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UNIT4:SALARY

Assesseereceivesincomefromdifferentsourcesduringtheyear.
ForthepurposeofIncometax,incomeisclassifiedunderthefollowingheadsofincome:

1. Salaries
2. IncomefromHouseProperty
3. Profitsandgainsofbusiness/profession
4. Capitalgains
5. Incomefromothersources

Anyincomeearnedbyassesseeistobeclassifiedunderoneoftheheadsofincomelistedabove.If
certainincomefallsundermorethanoneheadassesseehasarighttochoosethemostappropriate
headforit.Incomeshouldnotbeputunderawronghead.

However,incometaxisonetax.Itisleviedontotalincomefromalltheheadsandnotseparately
(exceptinfewcases)foreachheadofincomes.

SALARY(SECTION15TO17)

Salarymeansremunerationreceivedbyanemployeefromemployerorformeremployerinanyform
such as gift, pension, gratuity, usual remuneration etc. Some important points regarding income
taxableundertheheadSalary:
1) Employeremployeerelationship.
2) Fortaxpurposethereisnodifferencebetweensalary&wages.
3) Evengiftreceivedfromemployerisconsideredassalaryincome.
4) MP or MLA is not considered as an employee of the Government. Therefore, Salary &
allowancesreceivedbyhimarenotchargeableundertheheadSalary.Theyaretobeincluded
undertheheadIncomefromOtherSources.

BASISOFCHARGE:
Undersection15followingincomeischargeabletotaxundertheheadSalary:
(1) Anysalaryduefromanemployeroraformeremployertoanassesseeinthepreviousyearwhether
paidornot.
(2) Any salary paid or allowed to him in the previous year by or on behalf of an employer or former
employerthoughnotdue.
(3) Any arrears of salary paid or allowed to him in the previous year by or on behalf of employer or
formeremployerifnotchargedtotaxearlier.
(4) Any salary, bonus, commission or remuneration due to or received by Partner of the firm from
thefirmshallnotberegardedasSalaryforthepurposeofthissection.

UnderSection17(1),SALARYisdefinedas:
a. Wages;
b. anyannuityorpension;

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c.
d.
e.
f.
g.

anygratuity;
anyfees,commission,perquisiteorprofitsinlieuoforinadditiontoanysalaryorwages;
anyadvanceofsalary;
anypaymentreceivedinrespectofanyperiodofleavenotavailedbyhim;
the portion of the annual accretion in any previous year to the balance at the credit of an
employeeparticipatinginRecognisedProvidentFundtotheextentitistaxable;and
h. transferredbalanceinaRecognisedProvidentFundtotheextentitistaxable;and
i. the contribution made by the Central Government in the previous year, to the account of an
employeeunderapensionschemereferredtoinsection80CCD.

PERQUISITESSECTION17(2):
Perquisite is additional benefit received by an employee over and above his basic salary but it is
differentfromallowance.Perquisitemaybepaidvoluntarilyorbyvirtueofservicecontract.

UnderSection17(2)Perquisiteincludes:
1. Thevalueofrentfreeaccommodationprovidedtotheassessee.
2. Valueofconcessiongiveninrentrelatingtoaccommodationprovidedtotheassessee.
3. Valueofanybenefitgrantedfreeofcostorataconcessionalrateinrespectoffollowingpersons:
(a) ByacompanytoanemployeewhoisalsoaDirectorofthecompany.
(b) Byacompanytoanemployeebeingapersonwhohassubstantialinterestinthecompany.
(Personholding20%ormoreequitysharescarryingvotingrightsisknownaspersonhaving
substantialinterestinthecompany.)
(c) By an employer to an employee whose income under the head salary exceeds ` 50,000
excludingthevalueofnonmonetaryperquisites.
Forthepurposeofthisclause,useofanyvehicleprovidedbyacompanyoranemployerfor
journeybytheassesseefromhisresidencetohisofficeorotherplaceofwork,orfromsuchoffice
orplacetohisresidenceshallnotberegardedasbenefitgrantedfreeofcostorataconcessional
rate.
4. Anysumpayablebytheemployerinrespectofanyobligationbutforwhichpaymentwouldhave
beenmadebytheassessee.
5. Anysumpayablebytheemployerwhetherdirectlyorthroughafundtoeffectanassuranceonthe
lifeofanassesseeexcludingcontributionmadetorecognisedprovidentfundoranyother
prescribedfunds.
6. Thevalueofanyotherfringebenefitoramenityasmaybeprescribed.

