PROJECT

INCOMEFROM

SALARIES

Project Presented By:

Group Leader:

Maitrayee .R. JadhavRoll No.16

Name Roll noBhushan Dalvi 9Mrunmayee Gaokar

10

Dinesh Gawade 11

Dipesh Gawas 12Priyanka Ghag 13Deepak Gupta 14Ashmita Jadhav 15

INTRODUCTION:

MEANING OF SALARYSalary, in simple words, means remuneration of a person, which he has receivedfrom his employer for rendering services to him. But receipts for all kinds ofservices rendered cannot be taxed as salary. The remuneration received byprofessionals like doctors, architects, lawyers etc. cannot be covered under salarysince it is not received from their employers but from their clients. So, it is taxedunder business or profession head. In order to understand what is included insalary, let us discuss few characteristics of salary.

CHARACTERISTICS OF SALARY.

1. The relationship of payer and payee must be of employer and employeefor an income to be categorized as salary income. For example: Salaryincome of a Member of Parliament cannot be specified as salary, since it isreceived from Government of India which is not his employer.2. The Act makes no distinction between salary and wages, though generallysalary is paid for non-manual work and wages are paid for manual work.3. Salary received from employer, whether one or more than one is includedin this head.4. Salary is taxable either on due basis or receipt basis which ever maturesearlier:

Receipt basis – when it is received even if it is not earned in the previousyear.Arrears of salary- which were not due and received earlier are taxablewhen due or received, which ever is earlier.5. Compulsory deduction from salary such as employees’ contribution toprovident fund, deduction on account of medical scheme or staff welfare

scheme etc. are examples of instances of application of income. In thesecases, for computing total income, these deductions have to be added back.

INCOMES FORMING PART OF SALARY: I

Section 17 of the Act gives an inclusive definition of salary. Broadly, it includes:1. Basic salary2. Fees, Commission and Bonus3. Taxable value of cash allowances4. Taxable value of perquisites5. Retirement BenefitsAlthough, all the components of salary income are included in salary, there arecertain incomes in each of these categories, which are either fully exempt orexempt upto a certain limit. The aggregate of the above incomes, after theexemption(s) available, if any, is known as ‘Gross Salary’.

Under the Income-tax Act " Salary " includes :-

Wages

Annuity or pension

Gratuity

Fees,commission,perquisites or profits in lieu of salary

Advance of Salar / arrears of salary;

Receipt from Provident Fund

Contribution of employer to a Recognised Provident Fund in excess of the prescribed limit

Leave Encashment

Compensation as a result of variation in Service contract etc. Salary Due : Any income due from an employer to an

employee, whether paid or not. This is also true if the income is due from a former employer

Advance Salary: Any salary paid by an employer to an employee even though it was not due or was paid before the due date. This is also true if the advance salary had been paid by a former employer

Arrears of Salary : Any arrears of salary paid to an employee by an employer, for which income tax had not been previously deducted. This is also true in case the arrears are paid by a former employee.

Employee, employer and employment areessential components of income from salary,which are defined as under: -

Employee means an individual engaged inemployment.

Employer means any person who engages and

remunerates an individual engaged inemployment.

Employment includes – A directorship or any other office involvedin the management of a company. A position entitling the holder to a fixed orascertainable remuneration; or The holding or acting in any public office..

WHAT IS THE PLACE OF ACCRUAL OF SALARY?

The golden rule is that it accrues where the service is rendered. Leave salary paid to a person employed in India on leave to a foreign country is treated to be the arisen in India. However, if a citizen of India service outside India and receives salary from the of India, it would be taxable as salary to have accrued in India.

PENSIONS TO BE TAXED AS SALARY?

Pensions are taxed under the head 'Salaries'. The of standard deduction is also available on them.

IS ADVANCE SALARY TO BE TAXED IN THE YEAR OF RECEIPT?

