,000 Nil

Conveyance allowance for official purposes 50,000 42,000 8,000Helper allowances for engaging helper for officialpurpose

68,000 64,000 4,000

Research allowance 1,00,000 90,000 10,000niformallowanceforofficialpurposes 18,000 17,000 1,000

. en xemptiondoesnotdependupon xpenditureIn the case given below, the amount of exemption does not depend upon expenditure incurred by the employee. Regardless of the amount of expenditure, the allowances given below are exempt to the extentof(a)theamountofallowance or(b)theamountspecifiedinrule2BB,whicheverislower.

On the above basis, exemption is available in the case of the following allowances. It may be noted that in these cases, the amount of actual expenditure is not taken into consideration:-

Allowance Natureof llo ance xemptionasspecifiedin ule BBSpecial Compensatory (Hill Areas) Allowance

It includes any special compensatory allowance in the nature of special compensatory (hilly areas) allowance or high altitude allowance or uncongenial climate allowance or snow bound area allowance or avalanche allowance.

Amount exempt from tax varies from ` 300 per month to ̀ 7,000 per month.

DIRECT TAXATION I 4.7

Border Area Allowance It includes any special compensatory allowance in the nature of border area allowance or remote locality allowance or difficultareaallowanceordisturbedarea allowance

The amount of exemption varies from ` 200 per month to ` 1,300 per month

Tribal Areas/ Scheduled Areas Allowance

Tribal areas allowance is given in (a) Madhya Pradesh; (b) Tamil Nadu; (c) Uttar Pradesh; (d) Karnataka; (e)Tripura (f)Assam (g) estBengal (h) Bihar; (i) Odisha.

` 200 per month

Allowance for Transport Employees

It is an allowance granted to an employee working in any transport system to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided that such employee is not in receipt of daily allowance

The amount of exemption is :- (i) 70 % of such allowance; or

(ii) ` 10,000 per month,

whichever is lower.

Children Education Allowance

This allowance is given for Children’s education.

The amount exempt is limited to ` 100 per month per child up to a maximum of two children.

Hostel Expenditure Allowance

This amount is granted to an employee to meet the hostel expenditure on his child.

It is exempt from tax to the extent of ` 300 per month per child up to a maximum of two children.

Compensatory Field Area Allowance

If this exemption is taken, the same employee cannot claim any exemption in respect of border area allowance mentioned above.

Exemption is limited to ` 2,600 per month in some cases.

Transport Allowance Transport allowance is granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty.

It is exempt up to ` 800 per month.For handicapped person, exemption upto ` 1,600 per month.

Underground Allowance Underground allowance is granted to an employee who is working in uncongenial, unnatural climate in underground mines.

Exemption is limited to ` 800 per month.

High Altitude Allowance It is granted to the member of armed forces operating in high altitude areas.

It is exempt from tax up to ` 1,060 per month (for altitude of 9,000 to 15,000 feet) or ` 1,600 per month

Income from Salaries

4.8 I DIRECT TAXATION

Example:- The following example are given to have better understanding:(i) During the Assessment Year 2015-16, the following allowances are given to “A” by the employer-

company

Natureofallo ancemountof

allowance (`)

Amount spent (`)

mountofexemption

(`)

Amount c ar eableto

tax(`)

Tribunal area allowance for A’s posting in Assam for two months

3,000 Not relevant 200 p.m. 600

Child education allowance for A’s elder son

1,800 Not relevant 100 p.m. 600

Child education allowance for A’s younger son

900 Not relevant - 900

Child education allowance for A’s daughter

1,080 Not relevant 100 p.m. Nil

Hostel expenditure allowance for A’s elder son

6,600 Not relevant 300 p.m. 3,000

Transport allowance for commuting betweenofficeandresidence

12,000 Not relevant 800 p.m. 2,400

(ii) The following allowances are given by a transport company to its drivers to meet personal expenditure in the course of running truck from one place to another place :-

Nameofdrivers

mountofallowance

(`)

Amount spent (`) Amount notc ar eabletotax

(`)

Amount c ar eabletotax

(`)

A 72,000 Not relevant 70% of ` 72,000 21,600B 7,20,000 Not relevant ` 10,000 per month 6,00,000C 1,30,000 Not relevant ` 10,000 per month 10,000D 46,200 Not relevant 70% of ` 46,200 13,860

C is in employment only for 2 months during the Previous Year 2014-15; D is in employment only for 7 months during the Previous Year 2014-15.

. . ariousitemsofsalaryfor ic exemptionsarea ailablesub ecttolimitations:

. T SS ST NC T u s ule BConditionsforclaimin t ebenefit: (a)AnindividualcanavailthebenefitofLTAofferedbyhisemployer,twiceinablockoffouryears.

(b) The present block of four years applicable for A.Y. 2015-16 is calendar years 2013-2016.

(c) LTA may be provided by the employer to the employee and his family:

(i) In connection with his proceeding on leave to any place in India, while in service;

(ii) Proceeding to any place in India after retirement or termination from service.

DIRECT TAXATION I 4.9

enTaxable: LTA encashed without performing journey is fully taxable

Expenses reimbursed other than the fare like boarding or lodging is fully taxable.

Amount received from employer in excess of the cost of traveling on the shortest route.

amily ofan ndi idualmeans: Spouse and children of the individual, and

Parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.

B. S NT NC Sec. ule Conditionsforclaimin exemption: Assessee is in receipt of HRA

Pays Rent

Rent paid is more than 10% of salary

Very Important: The exemption shall be calculated on the basis of where the accommodation is situated.

If the place of employment is the same for the whole year, then exemption shall be calculated for the whole year.

If there is a change in place during the Previous Year, then it will be calculated on a monthly basis.

Exemption should be calculated in respect of the period during which rental accommodation is occupied by the employee during the Previous Year.

Salary for the period during which rental accommodation is not occupied shall not be considered.

