Income from Salaries Masters of Commerce (Accountancy) Semester III

Submitted In partial Fulfilment of the requirements For the Award of Degree of Masters of Commerce (Accountancy) By JIDNYASA B B!"I#

___________________________________________________________ $I$%& C"''%(% ") C"MM%#C% I !" C#$$!%! &#AD' (IDD)A&*) +A%A& %#&!%A#+ , (-)' M.MBAI/011 1234

$I$%& C"''%(% ") C"MM%#C% $I$%& C"''%(% #"AD* SIDD!A#+! NA(A# ("#%(A"N , (-)* M.MBAI/011 123

C%#+I)ICA+%

*his is to certify that 6ID+7A(A B4 B)#I& of M4com/II Accountancy (emester III (3158/3150) ha9e (uccessfully completed the pro:ect on Income from Salaries .nder the %uidance of ;rof< ;radip )athi

_________ Internal %uide _________ Coordinator

__________ !=ternal %uide __________ ;rincipal

D%C'A#A+I"N

I JIDNYASA B B!"I# the student of M4 Com4/II Accountancy (emester III (3158/3150) here>y Declare that I ha9e completed the pro:ects on Income from Salaries *he information su>mitted is true and original to the >est of my "nowledge4

4444444444444444 JIDNYASA B B!"I# Date5

Ac6no7led8ement

*o list who all ha9e helped me in difficult >ecause they are so numerous and the department is so enormous4 I would li?e to ac?nowledge the following as >eing idealistic channels and fresh dimension in completion of this pro:ect4 I ta?e this opportunity to than? the .NI$%#SI+Y ") M.MBAI for gi9ing me a chance to do this pro:ect4 I would li?e to than? my principal Smt Nandita #oy for pro9iding the necessary facilities for the completion of this pro:ect4 I ta?e this opportunity to than? our coordinator as well as my pro:ect guide 9rof 9radi: !at;i for his moral support and guidance4 I would li?e to than? my college li>rary for ha9ing pro9ided 9arious reference >oo?s and maga@ines related to my pro:ect4 $astly I would li?e to than? each and e9ery person who directly or indirectly helped me with the completion of the pro:ect especially my parents and peers who supported me throughout the pro:ect4

6ID+7A(A B)#I&

IND%<

Sr No

C!A9+%#

9a8e No

Introduction ;erquisite

55

Analysis

38

Conclusion A &ecommendations

8B

C!A9+%# = INTRODUCTION MEANING OF SALARY (alary' in simple words' means remuneration of a person' which he has recei9ed from his employer for rendering ser9ices to him4 But receipts for all ?inds of ser9ices rendered cannot >e ta=ed as salary4 *he remuneration recei9ed >y professionals li?e doctors' architects' lawyers etc4 cannot >e co9ered under salary since it is not recei9ed from their employers >ut from their clients4 (o' it is ta=ed under >usiness or profession head4 In order to understand what is included in salary' let us discuss few characteristics of salary4 CHARACTERISTICS OF SALARY. 54 *he relationship of payer and payee must >e of employer and employee for an income to >e categori@ed as salary income4 For e=ample< (alary income of a Mem>er of ;arliament cannot >e specified as salary' since it is recei9ed from %o9ernment of India which is not his employer4 34 *he Act ma?es no distinction >etween salary and wages' though generally salary is paid for non/manual wor? and wages are paid for manual wor?4 84 (alary recei9ed from employer' whether one or more than one is included in this head4 04 Salary is ta>able eit;er on due basis or recei:t basis 7;ic; e?er matures earlier5 Receipt basis , when it is recei9ed e9en if it is not earned in the pre9ious year4 Arrears of salary/ which were not due and recei9ed earlier are ta=a>le when due or recei9ed' whiche9er is earlier4 C4 Compulsory deduction from salary such as employeesD contri>ution to pro9ident fund' deduction on account of medical scheme or staff welfare scheme etc4 are e=amples of instances of application of income4 In these cases' for computing total income' these deductions ha9e to >e added >ac?4

