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B. Com, BBM, M.Com,

This slides are Income from Salary

Prepared for
Any one who Players!!
Had not Now you
By Do some
Attended classes
regularly Prof. Augustin Amaladas and Prof.Amala shanthi Exercise
Or do not have St. Joseph’s College of Commerce and Jyoti Nivas Even not
Time or money. college respectively, Bangalore Studied
M.Com., AICWA.,PGDFM., B.Ed. So far.
09845844319 aug_bang@yahoo.com
M
B ICWA
As It is so simplified in such a way that you can easily understand 1 CA
CS
Dedicated to our kids

Joewin Shamalina
And Tim Sebastian

2
 salary
Fringe
Benefit tax
Taxable
To Employer

Applicable
Basic + DA+ To companies
Commission etc
Normal components
Perquisites
Taxable
Allowances To
employee
3
 Alternative work is rest

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

4
 Threat is your opportunity

Paper setting, MP and MLA

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

5
 Salary and wages
• Income tax point of view there is no
difference between salary and wages.

Strength is your weakness

6
 If More than one employer
• Salary from each source is taxable under
the head salary
• Example: Mr. A works in two places part
time job. He is calculated under the head
salary in both the places.

All problems and happiness are temporary

7
Pension from former employer
• As pension paid due to the previous employer
employee relationships it is taxed under salary
provided the same employee receives(alive)
• If, after the death of such employee family
pension received by spouse(wife or husband)
comes under other sources, as there is no
employer employee relationship after the death
of such employee.

Take your life as it is

8
 Employer includes
• Former
• Present
• And prospective employer

Love others in order to love oneself

9
 If No intention to pay?
• Agreement between teacher and
management to pay salary to employee
and another agreement by which an
identical sum has to be returned by the
same teacher(assessee)-does not
constitute salary because salary is not
real but fictitious.(Actual intension to
pay is important)
10
Play every day
 Whether salary taxed on
payment or due basis?
• Salary is taxable on due or receipt whichever
earlier
• Advance salary received or
salary of the last month not
received is taxed in the current
previous year
• See Example: Next slide
11
Work is worship other wise?
 Example
• April 2008 salary received in March 2008-
taxable in the previous year 2007-08 itself
as it is received in 2007-08 period(receipt
or due which ever is earlier)
• March 2008 salary received in April 2008-
taxable in the previous year 2007-08
only(receipt or due which ever is earlier)

Otherwise hardship 12
 Surrender of salary
• Surrender to central government- either
by government employee or private
employee-not taxable salary.

Women have changed but men have not changed in India

13
 If Tax paid by employer?
• If Employer pays tax on employee then
total salary to such employee will be
Net salary received + tax paid
by employer

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

14
 Gifts given by employer?
• Taxable under the head salary

Men also should learn cooking as woman is working like men

15
 Salary under section 17(1)
• Wages
• Any annuities or pension
• Any gratuity
• Any fees, commission
• Perquisites( received in kind)
• Profit in lieu of salary
• Advance of salary
• Any accretion(addition) due to interest on provident fund paid out
of the employer’s contribution.
• The contribution paid by employer under notified pension scheme

Do not fight.If you want to fight, fight after?? 16

Pension received by former employee who
rendered service in India

• Pension received outside india by an

employee who rendered services in India
taxable in India to all assessees(resident,
not ordinarily resident and non resident)
as salary is from India.
• Place of accrual of salary is important-
from India or from outside India

17
After meal why?
 Exercise-1
• 1.Pension paid abroad for the services rendered
in India?
• 2.Leave salary paid outside India for the
services rendered in India?
• 3.Salary paid by government of India to an
Indian National outside India if services
rendered outside India?
• 4.Allowances received outside India by Central
government employee for services rendered
outside India?
Normally people do not fight after meal. 18
 Answer-1
• 1.taxable as services rendered in India
• 2. Taxable as services rendered in India
• 3. - DO-
• 4. Allowances paid by government of
India to its employees(Indian nationals)
outside India for the services rendered
outside India are exempted as per
section 10(7)
19
 Different forms of salary-
Retirement benefits
• 1. Leave encashment salary
• 2.Gratuity
• 3.Pension
• 4.Retrenchment compensation
• 5.Provident Fund
• [Examination point of view these five
items are very important]
20
 Leave encashment
• It is not related to casual leave
• For every completed year of service employee is
entitled to receive a certain number of days of
paid leave.Employee either can take leave or en
cash it while in service or after retirement.
• Note: Any thing received while in service is
normally taxable.After retirement there are
some concessions given.

21
 1.Leave encashment

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

Non government employee

Government (including local authority
Employees-Exempted and corporation employees)
Central/
State govt.
(see next slide)
Employees(2) 22
 Non-government employee
(including local authority
and corporation employees)

*Average salary
Basic + % DA comes
only for retirement +fixed
% of commission on sales. Least of the following
Note: Immediately before the Exempted out of leave cash received
The retirement

a) 10 months average salary*

b) Amount specified by the government-3,50,000
c) Actually received at the time of retirement
d) [Period of leave on 30 days basis (if more
than 30 days as per service rules)for every completed year
of service( -) leave availed while in service(-)leave encashed
while in service] x (average salary)*
23
• Basic + DA which comes for retirement +fixed
percentage of commission only on sales.
• Do not consider fixed amount of commission on sales
• Do not consider variable or fixed percentage of
commission on purchase
• BDA employee is not a government employee as for as the
leave encashment point of view.
• Note: 1.Fixed % of commission is different from fixed
amount of commission(monthly fixed amount)

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

25
 Answer
• a) after the retirement leave encashment by government employee
is not taxable.
• b)If he is a private employee the least of the following is exempted
from the amount received Rs.4,00,000
• 1.Actually received-Rs.4,00,000;
• 2.10 months average salary=15000 x 10=1,50,000;
• 3.Maximum limit=Rs.3,00,000
4. One month for completed year of service(-)leave availed while
in service(-)leave en cashed while in service x (average salary)
= 20months-3month-0 months(15,000)=2,55,000
How much is exempted? How much is taxable?

