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    Salary1 2022 Dis

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    parinita ravi
    The document discusses various aspects of income from salaries under the Income Tax Act, including: 1. It defines what constitutes a salary and outlines various components that are included under the head 'salaries' such as wages, annuity, pension, gratuity, fees, commissions, and others. 2. It explains the conditions for income to be taxed as salary which includes the employer-employee relationship and payment being made in the capacity of employment. 3. It provides details on the tax treatment of various salary components such as gratuity, leave encashment, pension, provident funds, allowances, perquisites, and standard deductions. Exemption limits for some allowances and retirement benefits are also

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    Salary1 2022 Dis

    Uploaded by

    parinita ravi
    28 views45 pages
    The document discusses various aspects of income from salaries under the Income Tax Act, including: 1. It defines what constitutes a salary and outlines various components that are included under the head 'salaries' such as wages, annuity, pension, gratuity, fees, commissions, and others. 2. It explains the conditions for income to be taxed as salary which includes the employer-employee relationship and payment being made in the capacity of employment. 3. It provides details on the tax treatment of various salary components such as gratuity, leave encashment, pension, provident funds, allowances, perquisites, and standard deductions. Exemption limits for some allowances and retirement benefits are also

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    Salary taxation law and practice

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    Salary1_2022_dis

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    The document discusses various aspects of income from salaries under the Income Tax Act, including: 1. It defines what constitutes a salary and outlines various components that are included under the head 'salaries' such as wages, annuity, pension, gratuity, fees, commissions, and others. 2. It explains the conditions for income to be taxed as salary which includes the employer-employee relationship and payment being made in the capacity of employment. 3. It provides details on the tax treatment of various salary components such as gratuity, leave encashment, pension, provident funds, allowances, perquisites, and standard deductions. Exemption limits for some allowances and retirement benefits are also

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    28 views45 pages

    Salary1 2022 Dis

    Uploaded by

    parinita ravi
    The document discusses various aspects of income from salaries under the Income Tax Act, including: 1. It defines what constitutes a salary and outlines various components that are included under the head 'salaries' such as wages, annuity, pension, gratuity, fees, commissions, and others. 2. It explains the conditions for income to be taxed as salary which includes the employer-employee relationship and payment being made in the capacity of employment. 3. It provides details on the tax treatment of various salary components such as gratuity, leave encashment, pension, provident funds, allowances, perquisites, and standard deductions. Exemption limits for some allowances and retirement benefits are also

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    of 45

    INCOME UNDER

    HEAD SALARIES
    Income From salary

     Payer and payee must have employer and employee (or Master &
    Servant) relationship; and
     Payment must have been made by the employer in such capacity.
    Employer and employee
    relationship
     Agent and Principal:
     Salary received by a partner – Profits and gains
     Remuneration to directors – Other sources
     Pension received by the widow – Other sources
     Remuneration received by judges – Salaries
    DEFINITION OF SALARY [SEC. 17(1)]

     a) Wages;
     b) Any annuity or pension;
     c) Any gratuity;
     d) Any fees, commission, perquisite or profits in lieu of or in addition to any salary or
    wages;
     e) Any advance of salary;
     f) Any payment received in respect of any period of leave not availed of by the
    assessee;
     g) The portion of the annual accretion in any previous year to the balance at the
    credit of an employee, participating in recognised provident fund, to the extent it is
    taxable;
     h) Transferred balance in a Recognised Provident Fund to the extent it is taxable.
     i) Contribution made by the employer in the previous year, to the account of an
    employee under a pension scheme referred to in sec. 80CCD
    Some points

     Salary & Wages – No difference


     Voluntary payments by employer - Taxable
     Extra work pay - Taxable
     Salary from more than one employer – taxable together
    BASIS OF CHARGE [SEC. 15]

     Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis,


    whichever is earlier
     Advance salary (on ‘receipt’ basis)
     Outstanding salary (on ‘due’ basis)
     Arrear salary: taxable on receipt basis (With retrospective effect)
     Advance salary vs Advance against salary ‘Advance salary’ is
    taxable u/s 17(1)(e)
     whereas ‘Advance against salary’ is treated as loan hence, not
    taxable under the head “Salaries”.
    Retirement Benefits

