Income From Salary : Under Section 15 to 17
Under Section 15, 16 and 17 in of the income tax act deal with computation of income under head of salaries.
Meaning :
The remuneration paid by the employer to the employee against his or her work called as salary
However, this should be relationship existed as employee and employer, if such relationship is not existed, then the income would not be income from salary, it is clear all income received by the employee from the employer is recorded under head of income from salary.
For example :
Pension : This is the retirement benefit employee will received the pention from the employer often his or her retirement.
In case of the pensions, there is a relationship existed as employee and employer. Hence, pension covered under head income from salary after death of the employee, his or her spouse will received the family pension, but employee and employer relationship is not existed, hence, family pension is recorded under the head income from the other sources.
- Basis of Charge Under Section 15 :
1) Salary due or received from the present or future employer.
2) Salary areas received from present or former employer.
3) Advanced salary received from present employer.
4) Any salary received in the form of Bonus, Commission, fees or any other form received from present and former employer.
Salary due basis -
Under this method, salary always due on last day of the month. Hence, salary for the month of March is covered under the same financial year.
Receipt basis -
Under this method, salary is always due on first day of the next month. Hence, salary for the month of March will covered in the next financial year.
- Retirement Benefits -
1) Gratuity -
Gratuity is a retirement it is paid by the employer to the employee after his or her retirement. Gratuity paid for appreciation of service, after the retirement employees himself or herself received the benefit of Gratuity after the date it will received by the legal representative of the employee. If gratuity received by employees it is covered under the head of salary, if gratuity received by the legal representative then it is covered under the head income from other sources.
Classification of Employees -
For the income tax purpose, employees are classified into three categories :
1. Government Employee or Employee of Local Authority -
Entire amount of Gratuity shall be exempted no any part of Gratuity included in gross total income.
2. Employee covered under Gratuity Act 1972 -
Amount of Gratuity exempted of certain limits, least of the following shall be exempted from gratuity,
a) Amount of Gratuity actually received.
b) 15 days salary X number of years services, completed part their number Rs. 10 lakhs
15 days salary is computed by dividing the salary by 25 days, that is monthly salary means salaries for 26 days. Part these of means, number of month, if it is more than the 6 Months such part of month covered in full year 6 months and less shall be ignored.
3. Other Employees -
List of the following shall be exempted.
a) Gratuity actually received.
b) 1/2 month average salary X number of years services completed.
c) Rs. 10 lakhs
1/2 of the month average salary means immediately preceding 10 months salary.
For example, Mr. X retired on 1st January, 2016. This salary from the last one year is Rs. 60,000. He received gratuity of rupees 5 lakhs, his total service is 30 years and 5 months in a company, compute taxable gratuity. If,
a) He is covered under Gratuity Act.
b) Not covered Gratuity Act.
Ans. -
a) Rs. 5,00,000
b)15 days X number of years services
c) Rs.10,00,000
Therefore, Rs.5 lakh is least amount is exempted.
60,000
------------ X 15 = 34,615 X 30 = 10,38,461
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Not covered under Gratuity Act -
a) 5 lakhs
b) 1/2 month average salary.
2) Pension under section in (i) (ii) -
This is a retirement benefits to employees paid by the employer, after death of employee his/her family will received the pension and it is called as family pension.
Pension divided into two categories :
1. Commuted Pension -
This is a part of the pension which is transferred sold to the Employers as per existing rules, the present rate of selling is Rupees 1 = Rupees 95/-. Commuted pension exempted up to certain limit from the Income Tax point of view employees are classified into two categories.
a) Government employee, employer of local authority statutory corporate.
b) Other employers.
a) Government employee, employer of local authority and statutory corporate -
Commuted pension is fully exempted to this employees no any part of commuted value included in the gross total income, In short value of commuted pension is fully exempted.
b) Other employer's -
These are classified under two category :
1. Employees received gratuity -
1/3 of fully commuted value shall be exempted.
2. Employees doesn't received gratuity -
1/2 of fully commuted value shall be exempted.
2. Uncommuted Pension -
This is part of the pension which is received every month, this pension is always fully taxable excluding employees received quantary awards.
For example :
Mr. Ram retired on 1st February 2016, he received uncommuted pension rupees 20,000/- his sold 40% pension to the employer and received 6 lakhs compute, the taxability of commuted and uncommuted pension assumed that,
a) He received gratuity.
b) Not received gratuity.
Ans. -
a) Uncommuted pension -
February. 20,000
March (60%) + 12000
= 32,000
b) Commuted pension -
Calculate fully commutef value
40% Rs.6,00,000
100% ?
