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UNIT4:SALARY

Assesseereceivesincomefromdifferentsourcesduringtheyear.ForthepurposeofIncometax,incomeisclassifiedunderthefollowingheadsofincome:

1. Salaries2. IncomefromHouseProperty3. Profitsandgainsofbusiness/profession4. Capitalgains5. Incomefromothersources

Any incomeearnedbyassessee istobeclassifiedunderoneoftheheadsof income listedabove. Ifcertain incomefallsundermorethanoneheadassesseehasarighttochoosethemostappropriateheadforit.Incomeshouldnotbeputunderawronghead.

However, incometax isonetax. It is leviedontotal incomefromalltheheadsandnotseparately(exceptinfewcases)foreachheadofincomes.

SALARY(SECTION15TO17)Salarymeansremunerationreceivedbyanemployeefromemployerorformeremployerinanyformsuch as gift, pension, gratuity, usual remuneration etc. Some important points regarding incometaxableundertheheadSalary:1) Employeremployeerelationship.2) Fortaxpurposethereisnodifferencebetweensalary&wages.3) Evengiftreceivedfromemployerisconsideredassalaryincome.4) MP or MLA is not considered as an employee of the Government. Therefore, Salary &

allowancesreceivedbyhimarenotchargeableundertheheadSalary.TheyaretobeincludedundertheheadIncomefromOtherSources.

BASISOFCHARGE:

Undersection15followingincomeischargeabletotaxundertheheadSalary:(1) Anysalaryduefromanemployeroraformeremployertoanassesseeinthepreviousyearwhether

paidornot.(2) Anysalarypaidorallowed tohim in thepreviousyearbyoronbehalfofanemployeror former

employerthoughnotdue.(3) Anyarrearsof salarypaidorallowed tohim in thepreviousyearbyoronbehalfofemployeror

formeremployerifnotchargedtotaxearlier.(4) Any salary, bonus, commission or remuneration due to or received by Partner of the firm from

thefirmshallnotberegardedasSalaryforthepurposeofthissection.

UnderSection17(1),SALARYisdefinedas:a. Wages;b. anyannuityorpension;

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c. anygratuity;d. anyfees,commission,perquisiteorprofitsinlieuoforinadditiontoanysalaryorwages;e. anyadvanceofsalary;f. anypaymentreceivedinrespectofanyperiodofleavenotavailedbyhim;g. the portion of the annual accretion in any previous year to the balance at the credit of an

employeeparticipatinginRecognisedProvidentFundtotheextentitistaxable;andh. transferredbalanceinaRecognisedProvidentFundtotheextentitistaxable;andi. thecontributionmadeby theCentralGovernment in thepreviousyear, to theaccountofan

employeeunderapensionschemereferredtoinsection80CCD.

PERQUISITESSECTION17(2):Perquisite is additional benefit received by an employee over and above his basic salary but it isdifferentfromallowance.Perquisitemaybepaidvoluntarilyorbyvirtueofservicecontract.UnderSection17(2)Perquisiteincludes:1. Thevalueofrentfreeaccommodationprovidedtotheassessee.2. Valueofconcessiongiveninrentrelatingtoaccommodationprovidedtotheassessee.3. Valueofanybenefitgrantedfreeofcostorataconcessionalrateinrespectoffollowingpersons:

(a) ByacompanytoanemployeewhoisalsoaDirectorofthecompany.(b) Byacompanytoanemployeebeingapersonwhohassubstantial interest inthecompany.

(Personholding20%ormoreequitysharescarryingvotingrights isknownaspersonhavingsubstantialinterestinthecompany.)

(c) By an employer to an employee whose income under the head salary exceeds ` 50,000excludingthevalueofnonmonetaryperquisites.Forthepurposeofthisclause,useofanyvehicleprovidedbyacompanyoranemployerfor

journeybytheassesseefromhisresidencetohisofficeorotherplaceofwork,orfromsuchofficeorplacetohisresidenceshallnotberegardedasbenefitgrantedfreeofcostorataconcessionalrate.

4. Anysumpayablebytheemployerinrespectofanyobligationbutforwhichpaymentwouldhavebeenmadebytheassessee.

5. Anysumpayablebytheemployerwhetherdirectlyorthroughafundtoeffectanassuranceonthelifeofanassesseeexcludingcontributionmadetorecognisedprovidentfundoranyotherprescribedfunds.

