TOPIC

HEADS OF INCOME : SALARY

IN PARTIAL FULFILMENT OF THE REQUIREMENT UNDER SEMESTER
BASED CREDIT & GRADING SYSTEM FOR POST GRADUATE SEMESTER III

Program under faculty of commerce

MASTER OF COMMERCE (EVENING)

SYDENHAM COLLEGE OF COMMERCE & ECONOMICS

SUBMITTED BY:
AKASH MAHADEV TOKE
ROLL NO: 37
PROJECT GUIDE:

Prof.Paras Jain
SYDENHAM COLLEGE OF COMMERCE & ECONOMICS
2015-2016

DECLARATION

I Mr. AKASH TOKE

the student of M.Com- II (Evening) 3rd

Semester (2015-2016), hereby declare that I have completed

the project on HEADS

OF INCOME : SALARY.

The information

submitted is true and original to the best of my knowledge.

Signature of student:
_________________
AKASH MAHADEV TOKE

Roll No: 37

CERTIFICATE

This is to certify that Mr. AKASH MAHADEV TOKE of M.Com -II

(Evening) Semester-III (2015-2016) has successfully
completed the Project on HEADS OF INCOME : SALARY under the
guidance of Prof. Paras Jain

Project Guide: ___________________

Internal Examiner: ________________

External Examiner: ________________

DATE: ____________________
PLACE: ___________________

ACKNOWLEDGEMENT
3

I would firstly like to thank the UNIVERSITY OF MUMBAI for giving

us the liberty of choosing such topic which will be benefited to us in future. I
would like to thanks the Principal of Sydenham College Dr. Annasaheb
Khemnar for giving me the opportunity to study in this esteemed college and
doing the course of Accountancy. I would like to express my sincere
gratitude and thanks to Prof. Paras Jain who is my project guide, as he has
been the guiding light for this project and has also provided me with the best
of my knowledge, advice and encouragement which helped me in successful
completion of my project.
My colleagues and specially my parents who have also supported and
encouraged me, the success of this project to the large extent is also
dedicated to them.
I would also like to thank all those who have helped me and whom I have forgotten to
mention in this space

SIGNATURE OF STUDENT:
____________

INDEX
4

Page
No.

Sr. No.

Topic

INTRODUCTION

DEFINITION OF SALARY

11

BASIS OF CHARGE

12

PLACE OF ACCRUAL OF SALARY

PROFIT IN LIEU OF SALARY [SECTION 17(3)]

14

ADVANCE SALARY

15

LOAN AND ADVANCE AGAINST SALARY

15

ARREARES OF SALARY

15

ANNUITY

10

COMPUTATION OF TAXABLE SALARY

10

DEDUCTION U/S 16

11

VARIOUS EXEMPTION FROM SALARY

12

CONDITION AS PER RULE 2B

13

TAXABLE VALUE OF ALLOWANCE

14

BIBLOGRAPHY

13

15
16
18
19
20
32
46

INTRODUCTION TO INCOME TAX

Income tax is an annual tax on income. The Indian Income Tax Act (Section 4) provides
that in respect of the total income of the previous year of every person, income tax shall
be charged for the corresponding assessment year at the rates laid down by the Finance
Act for that assessment year. Section 14 of the Income tax Act further provides that for
the purpose of charge of income tax and computation of total income all income shall be
classified under the following heads of income:
A. Salaries
B. Income from house property
C. Profits and gains of business or profession.
D. Capital gains
E. Income from other sources.
The total income from all the above heads of income is calculated in
accordance with the provisions of the Act as they stand on the first day of April of
any assessment year. In this booklet an attempt is being made to discuss the various
provisions relevant to the salaried class of taxpayers as well as pensioners and senior
citizens.
The definition of income as per the Income-tax Act, 1961, begins with the words
Income includes. Therefore, it is an inclusive definition and not an exhaustive one.
Such a definition does not confine the scope of income but leaves room for more
inclusions within the ambit of the term. Certain important principles relating to
income are enumerated below
Income, in general, means a periodic monetary return which accrues or is
expected to accrue regularly from definite sources. However, under the Income-tax
Act, 1961, even certain incomes which do not arise regularly are treated as
income for tax purposes e.g. Winnings from lotteries, crossword puzzles.
Income normally refers to revenue receipts. Capital receipts are generally not
included within the scope of income. However, the Income-tax Act, 1961 has
specifically included certain capital receipts within the definition of income.
e.g. Capital gains i.e. gains on sale of a capital asset like land.
Income means net receipts and not gross receipts. Net receipts are arrived at
after deducting the expenditure incurred in connection with earning such receipts.
The expenditure which can be deducted while computing income under each head is
prescribed under the Income-tax Act, 1961.
6

 Income is taxable either on due basis or receipt basis. For computing income
under the heads Profits and gains of business or profession and Income from other
sources, the method of accounting regularly employed by the assessee should be
considered, which can be either cash system or mercantile system.
Income earned in a previous year is chargeable to tax in the assessment year.
Previous year is the financial year, ending on 31st March, in which income has
accrued/ received. Assessment year is the financial year (ending on 31st March)
following the previous year. The income of the previous year is assessed during the
assessment year following the previous year. For instance, income of previous year
2012-13 is assessed during the year 2013-14. Therefore, 2013-14 is the assessment
year for assessment of income of the previous year 2012-13.

INCOME FROM THE FIVE HEADS OF INCOME

Now we are going further discuss on INCOME FROM SALARY one of the Heads of
Income from where government generates its direct tax which are used by
government in Development of Country.

Income from Salaries

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, 1961 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).

