Professional Documents
Culture Documents
INDEX
Sr. No.
Particulars
Page No.
1.
2-9
2.
Definitions
10
3.
Allowances
11-15
4.
Perquisites
16--22
5.
23-30
6.
Illustrations
31-33
7.
Bibliography
34
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2. Full-time or part-time employment: t does not matter whether the employee is a fulltime 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.
4. Example: 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 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 BOG for the amount donated to the institution.
5. 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.
6. Salary paid tax-free: This, inother 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.
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 inthese 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 installments, the loan amount cannot be brought to tax as salary of the
employee.
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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 b1e 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 appointee! 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 B9(1) is available.
Annuity
1. As per the definition, annuity' istreated as salary. Annuity is a sum payable inrespect 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. 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".
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Leave encashment
Govt.
Non-Govt employees
employees
1
Fully exempt
Fully exempt
Fully exempt
1) Rs 3,00,000
account of Termination)
Fully exempt
Fully exempt
employee
Here salary means Basic + Dearness Allowance (forms part of pay) + Commission (Fixed %
on turnover)
** Cash equivalent to leave to the credit of employee at time of retirement is
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= {(A X B) C} X D
Where
A) No of completed year of service (excluding part of the year)
B) Number of leave credited each year (Subject to maximum of 30 leave per year)
C) Number of leave taken or leave encased during period of employment
D) Average salary for last 10 months
The following additional points should be noted:
i. Where leave salary is received from two or more employers in the same year, then the
aggregate amount of leave salary exempt from tax cannot exceed Rs 3,00,000
ii. Where leave salary is received in any earlier year from a former employer and again
received from another employer in a later year, the limit of Rs 3,00,000 will be reduced by
the amount of leave salary exempt earlier.
iii. Relief u/s 89 read with Rule 21A can be claimed by the employee in cases where the
amount of leave encashment is fully taxable.
iv. Leave salary (or leave encashment) received by the legal heir of the deceased employee
is not at all taxable in the hands of his legal heirs (F.35/1/65-IT(B), dated 5-11-1965)
Retrenchment Compensation [Section 10(1OB)]
Retrenchment compensation received by an assessee shall be exempt of the least amount from the
following.
5,00,000
An amount calculated in accordance with sec 25F(b) of the Industrial Disputes Act, 1947 i.e
15 days average pay x completed year of service or part thereof in excess of 6 months.
The accumulated balance is paid to the employee at the time of his retirement or resignation. In the
case of death of the employee the same is paid to his legal heirs.
The provident fund represents an important source of small savings available to the
Government. Hence, the Income-tax Act. 11 961 gives certain deductions on savings in a
provident fund account.
There are four types of provident funds:
(i) Statutory Provident Fund (SPF)
(ii) Recognized Provident Fund (RPF)
(iii) Unrecognized Provident Fund (URPF)
(iv) Public Provident Fund (PPF)
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Recognized PF
lJnrecognized
Statutory PF
Fully exempt
Employer's
Amount in excess of
PF
Not taxable
Contribution
12% of salary is
yearly
own contribution)
Employee's
Eligible
Contribution
Amount received on
taxable
Interest Credited
Public PF
for
Not eligible
Eligible for
Eligible for
for deduction
deduction u/s
deduction u/s
BOC
BOC
Fully exempt
Fully exempt
Fully exempt
Fully exempt
u/s 10(11)
u/s 10(11)
Amount in excess of
Not taxable
yearly
retirement, etc.
Notes:
(1)
Amount received on the maturity of RPF is fully exempt in case of an employee who has
rendered continuous service for a period of 5 years or more. Incase the maturity of RPF
takes place within 5 years then the amount received would be fully exempt only if the
service had been terminated due to employee's ill-health or discontinuance or contraction of
employer's business or other reason beyond control of the employee. In any other case.
The amount received will be taxable in the same manner as that of an URPF.
(2)
If, after termination of his employee not with one employer, the employee obtains
employment under another employer, t1en, only so much of the accumulated balance in his
provident fund account will be exempt which is transferred to his individual account in a
recognized provident fund maintained by the new employer. In such a case. for
exemption of payment of accumulates balance by the new employer, the period of
service with the former employer shall also be taken into account for computing the
period of five years' continuous service.
