Casually sit back and relax and enjoy your Income tax

Education for all

What do you mean by rest? B. Com, BBM, M.Com,

This slides are Prepared for Any one who Had not Attended classes regularly Or do not have Time or money.

Income from Salary Players!! Now you Do some Exercise Even not Studied So far.

By Prof. Augustin Amaladas and Prof.Amala shanthi St. Josephs College of Commerce and Jyoti Nivas college respectively, Bangalore M.Com., AICWA.,PGDFM., B.Ed. 09845844319 aug_bang@yahoo.com

M B As

It is so simplified in such a way that you can easily understand

ICWA 1 CA CS

Dedicated to our kids

Joewin Shamalina And Tim Sebastian

salary

Fringe Benefit tax Taxable To Employer

Basic + DA+ Commission etc Normal components Allowances

Applicable To companies Perquisites Taxable To employee

3

Alternative work is rest

Definition of salary
Section 15 Employer and employee relationship is very important. Director of a company is not an employeetherefore his remuneration does not come under salary Emolument received by college lecturer for valuation of answer scripts in the university does not come under salary because he/She is not an employee of the university but employee of a college.They come under income from 4 other sources

Threat is your opportunity

Paper setting, MP and MLA

If the same lecturer receives emoluments(remuneration or salary) from his college for academic or non academic work constitute salary. Question paper set to other colleges or other universities comes under other sources. A Member of parliament(MP), Member of the state assembly(MLA) receives remuneration does not come under salary as there is no employer employee relationship between government of India and MP and MLA.therefore comes under other sources.

Salary and wages

Income tax point of view there is no difference between salary and wages.

Strength is your weakness

6

If More than one employer

Salary from each source is taxable under the head salary Example: Mr. A works in two places part time job. He is calculated under the head salary in both the places.

All problems and happiness are temporary

7

Pension from former employer

As pension paid due to the previous employer employee relationships it is taxed under salary provided the same employee receives(alive) If, after the death of such employee family pension received by spouse(wife or husband) comes under other sources, as there is no employer employee relationship after the death of such employee.
Take your life as it is
8

Employer includes
Former Present And prospective employer

Love others in order to love oneself

9

If No intention to pay?
Agreement between teacher and management to pay salary to employee and another agreement by which an identical sum has to be returned by the same teacher(assessee)-does not constitute salary because salary is not real but fictitious.(Actual intension to pay is important)
Play every day
10

Whether salary taxed on payment or due basis?

Salary is taxable on due or receipt whichever

earlier Advance salary received or salary of the last month not received is taxed in the current previous year See Example: Next slide
11

Work is worship other wise?

Example
April 2008 salary received in March 2008-taxable in the previous year 2007-08 itself as it is received in 2007-08 period(receipt or due which ever is earlier) March 2008 salary received in April 2008-taxable in the previous year 2007-08 only(receipt or due which ever is earlier)
Otherwise hardship
12

Surrender of salary
Surrender to central government- either by government employee or private employee-not taxable salary.

Women have changed but men have not changed in India

13

If Tax paid by employer?

If Employer pays tax on employee then total salary to such employee will be

Net salary received + tax paid by employer

Change in attitude of men required to have a harmony in family life

14

Gifts given by employer?

Taxable under the head salary

Men also should learn cooking as woman is working like men

15

Salary under section 17(1)

Wages Any annuities or pension Any gratuity Any fees, commission Perquisites( received in kind) Profit in lieu of salary Advance of salary Any accretion(addition) due to interest on provident fund paid out of the employers contribution. The contribution paid by employer under notified pension scheme

Do not fight.If you want to fight, fight after??

16

Pension received by former employee who rendered service in India

Pension received outside india by an employee who rendered services in India taxable in India to all assessees(resident, not ordinarily resident and non resident) as salary is from India. Place of accrual of salary is importantfrom India or from outside India
After meal why?
17

Exercise-1
1.Pension paid abroad for the services rendered in India? 2.Leave salary paid outside India for the services rendered in India? 3.Salary paid by government of India to an Indian National outside India if services rendered outside India? 4.Allowances received outside India by Central government employee for services rendered outside India?
Normally people do not fight after meal.
18

Answer-1
1.taxable as services rendered in India 2. Taxable as services rendered in India 3. - DO4. Allowances paid by government of India to its employees(Indian nationals) outside India for the services rendered outside India are exempted as per

section 10(7)
19

Different forms of salaryRetirement benefits

1. Leave encashment salary 2.Gratuity 3.Pension 4.Retrenchment compensation 5.Provident Fund [Examination point of view these five items are very important]
20

Leave encashment
It is not related to casual leave For every completed year of service employee is entitled to receive a certain number of days of paid leave.Employee either can take leave or en cash it while in service or after retirement. Note: Any thing received while in service is normally taxable.After retirement there are some concessions given.
21

1.Leave encashment
1.Received while in Service Fully taxable(government or Non government employee) Received At the time of retirement

Government Employees-Exempted

Central/ State govt. Employees(2)

Non government employee (including local authority and corporation employees) (see next slide)
22

Non-government employee (including local authority and corporation employees)

*Average salary Basic + % DA comes only for retirement +fixed % of commission on

sales.