I+C#M!( F#&MI+% ;A&* #F (A$A&7< I (ection 5E of the Act gi9es an inclusi9e definition of salary4 Broadly' it includes< 54 Basic salary 34 Fees' Commission and Bonus 84 *a=a>le 9alue of cash allowances 04 *a=a>le 9alue of perquisites C4 &etirement Benefits Although' all the components of salary income are included in salary' there are certain incomes in each of these categories' which are either fully e=empt or e=empt upto a certain limit4 *he aggregate of the a>o9e incomes' after the e=emption(s) a9aila>le' if any' is ?nown as F%ross (alaryD4 Under the Income ta! Act "Salary" includes # -ages Annuity or pension %ratuity Fees'commission'perquisites or profits in lieu of salary Ad9ance of (alar G arrears of salaryH &eceipt from ;ro9ident Fund Contri>ution of employer to a &ecognised ;ro9ident Fund in e=cess of the prescri>ed limit $ea9e !ncashment Compensation as a result of 9ariation in (er9ice contract etc4 Salary $%e5 Any income due from an em:loyer to an em:loyee* 7;et;er :aid or not +;is is also true if t;e income is due from a former em:loyer E

Advance Salary5 Any salary :aid by an em:loyer to an em:loyee e?en t;ou8; it 7as not due or 7as :aid before t;e due date +;is is also true if t;e ad?ance salary ;ad been :aid by a former em:loyer

Arrears o Salary5 Any arrears of salary paid to an employee >y an employer' for which income ta= had not >een pre9iously deducted4 *his is also true in case the arrears are paid >y a former employee4 E!"loyee# e!"loyer and e!"loy!en$ areessential components of income from salary&'hich are defined as %nder# / %m:loyee means an indi9idual engaged in e!"loy!en$4 %m:loyer means any person who engages and remunerates an indi9idual engaged in e!"loy!en$4 %m:loyment includes , A directorship or any other office in9ol9ed in the management of a company4 A position entitling the holder to a fi=ed or ascertaina>le remunerationH or *he holding or acting in any pu>lic office44 %HAT IS THE &LACE OF ACCRUAL OF SALARY' +;e 8olden rule is t;at it accrues 7;ere t;e ser?ice is rendered 'ea?e salary :aid to a :erson em:loyed in India on lea?e to a forei8n country is treated to be t;e arisen in India !o7e?er* if a citi@en of India ser?ice outside India and recei?es salary from t;e of India* it 7ould be ta>able as salary to ;a?e accrued in India

&ENSIONS TO (E TA)ED AS SALARY' ;ensions are ta=ed under the head I(alariesI4 *he of standard deduction is also a9aila>le on them4 IS AD*ANCE SALARY TO (E TA)ED IN THE YEAR OF RECEI&T' *he I4*4 Act contemplates ta= on salary which is due' whether paid or not' ta= is attracted at the latest possi>le point of time which is the date when the salary accrues or >ecomes due4 )owe9er' where any salary paid in ad9ance is assessed in the year of payment' it cannot >e ta=ed again when it >ecomes due4 (imilarly' if arrears of salary ha9e >een assessed on the IdueI >asis in the past' they are not lia>le to >e ta=ed again when they are paid4 %HAT IS TA) FREE SALARY AND HO% IS IT TA)ED' -hen the salary is paid (ta! free( the employee has to return in his total income the gross salary' i4e4 aggregate of the net/salary recei9ed plus the amount of ta= paid on his >ehalf >y the employer4 It does not ma?e any difference whether the ta= is >orne >y the employer 9oluntarily or under a contractual o>ligation IS SALARY &AYA(LE FOR LEA*E+&ERIOD TO NONRESIDENTS TA)A(LE E*EN IF LEA*E IS S&ENT OUTSIDE INDIA' Yes *he salary paid for ser9ices rendered in India is regarded as income earned in India' so as to specifically pro9ide that any salary paya>le for rest period or lea9e period which is >oth proceeded or succeeded >y ser9ice in India forms part of the ser9ice contract of employment will also >e regarded as income earned in India and so is to >e ta=ed4 Direc$ Co!"ensa$ion Basic :ay

ItDs the monthly >ase amount a person is entitled to4 *his is the >iggest part of the pay' typically C1/21 per cent of the cost to the company (C*C)4 *he >asic tends to form a higher portion of the salary at :unior le9els4 At senior le9els' the proportion of >asic goes down and 9aria>le pay components such as target/lin?ed >onuses come J

into the picture4 Basic determines the other components of an employeeDs pay such as pro9ident fund (;F) contri>ution (>oth >y employee and employer) and house rent allowance' entitlement to loans >y employers and' sometimes' designations and salary grades are lin?ed to the >asic4 Dearness allo7ance