(3)
Employee's contribution is not taxable but interest thereon is taxable under 'Income from
Other Sources'. Employer's contribution and interest thereon is taxed as Salary.
(4)
Salary for this purpose means basic salary and dearness allowance - if provided in the terms
of employment for retirement benefits and commission as a percentage of turnover.
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(1) Statutory Provident Fund (SPF): The SPF is governed by Provident Funds Act,1925. It
applies to employees of government. railways. semi-government institutions. local bodies,
universities and all recognised educational institutions. Under the Income-tax Act. 1961, the
rules governing the SPF are as follows :
(2) Recognised Provident Fund (RPF): Recognized provident fund means a provident fund
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DEFINITION
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
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ALLOWANCES
Allowance is defined as a fixed quantity of money or other substance given regularly in addition
to salary for meeting specific requirements of the employees. As a general rule, all allowances are
to be included in the total income unless specifically exempted. Exemption in respect of
following allowances is allowable to the extent mentioned against each:House Rent Allowance:- Provided that expenditure on rent is actually incurred, exemption
available shall be the least of the following :
(i) HRA received.
(ii) Rent paid less 10% of salary.
(iii) 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi) Salary here means Basic +
Dearness Allowance, if dearness allowance is provided by the terms of employment.
Leave Travel Allowance: The amount actually incurred on performance of travel on leave to any
place in India by the shortest route to that place is exempt. This is subject to a maximum of the
air economy fare or AC 1st Class fare (if journey is performed by mode other than air) by such
route, provided that the exemption shall be available only in respect of two journeys performed in
a block of 4 calendar years.
Certain allowances given by the employer to the employee are exempt u/s 10(14). All these
exempt allowances are detailed in Rule 2BB of Income-tax Rules and are briefly given below:
For the purpose of Section 10(14) (i), following allowances are exempt, subject to actual
expenses incurred:
(i) Allowance granted to meet cost of travel on tour or on transfer.
(ii) Allowance granted on tour or journey in connection with transfer to meet the daily charges
incurred by the employee.
(iii) Allowance granted to meet conveyance expenses incurred in performance of duty, provided
no free conveyance is provided.
(iv) Allowance granted to meet expenses incurred on a helper engaged for performance of official
duty.
(v) Academic, research or training allowance granted in educational or research institutions.
(vi) Allowance granted to meet expenditure on purchase/ maintenance of uniform for
performance of official duty.
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Under Section 10(14) (ii), the following allowances have been prescribed as exempt:
Sr. No.
Types of Allowances
Amount Exempt
allowance
employees child
Transport Allowance
Transport allowance
14
forces
allowances are given to employees to meet some particular requirements like house rent,
expenses on uniform. conveyance etc. Under the Income-tax Act. 1961, allowance is taxable on
due or receipt basis, whichever is earlier. Various types of allowances normally in vogue are
discussed below:
(i)
(ii)
(iii)
(iv)
Fully Taxable
Entertainment Allowance
Dearness Allowance
Overtime Allowance
Fixed Medical Allowance
Allowance
Allo1wances
Partl1f Taxable
(i) House
Rent
[u/s
Allowance
10(13A)]
(ii) SpelCial
Allowances
Fully Exempt
(i) Allowance granted to
Government employees
outside India.
(ii) Sumptuary
allowance
[u/s
10(14)]
United Nations
cities)
Organization.
(iv) Compensatory
Allowance
(x)
(viii) Any
other
cash allowance
Project
Allowance
(xi) Warden Allowance
(ix) Tiffin/Lunch/Dinner
(xii) Non-practicing Allowance
Allowance received by a
judge
House rent allowance [Section 10(13Jl\)] :Refer to Chapter 3 for detailed discussion.
Special allowances [Section 10(14)] : Refer to Chapter 3 for
details.
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PERQUISITES
Perquisite may be defined as any casual emolument or benefit attached to an office or
position in addition to salary or wages.