GENERAL POINTS:

(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.
Examples: (a) Sujatha, an actress, is employed in Chopra Films, where she is paid a
monthly remuneration of ` 2 lakh. She acts in various films produced by various
producers. The remuneration for acting in such films is directly paid to Chopra Films
by the different producers. In this case, ` 2 lakh will constitute salary in the hands of
Sujatha, since the relationship of employer and employee exists between Chopra
Films and Sujatha.
(b) In the above example, if Sujatha acts in various films and gets fees from
different producers, the same income will be chargeable as income from profession
since the relationship of employer and employee does not exist between Sujatha and
the film producers.
(c) Commission received by a Director from a company is salary if the Director
is an employee of the company. If, however, the Director is not an employee of the
company, the said commission cannot be charged as salary but has to be charged
either as income from business or as income from other sources depending upon the
facts.
(d) Salary paid to a partner by a firm is nothing but an appropriation of profits.
Any salary, bonus, commission or remuneration by whatever name called due to or
received by partner of a firm shall not be regarded as salary. The same is to be
charged as income from profits and gains of business or profession. This is primarily
because the relationship between the firm and its partners is not that of an employer
and employee.
(2) Full-time or part-time employment: It does not matter whether the employee is
a full- time 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) Foregoing of salary: Once salary accrues, the subsequent waiver by the employee
does not absolve him from liability to income-tax. Such waiver is only an application
and hence, chargeable to tax.
Ex: Mr. A, an employee instructs his employer that he is not interested in receiving
the salary for April 2013 and the same might be donated to a charitable institution. In
9

this case, Mr. A cannot claim that he cannot be charged in respect of the salary for
April 2013. It is only due to his instruction that the donation was made to a charitable
institution by his employer. It is only an application of income. Hence, the salary for
the month of April 2013 will be taxable in the hands of Mr. A. He is however, entitled
to claim a deduction under section 80G for the amount donated to the institution.
(4)Surrender of salary: However, if an employee surrenders his salary to the Central
Government under section 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) Salary paid tax-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.
(6)A Member of Parliament or State legislature is not treated as an employee of
Government: Salary and Allowance received by him are therefore, chargeable to tax
under the head of INCOME FROM OTHER SOURCES.
(7)Salary and Wages: Conceptually there is no difference between salary and
wages. Both are compensation for work done or services rendered, though ordinary
salary is paid in connection with service of non-manual type of work, while wages
are paid in connection to manual service, therefore, remuneration received by an
individual is taxable under the head Salaries whether the remuneration is termed as
salary or wages.

10

Definition of Salary
The term salary has been defined differently for different purposes in the Act. The
definition as to what constitutes salary is very wide. As already discussed earlier, it is
an inclusive definition and includes monetary as well as non-monetary items. There
are different definitions of salary say for calculating exemption in respect of gratuity,
house rent allowance etc.
Salary under section 17(1), includes the following:
(i) Wages,
(ii) Any annuity or pension,
(iii) Any gratuity,
(iv) Any fees, commission, perquisite or profits in lieu of or in addition to any salary or
wages,
(v) Any advance of salary,
(vi)Any payments received in respect of any period of leave not availed by him i.e.
leave salary or leave encashment,
(vii) The portion of the annual accretion in any previous year to the balance at the
credit of an employee participating in a recognised provident fund to the extent it is
taxable and
(viii) Transferred balance in recognized provident fund to the extent it is taxable,
(ix) The contribution made by the Central Government or any other employer in the
previous year to the account of an employee under a pension scheme referred to in
section 80CCD.

11

Basis of charge
1. Section 15 deals with the basis of charge. Salary is chargeable to tax either on
due basis or on receipt basis, whichever is earlier.
2. However, where any salary, paid in advance, is assessed in the year of payment,
it cannot be subsequently brought to tax in the year in which it becomes due.
3. If the salary paid in arrears has already been assessed on due basis, the same
cannot be taxed again when it is paid.
Examples:
i. If A draws his salary in advance for the month of April 2014 in the month of March
2014 itself, the same becomes chargeable on receipt basis and is to be assessed as
income of the P.Y.2013-14 i.e., A.Y.2014-15. However, the salary for the A.Y.2015-16
will not include that of April 2014.
ii. If the salary due for March 2014 is received by A later in the month of April 2014, it
is still chargeable as income of the P.Y.2013-14 i.e. A.Y.2014-15 on due basis.
Obviously, salary for the A.Y.2015-16 will not include that of March 2014.

12

Place of accrual of salary

Under section 9(1) (ii), salary earned in India is deemed to accrue or arise in
India even if it is paid outside India or it is paid or payable after the contract of
employment in India comes to an end.
Example: If an employee gets pension paid abroad in respect of services rendered in
India, the same will be deemed to accrue in India. Similarly, leave salary paid abroad
in respect of leave earned in India is deemed to accrue or arise in India.
Suppose for example, Mr. A, a citizen of India is posted in the United States as our
Ambassador. Obviously, he renders his services outside India. He also receives his
salary outside India. He is also a non-resident. The question, therefore, arises whether
he can claim exemption in respect of his salary paid by the Government of India to
him outside India. Under general principles of income tax such salary cannot be
charged in his hands. For this purpose, section 9(1)(iii) provides that salaries
payable by the Government to a citizen of India for services outside India shall be
deemed to accrue or arise in India. However, by virtue of section 10(7), any
allowance or perquisites paid or allowed outside India by the Government to a
citizen of India for rendering services outside India will be fully exempt.

13

Profits in lieu of salary [Section 17(3)]

It includes the following:
1

The amount of any compensation due to or received by an assessee from his

employer or former employer at or in connection with the termination of his
employment.

The amount of any compensation due or received by an assessee from his

employer at or in connection with the modification of terms and condition of
employment; assessee can however, claim relief in term of section 89.

Any payment, other than payments in form of Gratuity, Commuted pension,

Retrenchment compensation, or House rent allowance due to or received by an
assesse from his employer or former employer or from provident fund or from
other funds to extent to which it does not consist contribution by assesse or
interest on such contribution or any sum received under Keyman Insurance Policy
including the sum allocated by way of bonus or such policy.

Any sum received in lumpsum or otherwise, by an assessee from any person

before joining any employment, or after cessation of such employement.

5
Example: A would be employer or an ex-employer giving some money to an assessee
so that he does not join anywhere else.

14

Advance Salary
Advance salary is taxable when it is received by the employee irrespective of the
fact whether it is due or not. It may so happen that when advance salary is included
and charged in a particular previous year, the rate of tax at which the employee is
assessed may be higher than the normal rate of tax to which he would have been
assessed. Section 89(1) provides for relief in these types of cases.
Loan or Advance against salary
Loan is different from salary. When an employee takes a loan from his employer,
which is repayable in certain specified instalments, the loan amount cannot be brought
to tax as salary of the employee. Similarly, advance against salary is different from
advance salary. It is an advance taken by the employee from his employer. This
advance is generally adjusted with his salary over a specified time period. It cannot be
taxed as salary
Arrears of salary
Normally speaking, salary arrears must be charged on due basis. However, there are
circumstances when it may not be possible to bring the same to charge on due basis.
For example if the Pay Commission is appointed by the Central Government and it
recommends revision of salaries of employees, the arrears received in that connection
will be charged on receipt basis. Here, also relief under section 89(1) is available.
Annuity
1. As per the definition, annuity is treated as salary. Annuity is a sum payable in respect
of a particular year. It is a yearly grant. If a person invests some money entitling him to
series of equal annual sums, such annual sums are annuities in the hands of the investor.
2. Annuity received by a present employer is to be taxed as salary. It does not matter
whether it is paid in pursuance of a contractual obligation or voluntarily.
3. Annuity received from a past employer is taxable as profit in lieu of salary.
4. Annuity received from person other than an employer is taxable as income from other
sources.