The I.T. Act contemplates tax on salary which is due, whether paid or not, tax is attracted at the latest possible point of time which is the date when the salary accrues or becomes due. However, where any salary paid in advance is assessed in the year of payment, it cannot be taxed again when it becomes due. Similarly, if arrears of salary have been assessed on the 'due' basis in the past, they are not liable to be taxed again when they are paid.

WHAT IS TAX FREE SALARY AND HOW IS IT TAXED?

When the salary is paid 'tax-free' the employee has to return in his total income the gross salary, i.e. aggregate of the net-salary received plus the amount of tax paid on his behalf by the employer. It does not make any difference whether the tax is borne by the employer voluntarily or under a contractual obligation

IS SALARY PAYABLE FOR LEAVE-PERIOD TO NON - RESIDENTS TAXABLE EVEN IF LEAVE IS SPENT

OUTSIDE INDIA?

Yes. The salary paid for services rendered in India is regarded as income earned in India, so as to specifically provide that any salary payable for rest period or leave period which is both proceeded or succeeded by service in India forms part of the service contract of employment will also be regarded as income earned in India and so is to be taxed.

PERQUISITE

"Perquisite" may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. Perquisite as defined in the Income tax Act includes:-

Value of rent-free/concessional rent accommodation provided by the employer.

Any sum paid by employer in respect of an obligation which was actually payable by the assessee.

Value of any benefit/amenity granted free or at concessional rate to specified employees etc.

The following perquisites are not taxable either under the executive instructions of the Central Board of Direct Taxes or by virtue of specific provision in the Act/Rules:-

Rent-Free House

Rent-free official residence provided to a judge of a High Court or of the Supreme Court.

Rent-free furnished residence (including maintenance thereof) provided to an official of Parliament, a Union Minister or a Leader of Opposition in Parliament

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.

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

Car

Reimbursement of expenses in respect of car (which is owned by employee and used for personal and official purpose) (amount not taxable is up to Rs. 1,200 per month for car having engine capacity of not more than 1600cc, Rs. 1,600 per month for car of above 1600cc and Rs. 600 per month for driver).

Conveyance facility provided to High Court Judges and Supreme Court Judges.

Conveyance facility provided to an employee to cover the journey between office and residence.

Interest-Free Loan

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

Others

Gift-in-kind up to Rs.5,000 in a year.

Employer's contribution to staff group insurance scheme

WHO IS A SPECIFIED EMPLOYEE AND WHAT PERQUISITES ARE TAXABLE IN HIS HANDS?

The specified employees include the following:-         

a) Director employee, whether full time or part time.

b) Employee who is beneficial owner of equity in the employer's company carrying 20% or more voting 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) in monetary terms.

The value of any benefit or amenity granted or provided free of cost or at concessional rates to these specified persons would be a 'perquisite' taxable in their hands.

WHAT ARE THE OTHER TAXABLE PERQUISITES?

LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001.

The other taxable perquisites which are taxable in a prescribed manner include the folio wing: -

a) Value of rent free accommodation provided to the assessee by his employer.

b) Value of concession in rent of accommodation provided to the assessee by his employer.

c) Amount payable by an employer directly or indirectly to effect an assurance on the life of the employee or to effect a contract for an annuity,  other than payment made to recognised provident fund etc.

d) Amount paid by an employer in respect of any obligation which otherwise would have been payable by the employee, for example - payment of income-tax.

Valuation of perquisites - The employer often gives some perquisites to the employees. Value of these perquisites is added to the income of employees. The valuation of perquisites is done as follows :

Rent Free unfurnished Accommodation - -  In case of private sector employees, value of perquisite of rent free unfurnished accommodation is taken as follows - (a) If owned by employer - If population of city exceeds 25 lakhs - 15%, if population exceeds 10 lakhs but below 25 lakhs - 10% (c) In other cases - 7.5%.

In case of Government Employees, value will be rent as per rules framed by Government, as reduced by sum actually paid

Salary includes basis, DA (if taken into account for retirement benefit), bonus, commission, fees and all taxable allowances.