Salaryfor BasicPay DA(consideredforretirementbenefits) Commission(ifreceivedasafixedpercentage on turnover as per terms of employment)

ComputationofTaxable ouse ent llo ance

Particulars ` `

Amountreceivedduringthefinancialyearfor RA xxxLess: Exemption u/s 10(13A) Rule 2A:Least of the followings:

(a) Actual amount received(b) 50% ( for metro cities) / 40 % ( for non-metro cities) of Salary(c) Rent paid less 10 % of Salary

xxxxxxxxx xxx

Taxable xxx

Income from Salaries

4.10 I DIRECT TAXATION

4.4 DEATH-CUM-RETIREMENT BENEFITS

. Gratuityu s

orNon Go ernment mployee–Co eredbyPaymentofGratuity ct,ComputationofTaxableGratuity

Particulars ` `

Amount received as Gratuity xxxxLess: Exemption u/s 10(10)(ii)Least of the followings:(i) Actual amount received(ii) 15/26 x Last drawn salary x No. of years of completed service or part

thereof in excess of 6 months(iii) Maximum limit

xxx

xxx10,00,000 xxxx

TaxableGratuity xxxx

Note: Salary = Basic Pay + Dearness AllowanceIn case of seasonal employment, instead of 15 days, 7 days shall be considered.

orNon Go ernment mployee–Not co eredbyPaymentofGratuity ct,ComputationofTaxableGratuity

Particulars ` `

Amount received as Gratuity xxxxLess: Exemption u/s 10(10)(iii)Least of the followings:(i) Actual amount received(ii) ½ x Average Salary x No. of fully completed years of service (iii) Maximum limit

xxxxxx

10,00,000 xxxxTaxable Gratuity xxxx

Note: Salary = 10 months average salary preceeding the month of retirement.BasicPay DearnessAllowanceconsideredforretirementbenefits Commission(ifreceivedasafixed

percentage on turnover)

DIRECT TAXATION I 4.11

Gratuity received while in service:-Any gratuity paid to an employee while he continues to remain in service (whether or not after he has putinminimumspecifiedperiodofservice)isnotexemptfromtax.Taxexemptionwillbeavailableonlyif gratuity is paid on (i) retirement; (ii) becoming incapacitated prior to such retirement; (iii) termination of employment; (iv) resignation; or (v) death. Gratuity received under other circumstances would not be exempt from tax, though the assessee can claim relief under section 89.

Very Important: here an individual receives retirement gratuity from more than one employer, he can claim

exemption in respect of both of them.

However, the maximum amount of exemption should not exceed ` 10,00,000.

hengratuityisreceivedfrommorethanoneemployerduringdifferentperiodsoftime,themaximumexemption claimed by an assessee during his entire life should not exceed ` 10,00,000.

Gratuityrecei edbyfamilymembersaftert edeat oft eemployee:If gratuity is paid after the death of an employee, then the case may fall in one of the following situations given below:-

Normal date of retirement of employee

(say A)

hengratuitybecome due

Date of payment of gratuity

Date of death of A

Situation 1 June 30, 2014 June 30, 2014 July 11, 2014 July 20, 2014Situation 2 June 30, 2014 June 30, 2014 July 11, 2014 July 6, 2014Situation 3 June 30, 2014 July 6, 2014 July 11, 2014 July 6, 2014

Situation 1 - The gratuity become due (and paid) during the lifetime of X, it is taxable in the hand of X. He can claim exemption under section 10(10).

Situation 2 - Gratuity becomes due on June 30, 2014 at the time of retirement. It is taxable in the hand of A even if it is received by legal heirs on July 11, 2014 after his death. After claiming exemption under section 10(10) (ii)/(iii), the balance shall be included in the salary income of X. Income-tax return shall be submitted by Mrs. A(or her children) as legal heirs of A.

Situation 3 - A dies on July 6, 2014 while in service. Gratuity is sanctioned after his death on July 6, 2014. It cannot be taxed in the hands of deceased employee X as it becomes due and is paid after his death. This amount is not taxable in the hands of legal heirs also as it does not partake the character of income in their hands but is only a part of the estate devolving upon them.

B. Pension

Income from Salaries

4.12 I DIRECT TAXATION

Taxtreatmentofpensionindifferentcases:

Different situations Tax treatmentCase -1 Pension is received from UNO by the

employee or his family membersIt is not chargeable to tax

Case -2 Family pension received by the family members of armed forces (after the death of employee)

It isexemptundersection10(19)after fulfillingofcertain condition.

Case -3 Family pension received by family members in other cases (after the death of employee)

It is taxable in the hand of recipients under section 56 under the head "Income from Other Sources’’. Standard deduction is available under section 57 which is 1/3 of such pension or ` 15,000, whichever is lower.

.Taxabilityof ncommutedPensionor ont lyPension: (a) Pension is received periodically by the retired employee (b) It may be received by Government or non-government employees (c) Amount received shall be fully taxable under the head “Salaries”

.TaxabilityofCommutedPension: (a) Pension is received in lumpsum as per the terms of the employment on retirement or superannuation. (b) Full Value of Commuted Pension = Amount received on commutation/percentage of commutation. (c) Taxability:

Recipient mountTaxableGovernment employee(Central/State/Local Authority or Statutory Corporation)

Fully exempted u/s 10(10A)(i)

Non-Govt. employee who has also received Gratuity u/s 10(10A)(ii)

Amount ReceivedLess: 1/3 of Full Value of Commuted Pension

Non-Govt. employee who has not received Gratuity u/s 10(10A)(iii)

Amount ReceivedLess:1/2 of Full Value of Commuted Pension

DIRECT TAXATION I 4.13

In accordance with the aforesaid rules, pension is chargeable to tax on "accrual" basis whether it is received voluntarily or under a contract. Arrears of pension are also assessable on "due" basis whether paid or not. In respect of the arrear pension which is not exempt from tax, the assessee can, however, claim relief under section 89.