15

Computation of Taxable Salary

Particulars

Amount(Rs)

Basic

Amount(Rs)
XX

Dearness Allowance
DA(R)

XX

DA(O)

XX

XX

Commission
On Turnover (%)

XX

Normal

XX

XX

Wages

XX

Annuity

XX

Pension

XX

Bonus

XX

Advance salary

XX

Arrears of Salary

XX

80CCD

XX

Profit in term of Salary

XX

Perquisites (to the extent taxable)

XX

Leave Travel Concession

XX

LESS: Exempt u/s 10(5)

(X)

Gratuity

XX

XX

LESS: Exempt u/s 10(10)

(X)

XX

Pension
1

Non Commuted (Periodic)

Fully Taxable before& after
commutation in the hands of government
as well as non government employees

Commuted (Lumpsum)

XX

Received upon commutation

XX
XX

LESS: Exempt u/s 10(10A)

XX

(X)
Leave Enchasment received upon
Retirement
LESS: Exempt u/s 10(10AA)

XX
(X)

16

XX

Retrenchment Compensation received

LESS: Exempt u/s 10(10B)

XX
(X)

Voluntary Compensation

XX

LESS: Exempt u/s 10(10C)

(X)

Allowance

(X)

Gross Salary 17(1)

XX

XX

LESS: Exempt u/s 10(7)/(13A)/(14)

LESS:

XX

XX
XX

Deduction u/s 16

Entertainment Allowance deduction

available to Central and State
Government Employees (MAX Rs
5000 only)

Professional Tax paid (allowance to

all employees)

Net Taxable Salary

(XX)
XXX

Section 17 of the Act gives an inclusive definition of salary. Broadly, it includes:

1. Basic salary
2. Fees, Commission and Bonus
3. Taxable value of cash allowances
4. Taxable value of perquisites
5. Retirement Benefits
Although, all the components of salary income are included in salary, there are certain
incomes in each of these categories, which are either fully exempt or exempt upto a
certain limit. The aggregate of the above incomes, after the exemption(s) available, if any,
is known as Gross Salary. From the Gross at the figure of Net Salary:
1. Standard deduction - Section 16 (i)
2. Deduction for entertainment allowance Section 16 (ii)
3. Deduction on account of any sum paid towards tax on employment Section 16(iii).

17

Deduction u/s 16
The Income Chargeable under the head Salaries is computed after making the
following deductions:
16(ii) Entertainment Allowance:
In the case of a government employee, the least of:
1

Maximum Rs5,000/-

20% of basic salary.

Actual amount of entertainment allowance granted during the previous year.

Actual expenditure spent or not towards entertainment is absolutely irrelevant.
Entertainment allowance granted to non-government employees is fully taxable.
16(iii) Professional tax or tax on employment:

Professional tax or tax on employment levied by a state is allowed as deduction to all

employees, if paid.
If any amount is borne by employer towards Professional tax/Employment Tax of
employee it will be added to salary u/s 17(2)(iv).

18

Various Exemptions from Salary

Sec 10(5): Leave Travel Concession:
Value of any concession or assistance received or due by the individual.
1

From his employer for himself and his family members in connection with his
preceding on leave to any place in India.

From his employer or former employer for himself and his family in connection
with his proceeding to any place in India after retirement or termination of his
service.
Family means:
Assessee spouse& children*(dependent or independent)parents, brothers & sisters of
assessee if dependent (i.e., no in laws, grand children or grand parents even if
dependent).
*Children:

Children

Born on or after
01.10.1998

Maximum 2
children

Born before
01.10.1998

In case of multiple
births i.e.
twins,triplet etc.
considered as one
child

19

Any Number of
Children

Conditions as per rule 2B:

The exemption u/s 10(5) is least of:
1

Actual expenses incurred on travel.

or

Maximum amount of exemption as per rule 2B

Qualifying distance: Always from origin to destination (farther point from origin)
by the shortest possible route.

Important point:
1.

Exemption on the aforesaid basis is available in respect of 2 journeys

Performed in a block of four calendar years commencing from 1986
Ex: 1st Block 1986,87,88,89
2nd Block 1990,91,92,93
3rd Block 1994,95,96,97 & so on.
Where travel concession is not availed(whether both or one) during any block of
four years ,an amount in respect of travel concession, if any, first availed during
the first calendar year of the immediate succeeding block will be exempt. This is
known as Cary Over Concession.

20

Sec 10(7): Foreign Allowance:

Any allowance or perquisite paid or allowed outside India by the Government to
an Indian citizen for rendering service outside India, is wholly exempted from tax.
Sec 10(10): Gratuity
It is exempt from tax only if received on retirement (i.e. fully taxable if received during
service period).
1

For Government Employees:

Government employee means State & Central Government Employees,
Employees from Local Authorities but not Employees of Statutory Corporation.

In the Case of Employees covered by the Payment of Gratuity Act 1972. Gratuity
received by an employee covered by the payment of Gratuity Act, is exempt from
tax to the extent of least of the following:

*15 days salary based on last salary drawn for every completed year of service or
part thereof in excess of 6 months.

Rs 10,00,000/-

Gratuity actually received.

Salary = Basic+ D.A only (whether in term or not in term)
15 days salary=salary last drawn x

15 days

26 days
3

In case of any other employee: Gratuity received by any other employee is exempt
from the tax to the extent of least of the following.

Rs 10,00,000/- maximum over a life of an assessee.

Half month average salary for each completed year of service (fraction of service
period at the end ignored).

Gratuity actually received.

Half months Average Salary= Average SALARY of last 10 completed months
preceding the month of retirement/2
*SALARY=Basic+ D.A. (in terms) + Fixed % commission on turnover.