Dearness allowance is a part of a personDs salary in India4 It is calculates as a percent of the >asic salary4 *he amount calculated is then added to the >asic pay as well as the )&A to get the total salary4 It is calculated on the >asis of consumer price inde=4 Dearness allowance is >asically gi9en >y the company so that rise in prices of consumer price inde= will >e compensated >y increase in dearness allowance4 As consumer price inde= is 9ery 9olatile and 9aria>le dearness allowance is has a separate heading in salary slip4 City com:ensatory allo7ance

City Compensatory allowance is an additional allowance4 It is not e=empted from ta= li?e )&A4 It ena>les the employee to >ear the high cost of li9ing pre9ailing in an ur>an area or a city4 If an employee is stationed at a >igger city' the person is required to spend more therefore the employer compensates the employee with this allowance4 Indirec$ Co!"ensa$ion +ra?ellin8 allo7ance

It depends on area to area4 Con9eyance allowance is >asically paid to co9er an employeeDs wor?/related tra9el needs4 An employee has to tra9el during the :o> so this ta?es care of the transportation e=penses4 .p to &s B11 is e=empt from ta= e9ery month4 *his component helps ma?e the pay more ta=/efficient and influences the ta?e home pay of those at lower le9els of pay4 9ro?ision for ne7s:a:er

In certain factoriesGesta>lishments the employees are reim>ursed the cost of +ewspapers while in some other factoriesGesta>lishments the employees are paid monthly newspapers allowance instead of reim>ursement of the cost of the +ewspapers4 *his allowance is called newspaper allowance4 51

+ele:;one allo7ance

All officers of (M%( III and a>o9e' all Branch Managers and other functionaries who are permitted >y competent authority are eligi>le for this allowance4 In addition to free calls' reim>ursement will >e as under< *!%( II , 3111 calls per month *!%( I , 5C11 calls per month (M%( I A , B11 calls per month MM%( II A III , 811 calls per month 6M%( I , 311 calls per month

55

CHA&TER , &ER-UISITE K;erquisiteK may >e defined as any casual emolument or >enefit attached to an office or position in addition to salary or wages4 ;erquisite as defined in the Income ta= Act includes</

alue of rent/freeGconcessional rent accommodation pro9ided >y the employer4 Any sum paid >y employer in respect of an o>ligation which was actually paya>le >y the assessee4 alue of any >enefitGamenity granted free or at concessional rate to specified employees etc4

*he following perquisites are not ta=a>le either under the e=ecuti9e instructions of the Central Board of Direct *a=es or >y 9irtue of specific pro9ision in the ActG&ules</

#ent/)ree !ouse

&ent/free official residence pro9ided to a :udge of a )igh Court or of the (upreme Court4 &ent/free furnished residence (including maintenance thereof) pro9ided to an official of ;arliament' a .nion Minister or a $eader of #pposition in ;arliament

Accommodation pro9ided in a Iremote areaI to an employee wor?ing at a mining site or an onshore oil e=ploration site' or a pro:ect e=ecution site or an accommodation pro9ided in an offshore site of similar nature4

Accommodation pro9ided on transfer of an employee in a hotel for not e=ceeding 5C days in aggregate4

Car

&eim>ursement of e=penses in respect of car (which is owned >y employee and used for personal and official purpose) (amount not ta=a>le is up to &s4 5'311 per month for car ha9ing engine capacity of

53

not more than 5211cc' &s4 5'211 per month for car of a>o9e 5211cc and &s4 211 per month for dri9er)4

Con9eyance facility pro9ided to )igh Court 6udges and (upreme Court 6udges4 Con9eyance facility pro9ided to an employee to co9er the :ourney >etween office and residence4

Interest/)ree 'oan

Interest/free G concessional loan of an amount not e=ceeding &s431'111 %ift/in/?ind up to &s4C'111 in a year4 !mployerIs contri>ution to staff group insurance scheme

"t;ers

%HO IS A S&ECIFIED E.&LOYEE AND %HAT &ER-UISITES ARE TA)A(LE IN HIS HANDS' *he specified employees include the following</ a) Director employee' whether full time or part time4 >) !mployee who is >eneficial owner of equity in the employerIs company carrying 31L or more 9oting power4 c) *he employees other than those mentioned a>o9e' drawing salary in e=cess of &s4 30'111 (w4e4f4 58th April 3113 this limit is &s4 C1'111) in monetary terms4 *he 9alue of any >enefit or amenity granted or pro9ided free of cost or at concessional rates to these specified persons would >e a IperquisiteI ta=a>le in their hands4

%HAT ARE THE OTHER TA)A(LE &ER-UISITES' LA% A&&LICA(LE# AT THE O&TION OF THE ASSESSES# U&TO /0.1.,002.