TAXABILITYOFPERQUISITES

ForthispurposePerquisitescanbeclassifiedinto3categories:

Perquisitestaxableinallcases(i.e.Specified&NonSpecifiedemployees):
1)
Rentfreefurnishedorunfurnishedaccommodationincasesotherthan:

a.Rentfreeaccommodationgiveninaremotearea.
b.Atemporaryaccommodationof800sq.ft.givenataminingsite.

c.Hotelaccommodationgivenaftertransfernotexceeding15days.

d.RentfreeofficialaccommodationprovidedtoaJudgeofHighCourtorSupreme

CourtoranofficialofParliamentoraUnionMinisterandaLeaderofoppositionin

Parliament.

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2)
3)

Furnishedorunfurnishedaccommodationisprovidedinabovecasesatanominalrent
Service of a sweeper, a gardener, a watchman or a personal attendant provided by an
employer to an employee without charge or with nominal charge if Domestic servant is
engagedbyemployeeandsalaryispaidbyemployer.
4)
Supply of gas, electric energy or water for household consumption of employee without any
charge or with nominal charge if connection is in the name of employee and bills are paid
byemployer[coveredbysec.17(2)(iv)]
5)
Education facility to any household members of the employee without any charge or with
nominal charge if bills are issued in the name of employee but paid by employer [covered
bysec.17(2)(iv)]
6)
Any sum paid by employer in respect of an obligation which for such payment, would have
beenpayablebytheemployee.
7)
Amount payable by an employer directly or indirectly to effect an assurance on the life of
employee or to effect a contract of an annuity (not being payments to recognised provident
fund,etc.)
8)
Interestfreeloanorconcessionalloantoanemployeewhereloanexceeds`20,000.
9)
Providinguseofanyothermovableassettoanemployeeoranymemberofhishousehold
10) Transferofanymovableassettoanemployeeoranymemberofhishousehold
11) AnymedicalfacilityinIndiaprovidedtoanemployeeoranymemberofhisfamilywhen bills are
inthenameofemployeeandpaidorreimbursedbyemployerinexcessof` 15,000
per
assessmentyear
12) Value of any specified security or sweat equity shares allotted or transferred by the
employer or former employer free of cost or at concessional rate (applicable from the
assessmentyear201213).
13) Any contribution to an approved superannuation fund by the employer in respect of the
employeetotheextentitexceeds`1lakh(applicablefromtheassessmentyear201213).
14) Valueofanyotherfringebenefitoramenitynotifiedforthepurposeofsection17(3)(viii)
(applicablefromtheassessmentyear201213).
15) Travelling,touringaccommodation.
16) Freefoodandbeveragesexceptifprovidedinofficehoursandtheexpenditureis`50per

mealorless.
17) Giftorgiftvoucherofthevalueofnotlessthan`5,000(ifgiftisinkind).
18) Clubexpenditureincurredbytheemployerinrespectofpersonaluse.
19) Creditcardpaymentsbytheemployerinrespectofhouseholduse.

Perquisitestaxableonlyforspecifiedemployees:
1)
Servicesofasweeper,agardener,awatchmanorapersonalattendantprovidedbyanemployer
to an employee without charge or with nominal charge if domestic servant is engaged by
employerandsalaryispaidbyemployer.
2)
Supply of gas, electric energy or water for household consumption of employee without any
charge or with nominal charge if connection is in the name of employer and bills are paid by
employer
3)
Educationfacilitytoanyhouseholdmembersoftheemployeewithoutanychargeorwithnominal
chargeifbillsareissuedinthenameof&paidbyemployer.
4)
AnymedicalfacilityinIndiaprovidedtoanemployeeoranymemberofhisfamilyifbillsareinthe
nameofemployerandpaidorreimbursedbyemployerinexcessof`15,000perassessmentyear.
5)
Caroranyotherautomotiveconveyance.
6)
Transportfacilitybyatransportundertaking(notbeingprovidedbyrailwaysorbyanairline).