6. Thevalueofanyotherfringebenefitoramenityasmaybeprescribed.

TAXABILITYOFPERQUISITESForthispurposePerquisitescanbeclassifiedinto3categories:Perquisitestaxableinallcases(i.e.Specified&NonSpecifiedemployees):1) Rentfreefurnishedorunfurnishedaccommodationincasesotherthan: a.Rentfreeaccommodationgiveninaremotearea. b.Atemporaryaccommodationof800sq.ft.givenataminingsite. c.Hotelaccommodationgivenaftertransfernotexceeding15days. d.RentfreeofficialaccommodationprovidedtoaJudgeofHighCourtorSupreme CourtoranofficialofParliamentoraUnionMinisterandaLeaderofoppositionin Parliament.

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2) Furnishedorunfurnishedaccommodationisprovidedinabovecasesatanominalrent3) Service of a sweeper, a gardener, a watchman or a personal attendant provided by an

employer to an employee without charge or with nominal charge if Domestic servant is engagedbyemployeeandsalaryispaidbyemployer.

4) Supply of gas, electric energy or water for household consumption of employee without any charge orwith nominal charge if connection is in the name of employee and bills are paid byemployer[coveredbysec.17(2)(iv)]

5) Education facility to any household members of the employee without any charge or with nominal charge if bills are issued in the name of employee but paid by employer [covered bysec.17(2)(iv)]

6) Any sum paid by employer in respect of an obligation which for such payment, would have beenpayablebytheemployee.

7) Amount payable by an employer directly or indirectly to effect an assurance on the life of employeeor toeffecta contractofanannuity (notbeingpayments to recognisedprovident fund,etc.)

8) Interestfreeloanorconcessionalloantoanemployeewhereloanexceeds`20,000.9) Providinguseofanyothermovableassettoanemployeeoranymemberofhishousehold10) Transferofanymovableassettoanemployeeoranymemberofhishousehold11) AnymedicalfacilityinIndiaprovidedtoanemployeeoranymemberofhisfamilywhen billsare

inthenameofemployeeandpaidorreimbursedbyemployerinexcessof` 15,000 perassessmentyear

12) Value of any specified security or sweat equity shares allotted or transferred by the employer or former employer free of cost or at concessional rate (applicable from the assessmentyear201213).

13) Any contribution to an approved superannuation fund by the employer in respect of the employeetotheextentitexceeds`1lakh(applicablefromtheassessmentyear201213).

14) Valueofanyotherfringebenefitoramenitynotifiedforthepurposeofsection17(3)(viii)(applicablefromtheassessmentyear201213).15) Travelling,touringaccommodation.16) Freefoodandbeveragesexceptifprovidedinofficehoursandtheexpenditureis`50per

mealorless.17) Giftorgiftvoucherofthevalueofnotlessthan`5,000(ifgiftisinkind).18) Clubexpenditureincurredbytheemployerinrespectofpersonaluse.19) Creditcardpaymentsbytheemployerinrespectofhouseholduse.Perquisitestaxableonlyforspecifiedemployees:1) Servicesofasweeper,agardener,awatchmanorapersonalattendantprovidedbyanemployer

to an employee without charge or with nominal charge if domestic servant is engaged byemployerandsalaryispaidbyemployer.

2) Supply of gas, electric energy or water for household consumption of employee without anycharge orwith nominal charge if connection is in the name of employer and bills are paid byemployer

3) Educationfacilitytoanyhouseholdmembersoftheemployeewithoutanychargeorwithnominalchargeifbillsareissuedinthenameof&paidbyemployer.

4) AnymedicalfacilityinIndiaprovidedtoanemployeeoranymemberofhisfamilyifbillsareinthenameofemployerandpaidorreimbursedbyemployerinexcessof`15,000perassessmentyear.

5) Caroranyotherautomotiveconveyance.6) Transportfacilitybyatransportundertaking(notbeingprovidedbyrailwaysorbyanairline).