Note: Immediately before the The retirement

Least of the following Exempted out of leave cash received

a) 10 months average salary* b) Amount specified by the government-3,50,000 c) Actually received at the time of retirement d) [Period of leave on 30 days basis (if more than 30 days as per service rules)for every completed year of service( -) leave availed while in service(-)leave encashed while in service] x (average salary)*
23

 Basic + DA which comes for retirement +fixed

percentage of commission only on sales. Do not consider fixed amount of commission on sales Do not consider variable or fixed percentage of

commission on purchase BDA employee is not a government employee as for as the leave encashment point of view. Note: 1.Fixed % of commission is different from fixed amount of commission(monthly fixed amount)
24

Exercise-1
X an employee of the central government receives Rs.4,00,000 as cash equivalent to leave credit to his salary on 1st Feb. 200X after his retirement. a)How much is taxable? b)Suppose X is a private employee and received Rs.15000 as salary and served 20 years and 3 months and taken 3 months leave while in service at the time of retirement? c)If X had rendered 24 years and 8 months of service and he is employee of BDA and received Rs 15,000 basic, 40% DA out of which only 60% will come for retirement purpose and 5% variable and 4% fixed commission on sales where sales achieved in the previous year was Rs.30,00,000. Leave availed while in service was 10 months and 8 months leave en cashed ? d)Suppose X receives leave encashment while in service and he is a government employee?

25

Answer
a) after the retirement leave encashment by government employee is not taxable. b)If he is a private employee the least of the following is exempted from the amount received Rs.4,00,000 1.Actually received-Rs.4,00,000; 2.10 months average salary=15000 x 10=1,50,000; 3.Maximum limit=Rs.3,00,000 4. One month for completed year of service(-)leave availed while in service(-)leave en cashed while in service x (average salary) = 20months-3month-0 months(15,000)=2,55,000 How much is exempted? How much is taxable?

26

The lowest of all four is Rs.1,50,000 is exempted from Rs.4,00,000 Therefore taxable leave encashment is Rs.2,50,000. (Rs.4,00,000-1,50,000)

27

 c) Working Notes: No of years of service= 24 years and 8 months=24 years only(fraction is ignored) Average salary=15000 +(40% x 60% x15000) +(4% x 10/12)(30,00,000)=15000 +3600 +30,00,000 x10/12 x 4%/10=28,600 Rs. 30,00,000 is for 12 months but we have to calculate for ten months only before the date of retirement. Least of the following is exempted out of Rs.4,00,000: A) Actually received-Rs.4,00,000 B) 10 months average salary-10 x 28,600=Rs.2,86,000 C) (24 months-10 months-8 months) x 28,600=Rs.1,71,600 D) Maximum limit-Rs.3,00,000 Least of the above is Rs.1,71,600 which is exempted . Therefore taxable leave salary is Rs.4,00,000-Rs.1,71,600=Rs.2,28,400 28

 D) Salary received by government employee while in service is fully taxable.

29

@Exercise-2

@Courtesy-Income tax By Dr. Singhania

X a non government employee receives Rs.2,50,000 as leave salary at the time of retirement on February 20, 2008. On the following information, determine the amount of taxable leave salary: Basic salary Rs.15,000 per month since 2005. Duration of service : 26 years; leave at the credit of X at the time of retirement: 25 months; entitlement of leave salary: 60 days salary for every year of service and leave availed while in service: 27 months.
30

Working notes for exercise-2

1. No of years:26 years equal to 26 months for our calculations because every completed year of service one month is allowed. 2.Average salary Rs.15,000 Least of the following is exempted from Rs.2,50,000 a) Actually received Rs.2,50,000 b) 10 months salary=10 x Rs.15,000=1,50,000 c) Maximum limit Rs.3,00,000 d) (26 months-27 months-8 months) x Rs.15,000=0 (as it is negative it is equal to Zero) Least exempted leave encashment is Rs.0. Therefore taxable leave encashment is Rs.2,50,000.
31

Fees and commission

Taxable as salary if paid to employee by employer

32

Bonus
It is taxable on due basis. If it is not taxable on due basis it is taxable on receipt basis.

33

Gratuity
1.Government Employee(Central,Sta te and local authority employees)(three) 2.Average salary: Not necessary
3.No of days in a month-Not necessary

Non Government employee under the payment of gratuity Act. Including statutory corporation Average salary:last drawn includes Basic+DA
No of days in a month-

Non Government employee under not covered under the payment of gratuity Act. Including statutory corporation Average Salary: Basic +DA comes for retirement +Fixed % of commission on sales No of days in a month-

26 days only

30 days only
Received while in service is fully taxable Received Gratuity at the time of retirement: Least of the following is exempted(next page) 34

4..Received while in Received while in service is service is fully taxable fully taxable Received Gratuity at the 5.Received Gratuity at time of retirement: the time of retirement Least of the following is Exempted exempted see in the next page.