21

Sec 10(10A): Pension:

There are two types of pension
1) Non-Commuted i.e. periodic pension which is given normally on a monthly
basis, from the month of retirement till the assessee lives. It is fully taxable before
and after commutation.
2) Commuted i.e. Lump-sum
In place of periodic, the assessee with the consent of employer,may opt for lumpsum payment known as commuted value.
Commuted Value is determined having regards to the age of the recipient, the state
of his health, the rate of interest and the officially recognized tables of mortality
(i.e. normal age at which a person dies).
Exempt u/s 10(10A) is in relation to commuted pension only (which can be 100%
or part commutation such as 40% or 2/3rd etc.) as under:
1

For Government Employees

(Central Government, State Government, Local Authority and Statutory
Corporation employees).
Fully exempt 10(10A)

For Non Government Employees

>> If he has received gratuity of any type on retirement (i.e. rich
employee) 1/3 of Total Commute Value (T.C.V) is exempt u/s10(10A)
T.C.V= Amount received upon commutation
% commuted
>> If he has not received gratuity on retirement (i.e. poor employees) of
T.V.C is exempt u/s 10(10A).

The taxable portion (if positive) of pension is = Amount received / commutation (-)
Amount exempt u/s 10(10A)
Note : There is a possibility of exemption received being more than amount received,
since the base for exemption is taken at T.C.V in which case the entire commuted pension
is fully exempt u/s 10(10A).
Pension paid by United Nations Organisations is exempt- Pension amount received by
U.N Pensioners is exempt from tax, since such pension is nothing but salary CIT v.
22

Ramaiah[1980] 126 ITR 638 (Kar.)

23

Case Law: Commissioner of Income Tax Vs Dr P.L. Narula on 1st Dec 1983
Equivalent citation : 1984 150 ITR 21 Delhi
Bench: H Goel, S Chadha
Judgement Chadha J.
1

Under Sec256(1) of the IT act,1961 (for short called as the Act), at the instance
of the department, raise one common question for the opinion of the court namely;
Whether, on the facts and the circumstances of the case, the Tribunal was legally
right in holding the amounts received by the assessed as pensionable remuneration
from the United Nations Joint Staff Pension Fund after retirement, is exempt from
Taxation?

It is necessary to state the facts mentioned in the statement of the cases. The
mentioned in the statement of the cases. The decision of Income tax Appellate
Tribunal, Delhi, in the case of assessed in the case was considered by a Bench of
Karnataka High Court in CIT V RAMIAH (1980) 126 ITR 638. The Karnataka
High Court held that the interpreted the relevant statutory provision of the Act as
well as the United Nations (Privileges and Immunities) Act, 1947read with s.18,
clause (b) of article V of the Schedule thereto. After the decision of the Karnataka
High Court, The Central Board of Direct Taxes issued circular no 293 dates
10.02.1981 ( sec (1981) 130 ITR (St.) 5) reading as follows :
Section2 of the U.N (Privileges and Immunities) Act, 1947, read with section 18,
clause (b) of article V of the schedule thereto, inter alia, grants exemption from
taxation to salaries and emoluments paid by the United Nations to its officials.
The question whether pension received by the erstwhile officials of the United
Nations form it would be exempt from Income tax was considered by Karnataka
High Court in the case of Commissioner of Income Tax v. K Ramaiah (1980) 126
ITR 638. The High Court held that since under s.17 of the Income Tax Act 1961,
salary has been defined from tax, so shall be pension. The board have accepted the
decision of the Karnataka High Court.
In view of the foregoing, apart from salary received by employees of United
Nations Organisation or any person covered under the U.N. (Privileges and
Immunities) Act,1947, pension received by them from U.N will also be exempted
from income tax. Pending appeals on this point may be conceded and reference
application withdrawn.
Not only the Department accepted the decision of the Karnataka High Court, but
issued a circular for the guidance of the authorities under the Act. It is unfortunate
authorities under the Act. It is unfortunate that the Department has withdrawn the
reference application in the case of assessed.
The view taken by the Tribunal in these references is correct. We accordingly
answer these references against department and in the favor of the assessed with
24

no order as to costs.

Pension from Employer

Non Commuted (Periodic)

10(10A)

Commuted sec

(Lumpsum)
Fully Taxable in the hand of all employees
Government Employee

Non

Government Employee
(Fully exempt u/s 10(10A)

a) If gratuity

received
Computed
pension

XX
LESS:

Exempted
1/3rd x Amount
Received
% of
Commutation
b) Gratuity not
received.
Commuted
Pension XX
LESS:
Exempted
1/2th x Amount
Received
% of
Commutation

25

Sec 10(10AA): Leave Salary :

1

Leave Salary to Central/State Government Employees:

Any amount received as cash equivalents of leave salary in respect of period of
earned leave at his credit at the time of retirement/superannuation (automatic
retirement at specified age i.e. normally 60 years of age) is fully exempt from tax.

Leave Salary to other employees:

In case of non-government employees (it includes employees of Local Authority
or Public sector undertaking and statutory Corporation) leave salary is exempt
from tax to the extent of least of the following:

Balance of Leave as per income tax * Average Salary.

For Calculation of period of Earned Leave Balance= Due (-) leave actually
availed while in service (Due Leave Cannot Exceed 1 month for each
completed year of service).
[Average Salary=Actual Basis + Actual D.A. (in terms)+ Actual Fixed %
commission on turnover of past 10 completed months immediately preceding
the date of retirement, divided by 10].

10 months average salary

Rs 3,00,000/- maximum over a life time of an assessee.

Leave Salary Actually received.

It is worthwhile to note that:

Leave Encashment received while in service is fully taxable.

If the employee has retired under the voluntary retirement scheme he is entitled to
the exemption u/s 10(10AA).
Leave Salary- Sec10 (10AA)

Government Employee

Others

Fully Exempt
Followings

Least of the

Balance of leave as per income tax* Average Salary.

10 months Average Salary.

Actual Leave Salary Received.

Maximum over lifetime of employee Rs 3,00,000/-

Average Salary= {Basic Salary + DA (in terms) +Fixed % Commission on turnover}

26

Leave Salary received during service period shall be taxable

Sec 10(10B): Retrenchment Compensation:
Retrenchment Compensation is exempt from tax to the extent of least of following:
1

The amount is calculated in accordance with provision of section 25F(b) of the

Industrial Dispute Act,1947 [The is similar to P.O.G.A. 15 days Salary and
normally given in exams]

Rs 5,00,000/-

Actual Amount Received.