58

*he other ta=a>le perquisites which are ta=a>le in a prescri>ed manner include the folio wing< / a) alue of rent free accommodation pro9ided to the assessee >y his employer4 >) alue of concession in rent of accommodation pro9ided to the assessee >y his employer4 c) Amount paya>le >y an employer directly or indirectly to effect an assurance on the life of the employee or to effect a contract for an annuity' other than payment made to recognised pro9ident fund etc4 d) Amount paid >y an employer in respect of any o>ligation which otherwise would ha9e >een paya>le >y the employee' for e=ample / payment of income/ta=4 *alua$ion o "er3uisi$es / *he employer often gi9es some perquisites to the employees4 alue of these perquisites is added to the income of employees4 *he 9aluation of perquisites is done as follows < Ren$ Free un urnis4ed Acco!!oda$ion / / In case of pri9ate sector employees' 9alue of perquisite of rent free unfurnished accommodation is ta?en as follows / (a) If owned >y employer / If population of city e=ceeds 3C la?hs / 5CL' if population e=ceeds 51 la?hs >ut >elow 3C la?hs / 51L (c) In other cases / E4CL4 In case of %o9ernment !mployees' 9alue will >e rent as per rules framed >y %o9ernment' as reduced >y sum actually paid (alary includes >asis' DA (if ta?en into account for retirement >enefit)' >onus' commission' fees and all ta=a>le allowances4 *alua$ion o urnis4ed acco!!oda$ion / If accommodation is furnished' in addition to a>o9e' 51L of cost of furniture (including * ' radio' refrigerator' AC etc4)' if owned >y employer' will >e treated as perquisite4 If the furniture is hired from third party' actual hire charges less any amount reco9ered from employee will >e the perquisite4

50

5as elec$rici$y or 6a$er su""ly / (ome >enefits li?e gas' electricity' water are 9alued at actual cost to employer4 If these are pro9ided from own sources' 9alue will >e manufacturing cost incurred per unit' less amount reco9ered from employee4 Do!es$ic servan$s / Actual cost to employer for sweeper' gardener' watchman or personal attendant will >e 9alue of perquisite4 Use o !ova7le asse$s / If some mo9a>le asset is pro9ided to employee' perquisite will >e M 51L of the cost of asset or rent paid' as reduced >y sum paid >y employee4 Loans $o e!"loyees a$ concessional ra$e / Calculate interest on >asis of (BI lending rates' reduced interest paid >y employee and difference will >e the 9alue of perquisite4 2+/ &er3uisi$es 64ic4 6ill 7e added $o salary &emaining perquisites perquisites li?e motor car' lunch' refreshment' tra9elling' touring' gift' credit card' clu> etc4 will >e added to salary and ta=ed in hands of indi9idual (*ill 85/8/311J' FB* was paya>le >y employer and hence these were e=empt at hands of employee)4 *alua$ion o !o$or car /4If car is owned or hired >y employer and pro9ided for personal purposes of employees' 9aluation will >e e=penditure incurred >y employer on running and maintenance plus remuneration of chauffer plus normal wear and tear M 51L on actual cost less amount charged to employees4 If motor is partly for official and partly for personal purposes and e=penses are reim>ursed >y employer' perquisite 9alue per month is &s 5'3111 per month if engine cu>ic capacity is upto 542 liters and &s 5'211 per month if cu>ic capacity of engine e=ceeds 542 liters4 If motor is partly for official and partly for personal purposes and e=penses are reim>ursed >y employer' perquisite 9alue per month is &s 5'311 per month if engine cu>ic capacity is upto 542 liters and &s 5'211 per month if cu>ic capacity of engine e=ceeds 542 liters4 If chauffer is pro9ided' 9alue of perquisite will >e &s 211 per month4 5C