Valuation of furnished accommodation - If accommodation is furnished, in addition to above, 10% of cost of furniture (including TV, radio, refrigerator, AC etc.), if owned by employer, will be treated as perquisite. If the furniture is hired from third party, actual hire charges less any amount recovered from employee will be the perquisite.

Gas electricity or water supply - Some benefits like gas, electricity, water are valued at actual cost to employer. If these are provided from own sources, value will be manufacturing cost incurred per unit, less amount recovered from employee.

Domestic servants - Actual cost to employer for sweeper, gardener, watchman or personal attendant will be value of perquisite.

Use of movable assets - If some movable asset is provided to employee, perquisite will be @ 10% of the cost of asset or rent paid, as reduced by sum paid by employee.

Loans to employees at concessional rate - Calculate interest on basis of SBI lending rates, reduced interest paid by employee and difference will be the value of perquisite.

1-3 Perquisites which will be added to salary

Remaining  perquisites perquisites like motor car, lunch, refreshment, travelling, touring, gift, credit card, club etc. will be added to salary and taxed in hands of individual (Till 31-3-2009, FBT was payable by employer and hence these were exempt at hands of employee).

Valuation of motor car -.If car is owned or hired by employer and provided for personal purposes of employees, valuation will be expenditure incurred by employer on running and maintenance plus remuneration

of chauffer plus normal wear and tear @ 10% on actual cost less amount charged to employees.

If motor is partly for official and partly for personal purposes and expenses are reimbursed by employer, perquisite value per month is Rs 1,2000 per month if engine cubic capacity is upto 1.6 liters and Rs 1,600 per month if cubic capacity of engine exceeds 1.6 liters.

If motor is partly for official and partly for personal purposes and expenses are reimbursed by employer, perquisite value per month is Rs 1,200 per month if engine cubic capacity is upto 1.6 liters and Rs 1,600 per month if cubic capacity of engine exceeds 1.6 liters. If  chauffer is provided, value of perquisite will be Rs 600 per month.

If motor is partly for official and partly for personal purposes and expenses are met by employee, perquisite value per month is Rs 400 per month if engine cubic capacity is upto 1.6 liters and Rs 600 per month if cubic capacity of engine exceeds 1.6 liters. If  chauffer is provided, value of perquisite will be Rs 600 per month.

ALLOWANCE

"Allowance" is defined as a fixed quantity of money or other substance given regularly in addition to salary for meeting specific requirements of the employees. Most allowances are taxable like city compensatory allowance, tiffin allowance, fixed medical allowance and servant allowances. Encashment of any concession is also taxable.

If ARE   THERE   ANY   ALLOWANCES,   WHICH   ARE   ONLY : exempt when received at a particular place(s) ;pr area(s)? and do they have any upper ceilings : for exemption?

For the new amended Rules contain other allowances also .which are exempt (subject to ceilings) in particular area(s) only. These special allowances are :-

i) Any special Compensatory Allowance, in the nature of Composite Hill Compensatory allowance or High Altitude, Allowance or Uncongenial Climate Allowance or Snow Bound Area Allowance or Avalanche Allowance;

ii) Any special Compensatory Allowance given which is in the nature of border area allowance or remote area allowance or difficult area allowance or disturbed area allowance;

ii) Tribal Area Allowance;

iii) 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;

TAXABLE NON-TAXABLE ALLOWANCES

Children Education Allowance;

Any allowance granted to an employee to meet the hostel expenditure of his child;

Compensatory Field Area Allowance;

Compensatory Modified Field Area Allowance;

City compensatory allowance :Fully taxable.Foreign Allowance :Exempt from tax if paid outside India By the government to the Indian citizen for rendering services outside India.Fixed medical allownace:Taxable.Project Allowance :taxable.Allowances to Supreme court/High court Judges :Not taxable.