     GRATUITY
     Encashment of Earned Leave
     Commutation of pension
    GRATUITY

     given by the employer to the employee in consideration of past


    services
     Exemption up to limit u/s 10(10) only for employees
    Gratuity

     Case A: Gratuity received during continuation of service - fully


    taxable
     Case B: Gratuity received at the time of termination of service by
    Government employee - fully exempt from tax u/s 10(10)(i)
     Central / State and local authority but not employees of statutory
    corporations
    Case C: Gratuity received at the time of termination of service
    by non–government (including foreign government)
    employee, covered by the Payment of Gratuity Act

    Source : ICAI
    Example

     Ashok, an employee of ABC Ltd., receives ` 2,05,000 as gratuity


    under the Payment of Gratuity Act, 1972. He retires on 10th
    September, 2021 after rendering service for 35 years and 7 months.
    The last drawn salary was ` 2,700 per month. Calculate the amount
    of gratuity chargeable to tax.
    Solution

    Least of the following is exempt


     A) Actual Gratuity ₹205,000
     B) Statutory Amount ₹20,00,000
     C) 15/26 X 36 years X 2700 = ₹56,077

     Taxable amount = 205,000 – 56,077


     = 1,48,923
    Remember

     If
    Gratuity received from more than one
    employer in the same PY, then the
    aggregate exemption amount cannot go
    beyond 20,00,000
     Subsequent
    exemptions would reduce the
    maximum cap of Rs 20,00,000
    Problem

     Babu retired on 30.11.21


     No of years of service 28 years 10 months
     Salary for Nov 2021- 16000. annual increment 500 pm on 1 April
     DA 2000 pm.
     Gratuity 3,40,000
     He is covered under POGA 1972
     Ans: taxable grat 38,846
    Source : ICAI
    Example

     Mona retired on 15.6.21


     30 years and 7 months service
     Gratuity received 3,60,000
     Basic salary 20,000 pm during 2020 and 22,000 during 2021
     DA 5000 pm which was increased from 4000 on 1.4.21. 50 % of DA
    enters salary for computation of retirement benefits
     Not covered under POGA
     Ans: 13500
    Pension

    Source : ICAI
    Problem

     Mr Sanjay Retires on 31-12-2021


     Monthly pension 3,600
     ¾ pension commuted and received ₹180,000 from a LTD company
     Compute exempted amount of commuted pension a) He gets
    gratuity b) He does not get gratuity
    Leave Encashment

     Government employees at the time of retirement – fully exemted

     Leave encashment during service – Fully taxable


     Leave encashment on retirement / leaving the job by non
    government employee
     Least of the following is exempt
     10 months salary on the basis of average
    salary drawn during 10 months immediately
    preceding the retirement
     Salary for the approved period of leave
    standing to his credit at the time of retirement
    (max 30 days per year)
     Statutory limit Rs.3,00,000
     Actual amount of encashment
     Salary = BP + DA (as per terms of employment) +
    commission based on fixed percentage of turnover
    achieved
    problem

     P retires on 1 July 2021 after serving 18 years


     Received ₹75000 as amount of encashment for 15 months
     Employer allows 45 days of leave per year of service
     He already encashed 12 months leave during service
     Salary pm during 1.7.20 to 1.7.2021 – 5000
     Compute exempted leave encashment
    Provident fund

     Statutory Provident Fund (SPF) - set up under the provisions of the


    Provident Funds Act, 1925. Government and Semi-Government
    organisations, local authorities, railways, Universities and recognised
    educational institutions
     Recognised Provident Fund (RPF): is framed under the Employee’s
    Provident Fund and Miscellaneous Provisions Act, 1952. any
    establishment employing 20 or more persons
     Unrecognised Provident Fund (URPF) created by an employer, which
    is not recognised by the Commissioner of Income tax
     Public Provident Fund (PPF) Central Government has established a
    fund for the benefit of public to mobilise personal savings. Any
    amount in multiple of ` 5 (subject to minimum of ` 500 and maximum
    of ` 1,50,000 p.a.) may be deposited in this account
    Provident funds
    Note 1
    Computation of salary [sec
    15,16,17]
     Includes
     Salary
     Allowances
     Perquisites
     Profits in lieu of salary

     Deductions
     Standard deduction u/s 16(ia)
     Entertainment allowance (16(ii))
     Tax on employment [16(iii)]
    Allowances