Non Government employee under the payment of gratuity Act. Including statutory corporation

Non Government employee under not covered under the payment of gratuity Act. Including statutory corporation

The Least of the following is The least of the following is exempted from gratuity received: exempted from gratuity received: 1.(15/26) x (last salary drawn 1.(15/30) x (10 preceding months average salary) x (number of )x (number of years of service ) fully completed years of service) ie.Basic+DA Basic + % DA comes for (No commission please) retirement + Fixed Percentage of Year= above 6 months is commission on sales considered as one year. 2. Rs.3,50,000 2.Rs.3,50,000 3. Gratuity actually received 3.Gratuity actually received Note: Note: Fraction of the year is not If he worked more than one company 35 collectively more than 6 months equal to considered

Exercise-1
Mr. X retires from service on Nov.18 200X and received Rs.3,40,000 as gratuity after 32 years and 8 months. His salary at the time of retirement is Basic Rs.19000 and DA 40% on Basic and 4% commission on sales. Sales achieved preceding ten months was Rs.15,00,000. Basic salary was more by Rs.2000 since 1st April 200X. 60% of DA will come for retirement purpose. Answer the following:How much is taxable gratuity? A)If Mr.X is a government employee? B) If Mr. X is a private employee who is covered under the payment of gratuity act? C) If Mr. X is a BDA employee? D) If Mr.X is a Bangalore Mahanagara paliga(BMP) employee? E) If Mr. X is a XYZ public Ltd.(a Government company)employee who is not covered under the payment of gratuity Act. F) After the death of Mr.X wife receives gratuity how much taxable under the head salary?
36

Answer
Particulars Government employee A BDA employee BMP Employee

1.Years of service

Not applicable

Local authority= Government employee

2.Meaning of salary Not necessary

BMP is a corporation.therefore the employee is a private employee who is covered under the payment of gratuity Act. Year of service=33 years. Not necessary Basic + Full DA =Rs.19,000 +40%(19000)=26,600
Least of the following is exempted: 1. Rs.3,50,000 2. Gratuity actually received Rs.Rs.3,40,000 3. (15/26)x 33 x Rs.26,600=5,06,423 Least=Rs.3,40,000 exempted.Therefore 37 nothing is taxable

3.How much taxable?

Not taxable

Not taxable

Particulars

XYZ Public limited government company not covered under the payment of gratuity Act Fraction of the year is ignored. Therefore 32 years

Wife receives after the death of Mr.X

1.Year of service

Not required as there is no employer employee relationship after the death of Mr.X.The gratuity received is taxable under the head income under other sources.

2.Meaning of salary

Average salary 10 months preceding the month of retirement=Basic+DA which comes for retirement +fixed % of commission= January to October salary= Jan to March Rs.17,000 each and 19000 from April to October=Rs.1,84,000+ Rs.7360 x10(DA)+6000 x 10(Commission) Average salary=3,17,600/10 =Rs.31760

Least of the following is exempted: 1.(15/30) x32 x31,760=Rs.5,08,160 2.Rs. 3,50,000 3.Gratuity actually received=Rs. 3,40,000 Least : Rs. 3,40,000 Therefore Gratuity received is fully exempted.
38

Pension
Regular pension received by the employee himself ( not dead )after the retirement is taxable as salary. Family pension(after the death of husband/wife) received by wife/husband comes under income from other sources as there is no employer and employee relationship after the death of husband who was an employee.
Standard deduction is available ie. 1/3 rd of family pension or 15,000 whichever is lower is deductible from family pension.
39

Commuted pensionSec.17(1)(ii)
Instead of receiving monthly pension some portion of regular pension can be accumulated and can be received( after retirement/voluntary retirement) a lump sum is known as commuted pension. 1. Government employee-Exempted after retirement. Government employee means:-Central, state,local authority and corporation employees(totally 4)
40

Non Government employeecommuted pension

If gratuity received Maximum 1/3 of the regular pension can be commuted which is not taxable. If gratuity is not received of the regular pension can be commuted which is not taxable. Note: above those limits are taxable for non government employees See example in the next slide
41

Example commuted pension

Mr. X receives pension every month Rs.10,000. He wants to commute some portion of the pension. ? How much can he commute if A) he is a state government employee B) he is a Bangalooru development authority employee. C) He is receiving gratuity from Karnataka Government. D) He is an employee of Shanthi Ltd.
42

Answer for commuted pension

A,B and C all are government employees therefore any amount of pension commuted are exempted . It is because government never exceeds the statutory limit of 1/3 or depends on the situation. D) If he an employee of Shanthi ltd. Max.1/3 if he receives gratuity ie 1/3(10,000)=Rs.3333 If he does not receive gratuity he can commute of pension ie. (10,000)=Rs.5,000. Note:remaining pension regularly received (after commutation)is taxable. 43

Pension scheme-(after 1st Jan 2004)

Applicable for those join after 1st Jan 2004 Contribution made by employer taxable Employer and employees contribution to the extent of 10% is deductible as saving U/S80CCD. Beyond 10% is not deductible. When pension received fully taxed in the hands of recipient Salary=Basic +DA if it comes for retirement benefit Example-next page
44

Exercise
Mr. X joined a government service on January 2007 for a salary of Rs.40,000 per month.The government contributes towards pension scheme is Rs.5000 per month.Find out how much is taxable for the year 2007-08, 2008-09 and 2009-10 previous year? Answer: 1st April-31st March 12 months salary=40,000 x12= 4,80,000 Government contribution 5000 x12= 60,000 Total 5,40,000 Less: deduction U/S 80CCD Upto 10% both by employer and employer=4000 x2=8000 per month. Annual Saving =8000 x12=96000 deductible from 5.40,000. Net taxable salary=Rs.5,40,000-96,000=4,44,000.Applicable for all three years. 45 Does it make any difference if he had joined XYZ Ltd?

Does it make any difference if he had joined XYZ Ltd?