Perquisite is defined in the section 17(2) of the Income tax Act as including:
i. Value of rent-free/concessional rent accommodation provided by the employer.
ii. Any sum paid by employer in respect of an obligation which was actually payable by the
assessee.
iii. Value of any benefit/amenity granted free or at concessional rate to specified employees etc.
iv. 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
assesssee.
v.The amount of any contribution to an approved superannuation fund by the exployer in
respect of the assessee, to the extent it exceeds one lakh rupees; and
vi. The value of any other fringe benefit or amenity as may be prescribed.
Valuation of perquisites
As a general rule, the taxable value of perquisites in the hands of the employees is its cost to the
employer. However, specific rules for valuation of certain perquisites have been laid down in
Rule 3 of the I.T. Rules. These are briefly given below.
Valuation of residential accommodation provided by the employer: 1. Union or State Government Employees- The value of perquisite is the license fee as
determined by the Govt. as reduced by the rent actually paid by the employee.
2. Non-Govt. Employees- The value of perquisite is an amount equal to 15% of the salary in
cities having population more than 25 lakhs, (10% of salary in cities where population as
per 2001 census is exceeding 10 lakh but not exceeding 25 lakh and 7.5% of salary in
areas where population as per 2001 census is 10 lakh or below). In case the
accommodation provided is not owned by the employer, but is taken on lease or rent, then
the value of the perquisite would be the actual amount of lease rent paid/payable by the
employer or 15% of salary, whichever is lower. In both of above cases, the value of the
perquisite would be reduced by the rent, if any, actually paid by the employee.
3. Value of Furnished Accommodation- The value would be the value of unfurnished
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accommodation as computed above, increased by 10% per annum of the cost of furniture
(including TV/radio/ refrigerator/AC/other gadgets). In case such furniture is hired from a
third party, the value of unfurnished accommodation would be increased by the hire
charges paid/payable by the employer. However, any payment recovered from the
employee towards the above would be reduced from this amount.
4. Value of hotel accommodation provided by the employer- The value of perquisite arising
out of the above would be 24% of salary or the actual charges paid or payable to the
hotel, whichever is lower. The above would be reduced by any rent actually paid or
payable by the employee. It may be noted that no perquisite would arise, if the employee
is provided such accommodation on transfer from one place to another for a period of 15
days or less.
5. Perquisite of motor car provided by the employer w.e.f.. 1-4-2008, if an employer
providing such facility to his employee is not liable to pay fringe benefit tax, the value of
such perquisite shall be:
i. Nil, if the motor car is used by the employee wholly and exclusively in the
performance of his official duties.
ii. Actual expenditure incurred by the employer on the running and maintenance of motor
car, including remuneration to chauffeur as increased by the amount representing
normal wear and tear of the motor car and as reduced by any amount charged from the
employee for such use (in case the motor car is exclusively for private or personal
purposes of the employee or any member of his household).
iii. Rs. 1800- (plus Rs. 900-, if chauffeur is also provided) per month (in case the motor
car is used partly in performance of duties and partly for private or personal purposes
of the employee or any member of his household if the expenses on maintenance and
running of motor car are met or reimbursed by the employer). However, the value of
perquisite will be Rs. 2400- (plus Rs. 900-, if chauffeur is also provided) per month if
the cubic capacity if engine of the motor car exceeds 1.6 litres.
iv. Rs. 600- (plus Rs. 900-, if chauffeur is also provided) per month (in case the motor car
is used partly in performance of duties and partly for private or personal purposes of
the employee or any member of his household if the expenses on maintenance and
running of motor car for such private or personal use are fully met by the employee).
However, the value of perquisite will be Rs. 900- (plus Rs. 900-, if chauffeur is also
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provided) per month if the cubic capacity of engine of the motor car exceeds 1.6 litres.
v. If the motor car or any other automotive conveyance is owned by the employee but the
actual running and maintenance charges are met or reimbursed by the employer, the
method of valuation of perquisite value is different. (See Rule 3(2)).
