SALARY IN SIMPLE WORDS..
EASY TO UNDERSTAND AND VERY HELPFUL IN QUICK REVISION...
COURTESY: ICAI MAT, JOURNALS, INTERNET
CA Pallav Singhania (IT System Auditor) (33262 Points)
19 October 2013SALARY IN SIMPLE WORDS..
EASY TO UNDERSTAND AND VERY HELPFUL IN QUICK REVISION...
COURTESY: ICAI MAT, JOURNALS, INTERNET
CA Pallav Singhania
(IT System Auditor)
(33262 Points)
Replied 19 October 2013
BASIS OF CHARGE: [Section 15]
As per Section 15, salary consists of the following:
REQUISITE
Employer and Employee relationship between the payer and payee.
CHARGEABILITY
Salary is chargeable to tax on "due" or "receipt" basis whichever is earlier.
As per Sec. 17(1), salary includes the following:
Deductions from SALARY {Section 16}
Only Government servant can claim the following deduction —
1. Rs 5000/-
2. 1/5th of salary (20% of salary) [Salary = Basic Pay]
3. Actual entertainment allowance received during the F.Y.
Professional tax paid by an employee is allowed as deduction from his Salary income
Note: If an employee has paid Profession Tax of more than one year in a particular year then entire Profession Tax so paid is allowed as deduction.
SPECIFIC EXEMPTIONS
Gratuity is exempt only when it is received on - (a) retirement, or (b) becoming incapacitated prior to such retirement; or (c) resignation; or (d) termination of services.
Exemption is also available to gratuity received by the widow, children or dependants of the employee on his death.
Particulars |
Exemption |
Gratuity recd. by Govt. & Local Authority Employees |
Fully exempt u/s 10(10) (i) |
Gratuity in case of employees covered by Payment of Gratuity Act, 1972 |
Lower of following amount. |
|
1. [15 ÷ 26] x Salary last drawn x completed yrs. of service or part thereof in excess of 6 months 2. Maximum amount Rs. 10,00,000 (Rs. 3,50,000 up to 23rd May, 2010. 3. Actually received. |
Salary = Basic Pay + Dearness Allowance entire |
|
Gratuity in respect of any other employee. |
Lower of following amount. |
|
1. 1/2 x average salary x completed years of service (ignore fraction) 2. Maximum amount Rs. 10,00,000 (Rs. 3,50,000 up to 23rd May, 2010. 3. Actually received. |
Average Salary = Average Salary of last 10 months preceding month of retirement.
Salary = Basic Pay + Dearness Allowance (forming part of retirement benefits) + Commission based on the % of turnover
Particulars |
Exemption |
A) Uncommuted pension recd. by any employee. |
Fully taxable as salary. |
B) Commuted pension recd. by Govt. employee. |
Fully exempt from tax u/s 10(10A)(i) |
C) Commuted pension recd. by Non-Govt. employee. |
|
1) If such employee receives gratuity. |
1/3 of full value of commuted pension will be exempt from tax u/s 10(10A)(ii) |
2) If such employee does not receive gratuity. |
1/2 of full value of commuted pension will be exempt from tax u/s 10(10A)(ii) |
Particulars |
Exemption |
Encashment of leave during service |
It is charged to tax. |
Encashment of leave at the time of retirement |
|
1. If Central or State Government Employees |
Fully exempt from tax u/s 10(10AA)(i) |
2. For any other employees |
Whichever is less of following |
|
1. Earned leave months x Average salary 2. Avg. monthly salary x 10 3. Maximum amount 3,00,000 4. Actual received |
Note: Period of leave in month
1. No. of actual yrs. of service
2. No. of leave entitlement for each completed year of service as per rules (subject to 30 days)
3. Gross total leave (in days) (step 1 x step 2)
4. Less: Leave encashed & availed during continuation of service (in days)
5. Period of earned leave (in days) (step 3 - step 4)
6. Period of leave in months (step 5/30)
Note: Average monthly salary for this purpose means avg. salary drawn in past 10 months immediately preceding the retirement.
Salary = Basic Pay + Dearness Allowance (forming part of retirement benefits) + Commission based on the % of turnover
Compensation received at time of retrenchment, is exempt from tax to the extent of lower of the following:
1) 15 days’ average pay for each completed yr. of services or any part in excess of six months.
2) Maximum amount Rs. 5,00,000.