No. It is because this provision is applicable both for government and any other employer.

46

Annuity[17(1)(ii)]
Annual payment constantly paid by employer to employee. Even paid voluntarily it is taxable Annuity received from ex employer is taxed as profit in lieu of salary-taxed as salary.

47

Retrenchment compensation[10(10B)]
The Least of the following is exempted: 1. Amount calculated as per Industrial dispute act. (15 days salary for every completed year of service and fraction beyond 6 months ie. 25 years and 7 months=26 years.) 2. Rs. 5,00,000 notified by Government 3.The amount received Exercise:-next page
Note: If approved by government, under any scheme, such amount is fully exempted.
48

Exercise
Mr. X has working in BPL. Due to closing down of the company, company pays to Mr.X Rs. 2,60,000 as compensation.He has rendered service 20 years and 8 months.Average salary was Rs.20,000. How much is taxable? How much is exempted? Answer: no of years of service=21 years 1.Compensation as per Industrial dispute 15/30(20,000)(21)=2,10,000 2.Rs.5,00,000 3.Rs.2,60,000 Least is Rs.2,10,000 is exempted. Therefore 50,000 is taxable ie (2,60,000-2,10,000)

49

Profit in lieu of salary

If company wants a manager to quit immediately as per the service rules he is paid a lump sum immediately. Such compensation is treated as salary. The compensation can be received from present or former employer.

50

Remuneration for extra duties

Taxed as salary Even warden ship remuneration also taxed as salary

51

Salary received from a United Nations organisation

Not taxable in India

52

VRS[10(10C)]
Voluntary Retirement scheme Maximum amount of exemption is Rs.5,00,000. Up to Rs. 5,00,000 is exempted Conditions: The same employee can not be re-employed in the same or any other company comes under the same management. Salary means the last salary drawn for computation of compensation Basic+ DA which comes for retirement + fixed 53 % of commission on sales.

Provident fund
Particulars Statutory PF Recognised PF Un-recognised PF Public PF

1.Who maintains?

Government and semi-government

2.Who contributes?

Both employer and similar contribution by employees

Private establishments having 20 or more employees Both employer and similar contribution by employees

Not recognised by commissioner of Income-tax act Employer contributes but there is no separate account in the name of employee

Personal savings in post office by self employed etc.

By Employee(not by employer

3.Exempted or not? Employees contribution comes under Section 80C as savings in all cases

Employers contribution is exempted.

Salary means Basic+DA+Fixed % of Commission on Sales

Only when employer transfers Employers his account to contribution exceeding 12% of employees account is taxable or salary and converted to Interest recognised PF exceeding 9.5% excess over 12% of taxable. salary and excess over 9.5% towards interest is taxable

Since employer does not contribute nothing is taxable

54

City compensatory allowance

Fully taxable as salary

55

House rent allowance(10[13A])

Exemption will be lowest of (a) 50% of salary where residential accommodation is in Mumbai, Kolkata, Delhi or Chennai and 40% of at other place (b)(Rent paid minus 10% of salary) (c) Actual allowance paid.

There will be no tax exemption if the residential accommodation is self occupied (not taken house for rent by employee or employee has not paid any rent for residential accommodation used by him [section 10(13A) of Income Tax Act and rule 2A]
Salary means basic plus DA (if forming part of retirement benefits) plus commission (if fixed as a percentage of turnover).
56

House rent allowance

Important points: 1.It is advisable to calculate claim month wise if any changes in salary or house rent allowance or rent paid or place of stay during the previous year. 2. Salary to be estimated on due basis when you calculate the meaning of salary Place of work is not important but the place of accommodation taken is important either to claim 50% or 40% depends on type of city. After receiving rent allowance either he stays in his own house or rent accomodation is not taken rent allowance for such period is taxable.
57

Exercise-1
Mr. X works in Mumboi but stays in Pune and receives house rent allowance of Rs.12,000. He pays Rs. 15,000 per month as rent.His Basic is Rs.20,000, DA-30% which will come for retirement purpose. A)Compute taxable House rent allowance if he has taken a rented house in Pune. B) If he stays in Mumboi and pays the same rent. C) suppose he stays in his own house in Mumboi D) suppose he has taken a house for rent in Mumboi for the same rent but rent his own house in Pune? E) Suppose he stays in a rented house upto December in Mumboi by paying same rent and taken a rented house in Pune from 1st January for a rent of Rs.10,000. Note:-Each question has to be approached independently keeping the base same for all questions.
58

Answer-HRA
A) Rented house in Pune: Since salary, place of stay, HRA and rent paid are same throughout the year we can calculate for the whole financial year. House rent Allowance received (12,000x12) Rs.1,44,000 Least of the following is exempted: 1.40% of salary*=26000 x 12 x40% 1,24,800 2.Rent paid-10% of salary* 1,48,800 [(15000-10% x26000) x 12] 3.Actually received 1,44,000 The Least is Rs.1,24,800 which is exempted out of HRA received.There fore taxable HRA is Rs.19,200 ie (1,44,000-1,24,800)

