In this we will cover the following points:
- 1)Important norms
- 2)Composition of salary
iii) leave salary encashment
iv) Leave travel concession
v) Provident fund
- ☆Income can be taxable as “Salaries” if there is Employer-Employee relation OR Master and servant relation
- ☆Salary is taxable on due or received whichever is earlier but Bonus, commission, and arrears of salary is taxable only when it is actually received 2019–2020 01.04.2019 to 31.03.2020 March 2020 salary of April 2020 and may 2020 is received in advance
- ☆Grade of salary 12000 – 1000 – 18000 18000 – 1500 – 22000 Mr. A is working with x ltd and it is 3rd of employment
COMPOSITION OF SALARY:
Received at or after retirement Government employee (Central or state or government or local authorities) >> Fully exempt from tax Non–government employees (Private sector under-taking and public sector employees) These are further divided into two parts i.e –covered by POGA –not covered by POGA
^Covered by POGA:
(1) 15/26 x last drawn salary x each completed year of service or part of there (6ms or in excess of 6ms) OR (2) maximum Amount is received (whichever is less) Salary = Basic salary +DA [ROR Not R] OR (3)maximum limit is (20,00,000)
^Not covered by POGA:
(1)/2 x average salary of last 10 months x each completed years of service (fraction to be ignored) OR (2)maximum limit (20,00,000) OR (3) actual amount is received (whichever is less) Salary=basic salary + DA (R) + commission on sales achieved by the employee
POGA:– payment of gratuity act 1972 -Gratuity received during the service period is fully taxable (government, non–government both have to pay tax) –If gratuity is already received from ex-employer and exemption is claimed earlier then maximum limit is reduced by exemption amount –If gratuity is received by family members on the death of employee then it is fully exempt from tax –Months
There are two types of pension –Uncommuted pension (Monthly pension) -Commuted pension (Lumpsum pension) If we talk about un-commuted pension they are taxable for all employees If received by family member taxable as “income from other sources” as family pension (after standard deduction) If we talk about commuted pension it is further divided into two parts i.e If gratuity is received 13xtotal pension due is exempt If gratuity is not received 1/2xtotal pension due is exempt *Important note* * Pension received by an employee of UNO is fully exempted from tax *If un-commuted pension is received from the insurance company it is taxable as income from other sources but the commuted pension is fully exempt from tax
(iii)Leave Salary Encashment:
Types of leave –casual leave(CL) c/o not allowed –sick leave(SL) c/o allowed -privilege leave(PL) c/o allowed Casual leave and privilege leave both are further divided into two parts i.e –received during the service period Taxable for all employees –received on OR after retirement is divided into two 1) all government employees –fully exempt from tax 2) private sector employees –cash equivalent of leave at the credit of employee not exceeding 30 days for each completed year of service OR –10 months salary ( average salary) OR –maximum limit (3,00,000) OR –actual amount received [Whichever is less] *Important note* If leave encashment is received from the previous employee is claimed then maximum limit reduce by exemption claimed earlier *leave salary encashment received by family members due to death of an employee is NOT TAXABLE for all employees
(iv)Leave Travel Concession OR Allowance (LTA):
Meaning: An employee receives LTA OR passage money from his previous/present employer. For himself and his family members. For proceeding to any place in India only during the service period OR after retirement Exemption amount: *actual amount received for LTA OR *actual amount spent for airfare (economy class) OR first-class three-tier railway fare or deluxe bus fare for shortest duration Whichever is less Important conditions: –Family member consist of himself, wife, 2-children, dependent brothers, and sisters and parents –Exemption is available only for ticket fare for shortest duration and not for lodging and boarding -Exemption is available only for 2 journeys in a block of 4 years starting from 1998–2001, 2002–2005, 2006–2009, 2010–2013, 2014-2017, 2018–2021, etc -Carryover of exemption is allowed for one journey in the first calendar year only of next block of 4 years i.e first years next.
Statutory provident fund (SPF) (For government employees) –Recognised provident fund(RPF) –Unrecognised provident fund(URPF) –Public provident fund( PPF) The SPF, RPF, AND URPF are further divided into four parts i.e Employers contribution (12%) and Interest on employers contribution o Employees contribution (12%) and Interest on employees contribution PPF is divided into two i.e Account holder contribution Pinterest on a/c holder contribution Tax Treatment Particulars SPF RPF URPF PPF
- Employers contribution exempt exempt exempt not up to applicable 12% of salary (bal taxable)
- Employers contribution exempt exempt exempt exempt
- Interest on employers and exempt exempt exempt exempt employees up to contribution 9.5% p.a (bal taxable)
- Deduction avail does not avail for a/c employees employees holder contribution contribution contribution
- City compensatory allowance
- Dearness allowance OR high cost of living allowance
- Lunch allowance
- Medical allowance
- Domestic servant allowance
- Overtime allowance
- Family allowance
- Marriage allowance
- Deputation allowance
- Water, gas, electricity allowance
(B) Partly taxable allowance
- –house rent allowance (HRA)
- –leave allowance
- –travel allowance
- –children education allowance –children hostel allowance
- –conveyance allowance
- –uniform allowance
It is additional benefits/facilities given to employees over and above salary either in cash OR in kind.
(2) TYPES OF PERQUISITES:
–Fully exempted perquisites:
- (1) Use of employer’s computer and Laptop
- (2) Use of telephones at residence and mobile phones (bills paid by the employer)
- (3) Shares given to employees at concessional rate under Stock option plan.
- (4) Accommodation provided in Hotel for transfer of job not exceeding 15 days
- (5) Conveyance facilities provided by employer between office and residence.
- (6) Free meal facilities up to Rs. 50 per meal per day.
- (7) Any type of training provided by employer related to job
- (8) One-time corporate club membership fees‘.
- (9) Free transport facilities in India by transport undertakings to the employees.
- (10) Free health facilities or sports club
- (11) Gift given to the employee in-kind up to Rs.5000 p.a
- (12) Goods manufactured by employer given to employees at concessional rate
- (13) Mediclaim premium paid by the employer.
- (14) Employee’s personal accident policy premium paid by the employer
- (15) Books, periodicals, magazines, newspapers provided at office premises
- 1)LIC premium OR annuity paid by the employer on behalf of the employee
- 2)Gift vouchers A cash voucher ( fully taxable) ^In kind voucher exempt up to 35000 p.a
- 3)Free meal facility Cash to the employer for a meal provided – exempt 350 per day per meal = taxable perquisites
- 4)(a)Use of movable asset 10%cost of asset (–) amount received from employee = actual amount 4)(b)sale of movable asset Cost of movable asset (–)depreciation @%(wdv) wdv on date of sale (amount recovered from the employee
- 5) Interest-free loan is given to employee (Exceeding 320,000) National interest as per SBI table (-) amount received from employee (if any) = taxable perquisites
- 6)Educational facilities –my type of training given to an employee for a job at any place is exempt –fixed educational allowance(fully taxable) -school/college fees paid by the employer (fully taxable) -scholarship is given by employer (fully exempt) -education provided by the institution of employer .for children for another family member
There are 3 types of deduction i.e –Standard deduction –Entertainment allowances – Professional tax Entertainment further proceeds into two i.e 340,000 government employees -20% of basic salary OR Maximum 35000 OR Actual and received ( whichever is less) Private sector employees –Fully-taxable Professional tax: –Paid by the employee –Paid by employer first taxable perquisites and deduction is also available.