26
The lowest of all four is Rs.1,50,000 is exempted from
Rs.4,00,000
Therefore taxable leave encashment is Rs.2,50,000.
(Rs.4,00,000-1,50,000)

27
• c) Working Notes:-
• No of years of service= 24 years and 8 months=24 years only(fraction is
ignored)
• Average salary=15000 +(40% x 60% x15000) +(4% x 10/12)
(30,00,000)=15000 +3600 +30,00,000 x10/12 x 4%/10=28,600
• Rs. 30,00,000 is for 12 months but we have to calculate for ten months
only before the date of retirement.
• Least of the following is exempted out of Rs.4,00,000:
• A) Actually received-Rs.4,00,000
• B) 10 months average salary-10 x 28,600=Rs.2,86,000
• C) (24 months-10 months-8 months) x 28,600=Rs.1,71,600
• D) Maximum limit-Rs.3,00,000
• Least of the above is Rs.1,71,600 which is exempted .
• Therefore taxable leave salary is
• Rs.4,00,000-Rs.1,71,600=Rs.2,28,400

28
• D) Salary received by government
employee while in service is fully taxable.

29
 @Courtesy-Income tax
By Dr. Singhania
@Exercise-2
• X a non government employee receives Rs.2,50,000
as leave salary at the time of retirement on
February 20, 2008. On the following information,
determine the amount of taxable leave salary: Basic
salary Rs.15,000 per month since 2005. Duration of
service : 26 years; leave at the credit of X at the
time of retirement: 25 months; entitlement of leave
salary: 60 days’ salary for every year of service and
leave availed while in service: 27 months.

30
 Working notes for exercise-2
• 1. No of years:26 years equal to 26 months for our calculations
because every completed year of service one month is allowed.
• 2.Average salary Rs.15,000
Least of the following is exempted from Rs.2,50,000
a) Actually received Rs.2,50,000
b) 10 months salary=10 x Rs.15,000=1,50,000
c) Maximum limit Rs.3,00,000
d) (26 months-27 months-8 months) x Rs.15,000=0
(as it is negative it is equal to Zero)
Least exempted leave encashment is Rs.0. Therefore taxable leave
encashment is Rs.2,50,000.

31
 Fees and commission
• Taxable as salary if paid to employee by
employer

32
 Bonus
• It is taxable on due basis.
• If it is not taxable on due basis it is
taxable on receipt basis.

33
 Gratuity
1.Government Non Government employee Non Government employee
Employee(Central,State under the payment of gratuity under not covered under the
and local authority Act. payment of gratuity Act.
employees)(three) Including statutory corporationIncluding statutory corporation
Average salary:last drawn Average Salary: Basic +DA
2.Average salary: includes Basic+DA comes for retirement +Fixed
% of commission on sales
Not necessary
No of days in a month-
No of days in a month-
3.No of days in a 26 days only 30 days only
month-Not necessary

Received while in service is Received while in service is

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

34
Non Government employee under the Non Government employee under not
payment of gratuity Act. covered under the payment of gratuity
Including statutory corporation Act. Including statutory corporation

The Least of the following is The least of the following is

exempted from gratuity received: exempted from gratuity received:
1.(15/26) x (last salary drawn )x 1.(15/30) x (10 preceding months
(number of years of service ) average salary) x (number of fully
ie.Basic+DA completed years of service)
(No commission please) Basic + % DA comes for
retirement + Fixed Percentage of
Year= above 6 months is commission on sales
considered as one year.
2. Rs.3,50,000
2.Rs.3,50,000
3. Gratuity actually received
3.Gratuity actually received
Note:
Note:
If he worked more than one company
Fraction of the year is not
collectively more than 6 months equal to considered
one year 35
Exercise-1
•• Mr.
Mr. X retires
retires from
from service
service on on Nov.18 200X and received
received Rs.3,40,000
Rs.3,40,000 asas
gratuity
gratuity after
after 3232 years
years and
and 88 months.
months. His
His salary
salary at
at the
the time
time of
of retirement
retirement
is
is Basic
Basic Rs.19000
Rs.19000 and and DA
DA 40% 40% onon Basic
Basic and
and 4%
4% commission
commission on on sales.
sales.
•• Sales
Sales achieved
achieved preceding
preceding ten months was Rs.15,00,000.
Rs.15,00,000. Basic
Basic salary
salary was
was
more
more byby Rs.2000
Rs.2000 since
since 11stst April
April 200X.
•• 60%
60% of of DA
DA will
will come
come for
for retirement
retirement purpose.
purpose.
•• Answer
Answer the the following:How
following:How much much isis taxable
taxable gratuity?
gratuity?
•• A)If
A)If Mr.X
Mr.X is is a government employee?
•• B)
B) If
If Mr.
Mr. X X is
is aa private
private employee
employee who who isis covered
covered under
under the
the payment
payment of
gratuity
gratuity act?
act?
•• C)
C) If
If Mr.
Mr. X X is
is aa BDA
BDA employee?
employee?
•• D)
D) If
If Mr.X
Mr.X is is aa Bangalore
Bangalore Mahanagara
Mahanagara paliga(BMP)
paliga(BMP) employee?
•• E)
E) If
If Mr.
Mr. X X is
is aa XYZ
XYZ public
public Ltd.(aLtd.(a Government
Government company)employee
company)employee who who
is
is not
not covered
covered under the payment of gratuity Act.
•• F)
F) After
After the death of Mr.X wife receives gratuity how how much taxable
under
under thethe head
head salary?
salary?
36
Answer
Particulars Government A BDA BMP Employee
employee employee