NotifiedPensionSc eme These provisions are given below:-

(i) ContributionbyCentralGovernmentoranyotheremployertothe otifiedPensionScheme( PS)isfirstincluded under the head “Salaries” in hand of employee.

(ii) Such contribution is deductible (to the extent of 10 percent of the salary of the employee) under section 80CCD.

(iii) Employeescontributiontothe otifiedPensionScheme( PS)(totheextentof10percentofthesalaryof the employee) is also deductible under section 80CCD.

(iv) henpensionisreceivedoutoftheaforesaidamount,itwillbechargeabletotaxinthehandoftherecipient.

(v) The aggregate amount of deduction under section 80C, 80CCC and 80CCD cannot exceed ̀ 1,00,000.

(vi) Salary for the purpose of point (ii) & (iii) includes basic salary and dearness allowance (if the term of employmentsoprovided)butexcludedallotherallowancesandper uisites.

C. Leave Encashment

1. Leave encashment while in service is fully taxable as income of Previous Year in which it is encashed.

2. Leave encashment on retirement:

(a) If an individual receives leave encashment on his retirement, then the amount received will be eligible for exemption.

(b) The amount of exemption is based on his employment:

(i) Government employee: fully exempted from tax

(ii) Non-Govt. employee: An individual who is not a Government employee is also entitled for exemption in respect of leave encashment compensation received by him.

Income from Salaries

4.14 I DIRECT TAXATION

.Computationofexemptionfrom ea e ncas ment:Step 1: Computation of Salary = 10 months average salary preceding the month of retirement.

Step 2: Salary Basic Pay Dearness Allowance (forming a part of salary for retirement benefits) Commission(ifreceivedasafixedpercentageonturnover)

Step 3: This calculation is only applicable where the employer has sanctioned leave to the employee in excess of 30 days for every completed year of service.

Particulars No.of ays(i) Leave credit available on the date of retirement xxxLess: Excess leave sanctioned by the employer(Leave sanctioned by the employer per year – leave @ 30 days per year) x No. of completed years of service

(xxx)

Leave credit on the basis of 30 days credit for completed years of service xxx(ii) Leave salary on the basis of 30 days credit = Step 3(i) × Step 1 (Amount in `) ` xxxx

Note: In case the employer sanctioned leave of 30 days or less for completed year of service then the salary for actual leave balance shall be considered and Step 3(i) shall not apply.

.ComputationofTaxable ea eSalary ncas menton etirement:

Particulars Amount (`) Amount (`)Amount received on Leave Salary/Encashment xxxxLess: Exemption u/s 10(10AA):Least of the followings:

(i) Actual amount of leave encashment received(ii) Average salary of the individual x 10 months(iii) Maximum limit(iv) Leave credit ( as per computation stated in 3 above)

xxxxxxxx

3,00,000xxxx

Taxable Value of Leave Salary/Encashment xxxx

Note: (a) Iftheindividualreceivesleaveencashmentfrommorethanoneemployer,the uantumofexemption

will be computed independently in respect of each employer.

(b) The total amount of exemption should not exceed ` 3,00,000 during his life time.

. etrenc mentCompensation Sec. BCompensationisrecei edbya or manatt etimeof: (i) Closing down of the undertaking.

(ii) Transfer (irrespective of by agreement compulsory ac uisition) if the following conditions aresatisfied

! Service of workmen interrupted by transfer

! Terms and conditions of employment after transfer are less favourable

! New employer is not under a legal obligation whether under the terms of transfer or otherwise to pay compensation on the basis that the employee’s service has been continuous and has not been interrupted by transfer.

DIRECT TAXATION I 4.15

Note:(a) Retrenchment compensation received in accordance with any scheme, which is approved by the

Central Government, is fully exempt from tax.

(b) An individual who receives retrenchment compensation is entitled for exemption u/s 10(10B).

ComputationofTaxable etrenc mentCompensation

Particulars Amount (`) Amount (`)Amount received as Retrenchment CompensationLess: Exemption u/s 10(10B):Least of the followings:

(i) Actual amount received(ii) Amount determined under the Industrial Disputes Act,1947 (iii) Maximum Limit

xxxxxxxx

5,00,000

xxxx

xxxxTaxableamountof etrenc mentCompensation xxxx

. oluntary etirementCompensationu s C

Conditionsforclaimin exemption:(i) An individual, who has retired under the Voluntary Retirement Scheme, should not be employed in

another company of the same management.

(ii) He should not have received any other Voluntary Retirement Compensation before from any other employer and claimed exemption.

(iii) Exemption u/s 10(10C) in respect of Compensation under VRS can be availed by an Individual only once in his lifetime.

Income from Salaries

4.16 I DIRECT TAXATION

Computationof xemption:Step1 Salary Lastdrawnsalary BasicPay D.A.(consideredforretirementbenefits)

Step 2: Computation of Taxable VRS compensation

Particulars Amount(`)

Amount(`)

Amount received as VRS CompensationLess: Exemption u/s 10(10C):Least of the followings:

(i) Actual amount received(ii) Maximum Limit (iii) The highest of the followings :

(a) Last drawn salary x 3 x No. of fully completed years of service xxxx(b) Last drawn salary x Balance no. of months of service left xxxx

xxxx5,00,000

xxxx

xxxx

xxxxTaxableamountof etrenc mentCompensation xxxx

. P TS N S S CT N

These payments are made to an employee in lien of salary even if these payments have no connection withthe Profits oftheemployer.Thesearethefollowings -

a Compensationforlossofemploymentormodificationoft eemploymentterms Compensation for loss ofemploymentormodificationoftermsofemploymentisgenerallytreatedasacapitalreceipt.Butby virtue of section 17(3)(i), any compensation due to or received by an assessee from his employer or formeremployeratorinconnectionwiththeterminationofhisemploymentormodificationoftermsofemploymentistaxableasprofitinlieuofsalary.Itistaxableon due or receipt basis,whichevercome earlier. The recipient may claim exemption under section 10(10B) or 10(10C).