Sec10 (10C): Payment on Voluntary Retirement:

Any amount received or receivable (i.e. payments in instalments are also covered),by an
employee of :
1

Public Sector Company OR

Any other company OR

Any authority established under a Central, State or Provisional Act OR

Local authority OR

A Co-operative Society or

A university incorporated or established under a Central, State or Provincial Act

and should be declared as University as per section 3 of University Grant
Commission Act, 1956 OR

India Institute of Technology OR

State Government OR

Central Government OR

10

An institution having importance throughout India or in any State or States, as the

Central Government may, by notification in the Official Gazette, specify in his
behalf OR

11

Notified Institute of management;

On his voluntary retirement or termination of his service in accordance with any
scheme or schemes of voluntary retirement or in the case of a public sector
company, a scheme of voluntary separation, to the extent such amount does not
exceed Rs 5,00,000/-. Such scheme should be in accordance with prescribed
guidelines under Rule 2BA of Income Tax Rules, 1962.

27

Guidelines- The Guidelines for the purpose of Section 10(10C) have been laid
down in Rule 2BA of the income tax rules. The guidelines provide that the
scheme of voluntary retirement should be in accordance with the following
requirements, namely1

It applies to an employee who has completed 10 years of service or completed 40

years of age, whichever matures early.

It applies to all employees (by whatever name called), including worker and
executives of a company or authority or co-operative society.

The scheme of Voluntary retirement has been drawn to result in overall reduction
in the existing strength of the employees & not in reducing the salary bill.

The vacancy caused by voluntary retirement is not to be filled up, nor the retiring
employees is to be employed in another company or concern belonging to the
same management; and

The amount receivable on account of voluntary retirement of the employees does

not exceed the amount equivalent to 3 months of salary for each completed year of
service of salary at the time of retirement multiplied by the balance months of
service left before the date of his retirement on superannuation.
The following point should also be kept in view.

Employers can frame different schemes of voluntary retirement for different

classes of their employees. However, these schemes have to conform to the
aforesaid guidelines prescribed in rule 2BA of the Income-tax Rules.

If the exemption is allowed to an employee u/s 10(10C) in a particular assessment

year of the first time, then exemption u/s 10(10C) shall not be allowed for such
assessment year of relief or any subsequent year.

SALARY here means Basic+ D.A (R)+ fix % commission on turnover.(Only on

due basis i.e. advance or arrears considered). Salary last drawn is considered only.
Exemption is least of-

Salary X 3 months X Completed Years of Service.

Salary X balance months to retire at superannuation.

Actual Compensation Amount.

Maximum Rs 5,00,000/-

Case Study of Babu v. Chairman and Managing Director, Syndicate Bank [2002] 253
ITR 1 (Ap)
Where the assessee took up voluntary retirement from a bank under a scheme which is
provide for payment of only 50 % f the ex gratia payment in the year of retirement and
the balance 50 % in annual instalments over the succeeding years, the entire ex gratia
amount must be treated as salary which as accrued to the assesse in the year of
retirement.
28

Sec 10(10CC) : In the case of employee, being an individual deriving income in the
nature of a non-monetary perquisite as per sec 17(2), the tax on such income actually paid
by his employer at the option of the employer, on behalf of such employee is exempt in
the hands of employee. However such a tax paid by the employer will not be allowed to
him as a business expenditure/deduction.

Sec 10(11) and 10(12): Taxability of Provident Fund- Recognised, Unrecognised &
Statutory.
Sec 10(11) & 10(12) of the Act deal with exemption on payment from provident
funds, while section 80c of the act deals with allowance of deductions on contributions to
provident funds. The following are types of Provident Funds.
1

Recognised Provident Fund (RPF): This scheme is applicable to an organisation

which employees 20 or more employees. An organisation can also voluntary opt
for this scheme. All RPF scheme must be approved by The Commissioner of
Income Tax. Here by company can either opt for government approved scheme or
the employer and the employee can together start a PF scheme by forming a trust.
The Trust so created shall be invests fund in a specific manner. The income of the
trust shall also be exempt from income taxes.

Unrecognised Provident Funds (UPF): Such Schemes are those that are started by
employer and employees in an establishment, but are not approved by the
Commissioner of Income Tax. Since, they are not recognised, URF schemes have
a different tax treatment as compared to RPF

Statutory
Provident
Fund:
The
Fund
is
mainly
meant
for
Government/University/Educational Institutes (affiliated to university) employees.

Public Provident Fund: This is a scheme under The Public Provident Fund Act
1968. In this scheme even self-employed person can make a contribution. The
minimum contribution is Rs.500 per annum and the maximum contribution is
Rs.1,50,000pa. The Contribution made along with interest earned is repayable
after 15 years, unless extended.

Tax treatment of Provident Fund can be discussed under two scenarios:

1

During continuity of job

Upon receipt of accumulated balance of provident fund at the time of retirement

or resignation.

In the Below table

*SALARY= BASIC+ DA(R)+ FIXED COMMISSION ON TURNOVER.
*IFOS=INCOME FROM OTHER SOURCE
Salary Includes:
29

80 CCD

XX

Employers Contribution to RPF

XX

(-) Exempt upto 12% of salary

(XX)

Interest Accrued on RPF

XX

(-) Exempt upto 9.5%

(XX)

XX
XX

** Taxable (Lumpsum of UPF)

Employees Cont

Int on Employees

Employers

Cont.

Cont.

Int on Employers
Cont

Not Taxable
*IFOS
Income from salary sec17 (3)
Profit in lieu of salary.

Particulars

SPF

RPF

UPF

PPF

Employees Deduction u/s Deduction u/s NO deduction Deduction u/s

Contribution 80C available 80C available u/s 80C
80C available

Employers
Exempt from Exempt up to Exempt From Employer
Contribution Tax
12% of salary Tax Initially Does
not
Contribute
Excess Shall
be added to
*Salary

Interest
on Exempt
Employee
Contribution

Exempt up to Exempt from Exempt from

9.5% p.a.
Tax Initially tax
Excess shall
be added to
*Salary.