3) Actual amount received.
Any amount received or receivable by an employee of —
1) A public sector company
2) Any other company
3) Authority established under a Central, State or Provincial Act
4) A local authority
5) A co-operative society
6) A university established under a Central, State or Provincial Act or covered under the University Grants Commission Act
7) Notified Indian Institute of Technology
8) Notified Institute of Management
9) Indian Institute of Foreign Trade, New Delhi
10) Any State Government
11) Any Central Government
12) Any other Institute notified by Central Government.
at the time of his voluntary retirement under a scheme framed in accordance with guidelines prescribed by Rule 2BA. However an Employee of Public Sector Company should have completed 10 years of service or completed 40 years of age.
Exemption is Least of the following.
1) Actual amount received under VRS.
2) Rs. 5 lakhs (to be reduced by total exemptions claimed in past years) in total from one or more employers
3) Last Drawn Salary multiplied by 3 months salary for each completed year of service.
4) Last Drawn Salary multiplied by Balance Nos. of Months of Service Left (Refer Rule 2BA also).
Where any relief has been allowed to an assessee under section 89 for any assessment year in respect of any amount received or receivable on his voluntary retirement or termination of service or voluntary separation, no exemption under this clause shall be allowed to him in relation to such, or any other assessment year.
ALLOWANCES
Allowances Fully taxable in all cases:
House Rent Allowance (HRA) [Sec. 10(13A) and Rule 2A]
The least of the following is exempt —
Salary = Basic + Dearness Allowance (if part of retirement benefit) + Commission (fixed % of turnover)
Other Allowances
Allowances Exempted To The Extent Of Amount Received Or Specified Limit Whichever Is Less.
Allowances |
Exemption limits |
1 Children Education allowance |
Rs. 100 p.m per child maximum 2 children |
2 Children hostel exp. allowance |
Rs. 300 p.m per child maximum 2 children |
3 Tribal area allowance |
Rs. 200 p.m |
4 Transport allowance |
Rs. 800 p.m & Rs. 1600 p.m for blind/handicapped |
5 Transport allowance for transport employee |
Least of 70% of allowance or Rs. 10,000 p.m |
6 Underground allowance |
Rs. 800 p.m |
7 Compensatory field area allowance |
maximum Rs 2600 p.m |
8 Compensatory modified hill area allowance |
maximum up to Rs. 1000 p.m. |
9 Special Compensatory hill area or high altitude |
Rs 300 p.m to Rs. 7000 p.m allowance, etc |
10 Border area, Remote area, Disturbed area allowance |
Rs. 200 p.m to Rs. 1300 p.m. |
11 High altitude allowances (Non-congenial climate) |
Rs. 1,060 p.m. (Altitude for 9000 ft to 15000 ft), Rs. 1,600 p.m. (Above 15000 ft) |
12 Special compensatory for highly active field area allowance |
Limit is Rs. 4,200 p.m. |
13 Island allowance |
Limit is Rs. 3,250 p.m. |
14 Counter Insurgency Allowance |
Limit is Rs. 3,900 p.m. |
PERQUISITES
Specified employee — Sec. 17(2)(iii)
* Salary means all taxable monetary benefit after deduction u/s 16
Unfurnished Accommodation |
||||
Government Employees As per govt. rules:
Licenses Fees less
Rent recovered form employee
|
Other Employees |
In Hotel
24% of salary or actual
** nothing taxable if |
||
Owned by employer |
|
Not owned by employer (on lease or rent) |
||
As per 2001 census |
|
As per 2001 census |
||
Population >25 lakhs 10 lakh < Population < 25 lakh Population up to 10 lakhs |
15%** 10%** 7.5%** |
Actual rent or 15% of salary whichever is lower |
The above is applicable only for unfurnished house
**% on amount of salary (less) Rent actually paid by employee
Furnished House
If the furniture (TV, washing machine) is provided then 10% p.a of cost of furniture or actual hire charges if taken on rent shall be added with unfurnished house.