The silent features are:-

(i) Compensation is received by an assessee from his employer or former employer;

(ii) Itisreceivedatorinconnectionwithterminationofhisemploymentormodificationoftermsandconditions relating thereto.

b Payment from unreco ni ed pro ident or superannuation fund Accumulated balance in any provident fund/superannuation fund of employer’s portion consists of the following:-

(i) Employer’s contribution;

(ii) Interest on employer’s contribution is taxable subject to the following propositions

(1) The provident fund/ superannuation fund is an unapproved fund;

(2) These are taxable at the time of payment to the assessee

(c) Payment from Keyman insurance policy- Any sum received under Keyman insurance policy (including the sum allocated by way of bonus on such policy) is taxable as “policy in lieu of salary”.

(d) Profitsinlieuofsalarywillincludeamountreceivedinlumpsumorotherwise,priortoemploymentorafter cessation of employment for the purpose of taxation.

(e) Any other payment due to or received [excluding Sec. 10(10A) /10(10B) /10(11) /10(12) / 10(13) / 10(13A)]byanassesseefromhisemployerorformeremployeristreatedas ProfitinLieuinSalary .

DIRECT TAXATION I 4.17

4.6 DEDUCTIONS AGAINST SALARY

1. Entertainment Allowance: pplicableonlyforGo ernment mployees Sec. 6 iiLeast of the following will be allowed as a deduction:

(i) Actual amount of entertainment allowance received;

(ii) 20% of basic salary of the individual

(iii) ` 5,000

.ProfessionalTax Sec. 6 iii (i) Professional tax or tax on employment paid by an employee, levied under a State Act shall be

allowed as deduction ;

(ii) such deduction is available only on actual payment;

(iii) Ifanemployerpaysprofessionaltaxonbehalfofhisemployee,thenitwillfirstbeincludedintheSalaryasaper uisiteandthen,allowedasadeduction.

. T N T B T P S T S

Per uisite:Aper uisiteisdefinedintheOxfordEnglishDictionaryasanycasualemolument,feeorprofit,attachedtoanofficeorpositioninadditiontothesalaryorwages.Per uisitehasaknownnormalmeaning,namely,personaladvantage.Insimplewords,per uisitesarethebenefitsinadditiontonormalsalarytowhich the employee has a right by virtue of his employment.

Theessentialfeatureofaper uisiteisthatanemployeeshouldhavearighttothesameandthatitshouldnot be a mere voluntary or contingent payment.

Per uisiteincludes:(a) Value of rent free accommodation given by the employer

(b) Value of accommodation given at concessional rate

(c) alueofbenefitgivenfreeofcostoratconcessionalrateinthefollowingcases

(i) given by employer to his Director Employee;

(ii) given by employer to his employee who owns 20% or more of voting power in the company, and

(iii) given by any employer (including company) to his employees whose monetary salary exceeds ` 50,000

(d) Any sum paid by the employer on behalf of the employees

(e) Sum paid/payable by the employer towards insurance on the life of the individual or annuity payments

(f) alueofanyotherfringebenefitoramenity.[Sec.17(2)(vi)]

Income from Salaries

4.18 I DIRECT TAXATION

. . Per uisites ic arefullyexemptedfromTaxThefollowingper uisitesareexemptfromtaxinallcasesandhencenotincludibleforthepurposeoftaxdeduction at source under section 192:

1. Provision for medical facilities subject to limit

2. Tea or snacks provided during working hours

3. Free meals provided during working hours in a remote area or an offshore installation

4. Per uisites allowedoutside Indiaby theGovernment toa citi enof India for rendering serviceoutside India.

5. Sum payable by an employer through a recognized provident fund or an approved superannuation or deposit-linked insurance fund established under the Coal Mines Provident Fund or the Employees Provident Fund.

6. Employer’s contribution to staff group insurance scheme.

7. Leave travel concession subject to Sec. 10(5)

8. Payment of annual premium by employer on personal accident policy affected by him on his employee

9. Free educational facility provided in an institute owned/maintained by employer to children of employee provided cost/value does not exceed ` 1,000 per month per child (no limit on no. of children)

10. Interest-free/concessional loan of an amount not exceeding ` 20,000

11. Computer laptopgiven(nottransferred)toanemployeeforofficial personaluse.

12. Transfer without consideration to an employee of a movable asset (other than computer, electronic items or car) by the employer after using it for a period of 10 years or more.

13. Traveling facility to employees of railways or airlines.

14. Rent-freefurnishedresidence(includingmaintenancethereof)providedtoanOfficialofParliament,a Union Minister or a Leader of Opposition in Parliament.

15. Conveyance facility provided to High Court Judges u/s 22B of the High Court Judges (Conditions of Service) Act, 1954 and Supreme Court Judges u/s 23A of the Supreme Court Judges (Conditions of Service) Act, 1958.

16. Conveyancefacilityprovidedtoanemployeetocovertheourneybetweenofficeandresidence.

17. Accommodation provided in a remote area to an employee working at a mining site or an onshore oil exploration site, or a project execution site or an accommodation provided in an offshore site of similar nature.

18. Accommodation provided on transfer of an employee in a hotel for not exceeding 15 days in aggregate.

19. Interest free loan for medical treatment of the nature given in Rule 3A.

20. Periodicalsand ournalsre uiredfordischargeofwork.

21. Taxonper uisitepaidbyemployer[Sec.10(10CC)]

22. Other Exempted Payments:

(a) Bonuspaidtoafootballplayerafterthe orldCupvictorytomarkanexceptionalevent (b) Paymentmadeasagiftinappreciationofthepersonal ualitiesoftheemployee

DIRECT TAXATION I 4.19

(c) Paymentofproceedsofabenefitcricketmatchtoagreatcricketplayerafterheretiredfromtest match;

(d) Trustforthebenefitofemployee schildren.