1.Years of service Not applicable Local BMP is a corporation.therefore

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

37
Particulars XYZ Public limited government Wife receives after the death of
company not covered under the Mr.X
payment of gratuity Act

1.Year of service Fraction of the year is ignored. Not required as there is no

Therefore 32 years
employer employee relationship
after the death of Mr.X.The
gratuity received is taxable
under the head income under
other sources.

2.Meaning of salary Average salary 10 months

preceding the month of
retirement=Basic+DA which
comes for retirement +fixed %
of commission= January to
October salary= Jan to March
Rs.17,000 each and 19000 from
April to October=Rs.1,84,000+
Rs.7360 x10(DA)+6000 x
10(Commission)
Average salary=3,17,600/10
=Rs.31760
Least of the following is
exempted:
1.(15/30) x32
x31,760=Rs.5,08,160
2.Rs. 3,50,000
3.Gratuity actually
received=Rs. 3,40,000
Least : Rs. 3,40,000
Therefore Gratuity received is
fully exempted.

38
 Pension
• Regular pension received by the employee
himself ( not dead )after the retirement is
taxable as salary.
• Family pension(after the death of
husband/wife) received by wife/husband comes
under income from other sources as there is no
employer and employee relationship after the
death of husband who was an employee.
•Standard deduction is available ie. 1/3 rd of family pension or
•15,000 whichever is lower is deductible from family pension.
39
 Commuted pension-Sec.17(1)
(ii)
• Instead of receiving monthly pension some
portion of regular pension can be accumulated
and can be received( after retirement/voluntary
retirement) a lump sum is known as commuted
pension.
• 1. Government employee-Exempted after
retirement.
• Government employee means:-Central,
state,local authority and corporation
employees(totally 4)
40
 Non Government employee-
commuted pension
• If gratuity received Maximum 1/3 of the
regular pension can be commuted which is not
taxable.
• If gratuity is not received ½ of the regular
pension can be commuted which is not taxable.
• Note: above those limits are taxable for non
government employees
• See example in the next slide

41
 Example – commuted pension
• Mr. X receives pension every month Rs.10,000. He
wants to commute some portion of the pension.
• ? How much can he commute if
• A) he is a state government employee
• B) he is a Bangalooru development authority
employee.
• C) He is receiving gratuity from Karnataka
Government.
• D) He is an employee of Shanthi Ltd.

42
Answer for commuted pension
• A,B and C all are government employees therefore
any amount of pension commuted are exempted . It is
because government never exceeds the statutory limit
of 1/3 or ½ depends on the situation.
• D) If he an employee of Shanthi ltd. Max.1/3 if he
receives gratuity ie 1/3(10,000)=Rs.3333
• If he does not receive gratuity he can commute ½ of
pension ie. ½(10,000)=Rs.5,000.
• Note:remaining pension regularly received (after
commutation)is taxable.

43
 Pension scheme-(after 1 Jan st

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

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

45
Does it make any difference if he had
joined XYZ Ltd?

• No. It is because this provision is

applicable both for government and any
other employer.

46
 Annuity[17(1)(ii)]
• Annual payment constantly paid by
employer to employee.
• Even paid voluntarily it is taxable
• Annuity received from ex employer is
taxed as profit in lieu of salary-taxed as
salary.

47
 Retrenchment
compensation[10(10B)]
• The Least of the following is exempted:
• 1. Amount calculated as per Industrial dispute
act.
• (15 days salary for every completed year of
service and fraction beyond 6 months ie. 25
years and 7 months=26 years.)
• 2. Rs. 5,00,000 notified by Government
• 3.The amount received
• Exercise:-next page
Note: If approved by government, under 48
any scheme, such amount is fully exempted.
 Exercise
• Mr. X has working in BPL. Due to closing down of the company,
company pays to Mr.X Rs. 2,60,000 as compensation.He has
rendered service 20 years and 8 months.Average salary was
Rs.20,000. How much is taxable? How much is exempted?
• Answer: no of years of service=21 years
• 1.Compensation as per Industrial dispute 15/30(20,000)
(21)=2,10,000
• 2.Rs.5,00,000
• 3.Rs.2,60,000
• Least is Rs.2,10,000 is exempted. Therefore 50,000 is taxable ie
(2,60,000-2,10,000)

49
 Profit in lieu of salary
• If company wants a manager to quit
immediately as per the service rules he is
paid a lump sum immediately. Such
compensation is treated as salary.
• The compensation can be received from
present or former employer.