Salary = basic salary + DA + bonus (current year) + commission + taxable portion of all allowance + monetary payment from employer other than PF (not include perquisites)
Servant appointed by |
Servant’s salary paid by |
Value of perquisite |
Taxable in the hands of |
Employee or Employer |
Employee |
Nil |
Not applicable |
Employee or Employer |
Employer |
Actual cost incurred by the employer on the servant |
All employees |
Facility in the name of |
Value of perquisite |
Taxable in the hands of |
|
Provided from own source |
Provided from outside |
||
Employee |
Manufacturing cost to the employer |
Amount paid to the supplier |
All employees |
Employer |
Manufacturing cost to the |
Amount paid to the supplier |
Specified employees |
Facility provided to |
Value of perquisite |
Taxable in the hand of |
|
|
Provided in the school owned by the employer |
Provided in any other school |
|
Children |
Cost of such education in similar school (an exemption of Rs. 1000 p.m. per child is available) |
Cost of such education (an exemption of Rs. 1000 p.m. per |
Specified employee |
Other house hold member |
Cost of such education in similar school |
Cost of such education incurred |
Specified employee |
Any concession received by employee for himself or his family for travelling to any place in India is exempt to the extent of amount spent subject to the following conditions:
Amount of exemption
Situations |
Amount of exemption |
Where journey is performed by air |
Amount of economy class air fare of the national carrier by shortest route or amount spent whichever is less |
Where journey is performed by rail |
Amount of air conditioned first class rail fare by the shortest route or amount spent whichever is less |
Where the place of origin of journey and destination are connected by rail and journey is performed by any other mode of transport |
Amount of air-conditioned first class rail fare by the shortest route or amount spent whichever is less. |
Where the place of origin of journey and destination are not connected by rail |
|
a) where a recognized public transport exists |
First class or deluxe class fair by the shortest route or the amount spent whichever is less |
b) where no recognized public transport exists |
Air conditioned first class rail fare by shortest route or the amount spent whichever is less. |
* Calculate interest on the basis of SBI lending rates and interest paid by employee. The difference will be the value of perquisite
* Interest on maximum outstanding monthly balance of advance is considered to determine any concession in interest. Maximum outstanding monthly balance means balance of loan on the last day of each month.
* Nothing is taxable if –
- loans in aggregate do not exceed Rs 20,000 or
- loan is provided for a treatment of specified disease (Rule 3A) like neurological diseases, Cancer, AIDS, Chronic renal failure, Hemophilia (specified diseases).
SBI LENDING RATES
The details of interest rate as on 1st April, 2011 is available on www.statebankofindia.com.
Assets given |
Value of benefits |
a) Use of laptops and computers |
Nil |
b) Movable asset other than Laptops and computers |
i. 10% p.a. of the actual cost of such asset, or ii. the amount of rent paid, or payable by the employer iii. Less: amount recovered from employee. |
Assets transferred |
Value of perquisites |
Computers & electronics |
Depreciated value of asset [depreciation is computed @ 50% on WDV for each completed year of usage] less: amount recovered from employee. |
Motor cars |
Depreciated value of asset [depreciation is computed @ 20% on WDV for each completed year of usage] less: amount recovered from employee. |
Any other asset |
Depreciated value of asset [depreciation is computed @ 10% on SLM for each completed year of usage] less: amount recovered from employee. |
The following shall not be treated as perquisite —
— Maintained by employer or Government or Local Authority or any other hospital approved by Central Government for the purposes of medical treatment of its employees;
— Approved by the Chief Commissioner having regard to the prescribed guidelines in respect of prescribed diseases.
Owned or hired by employer and used
Exclusively for official purpose |
Exclusively for private purpose |
Both official and Private Purpose |
||||||
Nil. If specified documents maintained |
Actual Running & Maintenance exp + remuneration of Chauffeur + actual Wear & tear @ 10% p.a of cost or hire charges if car taken on hire charges Less: amount recovered |
Running and maintenance borne by *
|
* Nothing is deductible in respect of any amount recovered from the employee
Owned by employee and used
Exclusively for official purpose |
Exclusively for private purpose |
Both official and private purpose |
|
Nil. If specified documents maintained
|
Actual expenditure incurred by employer (-) amount recovered from employee
|
Running and maintenance borne by |
|
Employer |
Employee |
||
|
|
Actual expenditure (-) |
No tax |
MISCELLANEOUS
Free meals during office hours
|
Actual cost to the employer in excess of Rs.50 per meal or tea Less: amount recovered from the employee.