. . edical acilities(a) Fixed medical allowance is fully taxable

(b) Medical payments include reimbursements also [Circular no.603/6.6.1991]

Medical Treatment in India :1. Local treatment to employee or any member of his family in:

(a) Hospital maintained by employer

(b) Government Hospital

(c) otifiedhospitalforprescribeddiseases[Sec.17(2)(v)]

Family includes spouse, children (whether dependent or independent) and parents, brothers and sisters wholly dependent on the employee.

2. Group Medical insurance paid u/s 36(1)(ib) & Medical Insurance paid u/s 80D- which are approved by the Central Govt. or IRDA w.e.f. A.Y.2007-08.

3. Any other medical expenditure reimbursed subject to a maximum of ` 15,000.

edicalTreatment broad fort epatientandt eattendant :If the employee underwent medical treatment abroad and the expenditure is met by the employer, the exemption will be subject to the following:

1. Medical treatment and stay expenses abroad (both for the patient and the attendant) is exempt from tax, subject to the maximum amount permitted by the Reserve Bank of India.

2. Tra elexpenditureoft epatientandt eattendant:

GrossTotal ncome,beforeincludin reimbursementoforei nTra el xpenditure

mountof xemption

Upto ` 2,00,000 Fully ExemptedAbove ` 2,00,000 Fully Taxable

3. Computationofexemptionforforei ntra elexpenditure

Step 1: Compute Gross Total Income of the assessee without considering foreign travel reimbursement but after set-off loss and unabsorbed depreciation.

Step 2: If the Gross Total Income does not exceed ` 2 lakhs, Foreign Travel Reimbursement is not taxable otherwise fully taxable.

Step 3: If Foreign Travel reimbursement is taxable as per Step 2, recomputed the income under the head Salary after including foreign travel reimbursement and Gross Total Income must also be recomputed.

Income from Salaries

4.20 I DIRECT TAXATION

. . ccommodation acilities1. alueof nfurnis ed ccommodation: Explanation 1 to Sec.17(2), Rule 3(1)

atureofPer uisite Taxable alueofPer uisiteProvided by Central Govt. or State Govt. Licence fee determined by the Government

Less: Rent recovered from employee

Pro idedby mployerot ert anCentralorStateGo ernment

(a) owned by employer ncities a in populationexceedin la sasper2001 census:15% of SalaryLess Rent actually paid by employeencities a in populationexceedin la sbutnotexceedin la sasper census:10% of Salary Less Rent actually paid by employee

In other places: 7.5% of Salary Less Rent actually paid by employee

(b) taken on lease by the employer Rent paid by the employer or 15% of Salary whichever is lowerLess Rent recovered from employee

(c) Accommodation in a hotel 24% of salary paid/payable or actual charges paid/payable whichever is lowerLess: Amount paid or payable by the employee

Hotel Accommodation: Accommodationprovidedinahotelwillnotbeataxableper uisiteifthefollowingtwoconditionsarefulfilled

(a) The period of such accommodation does not exceed 15 days

(b) Such accommodation has been provided on the transfer of the employees from one place to another.

. alueof urnis ed ccommodation

Particulars `

Value of unfurnished accommodation as aboveAdd : Value of Furniture provided:

Ifownedbyemployer,10 p.a.oforiginalcostofsuchfurnitureIfhiredfromthirdparty,thenActualhirecharges

Less: Any charges paid or payable by the employee

xxx

xxx

(xxx)alueof urnis ed ccommodation xxx

Note: Furniture includes Television sets, radio, refrigerator, other household appliance, air-conditioning plantore uipment.

DIRECT TAXATION I 4.21

. aluationnotapplicable:(a) Employees working at mining site, onshore oil exploration site, offshore site, project execution site,

dam site, power generation site.

(b) Conditionstobefulfilled

(i) The accommodation should be of a temporary nature, and

(ii) Plinthareashouldnotexceed800s uarefeet

(iii) Accommodation should be located at least 8 kms away from local limits of municipality/cantonment or located in a remote area

Remote area means area located at least 40 kms away from town having a population not exceeding 20,000 based on latest published All-India census.

. aluationofaccommodationincaseof mployeesontransfer:(a) Forthefirst90daysoftransfer hereaccommodationisprovidedbothatexistingplaceofworkand

in new place, the accommodation, which has lower value, shall be taxable.

(b) After 90 days: Both accommodations shall be taxable.

.Salaryfor aluationof ccommodationfacilities:

Salary includes SalaryexcludesBasic SalaryD.A.(ifconsideredforretirementbenefits)All taxable allowancesBonus or commission or ex-gratiaAny other monetary payment

Other D.AEmployer’s contribution to PFExempted allowancesPer uisitesu s17(2)Per uisitesu s17(2)(iii)oritsprovisions

. . t er acilitiesandPer uisitesto mployeeand is ouse old

Rule NatureofPer uisite Taxable alueofPer uisite T P3(3) Service of sweeper, gardener or

watchman or personal attendantActual cost to the employerLess: Amount paid by employee

3(4) Supply of gas, electricity or water for household consumption

(i) Procuredfromoutsidea encyAmount paid to outside agency

(ii) esourceso nedbyemployer imselfManufacturing cost per unitLess: amount paid by the employee

3(5) Education facilities to members of his household(a) free education to children

in the school maintained by the employer or the school sponsored by the employer

(b) other schools(c) for other members of the

household

If the cost of education per child does not exceed ` 1,000 p.m.- then not taxable

orpoints b cIn other case, cost to the employer

Less: amount recovered from employee

Income from Salaries

4.22 I DIRECT TAXATION

i Housing Loan/Vehicle Loan- for ac uiringcapitalassetsandnotforrepairs

SBI Rate= SBI Rate prevailing on the firstdayofthePrevious ear

Other Loans Interestchargedbyemployer ise ual toorhigherthanSBIrates.Itisnotataxableper uisite.Interest charged is lower than SBI rates: Interest charged at SBI rates on maximum outstanding balance

Less: Interest paid by the employee on that loanxceptions:(a)Medicalloanfortreatmentofdiseasesspecified

in Rule 3A except loan reimbursed by medical insurance

(b) Loan not exceeding ` 20,000 in aggregate

(vii)Use of any movable asset other than computer or laptops or other assets already mentioned

10% of Actual Cost if owned by the employer; or Actual rental charge paid/payable by the employerLess: Amount recovered from employee

Note: embers of ouse old includes: spouse s , c ildren and t eir spouses, parents, ser ants anddependents.