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Perquisitesnottaxableinallcases:
1) Rentfreefurnishedorunfurnishedaccommodationincasesmentionedbelow:
a) Rentfreeaccommodationgiveninaremotearea.
b) Atemporaryaccommodationof800sq.ftgivenatminingsite,etc.
c) Hotelaccommodationgivenaftertransferfornotexceeding15days
d) RentfreeofficialaccommodationprovidedtoaJudgeofHighCourtorSupremeCourtoran
officialofParliamentoraUnionMinisterandaLeaderofoppositioninParliament.
2) Leavetravelconcessiontoemployeessubjecttoprovisionofsection10(5)
3) Providinguseofcomputer&laptoptoanemployeeoranymemberofhishousehold.
4) Providingmedicalfacilitiestoanemployeeoranymemberofhisfamily:
a) in a hospital maintained by the Government or any local authority or approved by the
GovernmentforthemedicaltreatmentofGovernmentemployees.
b) inahospitalmaintainedbytheemployer.
c) in respect of prescribed diseases or ailments, in any hospital approved by the Chief
Commissionerhavingregardtotheprescribedguidelines.
5) Healthinsurancepremiumoftheemployeeoranymemberofhishouseholdpaidbytheemployer
6) AnyothermedicalfacilityinIndiaprovidedtoanemployeeoranymemberofhisfamily
a) Bills are in the name of employer and paid or reimbursed by employer up to ` 15,000 per
assessmentyear
b) Bills are in the name of employee and paid or reimbursed by employer up to ` 15,000 per
assessmentyear
c) MedicalfacilityoutsideIndiaifafewconditionsaresatisfied
7) Anyperquisiteotherthantaxableperquisitesalreadymentioned(fewexamplesarecar,holiday
home,club,freetea/refreshment/lunch,gift,etc.)

Section17(3)ProfitsinLieuofSalary
Itisnotaregularpaymentreceivedfromtheemployer.Itisreceivedinsteadofsalary.
Itincludes:
1) The amount of any compensation due to or received by an assessee from his employer or
former employer at or in connection with the termination of his employment or the
modificationofthetermsandconditionsrelatingthereto;
2) Any payment other than any payment referred to in clause (10) (clause (10 A)) (Clause (10B),
Clause (11) Clause (12) Clause (13) or clause (13A) of section 10, due to or received by an
assesseefromanemployeroraformeremployerorfromprovidentfundorotherfund,tothe
extent to which it does not consist of contributions by the assessee or interest on such
contributions;
3) AnysumreceivedunderaKeymaninsurancepolicyincludingthesumallocatedbywayofbonus
onsuchpolicy.
4) Any amount due to or received, whether in lump sum or otherwise, by an assessee from any
person
a) Beforehisjoininganyemploymentwiththatperson,or
b) Afterterminationofhisemploymentwiththatperson.

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TAXABILITYOFPROVIDENTFUNDS
Statutory
Recognised
Unrecognised
ProvidentFund
ProvidentFund
ProvidentFund

Particulars

Respective
employer
Nottaxable
Deductionu/s80C

Respective
Employer
Nottaxable
Nodeductionu/s
80C

Public
Provident
Fund(PPF)
Nationalised
Banks
NotTaxable
Deductionu/s
80C

Totallyexempt

Exemptonlyup
to12%ofbasic
Salary
Exemptupto8.5%
p.a.

Totallyexempt

Employer
doesnot
contribute
Exemptu/s

1)Whorunsthe
Fund
2)Contribution
madeby
Employee

Government
Nottaxable.
Deductionu/s
80C

3)Contribution
madeby
Employer
4)Interestearned
onthefund
5)Maturityon
Retirement

Totallyexempt

Totallyexempt

Totallyexempt

Totallyexempt

1)Employees
ownsavingtax
free
2)Int.onhis
savingsfully
taxedasother
Income
3)employers
Contributionfully
taxedassalary
Income
4)Int.on
Employers
contributionfully
taxedassalary
income

10(15)
Termofthis
accountis
15years
whichmay
beextended
upto20/25
years
maturityare
fullyexempt

Note:
Salaryreferredaboveisbasicsalary.ItincludesD.A.iftermsofemploymentsoprovide.
By adding salary, taxable perquisites and profit in lieu of salary we get Gross Salary of an
employee. From Gross Salary certain deductions are allowed u/s 16 & only remaining amount is
consideredasNetTaxableSalary.

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DEDUCTIONSFROMSALARYINCOMESECTION16

ENTERTAINMENTALLOWANCEU/S16(ii):

Ifanyentertainmentallowanceisgrantedtotheassesseewhoisinreceipt ofsalaryfromthe
governmentdeductionisallowedagainstitu/s16(ii)asfollows:

DeductionforEntertainmentAllowance

Governmentemployee

Otheremployees

1)1/5thofBasicSalary

Nil
OR
2)`5,000
OR
3)EntertainmentAllowanceactuallyreceived
Whicheverisless.

