Income from salary

Dear Learners
This Presentation with Income from Salary in Income Tax Act 1961

3. Dr.K.Chellapandian
Assistant Professor of Commerce
Vivekananda College
Tiruvedakam West
Madurai

4. Dr.K.Chellapandian
Assistant Professor of Commerce
Vivekananda College
Tiruvedakam West
Madurai

5. Income from Salary
(Sec15,16 & 17)

6. INTRODUCTIONSEC14
Allkindsoftaxableincomeofanassesseefallunderanyof
thefollowingfiveheadsofincome.Thoseincomeswhichdonot
findplaceunderanyofthefirstfourheadsandaretaxable,fall
underthefifthheadofincome.Inordertocalculatethetaxable
incomeundereachhead,certaindeductionshavetobemadefrom
grossincomeofthathead.

7. INTRODUCTIONSEC14
HeadsofIncome:
ThereareseparatesectionsintheIncomeTaxActfor
computingthetaxableincomeundereachhead,whichareasunder:
1. Income from Salaries Sec 15 to 17
2. Income from House Property Sec 22 to 27
3. Profits and Gains of Business or Profession Sec 28 to 44
4. Income from Capital Gains Sec 45 to 55
5. Income from Other Sources Sec 56 to 59

8. SALARIES SEC15
Anyremunerationpaidbyanemployertohis
employeeinconsiderationofhisservicesiscalled
salary.Itincludesmonetaryvalueofthosebenefitsand
facilitiesprovidedbytheemployerwhicharetaxable.

9. SALARIES SEC15
Undersection15,thefollowingincomesaretaxableunder
thehead‘Salaries’:
(a)thesalaryduefromanemployerorformeremployertoan
assesseeinthepreviousyear,whetherpaidornot;
(b)thesalarypaidorallowedtohiminthepreviousyearbyor
onbehalfofanemployeroraformeremployerthoughnotdue
orbeforeitbecomesduetohim;
(c)anyarrearofsalarypaidorallowedtohimintheprevious
yearbyoronbehalfofanemployeroraformeremployer,if
notchargedtoincometaxforanyearlierpreviousyear.

10. Explanation.1
Ifanysalarypaidinadvanceisincludedinthe
totalincomeofanypersonforanypreviousyear,
itshallnotbeincludedagaininthetotalincomeof
thesalarybecomesdue.
Explanation.2
Anysalary,bonus,commissionorremuneration
duetoorreceivedbyapartnerofafirmfrom
thefirmshallnotberegardedassalaryforthe
purposesofsection15.

11. IMPORTANTPOINTSREGARDINGSALARIES
1.Salaries
2.Foreign salary or pension
3.Relationship of employer and employee
4.Salaries and professional income
5.Receipts from person other than employer
6.Payment made after cessation of employment
7.Pension
8.Application of salary –voluntary foregoing
9.Tax free salary
10.Deductions by employer
11.Salary of a Member of Parliament.
12.Salary of a partner
13.Family pension
14.Salary grade or scale of pay
15.Dearness pay
16.Due date of salary ( Govt and Semi-Govt, Banks and Non Govt)
17.Surrenders of Salaries.

12. (1)Salaries.
Everykindofremunerationofeverykindof
servant,publicorprivate,andhoweverhighlyorlowly
placedhemaybe,iscoveredunderthescopeofthis
termusedintheIncomeTaxAct.Itmeansthatfor
thepurposesoftheIncomeTaxAct,thereisno
distinctionbetweenthewagesoflabourerand
salariesofhighofficials.

13. (2) Foreign Salary and Pension.
Salaryandpensionreceivedfromforeign
governmentistaxableunderthehead'Salaries'.

14. (3)Relationshipofemployerandemployee.
Itisveryessentialforapaymenttofallunderthehead
'salaries'thattherelationshipofemployerandemployeemustexist
betweenthepayerandthepayee.
Everyservantisanemployeebutanagentmayormaynotbe
anemployee.
Forexample,adirectorofacompanyholdsanofficeunder
thecompanybutasadirectorheisnotaservantoranemployeeof
thecompanyandthereforethefeeshereceivesaretaxableunder
thehead'IncomefromOtherSources'andnotunderthehead
'Salaries'.

15. Similarly,whethertheremunerationpaidtosellingagentsis
assessableasbusinessprofitsorassalary,dependsuponthefactsand
circumstancesofeachcase.Theremunerationpaidbyamillintheir
discretiontothesellingagentsforrunningandmanagingaretailclothshop
whichwasownedbythemillandprofitfromwhichbelongedtothemill,was
heldtobeassessableassalary;butontheotherhand,theprofitsderived
fromthesellingagencyofamanufacturingconcernaretaxableasbusiness
profits,iftheyarenotsubjecttothecontrolofthemillinthematterof
theestablishmentandorganizationtobemaintainedbythem.

16. Ifanemployeedoesanyworkforhisemployerwhichisnot
connectedwithhisservice;thentheremunerationforsuchaworkwillnot
betreatedassalary.Forexample,examiner'sremunerationreceivedbya
UniversityteacherfromhisUniversity.

17. (4)Salariesandprofessionalincome.
Wheretheemploymentismerelyincidentaltotheexerciseofa
professiontheincomefromsuchemploymentwouldbeprofessional
income,taxableunderthehead'Profitandgainsofbusinessor
profession'.Forinstance,aprofessionallawyermaybeengagedinacase,
hisremunerationfromthisengagementwillbetaxableasprofessional
earnings.Ifheisemployedbyacompanyasitslegaladviserandalsoto
workasstandingcounselforthecompany,theremunerationreceivedby
himwouldbetaxableunderthehead'Salaries'.Whenapersonoccupies
aregularpostorofficeamountingtoservice,itisanemploymentas
distinctfrommereengagementinthecourseoftheprofession.