6. Perquisite arising out of supply of gas, electric energy or water: This shall be determined as
the amount paid by the employer to the agency supplying the same. If the supply is from the
employers own resources, the value of the perquisite would be the manufacturing cost per
unit incurred by the employer. However, any payment received from the employee towards
the above would be reduced from the amount [Rule 3(4)]
7. Free/Concessional Educational Facility: Value of the perquisite would be the expenditure
incurred by the employer. If the education institution is maintained & owned by the
employer, the value would be nil if the value of the benefit per child is below Rs. 1000/- P.M.
or else the reasonable cost of such education in a similar institution in or near the locality.
[Rule 3(5)].
8. Free/Concessional journeys provided by an undertaking engaged in carriage of passengers or
goods: Value of perquisite would be the value at which such amenity is offered to general
public as reduced by any amount, if recovered from the employee. However, these provisions
are not applicable to the employees of an airline or the railways.
9. Provision for sweeper, gardener, watchman or personal attendant: The value of benefit
resulting from provision of any of these shall be the actual cost borne by the employer in this
respect as reduced by any amount paid by the employee for such services. (Cost to the
employer in respect to the above will be salary paid/payable). [Rule 3(3)].
10. Value of certain other fringe benefits:
i. Interest free/concessional loans The value of the perquisite shall be the excess of interest
payable at the prescribed interest rate over, interest, if any, actually paid by the employee
or any member of his household. The prescribed interest rate would be the rate charged by
State Bank of India as on the 1st Day of the relevant Previous Year in respect of loans of
the same type and for same purpose advanced by it to general public. Perquisite to be
calculated on the basis of the maximum outstanding monthly balance method. However,
loans upto Rs. 20,000/-, loans for medical treatment specified in Rule 3A are exempt
provided the same are not reimbursed under medical insurance.
ii. Value of free meals- The perquisite value in respect of free food and non-alcoholic
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beverages provided by the employer, not liable to pay fringe benefit tax, to an employee
shall be the expenditure incurred by the employer as reduced by the amount paid or
recovered from the employee for such benefit or amenity. However, no perquisite value
will be taken if food and non-alcoholic beverages are provided during working hours and
certain conditions specified under Rule 3(7)(iii) are satisfied.
iii. Value of gift or voucher or token The perquisite value in respect of any gift, or voucher,
or taken in lieu of which such gift may be received by the employee or member of his
household from the employer, not liable to pay fringe benefit tax, shall be the sum equal to
the amount of such gift, voucher or token. However, no perquisite value will be taken if
the value of such gift, voucher or taken is below Rs. 5000- in the aggregate during the
previous years.
iv. Credit card provided by the employer The perquisite value in respect of expenses
incurred by the employee or any of his household members, which are charged to a credit
card provided by the employer, not liable to pay fringe benefit tax, which are paid or
reimbursed by such employer to an employee shall be taken to be such amount paid or
reimbursed by the employer. However, no perquisite value will be taken if the expenses
are incurred wholly and exclusively for official purposes and certain conditions mentioned
in Rule 3(7)(v) are satisfied.
v. Club membership provided by the employer The perquisite value in respect of amount
paid or reimbursed to an employee by an employer, not liable to pay fringe benefit tax,
against the expenses incurred in a club by such employee or any of his household
members shall be taken to be such amount incurred or reimbursed by the employer as
reduced by any amount paid or recovered from the employee on such account. However,
no perquisite value will be taken if the expenditure is incurred wholly any exclusively for
business purposes and certain conditions mentioned in Rule 3(7)(vi) are satisfied.
11. The value of any other benefit or amenity provided by the employer shall be determined on the
basis of cost to the employer under an arms length transaction as reduced by the employees
contribution.
12. The fair market value of any specified security or sweat equity share, being an equity share in a
company, on the date on which the option is exercised by the employee, shall be determined as
follows: i. In a case where, on the date of exercising of the option, the share in the company is listed
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on a recognized stock exchange, the fair market value shall be the average of the opening
price and closing price of the share on the date on the said stock exchange.
ii. In a case where, on the date of exercising of the option, the share in the company is not
listed on a recognized stock exchange, the fair market value shall be such value of the
share in the company as determined by a merchant banker on the specified date.
iii. The fair market value of any specified security, not being an equity share in a company, on
the date on which the option is exercised by the employee, shall be such value as
determined by a merchant banker on the specified date.