Interest
on Exempt
Employers
Contribution

30

Exempt from
tax initially

Lumpsum

Exempt
10(11)

u/s Exempt
10(12)

u/s Taxable**

Exempt
10(11).

u/s

Sec 10(13): Payment from an approved superannuation fund:

Any Payment from an approved superannuation fund (i.e. approved by Chief
Commissioner or Commissioner of Income tax) shall be fully exempted if the payment is
made to:
1

The legal heirs on the death of beneficiary.

An employee in lieu or in communication of an annuity on his retirement at or a

specified age on or his becoming incapacitated prior to such retirement.

An Employee on his leaving the service in connection with his fund is established
otherwise than, in the circumstances mentioned in point 2 above i.e. leaving
employment for better pay etc then lump sum received will be fully taxable.

It means a superannuation fund which has been and continues to be approved by the
Commissioner in accordance with the rules contained in Part B of the VIth Schedule to
the Income-tax Act, 1961.
The tax treatment of contribution and exemption of payment from tax are as follows:
1

Employers contribution is exempt from tax in the hands of employee (upto `

1,00,000 per employee per annum). Only such contribution exceeding ` 1,00,000
is taxable in the hands of the respective employee;

Employees contribution qualifies for deduction under section 80C;

Interest on accumulated balance is exempt from tax. Section 10(13) grants

exemption in respect of payment from the fund (a) to the legal heirs on the
death of beneficiary (e.g. payment to widow of the beneficiary) or (b) to an
employee in lieu of or in commutation of an annuity on his retirement at or after
the specified age or on his becoming incapacitated prior to such retirement, or (c)
by way of refund of contribution on the death of the beneficiary or, (d) by way of
refund of contribution to an employee on his leaving the service in connection

31

Taxable Value of Allowance:

Allowance is a fixed monetary amount paid by the employer to the employee (over and
above basic salary) for meeting certain expenses, whether personal or for the performance
of his duties. These allowances are generally taxable and are to be included in gross
salary unless specific exemption is provided in respect of such allowance. For the purpose
of tax treatment, we divide these allowances into 3 categories:
1

Fully taxable cash allowances

Partially exempt cash allowances

Fully exempt cash allowances

I. FULLY TAXABLE ALLOWANCES

This category includes all the allowances, which are fully taxable. So, if an
allowance is not partially exempt or fully exempt, it gets included in this category. The
main allowances under this category are enumerated below:
(i) Dearness Allowance and Dearness Pay
As is clear by its name, this allowance is paid to compensate the employee against
the rise in price level in the economy. Although it is a compensatory allowance against
high prices, the whole of it is taxable. When a part of Dearness Allowance is converted
into Dearness Pay, it becomes part of basic salary for the grant of retirement benefits and
is assumed to be given under the terms of employment.
(ii) City Compensatory Allowance
This allowance is paid to employees who are posted in big cities. The purpose is
to compensate the high cost of living in cities like Delhi, Mumbai etc. However, it is fully
taxable.
(iii) Tiffin / Lunch Allowance
It is fully taxable. It is given for lunch to the employees.
(iv) Non -practicing Allowance
This is normally given to those professionals (like medical doctors, chartered
accountants etc.) who are in government service and are banned from doing private
practice. It is to compensate them for this ban. It is fully taxable.
(v) Warden or Proctor Allowance
These allowances are given in educational institutions for working as a Warden of
the hostel or as a Proctor in the institution. They are fully taxable.
(vi) Deputation Allowance
When an employee is sent from his permanent place of service to some place or
institute on deputation for a temporary period, he is given this allowance. It is fully
taxable.
32

(vii) Overtime Allowance

When an employee works for extra hours over and above his normal hours of
duty, he is given overtime allowance as extra wages. It is fully taxable.
(viii) Fixed Medical Allowance
Medical allowance is fully taxable even if some expenditure has actually been
incurred for medical treatment of employee or family.
(ix) Servant Allowance
It is fully taxable whether or not servants have been employed by the employee.
(x) Other allowances
There may be several other allowances like family allowance, project allowance,
marriage allowance, education allowance, and holiday allowance etc. which are not
covered under specifically exempt category, so are fully taxable.
II. PARTIALLY EXEMPT ALLOWANCES
This category includes allowances which are exempt up to certain limit. For certain
allowances, exemption is dependent on amount of allowance spent for the purpose for
which it was received and for other allowances, there is a fixed limit of exemption.
(i) House Rent Allowance (H.R.A.)
An allowance granted to a person by his employer to meet expenditure incurred
on payment of rent in respect of residential accommodation occupied by him is exempt
from tax to the extent of least of the following three amounts:
a) House Rent Allowance actually received by the assessee
b) Excess of rent paid by the assessee over 10% of salary due to him
c) An amount equal to 50% of salary due to assessee
(If accommodation is situated in Mumbai, Kolkata, Delhi and Chennai)
Or
Amount equal to 40% of salary (if accommodation is situated in any other place).
Salary includes Basic Salary, Dearness Allowance (if it forms part of salary for the
purpose of retirement benefits), Commission based on fixed percentage of turnover
achieved by the employee.
*SALARY=BASIC+DA(R)+FIXED % COMMISSION OF TURNOVER
The exemption of HRA depends upon the following factors:
(1) Basic Salary

(2) Place of residence

(3) Rent paid

(4) HRA received.

If an employee is living in his own house and receiving HRA, it will be fully taxable.
33

Example:
Mr. X is employed in A Ltd. getting basic pay of Rs.20, 000 per month and dearness
allowance of Rs.7, 000 per month (half of the dearness allowance forms part of salary for
the purpose of retirement benefits). The employer has paid bonus @Rs.500 per month,
Commission @1% on the sales turnover of Rs.20 lakhs, and house rent allowance of
Rs.6, 000 per month. X has paid rent of Rs.7, 000 per month and was posted at Agra.
Solution:
Computation of Gross Salary

Amount(rs)

Basic Salary (Rs.20,000 x 12)

2,40,000

Dearness Allowance (Rs.7,000 x 12)

84,000

Bonus (Rs.500 x 12)

6,000

Commission (1% of Rs.20,00,000)

20,000

House Rent Allowance

18,200

(Rs.6,000 x 12 Amount exempt Rs.53,800)

Gross Salary

3,68,200

Amount of HRA exempt is least of 3 amounts:

1. 40% of Salary (Rs.2,40,000 + Rs.42,000 + Rs.20,000) = Rs.3,02,000
2. Actual HRA received (Rs.6, 000 x 12) = Rs. 72,000
3. Rent paid (Rs.7, 000 x 12 10% of salary Rs.30, 200) = Rs. 53,800
Amount of HRA exempt is = Rs. 53,800
Certain allowances are given to the employees to meet expenses incurred exclusively in
performance of official duties and hence are exempt to the extent actually incurred for the
purpose for which it is given. These include travelling allowance, daily allowance,
conveyance allowance, helper allowance, research allowance and uniform allowance.
(iv)Special Allowances to meet personal expenses:
There are certain allowances given to the employees for specific personal purposes and
the amount of exemption is fixed i.e. not dependent on actual expenditure incurred in this
regard. These allowances include:
a) Children Education Allowance
This allowance is exempt to the extent of Rs.100 per month per child for maximum of
2 children (grand children are not considered).
b) Children Hostel Allowance
Any allowance granted to an employee to meet the hostel expenditure on his child is
exempt to the extent of Rs.300 per month per child for maximum of 2 children.
c) Transport Allowance
34

This allowance is generally given to government employees to compensate the cost

incurred in commuting between place of residence and place of work. An amount
uptoRs.800 per month paid is exempt. However, in case of blind and orthopaedically
handicapped persons, it is exempt up to Rs. 1600p.m.
d) Out of station allowance:
An allowance granted to an employee working in a transport system to meet his personal
expenses in performance of his duty in the course of running of such transport from one
place to another is exempt up to 70% of such allowance or Rs.6000 per month,
whichever is less.
III. FULLY EXEMPT ALLOWANCES
(i) Foreign allowance
This allowance is usually paid by the government to its employees being Indian citizen
posted out of India for rendering services abroad. It is fully exempt from tax.
(ii) Allowance to High Court and Supreme Court Judges of whatever nature are exempt
from tax.
(iii) Allowances from UNO organisation to its employees are fully exempt from tax.

35

Al

A llo w a n c
e
g ra n te d
by govt
to
e m p lo y e
es
o u ts id e
In d ia u /s
1 0 (7 ).
A llo w a n c
e by
U N O to
its
e m p lo y e
e.
Any
A llo w a n c
e
re c e iv e d
b y H ig h
c o u rt
& s u p re m
e C o u rt
ju d g e

Fully Exempt

H ouse
Re n t
a llo w a n c
e
S p e c ia l
A llo w a n c
e Sec
1 0 (1 4 ).

Partly Taxable

Fully Taxable

E n te rta in e n t
a llo w a n c e
D e a rn e s s
A llo w a n c e
O v e rtim e
A llo w a n c e
C ity
C o m p e n s a to ry
A llo w a n c e
In te rin A llo w a n c e
S e rv a n t
A llo w a n c e
P ro je c t A llo w a n c e
Lu n c h /Tiffi n /D in n e
r A llo w a n c e
W a rd e n A llo w a n c e
N in -P ra c tic e
A llo w a n c e
Fix M e d ic a l
A llo w a n c e
A n y o th e r C a s h
A llo w a n c e

lowance
Sec-17(2) Perquisite
Perquisite may be defined as any casual emolument or benefit attached to an office or
position in addition to salary or wages. In essence, these are usually non-cash benefits
given by an employer to employees in addition to cash salary or wages. However, they
may include cases where the employer reimburses expenses or pays for obligations
incurred by the employee. Perquisites are also referred to as fringe benefits. Broadly,
perquisite is defined in the section 17(2) of the Income-tax Act as including:
1
Value of rent-free or concessional rent accommodation provided by the employer.
2
Value of any benefit/amenity granted free or at concessional rate to specified
employees etc.
3
Any sum paid by employer in respect of an obligation, which was actually payable
by the assessee.
4
Any sum paid by the employer for assurance on life of the employee or to effects
a contract for an annuity.
36

Value of any other fringe benefit as may be prescribed.

Taxable Perquisite:
1

u/s 17(2)(i) : The value of Rent Free Accommodation provided to the assessee,
taxable in the hands of all employees, i.e. specified as well as non-specified
employees u/s 17(2)(i).

u/s 17(2)(ii) : The value of any concession in the matter of rent in respect of any
accommodation provided to the assessee by his employer , taxable in hands of all
employees i.e. specified employer, taxable in the hands of all employees i.e.
specified as well as non-specified u/s 17(2)(ii).

u/s 17(2)(iii) : The value of any benefit or amenity granted or provided free of cost
or at concessional rate by the employer to the employee, these are in the nature of
mere facilities such as servants, gas-water-electricity, education & medical, which
are taxable in the hands of only specified employees u/s 17(2)(iii)
The word provided signifies that once such facility is made available by the
employer to the employee, it will be taxable whether the employee actually uses
this facility or not, provided the employee has not foregone or waived his right
there to.

u/s 17(2)(iv) : Any amount paid an employer in respect of any obligation which
otherwise would have been payable by the employee, i.e. Employees liability met
by the employer. For Example, if the servant is appointed by employee or Gas,
water electricity bills are in the name of employee; and subsequently such
payments by employee is reimbursed by employer or directly paid by employer it
is taxable perquisite in the hands of all employees, i.e. specified as well as nonspecified employees u/s 17(2)(iv).
The word paid signifies that the perquisite will be taxable in the year of actual
payment / reimbursement.

u/s 17(2)(v) : Any sum payable by the employer to the effect an assurance on
the life of the assessee or to effect a contract for an annuity, taxable in the hand of
all employees, i.e. specified as well as non-specified u/s 17(2)(v).
The word payable signifies that such a perquisite will be taxable in the year in
which it was due, even if the same is actually paid in the next year.

u/s 17(2)(vi) : The value of any specified security or sweat equity shares allotted
or transferred, directly or indirectly, by the employer, or former employer, free of
cost or at concessional rate to the assessee, which is taxable in the hands of all
employees i.e. specified as well as non-specified u/s 17(2)(vi)

u/s 17(2)(vii) : The amount of any contribution to an approved superannuation

fund by the employer in respect of the assessee, to the extent it exceeds one lakh
rupees, which is taxable in the hands of all employees i.e. specified as well as nonspecified u/s 17(2)(vii).
37

u/s17(2)(viii): The value of any other fringe benefit or amenity as may be

prescribed, which is taxable in the hands of all employees i.e.specified as well as
non-specified u/s 17(2)(viii).

Who are Specified employees?