*Salary means: 20,000+(30% x20,000)=26,000

59

Answer-HRA
A) Rented house in Mumboi Since salary, place of stay, HRA and rent paid are same throughout the year we can calculate for the whole financial year. House rent Allowance received (12,000x12) Rs.1,44,000 Least of the following is exempted: 1.40% of salary*=26000 x 12 x50% 1,56,800 2.Rent paid-10% of salary* 1,48,800 [(15000-10% x26000) x 12] 3.Actually received 1,44,000 The Least is Rs.1,44,000 which is exempted out of HRA received.There fore taxable HRA is Zero ie (1,44,000-1,44,000)

*Salary means: 20,000+(30% x20,000)=26,000

60

C) Stayed in Mumboi in own house

The entire rent allowance received is fully taxable as he stays in own house in Mumboi. There fore Rs.1,44,000 is fully taxable. D) It does not make any difference with answer C as he stays in a rented house in Mumboi, the answer Ais applicable.-See the answer A.The house rented in Pune and rent receivable comes under the head income from House property.
61

E. Up to December in Mumboi in a rented house and thereafter in Pune in a rented house

Exempted HRA in Mumboi Nine months Meaning of salary:Rs.26,000 HRA received Rs.1,08,000 Least of the following is exempted: 1. 50% of salary=26000 x50% x9 Rs.1,17,000 2. Rent paid 10% of salary Rs.1,11,600 [(15000-10% x26000) x 9] 3.Actually received 1,08,000 The least is 1,08,000. There fore for the 9 months entire HRA is exempted. Nothing is taxable. Exempted HRA in Pune :-Next slide
62

3 Months HRA in Pune in a rented house

Meaning of salary:Rs.26,000 HRA received Rs.36,000 Least of the following is exempted: 1. 40% of salary=26000 x40% x3 Rs.31,200 2. Rent paid 10% of salary Rs.22,200 [(10000-10% x26000) x 3] 3.Actually received 36,000 The least is Rs.22,200 which is exempted. There fore for the3 months the taxable HRA is Rs.13,800[ 36000-22200]
Therefore HRA taxable for the previous year is Rs. 13,800.
63

Entertainment allowance[16(ii)]
In case of *government employees:Least of the following is deductible: 1. Rs. 5,000; 2. 20% of salary**; 3.Amount of entertainment allowance granted during the previous year. Non government employees are not exempted
*Government employee Central and State government employees

**Salary excludes any allowance Benefit or other perquisites

64

Special allowances[10(14)]
For official duties (after Reaching office) 1.Official travel/transfer Allowance to meet the cost 2.Conveyance allowance to meet customers 3.daily allowance on official Tour/journey 4.Helper allowance to carry Official documents 5. Research allowance 6. Uniform allowance to do Official duty To be Spent Fully Other Wise, amount not Spent taxable Not directly relate to Official duty (General)

See in the Next slide

65

Not directly relate to Official duty (General)

1.Allowance for transport employees 2.Children education allowance &70% of allowance Or Rs. 6000 per month whichever is lower exempted Rs.100 per month per child max.two children.If in hostel Rs.300 extra per child for two children

3. Traveling allowance to commute from home to office 4. Other border area allowances

Rs. 800 per month. If handicapped person Rs.1600 per month is exempted. Depends on altitude/Place

They are fixed. Whether spent Or not.Excess Taxable as they Are not given For official Duty
66

Amount spent or not, exemptions are given

Exercise
Particulars No. of Amount Children/ received Name from employer
Three Three 300 PM per child 400 per child per month

Exempted from tax

Chargeable to tax
(200 x2 x12+300 x12=8400 (100 x2 x12 +400 x12)=7200

1.Educational allowance 2.Hostel expenditure 3. Transport allowance from house to office or vice-versa 4.Transport company employee daily allowance 5. -DO-

100 x2 x12=2400 300 x2 x12=7,200(limited to two children 800 x12=9600

-------

12000-9600=2400

12000 70%(72000) or 6000 per 72000-50,400=21600 month which ever is lower=50,400 6000 x 12=72000 or 67 70%(1,20000)=84000 1,20,000-72000=48000 Whichever is lower

72000

1,20,000

Tiffin allowance, fixed medical allowance

Any amount received in cash is always taxable before the expenditure incurred.

aug_bang@yahoo.com

68

Exercise
Salary income and various allowances: Compute the gross salary of Mr. Amal for the assessment year 2008-09on the basis of the following information: 1. Basic pay Rs. 8,000 per month 2. DA 40% of basic pay 3. City compensatory allowance-10% of basic pay 4.Medical allowance Rs.800 per month 5. Children educational allowance- Rs. 200 per month for three children 6. Hostel expenditure allowance-Rs. 400 per child per month for 2 children 7. Tribal area allowance Rs. 500 per month in Bihar 8. Travelling allowance Rs. 12000(However actual expenditure was only Rs. 8000 for official duties 9. Conveyance allowance Rs. 500 per month(the whole amount spent for official duties) 10. Transport allowance- Rs. 18,600 11. Overtime allowance-Rs. 4000 69

Answer: Computation of gross salary of Mr. Amal for the assessment year 2008-09:
Taxable allowances

1. Basic pay Rs. 8,000 x 12 96,000 . DA 40% of basic pay(8000 x 40% x12) 38 400 3. City compensatory allowance-10% x 8000 x12 9,600 4.Medical allowance Rs.800 x 12 9,600 5. Children educational allowance-[ (Rs. 200-100)2 x 12+ 200 x 12] 4,800 6. Hostel expenditure allowance-(Rs. 400-300) 2 x 12 2,400 7. Tribal area allowance (Rs. 500-200) x 12 3,600 8. Travelling allowance (Rs. 12000-8000) official duties 4,000 9. Conveyance allowance Rs. 500 500) 12 Nil 10. Transport allowance- Rs. 18,600-(800 x 12) 9,000 11. Overtime allowance-Rs. 4000 4,000 Gross salary 1,81,400
Children education Rs. 100 per month per child for two children allowed. Hostel expenditure Rs. 300 per child per month for two children allowed

70

Let us have a short break

For middle and below class family god has given brain. Brain Is your wealth. How to develop your brain???