18. (5)Receiptsfrompersonotherthanemployer.
Perquisitesorprofitsoranyremunerationreceivedfrom
personotherthantheemployerwouldbetaxableunderthehead
'IncomefromOtherSources'eveniftheyaccruetotheemployee
byreasonofhisemployment.Forexample,remunerationreceived
byaprofessorofacollegeforactingasanexaminerina
UniversityorBoard.

19. (6)Paymentmadeaftercessationofemployment.
Paymentmadebyanemployertohisemployee
afterthecessationofhisemploymentisalsotaxable
underthehead'Salaries',Itistaxableunderthishead
becauseitrepresentsremunerationforservices
renderedinthepast.

20. (7)Paymentsmadetoemployeeortothewidoworlegalheirs.
(a)Lump-sumpaymentmadegratuitouslyorbywayof
compensationorotherwisetothewidoworotherlegalheirsof
anemployee,whodieswhilestillinactiveservice,willnotbe
taxableasincome.
(b)Whereapersonorhisheirreceivesexgratia
paymentfromtheCentralGovernment/StateGovernment/Local
Authority/PublicSectorUndertaking,consequentuponinjuryto
theperson/deathoffamilymember,whileondutyisnotliable
toincometax.

21. (8) Pension.
Pensionreceivedbyanemployeeafterhis
retirementistaxableassalary.

22. (9)Applicationofsalary-Voluntaryforegoing.
Thevoluntaryforegoingbyanemployeeofthesalarydueto
himisnormallymereapplicationoftheincomeandthesalaryis
nonethelesstaxable.Itwillbetaxableonthefurthergroundthat
salaryistaxableifitisdue,whetherpaidornot.Butwherein
realitythereisanagreementnottopayanysalary,theapparent
foregoingofafictionalsalarywouldnotattracttax.
Forexample,whereapersonoutofmissionaryspiritagrees
toworkasPrincipalinaninstitutionwithoutacceptinganysalary
fromtheinstitution,noamountofsalarywouldbetaxableinthis
case,becauseithasneverbecomedue.

23. (10)Tax-freesalary.
Whenasalaryispaidtax-free,theemployeehas
toincludeinhistotalincomethegrosssalary,i.e.the
aggregateofthenetsalaryreceivedplustheamount
oftaxpaidonhisbehalfbytheemployer,except
undertheprovisionsofSec.10(10CC).

24. (11)Deductionsbyemployer.
Compulsorydeductionsfromsalaryarealsoinstancesofmere
applicationofincome.Thefactthataportionofthesalaryhastobe
devotedcompulsorilytosomepurposeunderacontractualobligationdoes
notpreventitfrombeingassessableasincomeunderthehead'Salary',
foritisonlyacaseofapplicationofincome.Forexample,anassesseewas
engagedonfixedsalaryupontheobligatoryconditionthattheemployer
shouldprovidehimwithboardandlodgingetc.,forwhichheshouldpayan
amountwhichwasdeductedfromhisgrosssalarybeforepayment.Inthis
case,thetaxischargeableonthegrosssalarywithoutdeductingthe
compulsorydeductionsmadebytheemployer.

25. (12)SalaryofaMemberofParliament.
Thisisnotchargeableunderthehead'Salaries',
asaMemberofParliamentisnotanemployeeofthe
Government.Therelationbetweenhimandthe
governmentisnotthatofaservantandmaster.Itis
taxableunderthehead'Incomefrom
OtherSources'.

26. (13)SalaryofaPartner.
Anysalaryreceivedbyapartnerfromthefirm
inwhichheisapartnerisnotchargeableunderthe
head'Salaries'.Itistaxableunderthehead'Profits
andGainsofBusinessorProfession'.

27. (14) Family Pension.
Any family pension received by the widow or legal
heirs of a deceased employee is taxable under the head
'Income from Other Sources'.

28. (15)SalarygradeorScaleofPay.
Salarygrademeansthatatwhatstartingsalaryanyemployeeisto
beappointedandduringtheentireserviceperiod(ifthereisnorevisionof
gradeornopromotion),whatwillbehisincrementperyearandwhatwill
behismaximumsalaryafterwhichtherewillbenoincrement.Heresalary
meansbasicsalary.Forexample,ifapersonisappointedinthegrade'
2,200-100-3,000-200-5,000-300-8,000,itmeansthathisstartingsalary
willbe2,200p.m.afteroneyearofservicehewillgetanincrementoff
100p.m.i.e.,hissalarywillbecome2,300p.m.,andsimilarlyhewillgetan
annualincrementof100p.m.tillhissalaryreaches3,000p.m.Thereafter,
hewillgetanannualincrementof200p.m.tillthesalarybecomes,5,000
andthereafterhewillgetanannualincrementof300p.m.tillhissalary
reachesthemaximumamountof8,000inthisgrade.Afterthistherewill
benoincrementandhewillcontinuetodraw8,000p.m.Thiswillbehis
maximumsalary.Thisiscalledsalarygrade.

29. (16)DuedateofSalary.
Followingarethegeneralrulesregardingthis:
(a)Inthecaseofemployeesofthegovernmentandsemi-
government.Salaryforaparticularmonthisdueonthefirstofthenext
month.Thus,insuchacase,salaryforthemonthofMarchofthe
precedingfinancialyearuptothesalaryforthemonthofFebruaryofthe
currentfinancialyearistakenintoaccount.
(b)Inthecaseofemployeesofbanksandnon-governmentbodies.
Salaryforaparticularmonthisdueonthelastdateofthesamemonth.
Thus,insuchacasesalaryforAprilofthecurrentfinancialyearuptothe
salaryforthemonthofMarchofthecurrentfinancialyearistakeninto
account.