TAXONEMPLOYMENTU/S16(iii)

AnytaxpaidbyanemployeeonemploymenttothestateGovt.isfullydeductiblefromtaxable
salarye.g.ProfessiontaxchargedbyGovt.ofMaharashtra.
Ifprofessiontaxispaidbytheemployer,itisfirstincludedintaxablesalaryasperquisite and
thendeductionu/s16(iii)isallowed.

PROBLEMS

1. Mr.SanjayisworkingasanaccountantinCentralRailway.Thefollowingaretheparticularsofhis
incomefortheyearending31stMarch2014:
(a) MonthlyBasicSalary`5,800.
(b) DearnessAllowance`500permonth.
(c) SpecialAllowanceof`300permonth.
(d) Bonus`2,000.
(e) Entertainment allowance of ` 800 per month since 141989 of which he actually spent `
8,000.
(f) Hespent`1,500onbooksandpaidprofessiontax`720.
YouarerequiredtocomputetaxableincomefromsalariesofMr.Sanjayforassessmentyear
20142015.

2. Mr. Harilal is working as inspector of Central Excise Department. He provides you the following
informationfortheyearended31stMarch2014.
`7,800
(a) Basicsalarypermonth

(b) DearnessAllowancepermonth

`4,000
(c)
Exgratia

`8,840
(d) EntertainmentAllowanceof`1,000p.m.from141991
Amountactuallyspent`7,000.
(e) Houserentallowance`22,000(Exemptu/s10(13A)`7,000)

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Arrearsofsalary`6,000.
ProfessionTaxwasdeductedatsourcefromsalary`1,440.
He was on leave for one month and went to Kashmir on 31st March 2014. He took the
salary(Basic&D.A.)ofAprilinadvance.
Computehistaxablesalary.

3. Mr. Manjrekar who was working as Commissioner of Income Tax, retired on 31st December 2013.
Followingaretheparticularsofhisincomerelatingtotheyearendingon31stMarch2014.
(a) Salaryreceived`9,000/permonth.
(b) EntertainmentAllowancereceived `450/p.m.Hespentonentertainment `350/p.m.onan
average.
(c) DuringthemonthofJanuary,2014hereceivedgratuityamountingto`95,000/
(d) Hereceived`70,000/thevalueofcommutedPensionon15thJanuary2014.
(e) HereceiveduncommutedPensionfromGovernmentwitheffectfrom1stJanuary,2014which
becomesdueoneverylastdayofthemonthattherateof`3,200/p.m.
(f) Hereceivedarrearsofsalary`9,400/on29thMarch,2014.
(g) He incurred the expenses incidental to Employment such as purchase of books, car expenses
etc.amountingto`15,280/
Youarerequiredtocomputehistaxableincomefortheassessmentyear20142015.

4.Mr.VarunisworkingasanaccountsofficerinaGovernmentDepartmentatMumbai,since1976.
Duringtheyearhereceived `48,000/assalary, `1,000/asexgratia& `4,500asentertainment
allowance.Hewasprovidedwithrentfreefurnishedaccommodationperquisitevalueofwhichwas
ascertainedat `18,500.Transportallowanceof `4,000wasreceivedandactualexpensesincurred
were`4,200/.ProfessionTaxpaidduringtheyearwas`1,080/
Youarerequiredtoascertaintheincomechargeabletotaxunderthehead,SalariesofMr.Varun
fortheassessmentyear20142015.

5. Miss.MandiraisemployedwithSoniSales&Servicesassalesrepresentative.Shefurnishesyouthe
followinginformationfortheassessmentyear20142015.
a. Salary@`25,000permonth.
b. Commissiononsales`47,000/.
c. Bonusequaltoonemonthssalarywaspaid.
d. `16,000/ascompensationforterminationofservices.
e. Entertainmentallowance@`1,250permonthsince1stJanuary1994
f. Houserentallowance`5,000permonth(Exempt`3,000permonth).
On 1st December, 2013 she was appointed as sales manager in Set Max Ltd. on the following
termsandconditions:
a. Salary@`6,000permonth,and
b. Carfacilityexclusivelyduringofficehours.
c. H.R.A.`1,650permonth.(Exempt`400p.m.)
You are required to compute the taxable income of Miss. Mandira for the assessment year
20142015.

