CHART SHOWING COMPUTATION OF SALARY INCOME

I. Important Points :
1.Relationshipofemployerandemployeemustexisttocreatesalaryincome.
2.Onlyreceiptsfromemployeraretaxableunderthishead.Receiptfromapersonotherthanemployerare
taxableunderOtherSource.
3.IncaseSalaryisreceivedafterdeductionoffollowingitems...theseareaddedbacktogetfullySalary:
(i)OwnContributiontoProvidentFund.
(ii)TaxDeductedatSource(TDS)
(iii)RepaymentofLoanetc.
(iv)LICPremium,ifdeductedfromsalary.
(v)GroupInsuranceScheme.
(vi)RentofHouseprovidedbyemployer.
1.

Previous Year in case of Salaries is always Financial Year i.e. for the Assessment
Year 2009-2010 it is 1-4-2008 to 31-3-2009.

II. Salary U/s 17(1) :

1.Wages.FullyTaxable.
2.AnnuityorPension.FullyTaxable
3.Gratuity.Ithasbeentreatedseparately.
4.(a)AnyFees--FullyTaxable
(b)Commission--FullyTaxable
(c)Bonus--FullyTaxable
(d)Perquisites--(Perks)Thesearetreatedseparatelyu/s17(2)
(e)ProfitinlieuofSalary--Thesearetreatedseparatelyu/s17(3)
5.SalaryinlieuofLeave/LeaveEncashment.FullyTaxable.
6.AdvanceSalary.FullyTaxable
7.ArrearsofSalary.FullyTaxable.
8.RefundofProvidentFund(PF)
(a)IfSPF--Fullyexempted
(b)IfRPF--Fullyexemptedifserviceismorethan5years.
(c) If URPF -- Taxable portion is added in salary income. Taxable portion is equal to employers
contribution+interestonthispart.InterestonowncontributiontoURPFistaxableundertheheadIncome
fromOtherSources.

III. Allowances :
1

A.FullyExemptedAllowances:
ForeignAllowancegivenbyGovt.toitsemployeespostedabroad.HRAgiventoJudgesofHighCourt&
SupremeCourt.
B.FullyTaxableAllowances:
(i)DearnessAllowance/AdditionalD.A./HighCostofLivingAllowance--FullyTaxable.
(ii)CityCompensationAllowances(CCA).
(iii)CapitalCompensatoryAllowance
(iv)LunchAllowance
(v)TiffinAllowance
(vi)Marriage/FamilyAllowance
(vii)OvertimeAllowance
(viii)FixedMedicalAllowance.
(ix)ElectricityandWaterAllowance
(x)EntertainmentAllowance.ItisfullyaddedinemployeesSalary.
IncaseofGovernmentemployeesadeductionisallowedu/s16(ii)attherateofleastoffollowing:
(a)StatutoryLimitRs.5,000p.a.
(b)1/5(20%)thofBasicSalary;or
(c)ActualEntertainmentAllowancereceived.

C.PartlyTaxableAllowances:
1.HouseRentAllowance(HRA)
(a)FullyExempted,ifreceivedbytheJudgesofHighCourtandSupremeCourt.
(b)FullyTaxable,ifreceivedbyanemployeewhoislivinginhisownhouseorinahouseforwhichno
rentispaid.
(c)Exempteduptoleastoffollowingforthoseemployeeswhoarelivinginrentedhouses:
(i)ActualHRAreceivedbytheemployee.
(ii)Rentpaid-10%ofSalary;or
(iii)40%ofSalaryinordinarytown;50%ofSalaryinMumbai,Kolkata,ChennaiorDelhi.
TaxableHRA=HRAReceived-LeastofAbove.
Salary=Pay+D.A.whichentersintoPayforServiceorRetirementBenefits+CommissiononTurnover
AchievedbyHim.