13. Valuation of benefit of provision of domestic servants [Sub-rule (3) of Rule 3)
(i) The value of benefit to the employee or any member of his household resulting from the
employer or any other person on his behalf for such services as reduced by any amount paid
by the employee for such services.
14. Valuation of gas, electricity or water supplied by employer [Sub-rule (4) of Rule 3)
(i) The value of the benefit to the employee resulting from the supply of gas, electric energy
or water for his household consumption shall be determined as the sum equal to the
amount paid on that account by the employer to the agency supplying the gas, electric energy
or water.
(ii) Where such supply is made from resources owned by the employer, without
purchasing them from any other outside agency, the value of perquisite would be the
manufacturing cost per unit inc1Urred by the employer.
(iii) Where the employee is paying any amount in respect of such services, the amount so paid
The value of benefit to the employee resulting from the provision of free or
concessional educational facilities for any member of his household shall be
determined as the sum equal to the amount of expenditure incurred by the employer in that
behalf or where the educational institution is itself maintained and owned by the employer
or where free educational facilities for such member of employees ' household are
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allowed in any other educational institution by reason of his being in employment of that
employer, the value of the perquisite to the employee shall be determined with reference
to the cost of such education in a similar institution in or near the locality.
ii.
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.
iii.
However, where the educational institution itself is maintained and owned by the
employer and free educational facilities are provided to the children of the employee or
where such free educationa l facilities are provided in any institution by reason of his being
in employment of that employer, there would be no perquisite if the cost of such education
or the value of such benefit per child does not exceed 1,000 p.m.
16. Valuation of specified security or sweat equity share for the purpose of section
17(2)(vi) [Sub-rule (8)] - The fair market valU1e of any specified secur ity or sweat equity share,
being an equity share in a company, on the date on which the option is exercised by the
employee, shall be determined in the following manner
i.
In a case where, on the date of the exe1rcising of the option, the share inthe company is
listed on a recognized stock exchange, the fair market value shall be the average of the
opening price and closing price of the share on that date on the said stock exchange .
ii.
However, where, on the date of exerc ising of the option, the share islisted on more than
one recognized stock exchanges, the fair market value shall be the average of opening
price and closing price of the share on the recognized stock exchange which records the
highest volume of trading in the share.
iii.
Further, where on the date of exercising1 of the option, there is no trading in the share on
any recognized stock exchange, the fair market value shall be:
a. the closing price of the share on any recognised stock exchange on a date
closest to the date of exercising of the option and immediately preceding such
date; or
b. the closing price of the share on a recognised stock exchange, which records
the highest volume of trading in such share, if the closing price, as on the date
closest to the date of exercising of the option and immediately preceding
such date, is recorded on more than one recogn zed stock exchange.
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"Closing price" of a share on a recognisi d stock exchange on a date shall be the price of the
last settlement on such date on such stock exchange. However, where the stock exchange
quotes both "buy" and "sell" prices, the closing price shall be the "sell" price of the last
settlement.
"Opening price" of a share on a recogn sed stock exchange on a date shall be the price of the
first settlement on such date on such stock exchange. However, where the stock exchange
quotes both "buy" and "sell" p1rices, the opening price shall be the "sell" price of the first
settlement.
iv.
Ina case where, on the date of exercising of the option, the share inthe company is not
listed on a recognised stock exchange, the fair market value shall be such value of the
share in the company as determined by a merchant banker on the spec ified date.
For this purpose, "spec ified date" means,(i)
(ii)
any date earlier than the date of thie exercising of the option, not being a date which
is more than 180 days earlier than the date of the exercising.
Note: Where any amount has been recovered from the employee, the same shall be
deducted to arrive at the value of perquisites.
Perquisites exempt from income tax
Some instances of perquisites exempt from tax are given below:
Provision of medical facilities (proviso to sec. 17(2)): value of medical treatment in any hospital
maintained by the government or any local authority or approved by the chief commissioner of
income-tax. Besides, any sum paid by the employer towards medical reimbursement other than as
discussed above is exempt up to Rs. 15,000/-.