71

Study daily Collect information and????

72

Pass on such good information to Others at free of cost. You are born in this world Only to give.

Do you get happiness by receiving?

73

By giving you receive including knowledge This is the base of double entry book keeping

74

Perquisites

Casual emolument or benefit attached

to an office or position in
addition to salary or wages Something that benefits a man by going into his own pocket Whether perquisites should be given in Kind?
75

Perquisites
Need not be in kind.It can be in cash.

What are the conditions to be fulfilled to become a perks?

76

Conditions To become perquisites 1.Allowed by Employer to Employee 4.Personal advantage To the employee

3.Directly Depend upon service 2.Allowed during Continuance Of employment 5. Derived by Virtue of Employers authority
77

Other conditions
Employer and employee relationship should exist at any point of time-need not be an employee now. Legal origin is important-Un authorized advantage taken by employee without employers authority will not become perquisites.
78

Perquisites Includes 1.Rent free Accommodation Provided By employer

Accommodation Related(1-3) Including sweeper,gardener,watchman,gas, electricity,

4.Personal Obligations of Employee Met by employer

6.Fringe 3.value of Benefits Benefits provided Allowed Like furniture 5. Funds paid To employees Of Other 2.concessional In the accommodation By employer Than Accommodation Other than companies Provided RPF/Insurance By employer fund 79

Perquisites Taxable in the hands of employee In the hands of employee Category-A

1. 2. (R)ent free or concessional rent accommodation (S)weeper in the house, gardener, watchman, personal attendant Free/concessional (g)as,electricity,water etc (E)ducational facility to employees family members including servants and depentant, parents, spouse and children(need not be dependent) (L)eave travel concession beyond 2 travels in a block period

1 to 5 taxable only to Specified Employee

Category B 1.Car given by employer 2. Transport facility given by transport undertakings except Railway and airlines. ( only to Specified Employee)
80

3.
4.

5.

Short form(RSGEL)

Special items in computation perquisites

81

Rent Free accomodation(RFA)

Companys House given at free of cost or rented by company given to employee at free/cocessional rent. Includes: house, flat, farm house, carvan(people go by camel place to place), mobil home,ship, floating structure-like boat. Step1. Unfurnished Accomodation
Central or State Government employees
Private employees
82

1.Central or state government employee-RFA

License fee of flat determined by central government is perquisites in the hands of employee.

Fair market value of rent is not important

83

RFA-Government employeeExercise
Exercise:- Mr. X is working in Central government service given rent free accommodation in an government apartment at free of cost. The license fee prescribed by government is Rs.3000 but fair rental value of the house is Rs. 10,000. How much is taxable? Answer:-next page

84

Answer-RFA
Fair rent is not considered. The license fee Rs. 3,000 is taxable in the hands of Specified employee.

85

2. Private Employees(RFA) It depends on Population of the city where accommodation provided.

Population as per 2001 census

Exceeding population Population beyond 25 lakhs 10 lakhs-Up to25 lakhs Owned Owned By By employer Rented employer By company 10% of
15% of salary salary

Population Upto 10 lakhs

Rented
15%of salary

or amount paid
By company To outsider Whichever Is lower

Owned By employer
7.5% of Salary

Rented By company
86

Explanation to the diagram

1.If house property is owned by employer depends on the population of the city percentage differs. Big city it is 15% of salary, medium city it is 10% and small city it is 7.5% of salary for accommodation with out any facility like furniture. If house is rented by employer given to employee it is 15% of salary or rent paid by employer whichever is less taxable for specified employees irrespective of the type of city.
87

If Furniture provided by employer

If rented Actual hire charges payable

If owned

10% of original Cost of furniture

88

Meaning of salary for RFA

All Cash salary received or recivable in hand( including taxable allowances) by the employee himself. Excludes all *perquisites and *DA which will not come under retirement purpose

If any allowance is exempted ( like HRA(partly), children educational allowance upto Rs.100 Per month or transport allowance up to Rs. 800 per month etc.) to the extent exempted is not included in the meaning of salary but balance is included in the meaning of salary.

89

Exercise-RFA
Value of rent free accommodation : Preetham is sales manager of a private company and for previous year 2007-08,he received the following emoluments(amts in Rs) Basic Salary 248000 Bonus 16000 Dearness allowance(50% forming part of salary) 60000 Project allowance 15000 Commission on sales 16000 City compensatory allowance 25000 Medical allowance 12000 Employer contribution to recognized provision fund 20000 Salary pertaining the year 2008-09 has been received in advance 20000 He has been provided with a rent free accommodation in Bangalore owned by the employer. The population of Bangalore may be assumed to be 50 lakhs as per 2001 census Determine the taxable value of the perquisite in respect of rent free 90 accommodation.