= 15,00,000
If gratuity received -
= 15,00,000 X 1/3
= 5,00,000 - exempted
Therefore, taxable = 6,00,000 - 5,00,000
Taxable = 1,00,000
b) If gratuity is not received -
=15,00,000 X 1/2
= 7,50,000
In this case, entaired Rs. 6,00,000 exempted.
- Employer Contribution towards Provident Fund -
Kind of Provident Fund -
1. Statutory Provident Fund -
The contribution of employer is depend on the as per rule hence, entire of employer and interest on accumulated balance is also exempted.
Features :
a) Entire deduction of employer is allowed.
b) Entire interest on balance is allowed.
c) Withdrawal amount from this account also exempted.
2. Rcognised Provident Fund -
The provident fund scheme approval Income Tax commissioner is called as recognised provident fund.
3. Unrecognised provident Fund -
The provident fund scheme not approved by Income Tax commissioner it is called unrecognised provident fund.
4. Public Provident Fund -
This is investment scheme whered under section 80c. The employee can opened his account in SBI or post office. The period of PPF under 10-15 years
- Deduction Under section 16 -
1) Standard deduction under section 16 () abolished from the 06-07.
2) Entertainment allowances applicable for government 7 employees.
Maximum of the following amount deducted :
1) Allowances actually received.
2) 20% of basic salary.
3) Rs. 5000 per month.
- Professional Tax -
Tax of employment rupees 2500 or actual text paid, Which ever is least shall deducted from gross salary, it is collected by State governments.
- Allowances -
1) Taxable allowances -
Following allowances are fully taxable and therefore included in the gross total income.
Dearness allowance
City compensatory allowance
Medical allowances
Overtime allowances
Tiffine allowances
Servant allowances
Warden allowances
Non practisionery allowances
Family allowances
Wastshing allowances
Project allowances
2) Text free or fully exempted allowances -
a) Allowances given at abroad particularly to government employee.
b) Allowances to High Court and Supreme Court judge.
c) Allowances received by an employee of UNO from his employer.
d) Allowances given to Chairman and members of UPSC.
3) Party taxable & Party exempted allowances -
Allowances are neither fully taxable not fully text free but some part of the allowance is taxable and some part is tax free.
a) House rent property under section 10 (13A) -
These allowances given to the employee to meet his or her accommodation expenditure under section 10 (13A) such allowances exempted up to a certain limit. a) house rent allowances is actually received.
b) excess rent paid over 10% of salary.
i.e. Rent paid 10% of salary
c) 50% of salary were resident situation in Mumbai, Delhi, Chennai, Kolkata 40% of salary in other City.
Salary = basic + dearness allowance (if admissible for retirement benefits) + Commission (based on fixed percentage on turnover)
If employee raside in his or her own House then entire house rent allowance taxable.
4) Prescribed allowances under section 10(14) -
This allowances are two types :
1) Special allowances for performing of official works under section 10 (14)(i)-
This allowances for performing official work these allowances are specifically granted to meet personal expenses during official work. It is exempted for income tax purpose up to certain limit, this allowances are :
Travelling allowances
Transfer allowances
Daily announces
Convance allowances
Helper allowances
Academy allowances
Uniform allowances
This allowances are exempted :
a) allowances actually received
b) actual expenditure spend by employee whichever is less shall be exempted.
2) Allowances to meet personal expenses up to certain limit -
a) Children education allowance -
As per term or condition of employment it is paid tax treatment it as follow rs. 100 per month for per child but maximum for two childrens.
b) Hostel expenses allowances -
Rs. 300 per month for per child but maximum for two children's.
c) Travile allowances and schedule area -
Actual allowance received or rs. 200 which ever is less shall be exempted.
d) Transport allowance -
This allowances is granted by the employer to meet his or her transport expenses between residence to office and return back. 1600 per month with effect from 1st April 2015 and rs. 3200 blind and physically handicapped person with effect from 1st April 2015.
e) Special compensatory hill area and high attitude allowances various from 300 to 700 per month.
f) Announces granted to the employee working in transport agency, 70% of the allowances or rs. 10,000 whichever is less. This exemption is applicable to the transport employees only
- Perquisites under section 17 (2) -
All the facility received by the employee from the employer is known as a 'Perquisites'.
It is advantages received over an above the normal salary, employees has right to receive such benefit by venture of employment.
A) Tax Free Perquisites -
1) Medical facility -
a) In employees Hospital :
Medical facility provided by the employer to the Employees and his or her family members in a hospital run by the employer, the valuation of medical facility is always nil.
b) Reimbursement of medical expenses -
1. Medical facility in India -
Medical treatment taken in the approved Hospital (approved by CBDI) entire reimbursement amount shall be exempted.