If motor is partly for official and partly for personal purposes and e=penses are met >y employee' perquisite 9alue per month is &s 011 per month if engine cu>ic capacity is upto 542 liters and &s 211 per month if cu>ic capacity of engine e=ceeds 542 liters4 If chauffer is pro9ided' 9alue of perquisite will >e &s 211 per month4

52

CHA&TER / ALLO%ANCE KAllowanceK is defined as a fi=ed quantity of money or other su>stance gi9en regularly in addition to salary for meeting specific requirements of the employees4 Most allowances are ta=a>le li?e city compensatory allowance' tiffin allowance' fi=ed medical allowance and ser9ant allowances4 !ncashment of any concession is also ta=a>le4 If A&! *)!&! A+7 A$$#-A+C!(' -)IC) A&! #+$7 < e=empt when recei9ed at a particular place(s) Hpr area(s)N and do they ha9e any upper ceilings < for e=emptionN For the new amended &ules contain other allowances also 4which are e=empt (su>:ect to ceilings) in particular area(s) only4 *hese special allowances are </ i) Any special Compensatory Allowance' in the nature of Composite )ill Compensatory allowance or )igh Altitude' Allowance or .ncongenial Climate Allowance or (now Bound Area Allowance or A9alanche AllowanceH ii) Any special Compensatory Allowance gi9en which is in the nature of >order area allowance or remote area allowance or difficult area allowance or distur>ed area allowanceH ii) *ri>al Area AllowanceH iii) Allowance granted to an employee wor?ing in any transport system to meet his personal e=penditure during his duty performed in the course of running of such transport from one place to another place' pro9ided that such employee is not in receipt of daily allowanceH TA)A(L# NON+TA)A(LE ALLO%ANCES Children !ducation AllowanceH 5E

Any allowance granted to an employee to meet the hostel e=penditure of his childH Compensatory Field Area AllowanceH Compensatory Modified Field Area AllowanceH City com:ensatory allo7ance <Fully ta=a>le4 )orei8n Allo7ance <!=empt from ta= if paid outside India By the go9ernment to the Indian citi@en for rendering ser9ices outside India4 )i>ed medical allownace<*a=a>le4 9roAect Allo7ance <ta=a>le4

Allowances to (upreme courtG)igh court 6udges <+ot ta=a>le4 Ser?antB;el:er Allo7ance <ta=a>le 'if helper used for official purpose then e=empted44 +rans:ort Allo7ance< ?nown also as '"DA 'means allowance to meet e=penses incurred for office to home and home to office is e=empted up to B11 per month ma=imum4 *iffin Allowance <*a=a>le 4 Allowance to meet the cost of tra9el on tour or on transfer(including amount paid for pac?ing and transportation of personal effects on such transfer)<e=empted to the e=tent allowances used for said purpose4 Allowance (?now as DA in *A >ill) paid for purpose e=plained in point 55 a>o9e 'to meet the ordinary daily charges on account of a>sence from his normal place of duty)<e=empted to the e=tent allowance used for the said purpose Con?eyance allo7ance<*o meet the e=penditure on con9eyance in performance of duties of an official nature<e=empted to e=tent allowance used for said purpose .niform allo7ance < e=empted to the e=tent used for the said purpose C;ildren %ducation allo7ance <&s 511 per month per child up to ma=imum of two child is e=empted if e=penses made in India C;ildren ;ostel allo7ance<&s 811 per month per child up to ma=imum of two child is e=empted if e=penses made in India

5B

Allowance granted to employee wor?ing in transport system where no daily allowance has not >een allowed to meet daily e=penses 'done to meet his personal e=penses during duty performance from one place to other place <E1 L of such allowa>le e=empted ma=imum up to 2111 per month4 Allowance granted for encouraging the academic 'research and other professional pursuits<e=empted to the e=tent used for said purpose many hilly area'remote area'field allowances are e=empted on 9arious rate Any other allowance <generally *a=a>le4 !#A(!ouse #ent Allo7ance ) house rent allowance is e=empted uGs 51(58A) of the income ta= act4$east of the following is e=empted from )ra &ecei9ed
o o

)&A recei9ed )ouse rent paid minus 51 L of salary(salary means >asic plus dp plus da if term of employment so pro9ides) C1L of salary(same meaning as a>o9e)in case of rented house situated in Bom>ay'Madras'Delhi or calcutta 01 L of salary 'if rented house is situated in any other places