30. DEFINITIONS
Under Section 17 of the Act the following have
been defined :
(1) Salary,
(2) Perquisites and
(3) Profits in lieu of salary

31. DEFINITION
Salaryincludes[section17(1)]:-
i.wages;
ii.anyannuityorpension;
iii.anygratuity;
iv.anyfees,commission,bonus,perquisiteorprofitsinlieuofor
inadditiontoanysalaryorwages;
v.anyadvanceofsalary;butnotloanforpurchasingacar,cycle,
scooterorahouse;etc.
vi.anypaymentreceivedbyanemployeeinrespectofanyperiod
leavenotavailedofbyhim;
vii.excessofemployerscontributiontowardsrecognized
providentfundandinterestonprovidentfund12%and9.5%
respectively.
viii.ThecontributionmadebytheCentralGovtoranyother
employerinthepreviousyear,totheaccountofanemployee
(whojoinsonorafter1.1.2004),underpensionscheme.

32. TAXABLE SALARY
ADD
Basic Salary
Allowances
Perquisites
Profits in lieu
of salary
Gross Salary
LESS
(Deductions u/s 16)
Entertainment
Allowance
Employment
Tax

33. DIFFERENT FORMS OF SALARY
1. LEAVE SALARY
2. COMPENSATION
FOR
RETENCHMENT
3. FEES AND
COMMISSION
4. BONUS
5. DEATH-CUM-
RETIREMENT
GRATUITY
6. PENSION
7. RECEIPTS OF
VOLUNTARY
RETIREMENT
8. TAX PAID BY
EMPLOYER FOR
VALUE OF
PERQUISITES
9. ANNUITY

34. (1) LEAVE SALARY.
Itisalsocalledencashmentofearnedleave.Ifan
employeedoesnotavailhisearnedleaveandreceives
paymentinrespectofanyperiodofleave,whilehe
continuestoremaininservice,itistaxableinfull.
[Section10(10AA)]
Ifheencashesitafterretirementorleavingthe
job,itisexemptuptoaspecifiedlimit.

35. (2) DEATH-CUM-RETIREMENTGRATUITY:
(a)InthecaseofGovernmentEmployees.Anydeath-
cum-retirementgratuityreceivedbyallcategoriesof
Governmentemployeesoremployeesofalocal
authorityisexemptfromincometaxinfull.
[Sec.10(10)]
(a)Inthecaseofnon-governmentemployees.Itis
exemptuptoaspecifiedlimit.

36. (3) PENSION:
(i)Whateverpensionisreceivedbyanemployee(Governmentor
nongovernment)afterretirement,itischargeableunderthehead
"Salaries".
ii)Otherforeignpension.IfpensionisreceivedinIndiabypersonslivingin
Indiaforservicesrenderedabroaditwillbetaxableonreceiptbasis.Ifit
isreceivedoutsideIndiaandthenremittedtoIndiaitwillbetaxableinthe
caseofordinarilyresidentsonly.
(iii)SalaryandPensionfromU.N.O.Salaryandpensionreceivedfromthe
UnitedNationsOrganizationistotallyexemptinIndia.
(iv)Pensionofgallantryawardee.Pensionreceivedbyanindividualwhohas
beeninservicec.theCentralorStateGovernmentandhasbeenawarded
'ParamVirChakra'or'MahavirChakra'or'VirChakra'orsuchother
gallantryawardastheCentralGovernmentmaynotifyshallbeexempt..
[Sec.10(18)]
CommutedValueofPension.Itisexemptuptoaspecifiedlimit.

37. (4) TRANSFERREDBALANCE.
Whenanunrecognisedprovidentfundis
recognisedforthefirsttime,thebalancestandingto
thecreditofemployee'sP.F.A/catthetimeofits
recognition,iscalled'TransferredBalance'.
Taxableportionofthetransferredbalance.The
taxableportionofthetransferredbalanceofthe
employeewillbetheaggregateofannualaccretions
chargeabletotaxforeachyearoftheexistenceof
unrecognisedprovidentfunddeemingthisfundtobe
recognisedfromtheverybeginning.Thisannual
accretionformspartofthetransferredbalanceofthe
employee.

38. (5)Compensationforretrenchment.(SeenextChapter)
[Sec.10(10B)]
(6)ReceiptsofEmployeesofPublicSectororother
CompaniesorLocalAuthorityatthetimeofvoluntary
retirement. [Sec.10(10C)]

39. Inthecaseofanemployee(individual)deriving
incomeinthenatureofperquisite,notprovidedforby
wayofmonetarypayment[Sec.17(2)]thetaxonsuch
incomepaidbyhisemployer(attheoptionofemployer),
onbehalfofsuchemployee,shallbeexempt.
[Sec.10(10CC)]
(7) Tax paid by employer on the value of perquisites.

40. (8) Other receipts:
(a)FeesandCommission.Thisispaidbyanemployertohisemployeefordoing
anyextrawork(notovertime)otherthanthejobassignedtohimasan
employee. Forexample,ifaseniorandexperiencedemployeeis
entrustedwiththeworkofnegotiatingwithsomeoutsidepartyfor
acquisitionofanybusinessordisposingofanyofitsownbusinessonitsany
branch,hemaybepaidsomefeesorcommissionbytheemployerforthis
purpose.Itwillbeincludedunderthehead'Salaries'inthecomputationof
theincomeoftheemployee.
(b)Bonus.Bonuspaidbyemployertohisemployeesistaxableassalaryinthe
yearofreceipt.
(c)Annuity.Annuityreceivedbyanemployeefromhisemployeristaxable
underthehead'Salary'.Ifitisreceivedfromthepresentemployeritis
taxableassalarybutifitisreceivedfromaformeremployeritistaxableas
profitinlieuofsalaryu/s17(3)(ii).