Servant/helper Allowance :taxable ,if helper  used for official purpose then exempted..Transport Allowance: known also as LODA ,means allowance to meet expenses incurred for office to home and home to office is exempted up to 800 per month maximum.Tiffin Allowance :Taxable .Allowance to meet the cost of travel on tour or on transfer(including amount paid for packing and transportation of personal effects on such transfer):exempted  to the extent allowances used for said purpose.Allowance (know as DA in TA bill) paid for purpose explained in point 11 above ,to meet the ordinary daily charges on account of absence from his normal place of duty):exempted to the extent allowance used for the said purposeConveyance allowance:To meet the expenditure on conveyance in performance of duties of an official nature:exempted to extent allowance used for said purposeUniform allowance : exempted to the extent used for the said purposeChildren Education allowance :Rs 100 per month per child up to maximum of two child is exempted if expenses made in IndiaChildren hostel allowance:Rs 300 per month per child up to maximum of two child is exempted if expenses made in IndiaAllowance granted to employee working in transport system where no daily allowance has not been allowed to meet daily expenses ,done to meet his personal expenses during duty performance from one place to other place :70 % of such allowable exempted maximum up to 6000 per month.Allowance granted for encouraging the academic ,research and other professional pursuits:exempted to the extent used for said purposemany hilly area,remote area,field allowances are exempted on various rateAny other allowance :generally Taxable.

HRA(House Rent Allowance ) house rent allowance is exempted u/s 10(13A) of the income tax act.Least of the following is exempted from Hra Received

o HRA receivedo House rent paid minus 10 % of salary(salary

means basic plus dp plus da if term of employment so provides)

o 50% of salary(same meaning as above)in case of rented house situated in Bombay,Madras,Delhi or calcutta

o 40 % of salary ,if rented house is situated in any other places

Exemptions for salary income - Following are exempt from income tax-

Transport allowance upto Rs 800 per month granted to an employee to meet his expenditure for the purpose of commuting between place of residence and the place of his duty.

Conveyance and transport allowance granted to employee to meet cost of travel on tour are exempt. Allowance granted to meet expenditure incurred on conveyance in performance of duties of an office or employment are exempt. In LIC Officers v. LIC of India (2000) 112 Taxman 227 (Bom HC DB), it was held that conveyance allowance is exempt only if expended for meeting expenses wholly and necessarily incurred or to be incurred in performance of duties of office. Conveyance allowance at flat rate irrespective of place of residence, work and posting will not be exempt from income tax.

Conveyance and transport allowance granted to employee to meet cost of travel on transfer are exempt. Expenses granted to meet cost of travel on transfer and cost of packing and transportation of personal effects on such transfer are exempt.

Use of employer’s vehicle or transport provided for journey of employee from residence to his place of work and back is not treated as perquisite and its cost is not treated as income.

Refreshments during office hours to employees and recreational facilities provided to group of employees are not treated as perquisites.

Gratuity - Gratuity for Government employees is fully exempt [section 10(10)(i)]. In case of employees covered under Payment of Gratuity Act, exemption is upto Rs 3,50,000 to be reduced by such exemptions claimed in the past or 15 days salary for every completed year of service, whichever is lower.. Salary means basic plus DA (if forming part of retirement benefits) [section 10(10)(ii) of Income Tax Act]  Any other gratuity is also exempt to same extent [section 10(10(iii)]of Income Tax Act]

LTA/LTC - Leave Travel Assistance/Leave Travel Concession is allowed twice in a block of four years. It is limited to amount actually spent on travelling of employee and his family members. It is limited to economy class of air fare or AC first class fare [section 10(5) of Income Tax Act and rule 2B]

The allowance is exempt subject to amount of expenses actually incurred by the employee for such travel. The employee will have to keep account of actual expenses incurred. It appears that actual travel by air or AC is not required, but the overall ceiling on expenses is subject to limit of air fare / rail fare.

Medical treatment - Reimbursement of amount actually spent for medical treatment upto Rs 15,000 is exempt in a financial year. In addition, reimbursement of insurance premium for self, spouse, children and dependent brothers, sisters and parents is exempt.