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Perquisitesnottaxableinallcases:1) Rentfreefurnishedorunfurnishedaccommodationincasesmentionedbelow:

a) Rentfreeaccommodationgiveninaremotearea.b) Atemporaryaccommodationof800sq.ftgivenatminingsite,etc.c) Hotelaccommodationgivenaftertransferfornotexceeding15daysd) RentfreeofficialaccommodationprovidedtoaJudgeofHighCourtorSupremeCourtoran

officialofParliamentoraUnionMinisterandaLeaderofoppositioninParliament.2) Leavetravelconcessiontoemployeessubjecttoprovisionofsection10(5)3) Providinguseofcomputer&laptoptoanemployeeoranymemberofhishousehold.4) Providingmedicalfacilitiestoanemployeeoranymemberofhisfamily:

a) in a hospital maintained by the Government or any local authority or approved by theGovernmentforthemedicaltreatmentofGovernmentemployees.

b) inahospitalmaintainedbytheemployer.c) in respect of prescribed diseases or ailments, in any hospital approved by the Chief

Commissionerhavingregardtotheprescribedguidelines.5) Healthinsurancepremiumoftheemployeeoranymemberofhishouseholdpaidbytheemployer6) AnyothermedicalfacilityinIndiaprovidedtoanemployeeoranymemberofhisfamily

a) Billsare in thenameofemployerandpaidor reimbursedbyemployerup to`15,000perassessmentyear

b) Billsare in thenameofemployeeandpaidor reimbursedbyemployerup to`15,000perassessmentyear

c) MedicalfacilityoutsideIndiaifafewconditionsaresatisfied7) Anyperquisiteotherthantaxableperquisitesalreadymentioned(fewexamplesarecar,holiday

home,club,freetea/refreshment/lunch,gift,etc.)

Section17(3)ProfitsinLieuofSalary Itisnotaregularpaymentreceivedfromtheemployer.Itisreceivedinsteadofsalary. Itincludes:

1) The amount of any compensation due to or received by an assessee from his employer orformer employer at or in connection with the termination of his employment or themodificationofthetermsandconditionsrelatingthereto;

2) Anypaymentother thananypayment referred to inclause (10) (clause (10A)) (Clause (10B),Clause (11) Clause (12) Clause (13) or clause (13A) of section 10, due to or received by anassesseefromanemployeroraformeremployerorfromprovidentfundorotherfund,totheextent to which it does not consist of contributions by the assessee or interest on suchcontributions;

3) AnysumreceivedunderaKeymaninsurancepolicyincludingthesumallocatedbywayofbonusonsuchpolicy.

4) Anyamountdue toorreceived,whether in lumpsumorotherwise,byanassessee fromanypersona) Beforehisjoininganyemploymentwiththatperson,orb) Afterterminationofhisemploymentwiththatperson.

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TAXABILITYOFPROVIDENTFUNDSParticulars Statutory Recognised Unrecognised Public

ProvidentFund ProvidentFund ProvidentFund Provident Fund(PPF)

1)Whorunsthe Government Respective Respective NationalisedFund employer Employer Banks2)Contribution Nottaxable. Nottaxable Nottaxable NotTaxablemadebyEmployee

Deductionu/s80C

Deductionu/s80C Nodeductionu/s80C

Deductionu/s80C

3)Contribution Totallyexempt Exemptonlyup Totallyexempt Employermadeby to12%ofbasic doesnotEmployer Salary contribute4)Interestearned Totallyexempt Exemptupto8.5%

p.a.Totallyexempt Exemptu/s

onthefund 10(15)5)Maturityon Totallyexempt Totallyexempt 1)Employees TermofthisRetirement ownsavingtax accountis free 15years 2)Int.onhis whichmay savingsfully beextended taxedasother

Incomeupto20/25years

3)employers maturityare Contributionfully fullyexempt taxedassalary Income 4)Int.on Employers contributionfully taxedassalary income

Note:Salaryreferredaboveisbasicsalary.ItincludesD.A.iftermsofemploymentsoprovide. By adding salary, taxable perquisites and profit in lieu of salary we get Gross Salary of anemployee. From Gross Salary certain deductions are allowed u/s 16 & only remaining amount isconsideredasNetTaxableSalary.

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DEDUCTIONSFROMSALARYINCOMESECTION16

ENTERTAINMENTALLOWANCEU/S16(ii): Ifanyentertainmentallowance isgrantedtotheassesseewho is inreceiptofsalary fromthegovernmentdeductionisallowedagainstitu/s16(ii)asfollows:DeductionforEntertainmentAllowance Governmentemployee Otheremployees1)1/5thofBasicSalary NilOR2)`5,000OR3)EntertainmentAllowanceactuallyreceivedWhicheverisless.

TAXONEMPLOYMENTU/S16(iii)

AnytaxpaidbyanemployeeonemploymenttothestateGovt.isfullydeductiblefromtaxablesalarye.g.ProfessiontaxchargedbyGovt.ofMaharashtra.