Perquisites allowed outside India by the government to a citizen of India for rendering services
outside India (sec. 10(7)). Rent free official residence provided to a judge of high court or
supreme court or an official of parliament, union minister or leader of opposition in parliament.
No perquisite shall arise if interest free/concessional loans are made available for medical
treatment of specified diseases in rule 3a or where the loan is petty not exceeding in the aggregate
Rs.20,000/No perquisite shall arise in relation to expenses on telephones including a mobile phone incurred
on behalf of the employee by the employer.
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This deduction is available for rent paid when HRA is not received. Taxpayer or his
spouse or minor child should not own residential accommodation at the place of employment.
Taxpayer should not have self-occupied residential property in any other place.
2.
3.
For Financial year 2016-17 For calculating deduction above, Rs 2,000 per month has been
raised to Rs 5,000 per month. Therefore a maximum of Rs 60,000 per annum can be claimed as a
deduction.
section cannot exceed Rs 1,00,000 and is allowed for financial years 2013-14 & 2014-15
(Assessment year 2014-15 and 2015-16).
This deduction is not available for financial year 2015-16 (assessment year 2016-17).
For Financial Year 2016-17
This section was revived in Budget 2016 and is applicable starting FY 2016-17. The deduction
under this section is available only to an Individual who is a first time home owner. The value of
the property purchased must be less than Rs 50 Lakhs and home loan must be less than Rs 35
lakhs. And the Loan must be taken from a financial institution and must be sanctioned between
01.04.2016 to 31.03.2017. Under this section, an additional deduction of Rs 50,000 can be
claimed on home loan interest. This is in addition to deduction of Rs 2,00,000 allowed under
section 24 of the income tax act for a self-occupied house property. There is no restriction on the
number of years for which this deduction can be claimed.
Deductions on Rajiv Gandhi Equity Saving Scheme (RGESS)
Section 80CCG: Rajiv Gandhi Equity Saving Scheme (RGESS)
The Rajiv Gandhi Equity Saving Scheme (RGESS) was launched after the 2012 Budget.
Investors whose gross total income is less than Rs. 12 lakhs can invest in this scheme. Upon
fulfilment of conditions laid down in the section, the deduction is lower of, 50% of amount
invested in equity shares or Rs 25,000.
under section 80D. However, total deduction for health insurance premium and medical expenses
for parents shall be limited to Rs 30,000.
Deductions on Medical Expenditure for a Handicapped Relative
Section 80DD: Deduction for Rehabilitation of Handicapped Dependent Relative
Deduction is available on:
1.
relative.
Where disability is 40% or more but less than 80% - fixed deduction of Rs 50,000.
Where there is severe disability (disability is 80% or more) fixed deduction of Rs 1,00,000.A
certificate of disability is required from prescribed medical authority.
Note: A person with 'severe disability' means a person with 80% or more of one or more
disabilities as outlined in section 56(4) of the 'Persons with disabilities (Equal opportunities,
protection of rights and full participation)' Act.
Certificate can be taken from a Specialist as specified.
Patients getting treated in a private hospital are not required to take the certificate from a
government hospital.
Patients receiving treatment in a government hospital have to take certificate from any
specialist working full-time in that hospital. Such specialist must have a post-graduate
degree in General or Internal Medicine or any equivalent degree, which is recognised by
the Medical Council of India.
Certificate in Form 10I is no longer required. The certificate must have - name and age of
the patient, name of the disease or ailment, name, address, registration number and the
qualification of the specialist issuing the prescription. If the patient is receiving the
treatment in a Government hospital, it should also have name and address of the
Government hospital.
For financial year 2015-16 The deduction limit of Rs 50,000 has been raised to Rs 75,000 and
Rs 1,00,000 has been raised to Rs 1,25,000.