. . Transferof o able ssetsto mployees ule iii

Particulars Computer ElectronicGadgets

Car t er o ableAssets

et odof epreciation SLMRate of Depreciation for every completed year

50% 20% 10%

Actual CostLess : Depreciation for completed years

XXXXX(XXXXX)

XXXXX(XXXXX)

XXXXX(XXXXX)

D attheendofcompletedyears

Less :Sale Value taken from Employee

XXXXX

(XXXXX)

XXXXX

(XXXXX)

XXXXX

(XXXXX)Taxable alueofPer uisite

Note:(a) Electronic gadgets include computer, digital diaries and printers, but excludes washing machines,

microwave ovens, hot plates, mixers, ovens, etc.

(b) Transfer of Assets, which are 10 years old, shall not attract tax liability.

(c) Member of household includes: Spouse(s), children and their spouses, parents, servants and dependents.

(d) Completedyearmeansactualcompletedyearfromthedateofac uisitionoftheassettothedate of transfer of such asset to the employees.

DIRECT TAXATION I 4.23

. .6TaxabilityofPer uisitespro idedby mployers

. .6. Taxabilityof otorCarBenefits

nerofCar xpensesborneby

Purpose Taxable alueofPer uisite

1(a) Employer Employer Fullyofficial otaper uisiteprovidedthedocumentsasspecifiedin Rule 3(2)(B) are maintained

1(b) Employer Employer Fully private Total of:(i) Actual expenditure on car(ii) Remuneration to Chauffeur(iii) 10% of the above cost of car

(normal wear & tear)Less: Amount charged from employee

1(c)(i) Employer

Employer Partlyofficialand partly for personal use

Cubic capacity of car engine upto 1.6 litres` 1,800 p.m. + ` 900 p.m. for chauffeurCubic capacity of car engine above 1.6 litres` 2,400 p.m. + ` 900 p.m. for chauffeur

1(c)(ii) Employer

Employee Partly for officialandpartly for personal use

Cubic capacity of car engine upto 1.6 litres` 600 p.m. + ` 900 p.m. for chauffeurCubic capacity of car engine above 1.6 litres` 900 p.m. + ` 900 p.m. for chauffeur

2(i) Employee Employer Fullyofficialuse

otaper uisiteprovidedthedocumentsasspecifiedin Rule 3(2)(B) are maintained

2(ii) Employee Employer Partlyofficialand partly personal

Subject to Rule 3(2)(B)Actual expenditure incurredLess: Value of Car cubic capacity upto 1.6 litres [i.e. value as per 1(c)(i)]Or Value of Car cubic capacity above 1.6 litres [ i.e. value as per 1(c)(i)]

3(i) Employee owns other automotive but not car

Employer Fullyofficialuse

otaper uisiteprovidedthedocumentsasspecifiedin Rule 3(2)(B) are maintained

3(ii) employee owns other automotive but not car

Employer Partly for officialuseand partly for personal use

Subject to Rule 3(2)(B)Actual expenditure incurred by employerLess: ` 900 p.m.

Note: 1. Using cars from pool of cars owned or hired by Employer: Theemployeeispermittedtouseanyorallcarsforbothofficialandpersonaluse

For one car Valued as per 1(c)(i)For more than one car Valued as per 1(b) as if fully used for personal purpose

2. Documents tobemaintained for claiming non-taxableper uisite or higher deductionwhereverapplicable [ Rule 3(2)(B)]:

(a) Employer shouldmaintain complete details of ourney undertaken for official purpose,whichincludes date of journey, destination, mileage and amount of expenditure incurred thereon.

Income from Salaries

4.24 I DIRECT TAXATION

(b) Certificate of supervising authority of the employee, wherever applicable, to the effect thattheexpenditureincurredforwhollyandexclusivelyforperformanceofofficialduties,shouldbeprovided.

. .6. Taxabilityofot erbenefits

Rule NatureofPer uisite Taxable alueofPer uisite T P3(6) Transportation of goods or passengers

at free or concessional rate provided by the employer engaged in that business (other than railways/airlines)

Value at which offered to publicLess: Amount recovered from the employee

3(7)(ii) Travelling, touring, accommodation and other expenses met by the employer otherthanspecifiedinRule2B(thisshallbe calculated only for the period of vacation)

Amount recovered by employer or value at which offered to publicLess: Amount recovered from employee

3(7)(iii) Freemealsduringofficehours.Freemealin remote area or offshore installation areaisnotataxableper uisite

Actual cost to the employer in excess of ̀ 50 per meal or tea or snacksLess: Amount recovered from the employeeTea or non-alcoholic beverages and snacks during working hours is not taxable

3(7) (iv) Value of any gift or voucher or token other than gifts made in cash or convertible into money(i.e.giftche ues)onceremonialoccasion

Value of gift( In case the aggregate value of gift during the Previous Year is less than ` 5,000, then it is not a taxableper uisite)

3(7)(v) Expenditure incurred on credit card or add on card including membership fee and annual fee

Actual expenditure to employer is taxableLess: Amount recovered from employee(Ifitisincurredforofficialpurposeandsupportedby necessary documents then it is not taxable)

3(7)(vi) Expenditure on club other than health club or sports club or similar facilities provided uniformly to all employees

Actual expenditure incurred by the employerLess: Amount recovered from employeeIf the expenditure is incurred exclusively for official purposes and supported by necessarydocuments then it is not taxable.Initial fee of corporate membership of a club is notataxableper uisite

3(7)(ix) Anyotherbenefitoramenitiesorserviceor right or privilege provided by the employer other than telephone or mobile phone

Cost to the employer

Less: Amount recovered from employee

Note: Members of household includes spouse/(s), children and their spouses, parents, servants and dependants

DIRECT TAXATION I 4.25

. .6. mployeeStoc ption S P1. mployeeStoc ptionmeansanyspecifiedSecuritiesorSweatE uityShares,allottedortransferred

by the present or former Employer, to the Employee, directly or indirectly, either free of cost or at a concessional price.