50
Remuneration for extra duties
• Taxed as salary
• Even warden ship remuneration also
taxed as salary

51
 Salary received from a United
Nations organisation
• Not taxable in India

52
 VRS[10(10C)]
• Voluntary Retirement scheme
• Maximum amount of exemption is Rs.5,00,000.
• Up to Rs. 5,00,000 is exempted
• Conditions:
• The same employee can not be re-employed in the same
or any other company comes under the same
management.
• Salary means the last salary drawn for computation of
compensation
• Basic+ DA which comes for retirement + fixed % of
commission on sales.
53
 Provident fund
Particulars Statutory PF Recognised PF Un-recognised PF Public PF

1.Who maintains? Government and Private Not recognised by Personal savings

semi-government establishments commissioner of in post office by
having 20 or more Income-tax act self employed
employees Employer contributes etc.
Both employer and Both employer and but there is no
similar separate account in By Employee(not
2.Who contributes? similar
contribution by the name of employee by employer
contribution by
employees
employees
Only when employer
transfers his account Since employer
3.Exempted or not? Employer’s to employee’s accountdoes not
Employer’s is taxable or
Employees contribution contribute
contribution is converted to
contribution comes exceeding 12% of nothing is
exempted.
under Section 80C as salary and Interest recognised PF excess taxable
exceeding 9.5% over 12% of salary
savings in all cases and excess over 9.5%
taxable.
towards interest is
taxable

Salary means
Basic+DA+Fixed % of
54
Commission on Sales
 City compensatory allowance
• Fully taxable as salary

55
 House rent allowance(10[13A])
•Exemption will be lowest of
• (a) 50% of salary where residential accommodation is in Mumbai,
Kolkata, Delhi or Chennai and 40% of at other place
(b)(Rent paid minus 10% of salary)
(c) Actual allowance paid.

• There will be no tax exemption if the residential

accommodation is self occupied (not taken house for rent by
employee or employee has not paid any rent for residential
accommodation used by him [section 10(13A) of Income Tax
Act and rule 2A]

•Salary means basic plus DA (if forming part of retirement benefits)

• plus commission (if fixed as a percentage of turnover).
56
 House rent allowance
• Important points:
• 1.It is advisable to calculate claim month wise if any
changes in salary or house rent allowance or rent paid or
place of stay during the previous year.
• 2. Salary to be estimated on due basis when you calculate
the meaning of salary
• Place of work is not important but the place of
accommodation taken is important either to claim 50% or
40% depends on type of city.
• After receiving rent allowance either he stays in his own
house or rent accomodation is not taken rent allowance for
such period is taxable.
57
Exercise-1
• Mr. X works in Mumboi but stays in Pune and receives house rent
allowance of Rs.12,000. He pays Rs. 15,000 per month as rent.His Basic
is Rs.20,000, DA-30% which will come for retirement purpose.
• A)Compute taxable House rent allowance if he has taken a rented
house in Pune.
• B) If he stays in Mumboi and pays the same rent.
• C) suppose he stays in his own house in Mumboi
• D) suppose he has taken a house for rent in Mumboi for the same rent
but rent his own house in Pune?
• E) Suppose he stays in a rented house upto December in Mumboi by
paying same rent and taken a rented house in Pune from 1st January
for a rent of Rs.10,000.
• Note:-Each question has to be approached independently keeping the
base same for all questions.

58
 Answer-HRA
• A) Rented house in Pune:
• Since salary, place of stay, HRA and rent paid are same throughout
the year we can calculate for the whole financial year.
House rent Allowance received (12,000x12) Rs.1,44,000
Least of the following is exempted:
1.40% of salary*=26000 x 12 x40% 1,24,800
2.Rent paid-10% of salary* 1,48,800
[(15000-10% x26000) x 12]
3.Actually received 1,44,000
The Least is Rs.1,24,800 which is exempted out of HRA received.There
fore taxable HRA is Rs.19,200 ie (1,44,000-1,24,800)

*Salary means:
20,000+(30% x20,000)=26,000
59
 Answer-HRA
• A) Rented house in Mumboi
• Since salary, place of stay, HRA and rent paid are same throughout
the year we can calculate for the whole financial year.
House rent Allowance received (12,000x12) Rs.1,44,000
Least of the following is exempted:
1.40% of salary*=26000 x 12 x50% 1,56,800
2.Rent paid-10% of salary* 1,48,800
[(15000-10% x26000) x 12]
3.Actually received 1,44,000
The Least is Rs.1,44,000 which is exempted out of HRA received.There
fore taxable HRA is Zero ie (1,44,000-1,44,000)

*Salary means:
20,000+(30% x20,000)=26,000
60
 C) Stayed in Mumboi in own
house
• The entire rent allowance received is fully
taxable as he stays in own house in Mumboi.
• There fore Rs.1,44,000 is fully taxable.
• D) It does not make any difference with answer
C as he stays in a rented house in Mumboi, the
answer ‘A’is applicable.-See the answer A.The
house rented in Pune and rent receivable comes
under the head income from House property.

61
 E. Up to December in Mumboi in a rented house
and thereafter in Pune in a rented house
• Exempted HRA in Mumboi Nine months
• Meaning of salary:Rs.26,000
• HRA received Rs.1,08,000
• Least of the following is exempted:
• 1. 50% of salary=26000 x50% x9 Rs.1,17,000
• 2. Rent paid – 10% of salary Rs.1,11,600
• [(15000-10% x26000) x 9]
3.Actually received 1,08,000
The least is 1,08,000. There fore for the 9 months entire HRA is exempted.
Nothing is taxable.
Exempted HRA in Pune :-Next slide

62
 3 Months HRA in Pune in a rented house

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

Therefore HRA taxable for the previous year is Rs. 13,800.