FollowingAllowancesareExempteduptoactualexpenditureincurredforemployment.Excess,ifany,
shallbetaxable...
2.UniformAllowance
3.ConveyanceAllowance
4.TravelingAllowance
FollowingAllowanceareExempteduptoamountsonotified..
5.SpecialCompensatoryAllowance
6.BorderAreaAllowance
7.TribalAreaAllowance--ExempteduptoRs.200p.m.ifreceivedintheStatesofM.P.,TamilNadu,
U.P.,Karnataka,Tripura,Assam,WestBengal,Bihar,orOrissa.
8.ChildrensEducationAllowance--ExempteduptoRs.100p.m.perchildforeducationinIndiaofown
twochildrenonly.
9.HostelExpenditureAllowance--ExempteduptoRs.300p.m.perchildforHostelexpenditureonown
twochildrenonly.
IV. Perquisites :
A.ExemptedPerquisites:
1.LeaveTravelConcessionsubjecttoconditions&actualspentonlyfortravels.
2.Computer/Laptopprovidedforofficial/personaluse.
3.InitialFeespaidforcorporatemembershipofaclub.
4.RefreshmentprovidedbytheEmployerduringworkinghoursinofficepremises.
5.PaymentofannualpremiumonPersonalAccidentPolicy.
6.Subscriptiontoperiodicalsandjournalrequiredfordischargeofwork.
7.ProvisionofMedicalFacilities.
8.GiftnotexceedingRs.5,000p.a.
9.UseofHealthClub,Sportsfacility.
10.Freetelephoneswhetherfixedormobilephones.
11.InterestFree/concessionalloanofanamountnotexceedingRs.20,000(limitnotapplicationinthecase
ofmedicaltreatment)
12.ContributiontorecognisedProvidentFund/approvedsuperannuationfund,pensionordeferredannuity
scheme&staffgroupinsurancescheme.
13.FreemealprovidedduringworkinghoursorthroughpaidnontransferablevouchersnotexceedingRs.50
permealorfreemealprovidedduringworkinghoursinaremotearea.

Thevalueofanybenefitprovidedfreeorataconcessionalrate(includinggoodssoldatconcessionalrate)by
acompanytotheEmployeesbywayofallotmentofsharesetc.,undertheEmployeesstockoptionplanas
perCentralGovernmentGuidelines.
B.TaxablePerquisites:
1.RentFreeAccommodation
2.ProvisionofMotorCaroranyotherConveyanceforpersonaluseofEmployee.
3.ProvisionofFreeorConcessionalEducationFacilities.
4.ReimbursementofMedicalExpenditure.
5.ExpenditureonForeignTravelandstayduringmedicalexpenditure.
6.SupplyofGas,Electricity&Water.
7.SaleofanAssettotheEmployeeatconcessioanalpriceincludingsaleofShareintheEmployerCompany.

C.PerksExemptedforEmployeesbutTaxableforEmployerunderFringeBenefitTax.
Valueofthefollowingbenefitsisnottaxableinthehandsofanemployee.Theemployerhastopaytaxon
deemedincomecalculatedaspercentageofexpenditureincurred.
1. Any free or concessional ticket provided by the employer for private journeys of
his employee or their family members
2. Any contribution by the employer to an approved superannuation fund for
employees;
3.

1. Expenditure incurred on entertainment ;

2. Expenditure incurred on provision of hospitality of every kind by
theemployer to any person.
3. Expenditure incurred on conference like conveyance, tour &
travel (including foreign travel) , on hotel, or boarding and lodging
inconnection with any conference shall be deemed to be expenditure
incurred for the purposes of conference.
4. Expenditure incurred on sales promotions including publicity ;
5. Expenditure incurred on employees welfare ;
6. Expenditure incurred on conveyance
7. Expenditure incurred on Hotel, Boarding & Lodging facilities ;
8. Expenditure incurred on Repair, Maintenance of Motor Cars and the
amount of Depreciation there on.
9. Expenditure incurred on use of telephone and Mobile Phones.