In case of treatment in Government or approved hospital, or expenditure on medical treatment outside India, reimbursement of medical expenses is exempt without any ceiling

VRS (Voluntary Retirement) - It is exempt upto Rs five lakhs if VRS is as per prescribed conditions.

Leave encashment - Encashment of earned leave on retirement of employees of Central/State Govt is fully exempt [section 10(10AA)(i) of Income Tax Act] . Leave encashment while in service is treated as part of salary. In other cases, leave encashment of earned leave on retirement will be lowest of 10 months’ salary, Rs three lakhs or actual sum received [section 10(10AA)(ii) of Income Tax Act]

RENUMERATION FOR CO-OPERATIVE TECHNICAL ASSISTANCE PROVIDED AS PER AGREEMENT BETWEEN GOVERNMENT OF INDIA & FOREIGN GOVERNMENT [SEC 10(8)]

COMMITED PENSION [SEC10(10A)]-COMMITED PENSION IS THE DISCOUNTED AMOUNT RECEIVED IN ADVANCE,INSTEAD OF MONTHLY PENSION.THIS EXEMPTION IS AVAILABLE TO CENTRAL/STATE GOVERNMENT EMPLOYEES,DEFENCE PERSONNEL, & EMPLOYEES OF LOCAL AUTHORITY.

INCASE OTHER EMPLOYEES (PRIVATE SECTOR) YHE MAXIMUM LIMIT IS 1/3RD OF TOTAL PENSION,AS MAY BE APPLICABLE.

THE DEDUCTIONS FROM SALARY INCOME UNDER SECTION 16

The  following deductions  are  available  from  salary income:-

1. Standard deduction.2. Deduction for professional or employment tax3. Deduction of entertainment allowance.

STANDARD DEDUCTION

For A.Y. 1998-99, Standard deduction of a sum equal to 33-1/3% of the salary or Rs.20,000 whichever is less, was allowed to an individual having income from salary.

Then w.e.f. 1-4-99 this limit of Standard deduction for assessees having salary income upto Rs. 1,00,000 was increased from Rs.20,000 to Rs.25,000, However, the benefit of standard deduction to assessees having salary income of more than Rs. 5,00,000 was

withdrawn. This implies that an assessee earning salary income between Rs. 1 lac and Rs.5 lacs will only be entitled to a Standard deduction of a sum equal to 33-1/3% of the salary or Rs.20,000 whichever is less.

IS STANDARD DEDUCTION ALLOWABLE TO PENSIONERS?

Yes.   The standard deduction is also allowable to pensioners.

DEDUCTION FOR PROFESSIONAL OR EMPLOYMENT TAX

Professional tax or employment tax, levied by a State Government is eligible as a deduction. The amount so paid can be deducted from the taxable salary.

ENTERTAINMENT ALLOWANCE

Upto  A.Y.   2001-02   Entertainment  allowance is first , included in the employee's salary and then exemption is allowed as given here-in-below:-

(a) In the case of Government employee the least of

(i) Rs.5000 or,

(ii) 20% of salary (exclusive of any other allowance), is allowable as a deduction.

(b) In the case of non-Government employees least of thefollowing : -

(i) Entertainment allowance regularly received from his present employer from a date prior to 1.4.1955 or,

(ii) A sum equal to 1/5th of salary (exclusive of any other allowance, benefit or perquisite) or,

(iii) Rs.7,500, is allowed as a deduction.

HAS THERE BEEN A CHANGE IN ALLOWABILITY OF ENTERTAINMENT ALLOWANCE?

Yes. With effect from 1 st April, 2002, i.e. in relation to the assessment year 2002-2003 and subsequent years, this provision relating to deduction of entertainment allowance stands omitted in the case of employees in continuous employment since the 1 st April, 1955 under section 16.