63
 Entertainment
allowance[16(ii)]
• In case of *government employees:Least of
the following is deductible:
• 1. Rs. 5,000;
• 2. 20% of salary**;
• 3.Amount of entertainment allowance granted
during the previous year.
Non government employees are not exempted

*Government employee **Salary excludes any allowance

Central and State government employees Benefit or other perquisites

64
 Special
allowances[10(14)]
For official duties (after Not directly relate to
Reaching office) Official duty
(General)
1.Official travel/transfer
To be
Allowance to meet the cost
Spent
2.Conveyance allowance
Fully
to meet customers
Other
3.daily allowance on official
Wise, See in
Tour/journey
amount the
4.Helper allowance to carry
not Next
Official documents
Spent slide
5. Research allowance
taxable
6. Uniform allowance to do
65
Official duty
 Not directly relate to
Official duty
(General)

1.Allowance for &70% of allowance

transport Or Rs. 6000 per
employees month whichever is
lower exempted
2.Children Rs.100 per month per
education child max.two They are fixed.
allowance children.If in hostel Whether spent
Rs.300 extra per child
for two children Or not.Excess
Taxable as they
Are not given
3. Traveling Rs. 800 per month. For official
allowance to If handicapped person
commute from Duty
Rs.1600 per month is
home to office exempted.
4. Other border Depends on 66
area allowances altitude/Place
 Amount spent or not, exemptions are given
Exercise
Particulars No. of Amount
Children/N received
Exempted from tax
Chargeable
ame from
employer
to tax
1.Educational Three 300 PM per 100 x2 x12=2400 (200 x2 x12+300 x12=8400
allowance child (100 x2 x12 +400 x12)=7200
2.Hostel Three 400 per child 300 x2 x12=7,200(limited
expenditure per month to two children
12000-9600=2400
3. Transport 800 x12=9600
allowance from 12000
house to office or -------
vice-versa 72000-50,400=21600
4.Transport 70%(72000) or 6000 per
company employee Y 72000 month which ever is
–daily allowance lower=50,400
5. -DO- 6000 x 12=72000 or
1,20,000-72000=48000
1,20,000 70%(1,20000)=84000
X
Whichever is lower
67
 Tiffin allowance, fixed medical
allowance
• Any amount received in cash is always
taxable before the expenditure incurred.

aug_bang@yahoo.com 68
 Exercise
• Salary income and various allowances: Compute the gross salary of Mr.
Amal for the assessment year 2008-09on the basis of the following
information:
• 1. Basic pay Rs. 8,000 per month
• 2. DA –40% of basic pay
• 3. City compensatory allowance-10% of basic pay
• 4.Medical allowance –Rs.800 per month
• 5. Children educational allowance- Rs. 200 per month for three children
• 6. Hostel expenditure allowance-Rs. 400 per child per month for 2 children
• 7. Tribal area allowance – Rs. 500 per month in Bihar
• 8. Travelling allowance – Rs. 12000(However actual expenditure was only
Rs. 8000 for official duties
• 9. Conveyance allowance –Rs. 500 per month(the whole amount spent for
official duties)
• 10. Transport allowance- Rs. 18,600
• 11. Overtime allowance-Rs. 4000 69
 Answer:
• Computation of gross salary of Mr. Amal for the assessment year 2008-09:
» Taxable allowances
• 1. Basic pay Rs. 8,000 x 12 96,000
• . DA –40% of basic pay(8000 x 40% x12) 38 400
• 3. City compensatory allowance-10% x 8000 x12 9,600
• 4.Medical allowance –Rs.800 x 12 9,600
• 5. Children educational allowance-[ (Rs. 200-100)2 x 12+
• 200 x 12] 4,800
• 6. Hostel expenditure allowance-(Rs. 400-300) 2 x 12 2,400
• 7. Tribal area allowance – (Rs. 500-200) x 12 3,600
• 8. Travelling allowance – (Rs. 12000-8000) official duties 4,000
• 9. Conveyance allowance –Rs. 500 –500) 12 Nil
• 10. Transport allowance- Rs. 18,600-(800 x 12) 9,000
• 11. Overtime allowance-Rs. 4000 4,000
• Gross salary 1,81,400

Children education –Rs. 100 per month per child for two children allowed.
Hostel expenditure Rs. 300 per child per month for two children allowed 70
 Let us have a short break

For middle and below class family god has given brain. Brain
Is your wealth. How to develop your brain??? 71
 Study daily
Collect information and????

72
 Pass on such good information to
Others at free of cost.
You are born in this world
Only to give.

Do you get happiness by receiving?

73
 By giving you receive including knowledge
This is the base of double entry book keeping

74
 Perquisites

• Casual emolument or benefit attached

to an office or position in
addition to salary or wages
• Something that benefits a man by going
into his own pocket
• Whether perquisites should be given in
Kind?
75
 Perquisites
• Need not be in kind.It can be in cash.

• What are the conditions to be fulfilled to

become a perks?