2. Medical facility outside India -
Medical expenses permitted by Reserve Bank of India shall be exempted.
2)Employee towards payment of the insurance premium, this is tax free perquisites.
3) Expenses incurred / reimbursement for the treatment of prescribed disease given in the rule 3(A).
4) Lunch facility -
Provided in the remote area during the working hours in the 100% tax free, but it is provided in honremote area per lunch up to rupees 50, exempted. It cost the lunch is more than rupees 50, such excess part shall be taxable.
5) Refreshment facility -
Refreshments provided by the employer including non alcoholic cold drink is tax free perquisites.
6) Expenditure employee training / refresher course is tax free.
7) Gift in kind up to rupees 5000 shall be text free, excess cost of the gift shall be taxable.
8) Goods manufacturing and sold the employer to his employee at the con-cessional rates shall be tax free perquisites.
9) Computer / laptop given to the employee for official and personal use tax free perquisites.
10) Use of health club, Sports Club or any other similar facility provided uniformly to all classes of employee by the employer at employers permission is not taxable.
11) Expenses of telephone including mobile facility is not taxable, accident insurance premium during working hours is tax free.
12) Residence provided to judge is tax free.
13) Residence provided to Union registered and union opposition in Parlament text free.
14) Accommodation provided to employee at the time of transport in hotel up to 15 days rent tax free.
15) Accommodation provided in the remote area or mining side tax free.
16) Interest free loan provided for medical treatment of diseas under rate 3.
17) Interest free / Concessional loan upto rupees 20,000/- but loan amount more than 20,000/- the benefits received by employee in form of interest shall be taxable perquisites.
Benefits = rate of interest of SBI - interest charged by employer
18) Education facility for children of the employee is provided in the institution which is run by employer then cost of education of upto Rs.1000 per month for per children is tax free, If education expenses remembered then it is taxable.
B) Taxable Perquisites -
1) The value of rent free / concessional section 17 (2) -
a) The value of any benefit provided free cost or concession.
b) Any sum paid by the employer where employee is liable to pay.
c) Payment of employee club, Hotel bill, debit, credit card bills paid by the employer.
d) Payment of education expenses of the employee or his or her children.
e) Payment of salary to the domestic servant of the employee.
f) Gas, water, electricity, cook, garden etc. and expenses paid by the employer.
g) Use of motor car.
- Valuation of Perquisites -
1) Rent free, concessional rent accommodation unfurnished -
Rent of accommodation is always depend on the population of this city for this purpose employees are classified into a two categories :
a) Government employees
b) Other employees.
Valuation is depend on licences fee determine by the government.
Other employees :
Valuation is as follow :
|
Population of the city |
Owned by the employer |
Accomodation provide in hotel or
lease basis |
|
Exceeding 25 lakh |
15% of salary |
The rent / lease paid an 15% of salary
whichever is less |
|
Exceeding 10 lakh upto 25 lakh |
10% of salary |
As above |
|
Other cities |
7.5% of salary |
As above |
When salary = basic salary + dearness allowances (retirement benefit) + Commission + bonus + fees + all taxable allowances + other monetary benefits
2) Valuation of Furnished accommodation -
1. Calculate valuation of accommodation by assuming that the accommodation is unfurnished -
Valuation of furnished accommodation is a calculated as follows :
Valuation as per unfurnished + 10% of cost of the furniture for rent paid, if furniture taken by the rental basis.
Other monetary benefits -
The ammunities provided in the terms of money and the payment it is valued at the actual expenditure paid by the employer.
|
Status / Commission |
Use of Car |
Valuation |
|
Car owned by the company all expenses paid by the company |
1.For the official purpose 2.For the private purpose 3.Partly for official and partly for private purpose |
1.Nil (subject to satisfaction of condition) 2.Actual expenditure + driver salary + 10% cost of motor car – amount recovered 3.Capacity of the car does not exceed 1600CC, 1800pm + 900pm (if driver provided)or exceed than 1660CC, 2400pm + 900pm (if driver provided) |
|
Motor car owned by the employer or hired by the employer and the
expenses are paid by the employee |
1.For the official purpose 2.For the private purpose 3.Partly for official and partly for private purpose |
1.Tax free perquisite 2.10% cost of the car or hire charges paid by the employees + salary paid to the driver – amount recovered 3.Rs.1600 pm + 900pm (if driver) CC of the car up to 1600 Rs. 900pm + 900pm (if driver provided) exceeds 1600CC |
|
Car owned by the employee and expenses are paid by the employer |
1.For official purpose only 2.For private purpose only 3.Partly for official purpose and partly for private purpose |
1.Tax free perquisite 2.Actual expenses paid by the employer 3.As per condition no.1 & use of the car No. c |
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