2. SpecifiedSecurity meansSecuritiesasdefinedinSecuritiesContracts(Regulation)Act,1956andwhere Employees’ Stock Option has been granted under any plan or scheme, includes securities offeredundersuc Plan Sc eme.

3. S eat uityS aresmeansE uityShares issuedbyaCompanyto itsEmployeesorDirectors,atadiscount or for consideration other than cash, for – (a) providing know-how, or (b) making available intellectual property rights, or (c) value additions, by whatever name called.

4. alueoft eSecurityorS eat uityS ares FM oftheSecurity SweatE uitySharesasonthedateof exercise of Option Minus Amount recovered from the Employee.

5. air ar et alue means the Value determined in the prescribed manner. [See Table below]

6. Option means a right but notanobli ationgrantedtoanEmployee,toapplyforthespecifiedSecurityorSweatE uityShares,atapre-determinedprice.

sper ule Ct e air ar et alues allbedeterminedasunder

Particulars air ar et alue1.S aresofan nlistedCompany AsdeterminedbyaMerchantBankeronthespecified

date.2.S aresofa istedCompany(a) Tradin ont edateof estin ofoption:ListedinoneRecognisedStockExchange Average of Opening and Closing Price on the date of

exercising of option.ListedinmorethanoneRecognisedStockExchange Average of Opening and Closing Price in the Stock

Exchange that records the highest olumeoftradin in Shares on the date of exercising of option.

(b) NoTradin ont edateof estin ofoption:ListedinoneRecognisedStockExchange Closing Price of the Share on any Recognised Stock

Exchange on a date closest and immediately preceding the date of exercising of option.

ListedinmorethanoneRecognisedStockExchange Closing Price of the Share on the Stock Exchange on a date closest and immediately preceding the date of exercising of option in the Stock Exchange that records the highest volume of trading in shares.

3. ofspecifiedSecurity,notbein an uityS areinthe Company (Rule 40D)

AsdeterminedbyaMerchantBankeronthespecifieddate. Notfn.No. dt. . .

Income from Salaries

4.26 I DIRECT TAXATION

. .6. TaxabilityofPer uisites ta lance

Per uisites SpecifiedEmployee

Non SpecifiedEmployee

Rent free/concessional accommodation Taxable Taxable

atchman, gardener, sweeper, personal attendantengaged by employee and expenses met by the employer

Taxable Taxable

The aforesaid mentioned servants provided in any other manner

Taxable Non-taxable

Gas, electricity, water, etc. for household consumption and the connection in the name of employee but expenses paid by the employer

Taxable Taxable

Above facilities provided in any other manner Taxable Non-taxable

Education expenses, if the bills are in the name of employee, but met by employer

Taxable Taxable

Above facilities provided in any other manner Taxable Non-taxable

Transport facilities provided by transport undertakings, other than Railways, Airlines

Taxable Taxable

Interest free loans or loans provided at concessional rates by the employer to employee

Taxable Taxable

Holiday home facilities provided Taxable Taxable

Club facility provided by employer(other than officialpurposes)

Taxable Taxable

Computer/laptop provided by the employer for use by the employee

Non-taxable Non-taxable

Other movable assets provided by the employer for use by the employees

Taxable Taxable

Sale/transfer of movable assets to employees Taxable Taxable

Maga ines,periodicals, ournals,etc.forofficialwork Not taxable Not taxable

Medical facilities, if the bills are in the name of employee, but met by employer above ` 15,000

Taxable Taxable

Above facility in any other manner Taxable Non-taxable

Leave travel concession Not taxable subject to 10(5)

Not taxable subject to Sec.10(5)

Stock option under approved scheme Not taxable Not taxable

DIRECT TAXATION I 4.27

. P NT N S

Particulars Statutory Provident Fund(SPF)

eco ni edProvident Fund

(RPF)

nreco ni edProvident Fund

(URPF)

PublicPro ident und(PPF)

Constituted under

Provident Funds Act,1952

EPF and Miscellaneous Provisions Act, 1952 & recognized by the Commissioner of PF and CIT

Not recognized by the Commissioner of Income Tax

Public Provident Fund Act,1968 Account in SBIorPostOffices

Contributed by Employer and employee

Employer and employee

Employer and employee

All assessees independently

Assessee’s contribution

Deduction u/s 80C

Deduction u/s 80C

No Income tax benefit

Deduction u/s 80C

Employer’s Contribution

Not taxable Amount exceeding 12% of salary is taxable

Not taxable at the time of contribution

Not applicable

Interest credited Fully exempted Exempted upto 9.5% p.a. Any excess is taxable

On Employee’s Contribution - Taxable – under the Head “ Income from Other Sources”

Fully exempted

On Employer’s contribution – not taxable at the time of credit

ithdrawalat the time of retirement or resignation or termination, etc

Exempted u/s 11 Exempted u/s 10(12) subject to conditions

Employee’s contribution and interest thereon is not taxable

Exempted u/s 10(11)

Employer’s contribution and interest thereon is taxableasProfitsin lieu of Salary, under the head “Salaries”

Note: Sum received by an Employee under approved Superannuation Fund is also exempt from tax u/s 10(13).mount transferred from unreco ni ed pro ident fund to reco ni ed pro ident fund Out of the sum

standing to the credit of an employee under recognized provident fund which is accorded recognition for thefirsttimeorapartofthesumtransferfromunrecogni edprovidentfundtotherecogni edprovidentfund is taxable under the head “salaries”. Of all the sums comprises in the transferred balance, the amount which would have been liable to tax if provident fund had been recognized from the date of institution of the fund, shall be deemed to be the income received by the employee in the Previous Year in which

Income from Salaries

4.28 I DIRECT TAXATION

recognition of the fund takes effect. The remaining amount is not chargeable to tax. No other relief or exemption is granted.

mployersContributionto P isexcludedfromSalary1. If the employee has rendered continuous service with his employer for a period of 5 years or more.