     Any amount or sum allowed regularly

     Cash along with salary paid by the employer

     Given to meet certain expenditure


    Source ICAI
    Allowances exempt upto amount
    spent (sec 10(14)(i)
     A)Travelling allowance during transfer or on Tour
     B) daily allowance during transfer or on tour
     C)Conveyance allowance from performing duties
     D)Helper allowance for official duties
     E)Research Allowance
     F)Uniform allowance

    Source ICAI
    4. Allowances u/s 10(14)(ii) personal
    allowances (exempted up to limit)
     Composite hill allowance/high altitude allowance/uncongenial
    climate/ snow bound area/avalanche allowance – exemption from
    300 pm to 7000 pm
     Border area/ Remote area/ difficult area/ disturbed area allowance
    – 200pm to 1300pm
     Compensatory field area allowance – up to 2600pm
     Compensatory modified Field area allowance – up to 1000 pm
     Counter insurgency area allowance – 3900 pm
     Underground allowance – 800pm
     Island duty allowance – 3250pm
    4. Allowances u/s 10(14)(ii) personal
    allowances (exempted up to limit)
     Transport allowance to specified handicapped employees – 3200
    pm
     Tribal area allowance – 200pm
     Running allowance – 70% of allowance or 10,000 pm WEL (provided
    no daily allowance is paid)
     High altitude allowance for armed forces
     9000-15000ft – up to 1060 pm
     Above 15000 ft – up to 1600pm
    4. Allowances u/s 10(14)(ii) personal
    allowances (exempted up to limit)
     Children education allowance – 100 pm per child upto 2 children
     Hostel expenditure allowance – 300pm per child up to 2 children
    House Rent allowance

     Least of the following is exempt


     A) Actual HRA
     B) Rent paid – 10 % of salary
     C) 50 % of salary in case of Mumbai, Kolkata, Delhi and Chennai
    and 40% of salary in case of other cities
    Perquisites - Fully exempted

     Free medical facilities and reimbursement – self , family members

    and dependents –

     Hospital maintained by employer / govt hospital

     Treatment for specified disease (Rule 3A) in approved hospital

     Medical insurance premium paid by employer

     Treatment outside India – Treatment and stay of one attendant exempt

    up to foreign exchange allowed by RBI


    Fully exempted Perquisites

     Free refreshment during working hours


     Free recreational facilities
     Telephone or mobile exclusively for official work
     Free meals at a remote area
     Free education and refresher course
     Goods sold at concessional rates
     Free ration for members of armed forces
     Govt employees posted abroad - perks
    Exempted

     Contribution towards pension or deferred annuity scheme/ group


    insurance scheme / accident insurance
     Computers and laptops (not transferred)
     Transfer of movable asset (more than 10 years old) without
    consideration
     Interest fee loan or concessional rate (if the loan does not exceed
    20,000)
     Shares/ debentures free/ concessional rate under stock option
    approved by govt
    Taxable for all employees

     Value of unfurnished house


     Concessional rent house
     Obligation of employee paid by employer
     Gas electricity bills
     Income tax and Professional Tax paid
     Salary of domestic servants
     Life insurance premium
     Contribution to superannuation fund in excess of Rs 150,000
    Other taxable perks

     Interest free or concessional loans


     Travelling, touring accommodation facility
     Food or beverages facility
     Gifts and vouchers , credit card
     Club facility
     Use of movable assets
     Transfer of movable assets
    Perks taxable for Specified
    employee
     A director of a company or has substantial interest (20% or more
    equity) or salary more than 50,000 PA
     Car
     Free servants
     Employed by Assessee but salary paid by employer – taxable for all
    employees
     Servants are provided by employer – taxable only for specified
    employee
    Perks taxable for Specified
    employee
     Free Gas, Power and water – Actual cost of benefit is taxable

     Free education- reasonable amount of cost in the same locality


    after allowing Rs 1000 pm per child

     Free transport – Hire or the cost of tickets taxable

     Medical facility – cost


    Deductions u/s 16

     Standard deduction u/s 16 (ia) – Rs 50,000

     Entertainment allowance u/s 16(ii) – for Govt employees [ WEL]


     Rs 5000
     1/5 of salary [only BP]
     Actual EA

     Tax on employment us 16(iii) actual tax paid by employee or


    employer is deductible

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