He has been provided with a rent free accommodation in jaipur owned by the employer. The population of jaipur may be assumed to be 15lakhs as per 2001 census Determine : a) Meaning of salary for RFA b)the taxable value of the perquisite in respect of rent free accommodation. 1. Meaning of salary:-

All Cash salary received or recivable in hand including taxable allowances by the employee himself. Excludes all *perquisites and *DA which will not come under retirement purpose

Any allowance is not taxed( like HRA(partly), children educational allowance upto Rs.100 Per month or transport allowance up to Rs. 800 per month etc.) are not included in the meaning of salary.
91

Meaning of salaryExercise
The valuation of rent free accommodation shall be 15% of the salary i.e. 15% of (248000+ 16000+30000+15000+16000+25000+12000)=Rs 54,300 Note: Salary shall be taken on basis for the period for which accommodation has been provided. Hence advance salary for 2008-09 shall not be taken in account. Employers contribution does not come to the assessee in cash as it is paid directly to the department. That is why I have mentioned the meaning of salary is cash salary received by the assessee himself. 92

Exercise
Value of free rent accommodation : sri Mohan is purchase manager of a private company and for previous year 2007-08 he received the following emolumentsBasic Salary Bonus Dearness allowance(50% forming part of salary) Project allowance Commission on purchase City compensatory allowance Medical allowance Employer contribution to recognized provision fund Salary pertaining the year 2008-09 has been received in advance 120000 16000 60000 15000 16000 25000 12000 20000 20000

He is also in part employment with B ltd and is receiving salary of Rs 80000 P.A. he has been provided with a rent free accommodation in Mysore owned by the employer. The population of Mysore may be assumed to be 15 lakhs as per 2001 census. Determine taxable salary
93

solution
Computation of taxable salary of Sri Mohan for assessement Year 2008-09 Basic Salary Bonus Dearness allowance(50% forming part of salary) Project allowance Commission on purchase City compensatory allowance Medical allowance Employer contribution to RPF in excess of 12% of salary [20000- 12% of (120000+ 50% of 60000)] Salary from B ltd Advance of salary Value of housing facility[10% of (120000+16000+30000+ 15000+16000+25000+12000+80000)] Taxable Salary 120000 16000 60000 15000 16000 25000 12000 2000 80000 20000 31400

397400
94

Exercise

Value of concessional accommodation: Sri Basant is purchase manager of a private company and for the previous 2007-08 he received the following emolumentsBasic Salary 240000 Bonus 32000 Dearness allowance(50% forming part of salary) 120000 Project allowance 30000 Commission on purchase 32000 City compensatory allowance 50000 Medical allowance 24000 Employer contribution to recognized provision fund 40000 2 months salary for year 2008-09 has been received in advance 20000
What would be the value of accommodation if the employer charges rent of Rs 2000 p.m. in the following independent cases: (a) The accommodation is provided in Hyderabad where popln as per 2001 census exceeds 25 lakh (b) The accommodation is provided in Alwar where popln as per 2001 census exceeds 18 lakh 95 (c) The accommodation is provided at Tumkore (popln less than 10 lakhs)

Solution
Soln: The valuation of accommodation provided at concessional rent shall be as under Place of accommodation Value of perquisite Hyderabad 15% of salary less rent recovered = Rs 7020024000=Rs46200 Alwar 10% of salary less rent recovered = Rs 4680024000=Rs22800 Tumkore 7.5% of salary less rent recovered =Rs 3510024000=Rs11100 Salary = 240000+32000+60000+32000+30000+50000+24000 = Rs 468000

Any rent collected by employer from employee, such amount is deductible from taxable perquisite.

96

Furnished accommodation in hotel

24% of salary paid or payable only for the period accommodation provided Or Actual charges paid or payable by the employer to such hotel Whichever is lower Exceptions:-1.The above rule is not applicable if such employee stays less than 15 days in the previous year and 2.Accommodation given only he is transferred to such new place Both the conditions should be fulfilled Note:-Any amount collected from employee is deductible from such calculations 97

Perquisites Domestic servants, free supply of gas, electricity etc

Sweeper, gardener watchman personal assistant paid by employer is perquisites to the extent of cost to the employer.

98

Monthly Fixed Education allowance

Training of employees is not perquisites Fixed educational allowance Rs.100 per child per month is exempted per child. Maximum two children.Beyond is taxable Hostel Rs.300 per month per child exempted.Maximum two children.Beyond it is taxable to the employee
99

Payment of school fees and reimbursement of school fees

Taxable as perquisites fully

100

Education facility to children(own) in their own school or any other school/college

If less than Rs. 1000 per month exempted If exceeds Rs. 1000 per month cost of education in similar institution in the near locality (minus )Rs. 1000(minus) amount recovered. Example:- Employer pays Rs. 1500 per month to the school selected by employee for three children and one grand children.How much is taxable perquisites?
101

Education facility to relatives children

Cost to the employer in such similar institution minus amount recovered Important Note: Only for own children exemption of Rs. 1000 allowed. But for the relatives children such deduction is not allowed.

102

Answer- Educational facility

3 x 1000= 3000 exempted 500 x 3 + 1500= 3000 taxable

Note: Number of children is not limited to two

103

Scholarships
Scholarship given by employer company is not taxable as perquisites.
Note:- It should not be related to his/her employment.