41. ALLOWANCES
Paymentsincashmadebytheemployerto
hisemployeesmonthly,otherthansalary,is
calledanallowance.
Itisafixedsumofmoneypaidregularlyin
additiontosalaryforthepurposemeetingsome
particularrequirementconnectedwiththe
servicesrenderedbyanemployees.

42. TYPES OF
ALLOWANCES
1.Taxable
Allowance.
2. Allowances
Exempted upto
Specific limit.
3. Fully
Exempted
Allowances.

43. 1.TAXABLE ALLOWANCES
1. Dearness Allowance, Additional DA
and Dearness Pay
2. Fixed Medical Allowance.
3. Tiffin Allowance
4. Servant Allowance
5.Non Practising
Allowance
6.Hill Allowance
7.Warden
Allowance
8. Deputation
9.
Overtime
10.
Other

44. 1. DEARNESSALLOWANCE, ADDITIONALDA ANDDEARNESSPAY
Thisisaverycommonallowancethesedayson
accountofhighprices.Sometimeadditionaldearness
allowanceisalsogiven.Itisincludedintheincomefrom
salaryandistaxableinfull.
Whenitisgivenunderthetermsofemploymentit
isincludedinsalaryforthepurposesofdeterminingthe
exemptionlimitsofhouserentallowance,recognised
providentfund,gratuityandfordeterminingthevalue
ofrentfreehouseandisalsotakenintoaccountforthe
purposesofretirementbenefits.

45. 2. City Compensatory Allowance ---
It is fully taxable
3. Fixed Medical Allowance ---
It is fully taxable
4.TiffinAllowance---
Itisgivenforlunchandrefreshmentsto
theemployees.Itisalsocalledmealallowanceand
refreshmentallowance.Itisfullytaxable.

46. 5.ServantAllowance---
Itisfullytaxableevenifitisgiventoalowpaid
employee,notbeinganofficer,itistaxableforall
categoriesofemployees.
6.NonPractisingAllowance---
Itisgenerallygiventothosemedicaldoctorswho
areingovernmentserviceandtheyarebannedfrom
doingprivatepractice.Itistocompensatethemforthis
ban.Itisfullytaxable.

47. 7.HillAllowance---Itisgiventoemployeesworkingin
hillyareasonaccountofhighcostoflivinginhillyareas
comparedtoplains.Itisfullytaxable,iftheplaceis
locatedatlessthan1,000metreheightfromsealevel.
8.WardenAllowance---Itisgivenineducational
institutionsforworkingaswardenofthehostel.These
allowancesarefullytaxable.
9.DeputationAllowance---whenanemployeeissent
fromhispermanentplaceofservicestosomeotherplace
orinstitutionororganisationondeputationforatemporary
period,heisgiventhisallowance.Itisfullytaxable.

48. 10.OvertimeAllowance---
Whenanemployeeworksforextrahoursoverand
abovehisnormalhoursofdutyheisgivenovertime
allowanceasextrawages.Itisfullytaxable.
11.OtherAllowance---
Theremaybeseveralothertypesofallowances,for
example,familyallowance,projectallowance,marriage
allowance,ruralallowance,citycompensatoryallowance,
telephoneallowance,educationalallowance,dinner
allowance,healthallowance,holidayallowance,special
qualificationallowance,etc.thesearetaxableunless
specificallyexempted.

49. 1.House Rent
Allowance
(HRA)
2. Entertainment
Allowance
3. Certain
Special
Allowance, etc.

50. 1.HOUSERENTALLOWANCE(HRA)
Anallowancegrantedtoanassesseebyhisemployertomeet
expenditureincurredonpaymentofrentinrespectofresidential
accommodationoccupiedbyhimisexemptfromtaxtoacertain
extent.
ExemptioninRespectofHouseRentAllowanceisregulatedby
rule2A.TheleastofthethreegivenbelowisExemptfromTax.
a)HRAactuallyreceivedbytheassessee;or
b)ExcessofRentPaidbytheassesseeover10%ofSalarydue
tohimfortherelevantperiod;or
c)(i)iftheaccommodationissituatedatBombay,Calcutta,
DelhiorMadras–50%ofsalaryduetotheassessee,and
(ii)iftheaccommodationissituatedatanyotherplace–40%
ofsalaryduetotheassessee.

51. Incaseanemployeeislivinginhisownhouseandis
gettingH.R.A.orislivinginahouseforwhichheisnotpaying
anyrent,fullamountofH.R.A.receivedistaxable.
inthisrule:
(i)‘Salary’includesdearnessallowance,ifthetermsof
employmentsoprovide.Italsoincludesthecommissionbased
onfixedpercentageofturnover,butexcludesallother
allowances,perquisitesandbonus.
(ii)‘Relevantperiod’meanstheperiodduringwhichthe
saidaccommodationwasoccupiedbytheassesseeduringthe
previousyear.Itmeansthatthesalaryoftheperiodduring
whichrentedaccommodationisnotoccupiedbytheemployee
willbeexcluded.