Ifprofessiontax ispaidbytheemployer, it is first included intaxablesalaryasperquisiteandthendeductionu/s16(iii)isallowed.

PROBLEMS

1. Mr.Sanjay isworkingasanaccountant inCentralRailway.Thefollowingaretheparticularsofhis

incomefortheyearending31stMarch2014:(a) MonthlyBasicSalary`5,800.(b) DearnessAllowance`500permonth.(c) SpecialAllowanceof`300permonth.(d) Bonus`2,000.(e) Entertainment allowance of ` 800 permonth since 141989 ofwhich he actually spent `

8,000.(f) Hespent`1,500onbooksandpaidprofessiontax`720.

YouarerequiredtocomputetaxableincomefromsalariesofMr.Sanjayforassessmentyear20142015.

2. Mr.Harilal isworking as inspector of Central ExciseDepartment.He provides you the following

informationfortheyearended31stMarch2014.(a) Basicsalarypermonth `7,800(b) DearnessAllowancepermonth `4,000(c) Exgratia `8,840(d) EntertainmentAllowanceof`1,000p.m.from141991

Amountactuallyspent`7,000.(e) Houserentallowance`22,000(Exemptu/s10(13A)`7,000)

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(f) Arrearsofsalary`6,000.(g) ProfessionTaxwasdeductedatsourcefromsalary`1,440.

He was on leave for one month and went to Kashmir on 31st March 2014. He took thesalary(Basic&D.A.)ofAprilinadvance.

Computehistaxablesalary.

3. Mr.ManjrekarwhowasworkingasCommissionerof IncomeTax, retiredon31stDecember2013.Followingaretheparticularsofhisincomerelatingtotheyearendingon31stMarch2014.(a) Salaryreceived`9,000/permonth.(b) EntertainmentAllowancereceived`450/p.m.Hespentonentertainment`350/p.m.onan

average.(c) DuringthemonthofJanuary,2014hereceivedgratuityamountingto`95,000/(d) Hereceived`70,000/thevalueofcommutedPensionon15thJanuary2014.(e) HereceiveduncommutedPensionfromGovernmentwitheffectfrom1stJanuary,2014which

becomesdueoneverylastdayofthemonthattherateof`3,200/p.m.(f) Hereceivedarrearsofsalary`9,400/on29thMarch,2014.(g) He incurred theexpenses incidental toEmployment suchaspurchaseofbooks,carexpenses

etc.amountingto`15,280/Youarerequiredtocomputehistaxableincomefortheassessmentyear20142015.

4. Mr.Varun isworkingasanaccountsofficer inaGovernmentDepartmentatMumbai,since 1976.

Duringtheyearhereceived`48,000/assalary,`1,000/asexgratia&`4,500asentertainmentallowance.Hewasprovidedwithrentfreefurnishedaccommodationperquisitevalueofwhichwasascertainedat`18,500.Transportallowanceof`4,000wasreceivedandactualexpensesincurredwere`4,200/.ProfessionTaxpaidduringtheyearwas`1,080/

Youarerequiredtoascertaintheincomechargeabletotaxunderthehead,SalariesofMr.Varunfortheassessmentyear20142015.

5. Miss.MandiraisemployedwithSoniSales&Servicesassalesrepresentative.Shefurnishesyouthe

followinginformationfortheassessmentyear20142015.a. Salary@`25,000permonth.b. Commissiononsales`47,000/.c. Bonusequaltoonemonthssalarywaspaid.d. `16,000/ascompensationforterminationofservices.e. Entertainmentallowance@`1,250permonthsince1stJanuary1994f. Houserentallowance`5,000permonth(Exempt`3,000permonth).

On1stDecember,2013 shewasappointedas salesmanager inSetMaxLtd.on the followingtermsandconditions:a. Salary@`6,000permonth,andb. Carfacilityexclusivelyduringofficehours.c. H.R.A.`1,650permonth.(Exempt`400p.m.)

You are required to compute the taxable income ofMiss.Mandira for the assessment year20142015.

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6. Mr.RajeshisanemployeeofM/sModernLaboratorieswhofurnishesyouthefollowinginformationfortheassessmentyear20142015:(a) NetSalarypermonth`25,750for11monthsand`25,650inthelastmonth.(b) Income taxdeductedatsourcepermonth`8,000&ProfessionTax`200permonth for11

monthsand`300inthelastmonth.(c) Providentfundcontributiondeductedfromsalary`5,000permonth.(d) Employerpaid`33,500beingtherentofthehouseoccupiedbyMr.Rajesh.(e) AwardfromThaneMunicipalCorporationforpresentationofbestdesign,`5,000/.