10. Expenditure incurred on maintenance of any accommodation in the nature

of Guest House other than used for Training purpose.
11. Expenditure incurred on Festival Celebrations.
12. Expenditure incurred on use of Health Club and similar facilities.
13. Expenditure incurred on gifts ;
FringeBenefitTax(FBT)isnotapplicableincaseoffollowingtypeofemployers.
1. An Individual or a sole Proprietor
2. A Hindu Undivided Family
3. Government
4. A Political Party
5. A person whose income is exempt u/s 10(23c)
6. A Charitable Institution registered u/s 12AA.
7. RBI
8. SEBI

V. Profits in Lieu of Salary :

ReceiptswhichareincludedundertheheadSalarybutExemptedu/s10.
1.LeaveTravelConcession(LTC)-Exemptuptorules.
2.AnyForeignAllowanceorperks-IfgivenbyGovt.toitsemployeespostedabroadarefullyexempted.
3.Gratuity:AGovt.Employeeorsemi-Govt.employeewhereGovt.rulesareapplicable--Fully
Exempted.
A.ForemployeescoveredunderPaymentofGratuityAct.-Exemptuptoleastoffollowing:
(a)Notifiedlimit=Rs.10,00,000
(b)15daysAverageSalaryforeveryonecompletedyearof
service(periodexceeding6months=1year)
1/2monthssalary=(Averagemonthlysalaryorwagesx15/26
(c)Actualamountreceived.
B.OtherEmployees--Exempteduptoleastoffollowingprovidedserviceismorethan5yearsor
employeehasnotleftserviceofhisown:
(a)Notifiedlimit=Rs.10,00,000
(b)1/2monthsaveragesalaryforeveryoneyearofcompletedservice(monthstobeignored.)

(c)Actualamountreceived
AverageSalary=Salaryfor10monthsprecedingthemonthofretirementdividedby10.
4.CommutationofPension:
Incasecommutedvalueofpensionisreceived-(a)IfGovt.employee--isFullyExempted.
(b)Ifotheremployeewhoreceivegratuityalso-Lumpsumamountisexempteduptocommutedvalueof1/
3rdofPension.
Ifotheremployeewhodoesnotgetgratuity--Lumpsumamountisexempteduptocommutedvalueof1/2of
pension.
5.LeaveEncashmentu/s10(10AA)
(a)IfreceivedatthetimeofretirementbyaGovt.employee---FullyExempted
(b)Ifreceivedduringservice---Fullytaxableforallemployees
(c)Ifreceivedbyaprivatesectoremployeeatthetimeofretirementexemptedupto:
(i)NotifiedlimitRs.3,00,000
(ii)Averagesalaryx10months
(iii)Actualamountreceived.
(iv)AverageSalaryxNo.ofmonthsleavedue.
6.AnyTaxonperkspaidbyemployer.ItisfullyExempted.
7.AnypaymentreceivedoutofSPF.AnypaymentreceivedoutofSPFisFullyExempted.
8. Any payment received out of RPF . Any payment received out of RPF is Fully Exempted, If service
exceeds5years.
9.Anypaymentreceivedoutofanapprovedsuperannuationfund.isFullyExempted
Vi.
Deduction Out Of Gross Salary [ Sec. 16]
1.EntertainmentAllowance[U/s16(ii)]

Deductionu/s16(ii)admissiontogovt.employeeshallbeanamountequaltoleastoffollowing:
1.

Statutory Limit of Rs.5,000 p.a.

2.

1/5 th of Basic Salary

3.

Actual amount of entertainment allowance received during the previous year.

2.TaxonEmploymentu/s16(iii
Incaseanyamountofprofessionaltaxispaidbytheemployeeorbyhisemployeronhisbehalfitis
fullyallowedasdeduction.
Vii. Deduction U/S 80C Out Of Gross Total Income (GTI)
ThefollowingarethemainprovisionsofthenewlyinsertedSection80C.:
1. Under Section 80C , deduction would be available from Gross Total Income.

2. Deduction under section 80C is available only to individual or HUF.

3. Deduction is available on the basis of specified qualifying investments /
contributions / deposits / payments made by the taxpayer during the previous
year.
4. The maximum amount deduction under section 80C , 80CCC, and 80CCD can
not exceed Rs.1 lakh.

Deductionu/s80Cshallbeallowedonlytothefollowingassessee:
1.

An Individual

2.

A Hindu Undivided Family (HUF)