52. 2. Entertainment Allowance [sec.169(ii)]-
Itisanallowancegivenbyanemployertohisemployee.
Entertainmentallowanceisfirstincludedinsalaryincomeunder
thehead“salaries”andthereafteradeductionisgivenonthe
basisenumeratedbelow:
GovernmentNon-Government
Least of the Following is deductible :
1.Amount Received
2. 20 % of basic salary
3. Rs. 5,000
Nothing is deductible
Status of Employee

53. SPECIAL ALLOWANCE FOR MEETING CERTAIN EXPENDITURE
To perform office duties.
Travelling Allowance
Daily Allowance
Conveyance Allowance
Helper Allowance
Academic Allowance
Uniform Allowance
To meet personal
expenses.
Special Compensatory
Working in transport
system
Children education
Children hostel
Transport and
Underground
Compensatory field area
and Modified field area
Counter insurgency and
High Altitude
Highly Active Field area
and Island Duty

54. (A)Specialallowanceexclusivelytobeincurredinthe
performanceofthedutiesofhisoffice
Specialallowancewhichisgrantedtomeet
expenseswholly,necessarilyandexclusivelyincurredin
theperformanceofthedutiesofanofficewillbe
exemptfromtax,totheextenttowhichsuchexpenses
areactuallyincurredforthatpurposeandnotifiedby
theCentralGovernment.[Sec.10(14)(i)]
Thefollowingspecialallowanceshavebeennotified
asexemptu/s10(14)(i):

55. (a)TravellingAllowance.Theallowancegrantedtomeetthecostoftravel
ontourorontransfer.Thecostoftravelontransferincludesanysum
paidinconnectionwithtransferpacking,andtransportationofpersonal
effectsonsuchtransfer.Forexample,SriAmarNathhasbeen
transferredfromAgratoLucknow.HeisgrantedRs.2,000astransfer
allowanceandRs.500forpacking
etc.HeactuallyspentonlyRs.2,000,thenthebalanceofRs.500willbe
taxableincome.
(b)DailyAllowance.Anyallowance,grantedfortheperiodofjoumeyon
tourorontransfertomeettheordinarydailychargesincurredbyan
employeeonaccountofabsencefromhisnormalplaceofduty.For
example,Mr.RamNathispaidRs.100perdayfor8daysasdaily
allowanceonofficialtourtomeethisexpenses.HespentonlyRs.600in
eightdays,thenthebalanceofRs.200willbehistaxableincome.

56. (c)ConveyanceAllowance.Theallowancegrantedtomeetthe
expenditureincurredonconveyanceintheperformanceofdutiesof
anofficeoremploymentofprofit.Forexample,SriPrakashChandra
getsRs.200p.m.asconveyanceallowancetomeettheexpenditurefor
conveyanceforofficialwork.HespentonlyRs.150p.m.onconveyance.
[email protected].
(d)HelperAllowance.Anyallowancegrantedtomeettheexpenditure
incurredonahelperwheresuchhelperisengagedforthe
performanceofofficialduties.Forexample,onaccountofheavywork-
loadtheemployerofSriRamKishanhasallowedhimtoengageone
helperandgrantedtohimRs.500p.m.ashelperallowanceforthis
[email protected],200willbe
[email protected].

57. (e)AcademicAllowance.Anyallowancegrantedforencouragingthe
academic,researchandotherprofessionalpursuits.Forexample,Dr.
HarigopalisaprofessorinLucknowUniversity.Hegetsacademic
[email protected]
research.InthisconnectionhespentRs.2,000duringtheyear.Here
Rs.2,000willbeexemptandtheremainingRs.400willbetaxable.
(D)UniformAllowance.Anyallowancegrantedtomeetthe
expenditureincurredonthepurchaseormaintenanceofuniformsfor
wearduringtheperformanceofofficialduties.Forexample,SriArlin
Kumarwasemployedasaforemaninafactory.Hehastoweara
properuniforminthefactoryatthetimeofhisdutyforwhichhe
getsRs.200p.m.forthepreparationandmaintenanceoftheuniform.
HespendsRs.1,800forthepreparationoftheuniformandRs.400
foritswashingetc.HereRs.200willbetaxableandRs.2,200willbe
exempt.

58. (B) Special Allowance to meet the personal expenses
Anysuchallowancegrantedtotheassesseeeithertomeet
hispersonalexpensesattheplacewherethedutiesofhisoffice
areordinarilyperformedbyhimorataplacewhereheordinarily
resides,ortocompensatehimfortheincreasedcostofliving,will
beexemptfromtax,totheextentnotifiedbytheCentral
Government.

59. TheCentralGovernmenthasnotifiedthefollowing
allowancesasexemptu/s10(14)(ii):
(1)SpecialCompensatoryAllowanceofthenatureof
(i)SpecialHillCompensatoryAllowance,
(ii)HighAltitudeAllowance,
(iii)UncongenialClimateAllowance,
(iv)SnowBoundAreaAllowanceand
(v)AvalancheAllowance.

60. (2)SpecialCompensatoryAllowanceinthenatureof
(i)BorderAreaAllowance,or
(ii)(ii)RemoteLocalityAllowance,or
(iii)(iii)DifficultAreaAllowance,or
(iv)DisturbedAreaAllowance
(3)SpecialCompensatory(TribalAreas/ScheduledAreas/Agency
Areas)Allowance.
[email protected]
Pradesh,TamilNadu,D.P.,Karnatak,Tripura.Assam,WestBengal,
BiharandOrissa.

61. (4)AnyAllowancegrantedtoanemployeeworkinginanyTransport
System.
Anyallowancegrantedtoaemployeeworkinginany
transportsystemtomeethispersonalexpenditureduringhisduty
performedinthecourseofrunningofsuchtransportfromoneplace
toanotherplaceisexemptinthewholeofIndia:
(i)70%ofsuchallowance,or(ii)Rs.10,000permonth,
whicheverisless.
(5)ChildrenEducationAllowanceisexemptinthewholeofIndia@
Rs.100permonthperchilduptoamaximumoftwochildren.