FORMAT OF INCOME FROM SALARY

NAME OF ASSEESSEE

PANSMENT YR- ASSESMENT YEAR-2009-10

PREVIOUS YEAR-31-3-2009

STATUS:INDIVIDUAL: RESIDENT AND ORDINARILY RESIDENT

COMPUTATION OF INCOME FROM SALARIES

NAME AND ADDRESS OF THE EMPLOYER RS RSSALARYBASIC SALARY/WAGES

ARREARS OF SALARY

ADVANCE SALARY

BONUS

LEAVE SALARY

COMMISSION

PENSION

GRATUITY(TOTAL EXTWNT NOT EXEMPT U/S 10)

COMMITED VALUE OF PENSION(TO EXTENT NOT EXEMPT U/S 10)

ALLOWANCES(TO EXTENT EXEMPT U/S 10)

ENTERTAINMENT ALLOWANCES

DEARNESS ALLOWANCE

CITY COMPENSATORY ALLOWANCE

HOUSE RENT ALLOWANCE

OTHER ALLOWANCE(TO EXTENT NOT SPENT)

PERQUISITES(TO THE EXTENT TAXABLE)

PROFIT IN LIEU OF SALARY

GROSS SALARY

LESS:DEDUCTION U/S 10

1) ENTERTAINMENT ALLOWANCE

(U/S 16(2)

2) PROFESSIONAL TAX(U/S 16(3))

NET SALARY CHARGEABLE TO TAX

How can I calculate my Salary Income?

These calculations are best left to your internal human resource or accounts department. Nevertheless, here is a quick table that can guide you to getting an understanding of how to calculate your salary income. But some of you might find the terms and words used a little technical, so don’t say we didn’t warn you….for simplification purposes, we have used round numbers for the table.

  ItemExample

Amount (in Rs.)

  Basic Salary, Pension, Annuity, 100,000

Bonus, Dearness Allowance, Commission, Advance Salary, Arrears of Salary

AddGratuity Leave Encashment, Commuted Pension,

10,000

AddPerquisites and Profits in addition to or in lieu of Salary

5,000

AddEmployer’s contribution to recognized Provident Fund in excess of 12% of salary

300

  Gross Salary 115,800

LessDeduction for Entertainment Allowance

-5,000

Less Deduction for Employment Tax -1,000

  Salary Income 109,800

Please recognize that not all these line items might be applicable to you, the above is just an illustrative example to demonstrate how one can calculate one’s Salary Income.

EXAMPLE:MS Urmilla is employed with DREAM WORK LTD as a secretary since 1st april 2006 during the year ended 31st march 2009, she received the following

Basic salary RS 15,000 per month House rent allowance RS 2,500 per month Amount received for meeting conveyance expenses

RS 500 per month .She has spend RS 7000 in the year for commuting on business work

Reimbursement of medical bill RS 2,800Perquisite in respect of concessional lunch during office hours RS 4,500

COMPUTE THE INCOME CHARGEABLE TO TAX OF MS URMILLA FOR THE AY 2009-10 SOLUTION:

MS URMILLAPAN: ASST YR-2009-10 PRV YR-31-3-09STATUS-INDIVIDUALRESIDENT AND ORDINARILY RESIDENT

COMPUTATION OF INCOME FROM SALARY

RS RSSALARIESSALARIES (15,000X 12)

1,80,000

HOUSE RENT (2,500X12)

30,000

MAKE UP ALLOWANCE (1,000X12)

12,000 42,000

RECEIVED FOR MEETING CONVEYANCECONVEYANCE ALLOWANCE (1,500X12)

6,000

LESS: EXEMPT U/S 10 (14)

7,000 -

GROSS SALARY 2,22,000LESS: DEDUCT U/S 10 (14) TO EXTENT SPENT

-

INCOME FROM SALARIES

2,22,000

NOTE-LUNCH –RS 4,500, SINCE THIS ALLOWANCE IS PAID DURING OFFICE .THUS HOURS THIS WILL NOT BE TREATED AS SALARY

MEDICAL BILL-RS 2,800,SINCE IT IS A REIMBURSEMENT IT WILLNOT BE TREATED AS SALARY.

BIBLOGRAPHY

WWW.GOOGLE.COM

REF (TAXATION TEXT BOOK)