2. If he has not rendered such continuous service of 5 years, then the service has been terminated:

(a) By reason of such employee’s ill health, or

(b) By the contraction or discontinuance of the employer’s business, or

(c) Any other cause beyond the control of the employee

3. If, on the cessation of his employment, the employee obtains employment with another employer, to the extent, the accumulated balance due and becoming payable to him is transferred to his individual account in any recognized fund maintained by such employer.

The period of service rendered under the previous employer(s) should also be included in determining the period of continuous service in (3) above.

. S N NTC C ST NC S– T G NC

ort epurposeof Means1. Deduction for Entertainment Allowance u/s

16(ii) – in case of Government employeesBasic Pay

2. Voluntary Retirement Compensation u/s 10(10C) Basic Pay + D.A. (forming part of salary for retirementbenefits)

3. Exemption from Gratuity covered under Payment of Gratuity Act u/s 10(10)(ii)

Basic Pay + D.A.

4. Exemption from Gratuity not covered under Payment of Gratuity Act u/s 10(10)(iii)

Basic Pay + D.A. (forming part of salary for retirementbenefits) Commission(ifreceivedasafixedpercentageonturnover)

5. Exemption for Leave Salary u/s 10(10AA) Same as above6. Exemption for House Rent Allowance u/s 10(13A)

Rule 2ASame as above

7. Contribution to Recognized Provident Fund Same as above8. Determination of Specified Employee u s 17

includingthevalueofnon-monetarybenefitsIncomeundertheheadsalarieswithoutbenefits

9. Rent- free accommodation Salary includes:Basic PayDearness Allowance (forming part of salary for retirementbenefits)Employer’s Contribution to RPFAll Taxable allowancesBonus or commission or ex-gratiaAny other monetary payment

DIRECT TAXATION I 4.29

Salary excludes:Dearness Allowance ( not forming part of salary)Exempted allowancesPer uisitesu s17(2)or17(2)(iii)oritsprovisionsAny allowance in the nature of medical facility to the extent not taxable

. T NS N N S NTT C N C NS S CT N B

In Finance Act, 1993 clause (5B) has been inserted in section 10 with effect from the Assessment Year 1994-95. Exemption under section 10(5B) is not available from the Assessment Year 2003-04.Salaryof orei nCiti ens: (i) Salaryofdiplomaticpersonnel Section 6 ii Remuneration received by foreign citizen as an

officialofanembassy,highcommission,legation,commission,consulateortraderepresentationofaforeignstate,oramemberofthestaffofanyofthatofficialwillbeexemptfromtaxifcorrespondingIndianofficialinthatforeigncountryen oysasimilarexemption.

(ii) Salaryofforei nemployees Section 6 i The remuneration received by a foreign national, as an employee of a foreign enterprise, for services rendered by him during his stay in India, is totally exempt from tax provided: (a) the foreign enterprise is not engaged in any business or trade in India; (b) his stay in India does not exceed a period of 90 days in such Previous Year; and (c) such remuneration is not liable to be deducted from the income of the employer chargeable under the Income Tax Act.

(iii) Salaryrecei edbyas ip scre Section 6 iii Salary received by, or due to, a non-resident foreign national as a member of a ship’s crew is exempt from tax provided his total stay in India does not exceed 90 days during the Previous Year.

(iv) emunerationofaforei ntraineeofforei nnationasanemployeeofaforei n o ernment,during his stay in India, is exempt from tax, if remuneration is received in connection with training in an undertakingorofficeownedby-(a) the Government; or(b) any company owned by the Central Government or any State Government; or (c) any company which is subsidiary of a company referred to in (b) supra; or (d) any statutory corporation; or (e) any co-operative society, wholly financedbytheCentralGovernment,oranyStateGovernment.

4.11 RELIEF UNDER SECTION 89

Ifanindividualreceivesanyportionofhissalaryinarrearsorinadvanceorreceivesprofitinlieuofsalary,he can claim relief in terms of section 89 read with rule 21A as under:

Computationofrelief ensalary asbeenrecei edinarrearsorinad ance uleThe relief on salary received in arrears or in advance (hereinafter to be referred as additional salary) is computed in the manner laid down in rule 21A (2) as under:

1. Calculate the tax payable on the total income, including the additional salary, of the relevant Previous Year in which the same is received.

2. Calculate the tax payable on the total income, excluding the additional salary, of the relevant Previous Year in which the additional salary is received.

3. Find out the difference between the tax at (1) and (2).

4. Compute the tax on the total income after including the additional salary in the Previous Year to which such salary relates.

Income from Salaries

4.30 I DIRECT TAXATION

5. Compute the tax on the total income after excluding the additional salary in the Previous Year to which such salary relates.

6. Find out the difference between the tax at (3) and (4).

7. The excess of tax computed at (3) over tax computed at (6) is the amount of relief admissible under section 89. No relief is, however, admissible if tax computed at (3) is less than tax computed at (6). In such a case, the assessee-employee need not apply for relief.

If the additional salary relates to more than one Previous Year, salary would be spread over the Previous Years to which it pertains in the manner explained above.