62. (6)ChildrenHostelAllowance.
Anyallowancegrantedtoanemployeetomeetthehostel,
[email protected]
monthperchilduptomaximumoftwochildren.
(7)TransportAllowance.
ThetransportallowancegrantedbytheGovernmenttoitemployees
orbyanemployertoemployees,bywhatevernamecalled,tocompensate
themforthecostincurredonaccountofcommutingbetweentheplaceof
residenceandtheplaceofdutywillbeexemptsubjecttoamaximumoffRs.
1,600p.m.
However,iftheemployeeisblindordeafanddumbor
orthopedicallyhandicappedwithdisabilityoflowerextremities,the
transportallowanceshallbeexemptuptoRs.3,200p.m.

63. (8)UndergroundAllowance.
Itisgrantedtoanemployeewhoisworkinginuncongenial.
unnaturalclimateinundergroundmines.Itwillbeexemptsubjectto
amaximumon800p.m.
(9)SpecialAllowancetomembersofArmedForces.

64. 3. Fully
Exempted
Allowances.
1.Foreign
Allowance
2.Sumptuary
Allowance to high
or sup court judge
3.Allowances from
U.N.O.

65. C.FullyExemptedAllowances
(1)ForeignAllowance.Thisallowanceisusuallypaidbythegovernmenttoan
IndiancitizenoutsideIndiaforrenderingserviceabroad.Itisnottaxable
atall.Theremaybeseveraltypesofforeignallowances,e.g.,Overseas
Allowance,ChildrenEducationAllowance,CarAllowance,Entertainment
Allowance,etc.Thisexemptionisnotavailabletonon-governmentemployees
andtothosewhoarenotcitizensofIndia.
(2)SumptuaryAllowancetoHighCourtorSupremeCourtJudges.Such
allowancegiventoHighCourt/SupremeCourtJudgesisfullyexemptfrom
tax.
(3)AllowancefromU.N.O.Allowance'paidbyaU.N.Organizationtoits
employeesisfullyexemptfromtax.
(4)Per-diemAllowance.Ifper-diemallowanceispaidforthepurposesof
useofhotel,boardingandlodgingfacilitiestoanemployee,anysurplus
accruingtohimfromsuchallowanceisexemptfromtax.

66. PERQUISITES
Theterm'perquisite'meansanybenefit,attached
toanofficeorpositioninadditiontosalaryorwages.
Perquisitedenotesapersonaladvantage.Itmaybegiven
incashorinkind.Ifitisgiveninkinditshouldbe
capableofbeingmeasuredintermsofmoney.
Forincometaxpurposewelimitthescopeof
perquisitestothebenefitsreceivedinkindandwhich
areconvertibleintermsofmoney.Perquisitesreceived
incasharetermedasallowancesforincometax
purposes.

67. TYPES OF PERQUISITES
I. Perquisites taxable in all cases
II. Perquisites taxable in the cases of specified employees only
III. Tax –free Perquisites

68. I.Perquisitestaxableinallcases
Thefollowingperquisitesaretaxableinallcases:
(i)Thevalueofrent-freeaccommodationprovidedtotheassesseebyhis
employer.Sec.17(2)(i)
(ii)Thevalueofanyconcessioninthematterofrentregardingany
accommodationprovidetotheassesseebyhisemployer.[Sec.17(2)(ii)

69. (iii)Anysumpaidbytheemployerinrespectofanyobligationwhich,butfor
suchpaymentwouldhavebeenpayablebytheassessee.Givenbeloware
someexamplesofsuchobligations:
(a)paymentbytheemployeroftheemployee'scluborhotelbills
providedthattheyarenotconnectedwiththeemployer'sbusiness;
(b)paymentbytheemployerofanyloandueonhisemployee;
(c)paymentbytheemployerofeducationexpensesofthechildren
ofhisemployees:
(d)paymentbytheemployerofthesalaryofthedomesticservant
ofanemployeemeantforhispersonaluseandemployedbytheemployee;
(e)incometaxpaidbytheemployerinrespectofthesalaryofhis
employee;howevertaxpaidbyemployeronvalueofperquisites(not
providedforbywayofmonetarypaymentshallbeexemptu/s10(10CC);
(f)legalexpensesincurredbytheemployertosaveordefendthe
employee.Sec.17(2)(iv)

70. (iv)Anysumpayablebytheemployer,whetherdirectlyorthroughafund,
otherthanarecognisedprovidentfundoranapprovedsuperannuationfund
oraDeposit-linkedInsuranceFund,toeffectaninsuranceonthelifeof
theemployeeorinrespectofacontractforanannuityonthelifeofthe
employee.[Sec.17(2)(v)
(v)Thevalueofanyspecifiedsecurityorsweatequitysharesallottedor
transferred.directlyorindirectlybytheemployer,orformeremployer,
freeofcostoratconcessional,ratetotheassessee.[Sec.17(2)(v).
(vi)Theamountofanycontributiontoanapprovedsuperannuationfundby
theemployerinrespectoftheassessee,totheextentexceedingfonelakh
fiftythousand(w.e.fAssessmentYear2017-18-).[Sec.17(2)
(vii)Thevalueofanyotherfringebenefitoramenityasmaybeprescribed.
Sec.17(2)(viii);

71. IntermsofSec.17(2)(viii),thevalueofthefollowingbenefitsor
amenitiesshallbeincludedintheincomeofanemployee:
(i)Interest-freeorconcessionalloan;
(ii)(ii)Holidayenjoyment;
(iii)Freefood;
(iv)Gift;
(v)Expenseschargedtoacreditcard;
(vi)Clubexpenses;
(vii)Useofmovableasset;
(viii)Transferofmovableasset;
(ix)Anyotherbenefitoramenity.