104

Leave travel concession for Family

Any place in India Only travel short route permissible Two Journey in four block period allowed. If Journey is not taken place with in two years, in the very next year if used itcan be claimed. Flight- economy class fair allowed(not taxable). Train-Air conditioned first class fair allowed(Not taxable) Note:- Only Journey expenditure is exempted. Two children only who are born after 1st October 105 1998.(Twins or triplets are treated as one)

Employees obligation met by employer either giving money or reimbursed is taxed in the hands of employee(17(2)(iv)) Example:1.Domestic servants salary reimbursed by employer. 2.Gas connection in the name of the employee but monthly gas bill paid by employer-Taxable to all employee whether specified or not. 3.If gas connection in the name of the company then there is no obligation to employer. Such perquisites is taxable in the hands of Specified employee.
106

Amount payable by employer for fund on life of employee

Taxable to all employees
Exception:1. RPF, 2. approved superannuation fund 3. Group Insurance,ESI 4. Fidelity Guarantee scheme
107

Valuation of Interest free/concession loan

Difference between SBI interest rate on 1st day of the previous year-rate of interest charged by company from employee.
SBI rate:on 1st April 2007 are:- Housing loan more than 5 years-10.75%, Upto 5 years10.25%,educational loan upto 4 lakhs-11.5%, above 4 lakhs-13.25% Exceptions- see in the next slide
108

Example
X is employed by A Ltd. on 1st June 2007, he has taken interest free Housing loan of Rs. 14,00,000.How much is taxable?

109

Answer
Lending rate upto 5 years is 10.25% per annum 10.25% x 14,00,000=1,19,583 is taxable. Suppose the interest charged by the company from assessee is 6%, then how much is taxable?

110

Answer
(10.25%-6%) x 14,00,000=Rs59500 taxable

111

Perquisites in respect of movable assets given to an employee for personal use.

10 % of Original cost of such asset purchased by employer(- )reimbursed by employee If taken on rental basis by employer: Rent payable(-)reimbursed by employee
Note: It is not on WDV value
112

Perquisites by sale of company asset at nominal rate

Electronics and computers- Calculate WDV at 50% depreciation for every fully completed years and compare with amount charged. If WDV is more there is perquisites.
Note: 1. WDV method only 2. Fully completed years of individual asset only It is not financial year. Fraction of the year is ignored. What % of depreciation on Motor car?
113

Motor car transferred?

20% depreciation under WDV for completed year of service. Other assets? 10% on ORIGINAL value of asset.

114

Exception on Interest on loan

1. Loan(s) less than Rs.20,000(in aggregate of original loan ) and 2.Taken for specified medical treatment. Amount reimbursed from medical insurance scheme is not considered.

115

Medical facilities
Medical facilities availed in employers hospital, government hospital or hospitals recognised by Income tax department is not taxable.( No limit for specified diseases. If private Up to Rs.15000 is not taxable if reimbursed to specified employees. If bill is issued in the name of employee but paid by employer then it is taxable in all types of employees. Family means: spouse, children, parents, brothers, sisters who are wholly or mainly dependent on 116 him/her.

Medical facilities outside India

Medical treatment expenditure To the extent of RBIs permission is not taxable. Travel:employee+relative or one attendantexempted provided cost does not exceed Rs.2,00,000. Stay for one relative/one attendant expenditure allowed to the extent of RBIs permission.
117

Motor car belong to Employee but expenditures met by employer

Exclusively used for private Fully taxable. Exclusively used for official- Not taxable. Partly used for business partly for private and difficult to identify: Calculation of perquisites:-1.6 litres car Actual expenditure incurred by employer Less:Rs.1,200 per month +600 per month if driver is paid.(This is assumed that it is incurred for official purpose) 118 If no driver-Rs. 600 per month is not applicable.

Motor car-Owned /Hired and maintained by employer by employer Used for private purpose:(All expenditure met by employer + 10% depreciation on original cost are perquisites) or higher charges Partly for private partly for oficial: Up to 1.6 litres1200(car) +600(if Driver provided) per month-taxable. If more than 1.6 litre:1600 (car) + 600(If driver provided) per month is taxable. Note: Nothing is deductible when recovered from the 119 employee

Motor car-Owned /Hired by employer but maintained by employee

Used wholly for personal purpose Expenditure Incurred by employer Hire charges + 10% on original Cost of car incurred by employer

or

Note:- if recovered by employer it is deductible

120

Motor car-Owned /Hired by employer maintained by employee

Used Partly for private partly for officialdifficult to identify: If 1.6 litres cubic capacity- Rs.400Per month(Car) + 600 per month(if driver provided)----Taxable If above 1.6 litres cubic capacity: Rs.600 per month(car) +Rs.600per month(if driver provided) taxable.
Note: amount recovered from employee is not deductible
121

Other than car like two wheeler owned by employee but maintained by employer Partly for office and partly for private-if difficult to measure: Expenditure incurred by employer Less: Rs.600 per month or higher sum for official purpose as per log book if maintained Less: Amount recovered from employee balance is taxable in the hands of assessee.
122

Higher claim on car

Conditions: 1.Complete detail of journey for official purpose to be maintained 2.Certified by employer that the expenditure was incurred wholly and exclusively for official purposes. Ref: Income tax by Dr. Singhania-page 147149 39th edition.
123

Perquisites-car
Owned by employee Re imbursed by employer

124

125