76
 Conditions
To become
perquisites
1.Allowed by
Employer to 4.Personal
Employee advantage
To the
employee
3.Directly
Depend
upon service

2.Allowed during 5. Derived by

Continuance Virtue of
Of employment Employer’s
authority
77
 Other conditions
• Employer and employee relationship
should exist at any point of time-need not
be an employee now.
• Legal origin is important-Un authorized
advantage taken by employee without
employer’s authority will not become
perquisites.

78
 Perquisites
Includes
1.Rent free
Accommodation 4.Personal
Provided Obligations of
By employer Employee
Accommodation Related(1-3) Met by
Including sweeper,gardener,watchman,gas, employer
electricity,
6.Fringe
3.value of Benefits
Benefits provided Allowed
Like furniture 5. Funds paid To employees
2.concessional In the accommodation By employer Of Other
Accommodation Other than Than
Provided RPF/Insurance companies
By employer fund 79
Perquisites Taxable in the hands of employee

In the hands of employee

Category-A
1. (R)ent free or concessional rent 1 to 5 taxable only to
accommodation
2. (S)weeper in the house, gardener,
Specified Employee
watchman, personal attendant
3. Free/concessional Category –B
(g)as,electricity,water etc
1.Car given by employer
4. (E)ducational facility to employee’s
2. Transport facility given by transport
family members including servants
undertakings except Railway and
and depentant, parents, spouse and
airlines.
children(need not be dependent)
( only to Specified Employee)
5. (L)eave travel concession beyond 2
travels in a block period
Short form(RSGEL)
80
• Special items in
computation
perquisites
81
Rent Free accomodation(RFA)

• Company’s House given at free of cost or

rented by company given to employee at
free/cocessional rent.
• Includes: house, flat, farm house,
carvan(people go by camel place to place),
mobil home,ship, floating structure-like
boat.
• Step1. Unfurnished Accomodation
Central or
State Government Private employees
employees
82
 1.Central or state government
employee-RFA
• License fee of flat determined by
central government is perquisites in
the hands of employee.
• Fair market value of rent is
not important

83
 RFA-Government employee-
Exercise
• Exercise:- Mr. X is working in Central government
service given rent free accommodation in an
government apartment at free of cost. The license fee
prescribed by government is Rs.3000 but fair rental
value of the house is Rs. 10,000. How much is taxable?
• Answer:-next page

84
 Answer-RFA
• Fair rent is not considered. The license fee Rs. 3,000 is
taxable in the hands of Specified employee.

85
 2. Private Employees(RFA)
• It depends on Population of the city where
accommodation provided.
Population as per 2001 census

Exceeding population Population beyond Population Upto

25 lakhs 10 lakhs-Up to25 lakhs 10 lakhs

Owned Owned Owned

Rented
By By By
employer Rented employer 15%of salary
employer Rented
or amount paid
By By company By
company
To outsider
Whichever company
10% of Is lower 7.5% of
86
15% of salary
salary Salary
 Explanation to the diagram
• 1.If house property is owned by employer
depends on the population of the city
percentage differs. Big city it is 15% of salary,
medium city it is 10% and small city it is 7.5%
of salary for accommodation with out any
facility like furniture.
• If house is rented by employer given to
employee it is 15% of salary or rent paid by
employer whichever is less taxable for specified
employees irrespective of the type of city.
87
 If Furniture provided by
employer
If rented

Actual hire
charges
payable

If owned

10% of original
Cost of furniture

88
 Meaning of salary for RFA

• All Cash salary received or recivable in hand( including taxable

allowances) by the employee himself.
• Excludes all *perquisites and *DA which will not come under
retirement purpose
• If any allowance is exempted ( like HRA(partly),
children educational allowance upto Rs.100 Per
month or transport allowance up to Rs. 800 per
month etc.) to the extent exempted is not
included in the meaning of salary but balance is
included in the meaning of salary.

89
Exercise-RFA
• Value of rent free accommodation : Preetham is sales manager of a private company and for
previous year 2007-08,he received the following emoluments(amts in Rs)
• Basic Salary 248000
• Bonus 16000
• Dearness allowance(50% forming part of salary) 60000
• Project allowance 15000
• Commission on sales 16000
• City compensatory allowance 25000
• Medical allowance 12000
• Employer contribution to recognized provision fund 20000
• Salary pertaining the year 2008-09 has been received in advance 20000
•
• He has been provided with a rent free accommodation in Bangalore owned by the employer.
The population of Bangalore may be assumed to be 50 lakhs as per 2001 census
• Determine the taxable value of the perquisite in respect of rent free accommodation.
•

90
• He has been provided with a rent free accommodation in jaipur owned by
the employer. The population of jaipur may be assumed to be 15lakhs as per
2001 census
• Determine : a) Meaning of salary for RFA
• b)the taxable value of the perquisite in respect of rent free accommodation.
• 1. Meaning of salary:-
• All Cash salary received or recivable in hand including taxable
allowances by the employee himself.
• Excludes all *perquisites and *DA which will not come under
retirement purpose
• Any allowance is not taxed( like HRA(partly),
children educational allowance upto Rs.100 Per
month or transport allowance up to Rs. 800 per
month etc.) are not included in the meaning of
salary.
91
 Meaning of salary-
Exercise
• The valuation of rent free accommodation shall be 15% of
the salary i.e. 15% of (248000+
16000+30000+15000+16000+25000+12000)=Rs 54,300
• Note: Salary shall be taken on basis for the period for which
accommodation has been provided. Hence advance salary
for 2008-09 shall not be taken in account.
• Employer’s contribution does not come to the assessee in
cash as it is paid directly to the department. That is why I
have mentioned the meaning of salary is cash salary received
by the assessee himself.