!=emptions for salary income / Following are e=empt from income ta=/ *ransport allowance upto &s B11 per month granted to an employee to meet his e=penditure for the purpose of commuting >etween place of residence and the place of his duty4 Con9eyance and transport allowance granted to employee to meet cost of tra9el on tour are e=empt4 Allowance granted to meet e=penditure incurred on con9eyance in performance of duties of an office or employment are e=empt4 In LI) Officers 94 LI) of India (3111) 553 *a=man 33E (Bom )C DB)' it was held that con9eyance allowance is e=empt only if e=pended for meeting e=penses wholly and necessarily incurred or to >e incurred in performance of duties of office4 Con9eyance allowance at flat rate irrespecti9e of place of residence' wor? and posting will not >e e=empt from income ta=4

5J

Con9eyance and transport allowance granted to employee to meet cost of tra9el on transfer are e=empt4 !=penses granted to meet cost of tra9el on transfer and cost of pac?ing and transportation of personal effects on such transfer are e=empt4 .se of employerDs 9ehicle or transport pro9ided for :ourney of employee from residence to his place of wor? and >ac? is not treated as perquisite and its cost is not treated as income4 &efreshments during office hours to employees and recreational facilities pro9ided to group of employees are not treated as perquisites4 LTA8LTC / $ea9e *ra9el AssistanceG$ea9e *ra9el Concession is allowed twice in a >loc? of four years4 It is limited to amount actually spent on tra9elling of employee and his family mem>ers4 It is limited to economy class of air fare or AC first class fare Osection 51(C) of Income *a= Act and rule 3BP *he allowance is e=empt su>:ect to amount of e=penses actually incurred >y the employee for such tra9el4 *he employee will ha9e to ?eep account of actual e=penses incurred4 It appears that actual tra9el >y air or AC is not required' >ut the o9erall ceiling on e=penses is su>:ect to limit of air fare G rail fare4 .edical $rea$!en$ / &eim>ursement of amount actually spent for medical treatment upto &s 5C'111 is e=empt in a financial year4 In addition' reim>ursement of insurance premium for self' spouse' children and dependent >rothers' sisters and parents is e=empt4 In case of treatment in %o9ernment or appro9ed hospital' or e=penditure on medical treatment outside India' reim>ursement of medical e=penses is e=empt without any ceiling *RS 9*olun$ary Re$ire!en$: / It is e=empt upto &s fi9e la?hs if &( is as per prescri>ed conditions4 Leave encas4!en$ / !ncashment of earned lea9e on retirement of employees of CentralG(tate %o9t is fully e=empt Osection 51(51AA)(i) of Income *a= ActP 4 $ea9e encashment while in ser9ice is treated as part of salary4 In other cases' lea9e 31

encashment of earned lea9e on retirement will >e lowest of 51 monthsD salary' &s three la?hs or actual sum recei9ed Osection 51(51AA)(ii) of Income *a= ActP RENUMERA*ION FOR )O O+ERA*I,E *E)-NI)AL ASSIS*AN)E +RO,I$E$ AS +ER AGREEMEN* .E*/EEN GO,ERNMEN* OF IN$IA 0 FOREIGN GO,ERNMEN* 1SE) 234567 )OMMI*E$ +ENSION 1SE)23423A67 )OMMI*E$ +ENSION IS *-E $IS)OUN*E$ AMOUN* RE)EI,E$ IN A$,AN)E&INS*EA$ OF MON*-LY +ENSION8*-IS E9EM+*ION IS A,AILA.LE *O )EN*RAL:S*A*E GO,ERNMEN* EM+LOYEES&$EFEN)E +ERSONNEL& 0 EM+LOYEES OF LO)AL AU*-ORI*Y8 IN)ASE O*-ER EM+LOYEES 4+RI,A*E SE)*OR6 Y-E MA9IMUM LIMI* IS 2:;R$ OF *O*AL +ENSION&AS MAY .E A++LI)A.LE8