(Tea or non-alcoholic beverages and snacks during working |
Value of any gift or voucher or taken other than gifts made in cash or convertible into money (e.g. gift cheques) on ceremonial occasion |
Value of gift. In case the aggregate value of gift during the |
Expenditure incurred on credit card or add on card including membership fee and annual fees |
Actual expenditure to employer is taxable
Less: amount recovered from Employee |
Expenditure on club other than health club or sports club or similar facilities provided uniformly to all |
Actual expenditure incurred by the employer |
Any other benefit or amenities or service or right or privilege provided by employer other than telephone or mobile phone |
Cost to the employer |
PROVIDENT FUND
|
Statutory provident fund |
Recognized provident fund |
Unrecognized provident fund |
Public Provident Fund |
Employer’s contribution to provident fund |
Not taxable |
Not taxable up to 12 per cent*of salary |
Not taxable |
Employer does not contribute |
Employee’s contribution |
Available deduction u/s 80C |
Available deduction u/s 80C |
Not available |
Available deduction u/s 80C |
Interest credited |
Fully exempt |
Exempt up to 9.5% (from 01.04.2001 onwards) |
On Employee contribution |
Exempt from tax |
Lump sum payment received at the time of retirement or termination of service or withdrawn |
Exempt u/s. 10(11) |
Exempt from tax u/s. 10(12) Subject to conditions: not taxable if employee retires after 5 years of service or due to inability of work. Otherwise treated as URPF |
Employee’s Contribution |
Exempt from tax u/s 10(11) |
Notes:
APPROVED SUPERANNUATION FUND
Value of any specified security or sweat equity Shares allotted to employee
Calculation of FMV on date of exercising the option
PARTICULARS |
FMV |
Listed on a recognized stock exchange |
Average of opening and closing price on that date |
Listed on more than one recognized stock exchanges |
Average of opening & closing price of share on the recognised stock exchange which records the highest volume of trading in the share |
If no trading in the share on any recognized stock exchange – |
|
If share listed on a recognized stock exchange |
Closing price of share on any recognised stock exchange on a date closest to date of exercising the option & immediately preceding such date |
If share listed on more than one recognized stock exchanges |
Closing price of share on a recognised stock exchange, which records highest volume of trading in such share. |
If shares not listed on a recognised stock exchange or any specified security other than equity shares |
Such value of share in the company as determined by a merchant banker on the specified date |
Note:
Courtesy: ICAI MAT. Journals, Internet
Aryan Singhania
Saurabh Maheshwari
(B.com,ACA)
(5923 Points)
Replied 19 October 2013
Wow...everything in salary at one place......thank you...:-)
CA Pallav Singhania
(IT System Auditor)
(33262 Points)
Replied 19 October 2013
Thank You Saurabh ji.......
Mihir
(Wealth Manager)
(5293 Points)
Replied 20 October 2013
Great presentation. Many thanks.
What next? Income from house property?
CA Pallav Singhania
(IT System Auditor)
(33262 Points)
Replied 20 October 2013
@ Mihir Ji..
Yes, I'm preparing it....
HarishVj
(student)
(47 Points)
Replied 20 October 2013
CA Pallav Singhania
(IT System Auditor)
(33262 Points)
Replied 20 October 2013
@ Harish
The Prep share holder agrees to forgo their claim of arrear of dividend of last 5 years..
i.e 7 percent of {12000X50} for 5 years
42000 X 5
=210000
No. of share to be is to be provided..
210000 /50
4200 and to be issued @ 2.5
Dividend A/c. |
210000 |
To Eq. Share Capital | 10500 |
To Capital reduction A/c | 199500 |
{Being the Dividend waived in consideration of eq. shares and balance transferred to Capital Reduction A/c. As per board resolution No. dated....}
As per I understand ur question...
HarishVj
(student)
(47 Points)
Replied 21 October 2013
Originally posted by : Aryan Singhania (Pallav) | ||
@ Harish The Prep share holder agrees to forgo their claim of arrear of dividend of last 5 years.. i.e 7 percent of {12000X50} for 5 years 42000 X 5 =210000 No. of share to be is to be provided.. 210000 /50 4200 and to be issued @ 2.5 Dividend A/c. 210000 To Eq. Share Capital 10500 To Capital reduction A/c 199500 {Being the Dividend waived in consideration of eq. shares and balance transferred to Capital Reduction A/c. As per board resolution No. dated....} As per I understand ur question... |
Landmark Judgments: Important Provisions of the EPF & ESI Act interpreted by the Honorable Supreme Court of India