72. II.PerquisitesTaxableinthecaseofspecifiedemployeesonly
SpecifiedEmployees.Theemployeeswhofulfilanyofthefollowing
threeconditionsarecalledspecifiedemployees:[Sec.17(2)(iii)]
(a)ADirector-employee.
Anemployee,whoisalsoadirectorintheemployer-company,
whetherfull-timeorpart-timeandwhethercontinuingasdirectorforthe
wholeorpartoftheyear,isaspecifiedemployee.

73. (b)Employeehavingsubstantialinterestintheemployer-company.
Anemployeeissaidtohavesubstantialinterestintheemployer-
companyifheisthebeneficialownerofequitysharescarryingnotless
than20%ofvotingpower.Heisalsotermedasaspecifiedemployee.
(c)Any-otheremployee(i.e.notcoveredbytheabovetwoconditions)
whoseincomechargeableundertheheadSalaries,includingall
monetarypaymentsfromoneormoreemployers,butexcludingthevalueof
allbenefitsoramenitiesgiveninkind,exceedsRs.50,000iscalleda
specifiedemployee.FordeterminingthelimitofRs.50,000thedeductions
whichareallowableundersection16willbedeductedandthebalanceonly
willbeconsideredwhetheritexceedsRs.50,000ornot.Salary,forthis
purpose,shallincludealltaxablemonetarypayments,like,basicsalary,
dearnessallowance,bonus,commission,taxableallowances,etc.,butshall
notincludethevalueofanynonmonetarybenefitorperquisite.Taxable
monetarybenefitsperquisitesshallalsobeincludedinsalaryforthis
purpose.[Sec.17(2)(iii)]

74. Givenbelowaresomeexamplesoffreeorconcessional
benefits/amenitiesprovidedbytheemployertohisemployee,the
valueofwhichshallbeincludedinthesalaryincomeofthe
specifiedemployee:
(i)Facilityofcar;
(ii)Sweeper,Watchman,Gardenerandpersonalattendant;
(iii)Gas,electricenergyandwater;
(iv)Educationfacilitytothemembersofemployee'shousehold;
(v)Transportfacility.

75. III. Tax-free Perquisites
The value of the following perquisites shall not be included
in the salary income of an employee:
(i): Medical benefits.
(ii) Tea or snacks provided in office or factory (work place).
(iii) Residential accommodation provided at site.
(iv) Expenses on telephones including mobile phone.

76. (viii)Refreshercourses,etc.Iftheemployerpaysfeesforan
employeetakingrcoursesormanagementcourseinordertoenable,
theemployeetoperformhismoreefficiently.Suchexpensesare
treatedasscholarship.
(ix)Taxpaidbytheemployeronthevalueofperquisites.
(x)PerquisitestoGovernmentEmployeespostedabroad.Any
perquisitesallowedinIndiabytheGovernmentofIndiatoacitizen
ofIndiaforenduringserviceoutside.Thisexemptionisnotavailable
tonon-governmentemployeesandalsotothosenotcitizensofIndia.
(xi)Rent-freehouseandconveyancefacilityprovidedtoHighCourt
Judges.
(xii)Rent-freehouseandconveyancefacilityprovidedtoSupreme
CourtJudges.

77. (xiii)Thevalueofrent-freefurnishedresidenceprovidedtoa
Minister,specifiedofParliamentoraLeaderoftheoppositionin
Parliament.
(xiv)Laptopsandcomputersprovidedbyemployerforpersonaluse
ofemployermemberofhishousehold.
(xv)Interest-freeorconcessionalloan,iftheamountofloanin
aggregatedoesno,Rs.20,000duringthepreviousyear.
(xvi)Transferwithoutconsiderationtoanemployeeofamovable
asset(otherthancomputer,electronicitemsandcar)bythe
employerafterusingitforaperiodoftenyears
(xvii)Periodicalsandjournalsrequiredfordischargeofwork.
(xviii)LeavetravelconcessionU/S10(5).

78. MedicalBenefits-
(A)ForTreatmentwithinIndia:
(a)Thevalueofanymedicaltreatmentprovidedfreetoanemployee
oranymemberfamilyinanyhospitalmaintainedbytheemployer;
(b)Anysumpaidbytheemployerinrespectofanyexpenditure
incurredbytheeonmedicaltreatmentofhimselfandmembersofhis
family:
(i)inahospitalmaintainedbygovernmentoranylocalauthorityor
approvegovernmentformedicaltreatmentofitsemployees;
(ii)inrespectoftheprescribeddiseasesorailmentsinanyhospital
approveChiefCommissioner.

79. MedicalBenefits-
(A)ForTreatmentwithinIndia:
(c)Premiumpaidbytheemployeronthehealthinsuranceofthe
employee(inmembersofhisfamily).
(d)Reimbursementbytheemployerofanypremiumpaidbythe
employeeonhiinsuranceoronthehealthinsuranceofanymemberof
hisfamily.
(e)LimitedExemption.Ifthemedicaltreatmentoftheemployeeor
anymemberfamilyisdoneatanyprivatehospital,nursinghomeor
clinicotherthanthoseinclauses(a)and(b)abovetheexemptionwill
berestrictedtoRs.15,000.

80. (B)MedicalTreatmentoutsideIndia:
(a)Iftheemployerincursanyexpenditureonthemedical
treatmentoftheemployeeanymemberofhisfamilyoutsideIndia,
totheextentpermittedbytheReserveBankofIndia;and
(b)Iftheemployerincursanyexpenditureontravelandstay
abroadofthe(employeeoranymemberofhisfamily)andone
attendantwhoaccompaniestheinconnectionwithsuchtreatment,
itwillbeexemptsubjecttotheconditions.