(f)
(g)

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6. Mr.RajeshisanemployeeofM/sModernLaboratorieswhofurnishesyouthefollowinginformation
fortheassessmentyear20142015:
(a) NetSalarypermonth`25,750for11monthsand`25,650inthelastmonth.
(b) Income taxdeductedatsourceper month `8,000&ProfessionTax `200permonthfor11
monthsand`300inthelastmonth.
(c) Providentfundcontributiondeductedfromsalary`5,000permonth.
(d) Employerpaid`33,500beingtherentofthehouseoccupiedbyMr.Rajesh.
(e) AwardfromThaneMunicipalCorporationforpresentationofbestdesign,`5,000/.
On1stOctober2013Mr.Rajeshwasappointedasadirector.During6monthsperiodended31st
March2014,sixBoardMeetingswereheldoutofwhichMr.Rajeshattendedfive.Boardmeetings
fees ` 400/ per meeting attended is paid to him. Calculate the taxable income under the head,
SalariesofMr.Rajeshfortheassessmentyear20142015.

7. Miss. Paro is employed with M/s Devdas Electronics. Salary for the month is paid on 1st day of
the following month. She furnishes you the following particulars for the assessment year 2014
2015.
(a) Receivedsalary@`14,000p.m.fortheperiodfrom1stMarch2013to28thFebruary2014
(b) Reimbursementofcarexpensesinrespectofofficeuse `12,000/.(Sheusedherowncarfor
herselfaswellasforofficeuse)
(c) Her contribution to Recognised P.F. was 13% of salary with employer making equal
contribution.
(d) Shewascreditedwithinterest@9%p.a.onherP.F.Accountwhichwas`18,000.
She was also doing a part time job with Anand Dham Cooperative Society on a monthly
remunerationof`1,000/.Bonusequaltoonemonthssalarywasdeclared.
YouarerequiredtoascertainthetaxableincomefromsalariesofMissParofortheassessment
year20142015.

8.Mr.Dipak,thechiefaccountantinafactoryatBaroda,furnishesyouwiththefollowinginformation
and asks you to compute his income taxable under the head, Salaries for the assessment year
20142015.
(a) Salary`1,47,000.
(b) ArrearsofSalaryforearlieryearreceivedduringtheyear`6,000/
(c) SalaryforApril,2014receivedon31stMarch2014`12,250/
(d) Purchasedcarbytakingaloanof`15,000/
(e) Agiftbytheemployerforexcellentwork`7,500/
(f) ReimbursementofexpensesincurredbyhimforattendingcompanysworkatDelhi`
25,000/
(g) He spent for books ` 1,500/, profession tax ` 1,080 and fees for membership of a
professionalbody`300/
(h) L.I.C.Premiumpaidbytheemployer`4,500/.
(i) Bonusequaltoonemonthssalarywasdeclared.

9. ShriGaneshDeshpandeisworkingasanaccountantofM/sKaminiIndustriesPvt.Ltd.He
furnishesyouthefollowinginformationfortheassessmentyear20142015:
He received salary of ` 60,000 per month. He is provided with furnished accommodation, the
perquisitevalueofwhichisconsideredtobe `14,400/perannum..CompanydeductedProfession
Tax`2,500/fromhissalaryduringtheyear.

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Hewasonleavefor25days.DuringtheperiodofhisleavehewenttoDehradunandstayedatthe
guesthouseoftheemployercompany.
ThecompanypaidtheRailwayfarefromMumbaitoDehradunandbackforShriGanesh,hiswife
andchildren.
TheRailwayfareamountsto`7,500/,whichiswithinthespecifiedlimits.
Youarerequiredtoascertainhistaxableincomeunderthehead,Salariesfortheassessment
year20142015.

10.Mr.VikasisthebranchmanagerofTheThaneJanataSahakariBankLtd.Hefurnishedthefollowing
informationforthepreviousyearendingon31stMarch2014.
(a) Receivedsalaryat`9,000/permonth.
(b) AnawardastheBestManagerof `11,000/wasreceivedon26thJanuary2014fromthe
BoardofDirectorsoftheBank.
(c)
NotifiedSpecialAllowanceforhalfyearlyclosingof `1,500/wasreceivedtwiceduringthe
year.Heincurredtheexpensesof `1,080/oneachoccasiontogiverefreshmentstothe
staffofthebranch,tocompletetheworkofhalfyearlyclosingintime.
(d) ShriVikasreceivedanawardof`5,000/fromcommissionerofPolice,Thanefor
showingthenecessarycouragetopreventtheterroristwhointendedtokillthemembers
ofthestaff.
(e) TransportAllowance`800p.m.Actualexpenses`700p.m.
(f)
ProfessionTaxfortheyearwas`960/&itwaspaidbytheemployer.

Youarerequiredtoascertainthetaxableincomeunderthehead,SalariesofMr.Vikas

fortheassessmentyear20142015

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