Deductions on Medical Expenditure on Self or Dependent Relative
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Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of
that district
Fund set up by a State Government for the medical relief to the poor
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation
Chief Minister's Relief Fund or Lieutenant Governor's Relief Fund with respect to any
The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force
Central Welfare Fund, Andhra Pradesh Chief Minister's Cyclone Relief Fund, 1996
The Maharashtra Chief Minister's Relief Fund during October 1, 1993 and October 6,1993
Any fund set up by the State Government of Gujarat exclusively for providing relief to the
Any trust, institution or fund to which Section 80G(5C) applies for providing relief to the
victims of earthquake in Gujarat (contribution made during January 26, 2001 and September 30,
2001) or
National Fund for Control of Drug Abuse (applicable from financial year 2015-16)
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Donations to the following are eligible for 100% deduction subject to 10% of adjusted gross total
income
Government or any approved local authority, institution or association to be utilised for the
association or institution established in India for the development of infrastructure for sports and
games in India or the sponsorship of sports and games in India.
Donations to the following are eligible for 50% deduction subject to 10% of adjusted gross total
income
Any other fund or any institution which satisfies conditions mentioned in Section 80G(5)
Government or any local authority to be utilised for any charitable purpose other than the
Any authority constituted in India for the purpose of dealing with and satisfying the need
community
For repairs or renovation of any notified temple, mosque, gurdwara, church or other place.
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ILLUSTRATIONS
1.Mr. Goyal receives the following emoluments during the previous year ending 31.03.2014.
Particulars
Rs.
Basic Pay
40000
Dearness Allowance
15000
Commission
10000
Entertainment allowance
4000
25000
Mr. Goyal contributes f 5,000 towards recognized provident fund. He has no other income.
Determine the income from salary for A. Y.2014-15, if Mr. Goyal is a State Government employee.
Solution:
Computation of salary of Mr. Goyal for the A.Y. 2014-15
Particulars
Rs.
Rs.
Basic Salary
40,000
Dearness Allowance
15,000
Commission
Entertainment Allowance received
Employee's contribution to RPF (Note)
10,000
4,000
-
15,000
10.000
2,000
81,000
25,000
Gross Salary
Less: Deductions under section 16
under section 16(ii) Entertainment allowance being lower of :
(a) Allowance received
(b) One fifth of basic salary 1115 x 40,000]
(c) Statutory amount
8,000
4,000
5,000
3,000
4,000
74,000
Note: Employee's contribution to RPF is not taxable. It is eligible for deduction under
section 80C.
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2. Mr. X is employed with AB Ltd. on a monthly salary of Rs. 25,000 per month and an
entertainment allowance and commission or Rs.1,000 p.m. each. The company provides him with the
following benefits:
1.
2.
A personal loan of Rs. 5,00,000 on 1.7.2013 on which it charges interest @ 6.75% p.a. The
entire loan is still outstanding. (Assume SB! rate of interest to be 12.75%p.a.)
3.
His son is allowed to use a motor cycle belonging to the company. The company had purchased
this motor cycle for Rs. 60,000 on 1.5.2010. The motor cycle was finally sold to him on 1.8.2013
for r 30,000.
4.
Rs.
Rs.
"
12,000
12,000
48,600
16,000
64,600
22,500
2,000
12,000
4,25,100
2,000
4,23,100
3. Compute the taxable value of the perquisite in respect of medical facilities received by
Amount (Rs)
7000
5000
25000
12000
8000
3000
6000
50000
30000
75000
Solution:
Computation of salary of Mr. Goyal for the A.Y. 2014-15
Particulars
Treatment of Mrs. G ina Government hospit.al
Treatment of Mr.G's father (75 years and dependents) abroad
"
"
-
30,000
50,000
80,000
75,000
5,000
5,000
8,000
3,000
16,000
Less: Exempt up to
15,000
15,000
1,000
12,000
6000
24000
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BIBLIOGRAPHY
https://cleartax.in/Guide/Section80Deductions
http://www.caclubindia.com/experts/retrenchment-benefit-486770.asp
http://taxguru.in/income-tax/leave-encashment-leave-salary-tax-treatment-sec-1010aa.html
http://taxguru.in/income-tax/taxability-salary-income-perquisites- allowances.html
#sthash.ah4PBgaE.dpuf
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