81. (i)theexpenditureonmedicaltreatmentandstayabroadwillbe
exempttotheextentpermittedbytheReserveBankand
(ii)theexpenditureontravelshallbeexemptinthecaseofanemployee
whosegrosstotalincome(excludingthisexpenditure)doesnot
exceedRs.2lakh.
(c)Iftheemployerreimbursestotheemployeeinrespectofany
expenditureactuallyincurredbytheemployeeforanyofthepurposes
specifiedin(B)(a)and(b),itwillbeexemptsubjecttothesame
conditionsasstatedabovein(b)(i)and(b)(ii).

82. “PERQUISITES” ASDEFINEDU/S17
(2)
Theterm“perquisites”isdefinedbysection17
(2)asincludingthefollowingitems:
1.ThevalueofRent-freeAccommodationprovidedto
theassesseebyhisemployer
2.Thevalueofanyconcessioninthematterofrent
respectinganyaccommodationprovidedtothe
assesseebyhisemployer

83. 3.Thevalueofanybenefitoramenitygrantedor
providedfreeofcostoratconcessionalrateinanyof
thefollowingcases:
i.Byacompanytoanemployeewhoisadirectorthereof;
ii.Byacompanytoanemployee,beingapersonwhohas
substantialinterestinthecompany;
iii.Byanyemployer(includingacompany)toanemployeeto
whomprovisionsof(i)and(ii)abovedonotapplyand
whoseincomeunderthehead“salaries”exclusiveofthe
valueofall benefitsoramenitiesnotprovidedfor
bywayof monetarybenefits,exceedsRs.
50,000

84. 4.Anysumpaidbytheemployerinrespectofanyobligation
whichbutforsuchpaymentwouldhavebeenpayableby
theassessee.ObligationofEmployeemetbyEmployer.
5.Anysumpayablebytheemployer,whetherdirectlyor
throughafundotherthanarecognizedprovidentfundor
approvedsuperannuationfundoradeposit-linked
insurancefund,toeffectanassuranceonthelifeofthe
assesseeortoeffectacontractforanannuity.
6.Thevalueofanyotherfringebenefitsoramenityasmay
beprescribed

85. TERMINAL BENEFITS
1.Gratuity[Sec.10(10)]–Gratuityisaretirementbenefit.Itisgenerally
payableatthetimeofcessationofemploymentandonthebasisof
durationofservice.Taxtreatmentofgratuityisgivenbelow:
Status of Employee
Government
Employee
Non-government
employee covered by the
payment of Gratuity Act,
1972
Non-government employee
not covered by the payment
of Gratuity Act, 1972

86. 2.PENSION[SEC.17(1)(ii)]-Pensionischargeabletaxasfollows:-
Government
Employee
Non-Government
Employee
If Gratuity
Received
If Gratuity not
Received

87. 3.Annuity[Sec.17(1)(ii)]–Anannuitypayablebyapresent
employeristaxableassalaryevenifitispaidvoluntarily
withoutanycontractualobligationoftheemployer.Anannuity
receivedfromanex-employeristaxedasprofitinlieuofsalary.
4.Retrenchmentcompensation[Sec.10(10B)]–Compensation
receivedbyaworkmanatthetimeofretrenchmentisexempt
fromtaxtotheextentofthelowerofthefollowing:
a.an amount calculated in accordance with the provisions of sec. 25F(b)
of the Industrial Disputes Act, 1947; or
b.such amount as notified by the Government (i.e.,
Rs, 5, 00, 000); or
c.the amount received.

88. 5.CompensationreceivedatthetimeofVoluntary
Retirement[sec.10(10C)]-Compensation
receivedatthetimeofvoluntaryretirementis
exemptfromtax,subjecttocertainconditions.
MaximumamountofexemptionisRs.500000.

89. PROVIDENTFUND
ProvidentFundSchemeisawelfareschemeforthe
benefitofemployees.Theemployeecontributescertain
sumtothisfundeverymonthandtheemployeralso
contributescertainsumtotheprovidentfundin
employeesA/c.theemployerscontributiontotheextent
of12%isnotchargeabletotax.

90. LEAVE SALARY
Encashmentofleavebysurrenderingleavestandingtoone’screditis
knownas“leavesalary”.
LEAVE ENCASHMENT
During Employment
Retirement / Leaving the Job
Chargeable to
Tax
Non-Government
Employee
Government
Employee
Fully Exempt
Least of following is exempt :-
1)Earned Leave on the basis of
Average Salary
2)10 x Average monthly salary
3)Rs. 300000
4)Leave Salary Received

91. DEDUCTIONSADMISSIBLEIN
COMPUTINGINCOMEUNDERHEAD
‘SALARIES’
1.Entertainmentallowancegrantedbyemployer
[Sec.16(ii)]:Thisdeductionisavailableincaseof
Governmentemployeesonly.
2.EmploymentTax/ProfessionalTax[Sec.16(iii)]:
Anysumpaidbyassesseeonaccountofataxon
employmentwithinthemeaningofArticle
276(2).Underthesaidarticleemploymenttax
cannotexceedRs.2500p.a.

92. RELIEFINRESPECTOF
ADVANCEORARREARSOFSALARYU/S89
Whenanassesseeisinreceiptofasuminthe
natureofsalary,beingpaidinarrearsorin
advance,duetowhichhistotalincomeis
assessedataratehigherthanthatatwhich
itwouldotherwisehavebeenassessed,Relief
isgrantedonan applicationmadeby
theassesseetotheassessingofficer.