On1stOctober2013Mr.Rajeshwasappointedasadirector.During6monthsperiodended31stMarch2014,sixBoardMeetingswereheldoutofwhichMr.Rajeshattendedfive.Boardmeetingsfees `400/permeeting attended ispaid tohim.Calculate the taxable incomeunder thehead,SalariesofMr.Rajeshfortheassessmentyear20142015.

7. Miss. Paro is employedwithM/sDevdas Electronics. Salary for themonth is paid on 1st day of the followingmonth. She furnishes you the following particulars for the assessment year 2014 2015.

(a) Receivedsalary@`14,000p.m.fortheperiodfrom1stMarch2013to28thFebruary2014(b) Reimbursementofcarexpenses inrespectofofficeuse`12,000/.(Sheusedherowncarfor

herselfaswellasforofficeuse)(c) Her contribution to Recognised P.F. was 13% of salary with employer making equal

contribution.(d) Shewascreditedwithinterest@9%p.a.onherP.F.Accountwhichwas`18,000.

She was also doing a part time job with Anand Dham Cooperative Society on a monthlyremunerationof`1,000/.Bonusequaltoonemonthssalarywasdeclared.

YouarerequiredtoascertainthetaxableincomefromsalariesofMissParofortheassessmentyear20142015.

8.Mr.Dipak,thechiefaccountantinafactoryatBaroda,furnishesyouwiththefollowinginformation

andasks you to computehis income taxableunder thehead, Salaries for theassessment year20142015.

(a) Salary`1,47,000.(b) ArrearsofSalaryforearlieryearreceivedduringtheyear`6,000/(c) SalaryforApril,2014receivedon31stMarch2014`12,250/(d) Purchasedcarbytakingaloanof`15,000/(e) Agiftbytheemployerforexcellentwork`7,500/(f) ReimbursementofexpensesincurredbyhimforattendingcompanysworkatDelhi`

25,000/(g) He spent for books ` 1,500/, profession tax ` 1,080 and fees for membership of a

professionalbody`300/(h) L.I.C.Premiumpaidbytheemployer`4,500/.(i) Bonusequaltoonemonthssalarywasdeclared.

9. ShriGaneshDeshpandeisworkingasanaccountantofM/sKaminiIndustriesPvt.Ltd.He furnishesyouthefollowinginformationfortheassessmentyear20142015: He receivedsalaryof`60,000permonth.He isprovidedwith furnishedaccommodation, the

perquisitevalueofwhichisconsideredtobe`14,400/perannum..CompanydeductedProfessionTax`2,500/fromhissalaryduringtheyear.

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Hewasonleavefor25days.DuringtheperiodofhisleavehewenttoDehradunandstayedattheguesthouseoftheemployercompany.

ThecompanypaidtheRailwayfarefromMumbaitoDehradunandbackforShriGanesh,hiswifeandchildren.

TheRailwayfareamountsto`7,500/,whichiswithinthespecifiedlimits. Youarerequiredtoascertainhistaxableincomeunderthehead,Salariesfortheassessment

year20142015.

10.Mr.VikasisthebranchmanagerofTheThaneJanataSahakariBankLtd.Hefurnishedthefollowinginformationforthepreviousyearendingon31stMarch2014.(a) Receivedsalaryat`9,000/permonth.(b) AnawardastheBestManagerof`11,000/wasreceivedon26thJanuary2014fromthe

BoardofDirectorsoftheBank.(c) NotifiedSpecialAllowanceforhalfyearlyclosingof`1,500/wasreceivedtwiceduringthe

year.He incurredtheexpensesof`1,080/oneachoccasiontogiverefreshmentstothestaffofthebranch,tocompletetheworkofhalfyearlyclosingintime.

(d) ShriVikasreceivedanawardof`5,000/fromcommissionerofPolice,Thaneforshowingthenecessarycouragetopreventtheterroristwho intendedtokillthemembersofthestaff.

(e) TransportAllowance`800p.m.Actualexpenses`700p.m.(f) ProfessionTaxfortheyearwas`960/&itwaspaidbytheemployer.

Youarerequiredtoascertainthetaxableincomeunderthehead,SalariesofMr.Vikas fortheassessmentyear20142015