92
Exercise
• Value of free rent accommodation : sri Mohan is purchase manager of a private
company and for previous year 2007-08 he received the following emoluments-
•
• Basic Salary 120000
• Bonus 16000
• Dearness allowance(50% forming part of salary) 60000
• Project allowance 15000
• Commission on purchase 16000
• City compensatory allowance 25000
• Medical allowance 12000
• Employer contribution to recognized provision fund 20000
• Salary pertaining the year 2008-09 has been received in advance 20000
•
• He is also in part employment with B ltd and is receiving salary of Rs 80000 P.A. he
has been provided with a rent free accommodation in Mysore owned by the
employer. The population of Mysore may be assumed to be 15 lakhs as per 2001
census. Determine taxable salary

93
 solution
• Computation of taxable salary of Sri Mohan for assessement Year 2008-09
•
• Basic Salary 120000
• Bonus 16000
• Dearness allowance(50% forming part of salary) 60000
• Project allowance 15000
• Commission on purchase 16000
• City compensatory allowance 25000
• Medical allowance 12000
• Employer contribution to RPF in excess of 12% of salary 2000
• [20000- 12% of (120000+ 50% of 60000)]
• Salary from B ltd 80000
• Advance of salary 20000
• Value of housing facility[10% of (120000+16000+30000+ 31400
• 15000+16000+25000+12000+80000)]
•
• Taxable Salary 397400
94
 Exercise
• Value of concessional accommodation: Sri Basant is purchase manager of a private
company and for the previous 2007-08 he received the following emoluments-
• Basic Salary 240000
• Bonus 32000
• Dearness allowance(50% forming part of salary) 120000
• Project allowance 30000
• Commission on purchase 32000
• City compensatory allowance 50000
• Medical allowance 24000
• Employer contribution to recognized provision fund 40000
• 2 months salary for year 2008-09 has been received in advance 20000
•
• What would be the value of accommodation if the employer charges rent of Rs 2000 p.m. in
the following independent cases:
• (a) The accommodation is provided in Hyderabad where popln as per 2001 census
exceeds 25 lakh
• (b) The accommodation is provided in Alwar where popln as per 2001 census exceeds 18
lakh
• (c) The accommodation is provided at Tumkore (popln less than 10 lakhs)
95
 Solution
• Soln: The valuation of accommodation provided at concessional rent
shall be as under-
•
• Place of accommodation Value of perquisite
• Hyderabad 15% of salary less rent recovered = Rs 70200-
24000=Rs46200
• Alwar 10% of salary less rent recovered = Rs 46800-
24000=Rs22800
• Tumkore 7.5% of salary less rent recovered =Rs 35100-
24000=Rs11100
•
• Salary = 240000+32000+60000+32000+30000+50000+24000 = Rs 468000
•

• Any rent collected by employer from

employee, such amount is deductible
from taxable perquisite. 96
Furnished accommodation in hotel
• 24% of salary paid or payable only for the period
accommodation provided
• Or
• Actual charges paid or payable by the employer to such
hotel
• Whichever is lower
• Exceptions:-1.The above rule is not applicable if such
employee stays less than 15 days in the previous year and
• 2.Accommodation given only he is transferred to such new
place
• Both the conditions should be fulfilled
• Note:-Any amount collected from employee is deductible
from such calculations
97
Perquisites –Domestic servants,
free supply of gas, electricity etc
• Sweeper, gardener watchman personal
assistant paid by employer is perquisites to
the extent of cost to the employer.

98
 Monthly Fixed Education
allowance
• Training of employees is not perquisites
• Fixed educational allowance
Rs.100 per child per month is exempted
per child. Maximum two children.Beyond is
taxable
• Hostel Rs.300 per month per child
exempted.Maximum two children.Beyond it
is taxable to the employee

99
 Payment of school fees and re-
imbursement of school fees

• Taxable as perquisites fully

100
 Education facility to children(own) in their
own school or any other school/college
• If less than Rs. 1000 per month exempted
• If exceeds Rs. 1000 per month
cost of education in similar institution in the
near locality (minus )Rs. 1000(minus) amount
recovered.
Example:- Employer pays Rs. 1500 per month to the
school selected by employee for three children and
one grand children.How much is taxable
perquisites?

101
 Education facility to relative’s
children
• Cost to the employer in such similar
institution minus amount recovered
• Important Note: Only for own children
exemption of Rs. 1000 allowed. But for the
relative’s children such deduction is not
allowed.

102
 Answer- Educational facility
• 3 x 1000= 3000 exempted
• 500 x 3 + 1500= 3000 taxable
• Note: Number of children is not
limited to two

103
 Scholarships
• Scholarship given by employer company is
not taxable as perquisites.

• Note:- It should not be related to his/her

employment.

104
 Leave travel concession for
Family
• Any place in India
• Only travel short route permissible
• Two Journey in four block period allowed.
• If Journey is not taken place with in two years, in the very next
year if used itcan be claimed.
• Flight- economy class fair allowed(not taxable).
• Train-Air conditioned first class fair allowed(Not taxable)
• Note:- Only Journey expenditure is exempted. Two children
only who are born after 1st October 1998.(Twins or triplets are
treated as one)

105
 Employee’s obligation met by employer either
giving money or reimbursed is taxed in the hands of
employee(17(2)(iv))
• Example:1.Domestic servant’s salary reimbursed
by employer.
• 2.Gas connection in the name of the employee but
monthly gas bill paid by employer-Taxable to all
employee whether specified or not.
• 3.If gas connection in the name of the company
then there is no obligation to employer. Such
perquisites is taxable in the hands of Specified
employee.