1

Director employee

Employee who has substantial interest in the employer company (Having 20% or
more of the voting power)

Employee drawing total monetary salary exceed of Rs.50,000/- . In ascertaining

the total monetary salary of Rs 50,000/- , we have to deduct the following nonmonetary items and deduction from gross salary:
Gross Salary

Less: a) Value of any Perquisite

b) Employers Contribution to RPF taxable portion (i.e. n excess of 12%
of SALARY)
c) Interest Credited to RPF-taxable portion (i.e. in excess of 9.5% p.a.)
d) Deduction u/s 16(ii) for entertainment allowance, if applicable.
e) Deduction u/s 16(iii) for professional tax.

Net Total monetary salary, if exceeding Rs. 50,000/- , then specified employee non-else
specified employee.
PERQUISITES
1) Rent-free Accommodation
2) Education Facility
3) Car Facility
6) Medical Facility
9) Sweat equity shares allotted to employee under ESOP (Market Value Issued Price)
10) Employers Contribution to Approved Superannuation Fund, in excess of `1,00,000
11) Other Facilities
a. Lunch Facility (Refreshment tax-free; Lunch in office = in excess of ` 50 per meal)
b. Interest free Loan
c. Transport Facility (Rail or Aircraft exempt; otherwise = Market Value)
d. Holiday Facility
g. Free Voucher Facility (Market Value is exceeds ` 5,000)
h. Use of Movable Assets (10% P.A. of Original Cost or Rent except computer or
mobile)
38

i. Movable Asset sold at Concessional rate.

VALUATION OF PERQUISITES
1

Rent Free Accommodation

For Employee of Central Government or State Government:

Value will be equal to the License fees, which would have been determined by the CG/SG
in accordance With the Govt. Rules.
For Other Employee:
1
If accommodation is owned by employer:
1
7.5%, or 10% or 15% of salary.
City Having Population up to 10 lacs

7.5% of Salary

City Having Population eceeds10 lacs but upto 25 lacs

10% of Salary

City Having Population exceed 25 lacs

15% of salary

2
2

If accommodation is taken on lease rent by employer:

15% of salary or lease rent payable by employer, whichever is lower.

Note1: Where House is owned by Employer valuation will be done as under

Note2: The Value determined above, shall be reduced by rent, if any actually paid by
employee.
Note 3: When the accommodation is provided by employer (Govt. As well as other) in a
hotel:
The Value is
24% of Salary or actual charge paid or payable to such hotel, whichever is lower.
[Note no.2 is also applicable in this case].
Exception to Note 3:There will be no perquisite value if the accommodation is provided in a hotel if the
following conditions are fulfilled :(i) Such accommodation is provided for a period 15 days or less, and
It has been provided on the transfer of the employee from one place to another
Note 4: Salary means
Basic salary
Dearness allowance, if terms of employment
39

(ii)

 Bonus
Commission (both)
All other taxable allowances
Leave Encashment (Current Year)
Salary to be calculated on DUE basis
Salary from ALL Employers will be taken
Monetary payments, which are in the nature of perquisites, shall not be included
Value of Rent Free Furnished Accommodation
Value of unfurnished accommodation

XXX

Add: 10% of original cost of furniture is owned by employer

OR
Actual hire charges payable, if furniture is hired by the employer
Value of RFA (furnished)
2

XXX
XXX

Education facility Valuation:-

(1) If School is owned by Employer;

Valuation = Fair fees in similar school in near locality.
(2) If Employer has reserved sum seats in any School or Institution;
Valuation = Fair fees in same school.
(3) If education fees is paid by employee and later on reimbursed from employer;
Valuation = Amount of reimbursement. However, if education facilities are provided to
the CHILDREN of the employee, in point no. (1) and (2) then value of perquisite will be
exempted up to Rs. 1000/-p.m. per child.
Note: Where any amount is paid or recovered from the employee on that account, the
value of benefit shall be reduced by the amount so paid or recovered.

40

Education

Facility 17(2)(iii)
Reimbursement sec17(2)(iv)

Specified Employee
Employee

For All

Employee not taxable

*MOH(incl child)
Expenses
reimbursed by *ER
Less: Amount
Recovered by *EE

Employee
Not Taxable

Children of employee
(as mentioned in above para)

Other MOH
Expenses incurred by ER
Less: Amount recovered by

EE
(same as children of
employee)

*MOH- Member of Household

*EE- Employee
*ER- Employer

Interest free Loan or Loan at Concessional rate:

41

Valuation: Rate as prescribed by State Bank of India as on 1st day of the relevant previous year in
which loan has been given.
Note 1:- The above valuation should be reduced by the interest, if any paid by employee
or his family member.
Note 2:- Value of perquisite shall not be charged to tax in following cases:1

When the amount of loan not exceeding in the aggregate Rs.20,000;

or

Where loan is for medical treatment under Rule 3A

Valuation of Car Facility:

42

Movable Assets sold at Concessional rate

Valuation:- WDV of such assets (-) Amount charged from employee
WDV means
Actual Cost of the Employer

xxx

Less: Depreciation

xxx

WDV

xxx

Rate of Depreciation:Computer : 50% on WDV

Motor Car : 20% on WDV
Other assets : 10% on SLM
Note: - While calculating depreciation part of the year will be ignored
5
Perquisites for medical facilities:
43

Valuation of Gas, Water, Electricity

Connection

Employee

Employer

Use

Employee

Employee

Obligation

Employee

Employer

Pay by

Employer

Employer

Taxable in case

Taxable in case

Of all employees

of specified Employee

Valuation of Perquisite
Owned resources

outside Resource

Cost of Production

Amount paid by Employer

LESS : Amount received from employer

Employer
1

LESS: Amount Received from

Valuation of Watchmen/ Gardener/ Sweeper/ Personal Assistants/ Domestic

Servants

Appointed by

Employee

Employer

Use by

Employee

Employee

Obligation

Employee

Employer

Paid by

Employer
Taxable in case of

Employer
Taxable in case of specified

44

All employees

Employees

Valuation of Perquisite
Amount paid by employer

XX

Less: Amount received from employee

Valuation of Sweat equity under ESOP/ESOS

Fair Market Value on the Date of Option

XX

Less: Issue price

(XX)

Value of taxable perquisite to be taxed

XX

In the year of allotment of sweat equity shares scheme

BIBLIOGRAPHY
45

XX

 www.chartedclub.com
www.surfindia.com
www.taxpaisa.com
www.income-tax-india.com

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