106
Amount payable by employer for
fund on life of employee
• Taxable to all employees

• Exception:1. RPF,
• 2. approved superannuation fund
• 3. Group Insurance,ESI
• 4. Fidelity Guarantee scheme

107
 Valuation of Interest
free/concession loan
• Difference between SBI interest rate on 1st day of
the previous year-rate of interest charged by
company from employee.

• SBI rate:on 1st April 2007 are:- Housing loan more

than 5 years-10.75%, Upto 5 years-
10.25%,educational loan upto 4 lakhs-11.5%,
above 4 lakhs-13.25%
• Exceptions- see in the next slide

108
 Example
• X is employed by A Ltd. on 1st June 2007,
he has taken interest free Housing loan of
Rs. 14,00,000.How much is taxable?

109
 Answer
• Lending rate upto 5 years is 10.25% per
annum
• 10.25% x 14,00,000=1,19,583 is taxable.
• Suppose the interest charged by the
company from assessee is 6%, then how
much is taxable?

110
 Answer
• (10.25%-6%) x 14,00,000=Rs59500
taxable

111
Perquisites in respect of movable assets given
to an employee for personal use.

• 10 % of Original cost of such asset

purchased by employer(- )reimbursed by
employee
• If taken on rental basis by employer:
Rent payable(-)reimbursed by employee

Note: It is not on WDV value

112
 Perquisites by sale of company
asset at nominal rate
• Electronics and computers- Calculate WDV at 50%
depreciation for every fully completed years and
compare with amount charged. If WDV is more there
is perquisites.

• Note: 1. WDV method only

• 2. Fully completed years of individual asset only It is
not financial year. Fraction of the year is ignored.
• What % of depreciation on Motor car?

113
 Motor car transferred?
• 20% depreciation under WDV for
completed year of service.
• Other assets?
• 10% on ORIGINAL value of asset.

114
 Exception on Interest on loan
• 1. Loan(s) less than Rs.20,000(in aggregate
of original loan ) and
• 2.Taken for specified medical treatment.
• Amount reimbursed from medical insurance
scheme is not considered.

115
 Medical facilities
• Medical facilities availed in employer’s hospital, government
hospital or hospitals recognised by Income tax department is
not taxable.( No limit for specified diseases.
• If private –Up to Rs.15000 is not taxable if reimbursed to
specified employees.
• If bill is issued in the name of employee but paid by employer
then it is taxable in all types of employees.
• Family means: spouse, children, parents, brothers, sisters who
are wholly or mainly dependent on him/her.

116
 Medical facilities outside India
• Medical treatment expenditure To the
extent of RBI’s permission is not taxable.
• Travel:employee+relative or one attendant-
exempted provided cost does not exceed
Rs.2,00,000.
• Stay for one relative/one attendant
expenditure – allowed to the extent of
RBI’s permission.

117
 Motor car – belong to Employee
but expenditures met by employer
• Exclusively used for private – Fully taxable.
• Exclusively used for official- Not taxable.
• Partly used for business partly for private and
difficult to identify:-
• Calculation of perquisites:-1.6 litres car
• Actual expenditure incurred by employer
• Less:Rs.1,200 per month +600 per month if driver is
paid.(This is assumed that it is incurred for official
purpose)
118
• If no driver-Rs. 600 per month is not applicable.
 Motor car-Owned /Hired and maintained by
employer by employer-
• Used for private purpose:-
(All expenditure met by employer + 10% depreciation on
original cost are perquisites) or higher charges
Partly for private partly for oficial:
Up to 1.6 litres-
1200(car) +600(if Driver provided) per month-taxable.
If more than 1.6 litre:-
1600 (car) + 600(If driver provided) per month is taxable.
Note: Nothing is deductible when recovered from the
employee
119
Motor car-Owned /Hired by employer but
maintained by employee

Used wholly for personal purpose

Expenditure Hire charges +

Incurred by or 10% on original
employer Cost of car incurred
by employer

Note:- if recovered by employer it is deductible

120
 Motor car-Owned /Hired by employer
maintained by employee
• Used Partly for private partly for official-difficult
to identify:-
• If 1.6 litres cubic capacity- Rs.400Per month(Car)
+ 600 per month(if driver provided)----Taxable
• If above 1.6 litres cubic capacity:
• Rs.600 per month(car) +Rs.600per month(if
driver provided) taxable.

Note: amount recovered from employee is not deductible 121

 Other than car like two wheeler
owned by employee but maintained by
employer
• Partly for office and partly for private-if
difficult to measure:
• Expenditure incurred by employer
Less: Rs.600 per month or higher sum for
official purpose as per log book if
maintained
Less: Amount recovered from employee
balance is taxable in the hands of assessee.
122
 Higher claim on car
• Conditions:
• 1.Complete detail of journey for official
purpose to be maintained
• 2.Certified by employer that the expenditure
was incurred wholly and exclusively for
official purposes.
• Ref: Income tax by Dr. Singhania-page
147-149 39th edition.
123
 Perquisites-car
Owned by employee Re imbursed by
employer

124
125