35

CHA&TER ; THE DEDUCTIONS FRO. SALARY INCO.E UNDER SECTION 2< *he following deductions are a9aila>le from salary income</ 54 (tandard deduction4 34 Deduction for professional or employment ta= 84 Deduction of entertainment allowance4 STANDARD DEDUCTION For A474 5JJB/JJ' (tandard deduction of a sum equal to 88/5G8L of the salary or &s431'111 whiche9er is less' was allowed to an indi9idual ha9ing income from salary4 *hen w4e4f4 5/0/JJ this limit of (tandard deduction for assessees ha9ing salary income upto &s4 5'11'111 was increased from &s431'111 to &s43C'111' )owe9er' the >enefit of standard deduction to assessees ha9ing salary income of more than &s4 C'11'111 was withdrawn4 *his implies that an assessee earning salary income >etween &s4 5 lac and &s4C lacs will only >e entitled to a (tandard deduction of a sum equal to 88/5G8L of the salary or &s431'111 whiche9er is less4

IS S+ANDA#D D%D.C+I"N A''"-AB'% +" 9%NSI"N%#SC Yes *he standard deduction is also allowa>le to pensioners4

D%D.C+I"N )"# 9#")%SSI"NA' "# %M9'"YM%N+ +A< ;rofessional ta= or employment ta=' le9ied >y a (tate %o9ernment is eligi>le as a deduction4 *he amount so paid can >e deducted from the ta=a>le salary4

33

CHA&TER = ENTERTAIN.ENT ALLO%ANCE .pto A474 3115/13 !ntertainment allowance is first ' included in the employeeIs salary and then e=emption is allowed as gi9en here/in/>elow</ (a) In the case of %o9ernment employee the least of (i) &s4C111 or' (ii) 31L of salary (e=clusi9e of any other allowance)' is allowa>le as a deduction4 (>) In the case of non/%o9ernment employees least of the

following < / (i) !ntertainment allowance regularly recei9ed from his present employer from a date prior to 54045JCC or' (ii) A sum equal to 5GCth of salary (e=clusi9e of any other allowance' >enefit or perquisite) or' (iii) &s4E'C11' is allowed as a deduction4 !AS +!%#% B%%N A C!AN(% IN A''"-ABI'I+Y ")

%N+%#+AINM%N+ A''"-ANC%C 7es4 -ith effect from 5 st April' 3113' i4e4 in relation to the assessment year 3113/ 3118 and su>sequent years' this pro9ision relating to deduction of entertainment allowance stands omitted in the case of employees in continuous employment since the 5 st April' 5JCC under section 524 -;at e>em:tions are made in salaryC %>em:tions under section =1

38

'ea?e tra?el concession 5 sec =1(D)

It is e=empt to the following e=tent< /in the case of an indi9idual /the 9alue of any tra9el concession or assistance recei9ed >y or due to him /From his employer for himself and his family' in connection with his proceeding on lea9e to nay place in India4 %ncas;ment of lea?e salary 5 sec =1(=1AA)

/ It means cash recei9ed >y an employee against lea9e earned >ut not ta?en and accumulated4 / $ea9e encashment while in ser9ice is ta=a>le In case of 8o?ernment em:loyee5

Any payment recei9ed >y an employee of the central go9t or state go9t as the encashment of the earned lea9e to his credit at the time of his retirement' is wholly e=empt from ta= In case of ot;er em:loyees5

$ea9e salary is e=empt to the e=tent of the least of the following amounts< /!ncashment of the earned lea9e' not e=ceeding 81 days per each completed year of ser9ice /51 months a9erage salary on >asis of >asic salary drawn for 51 months immediately preceding the date of retirement /*he amount notified >y the go9ernment which is 8' 11'111 /And the amount actually recei9ed 9ayment from statutory B :ublic :ro?ident fund 5 sec =1(==)

/A pro9ident fund to which the pro9ident funds act' 5J3C applies /#r from the pro9ident fund set up and notified >y the central go9ernment Q 9ayment from reco8ni@ed 9 ) 5 sec =1(=3) /*he accumulated >alance due and >ecoming paya>le' /*o nay employee participating in a recogni@ed pro9ident fund /*o the e=tent pro9ided in rule B of part A of the 0th schedule to the act !ouse rent allo7ance 5 sec=1 (=EA)

/Any special allowance granted to an employee >y his employer to specifically meet e=penditure actually incurred on the payment of rent for residential accommodation occupied >y him 30

/-here as no e=emption is a9aila>le< 54 -hen such accommodation occupied >y the Assesse is owned >y him 34 *he Assesse has not actually incurred any e=penditure on payment of the rent in respect of such accommodation occupied >y him4

3C

)"#MA+ ") INC"M% )#"M SA'A#Y +AM! #F A((!!((!! ;A+(M!+* 7&/ A((!(M!+* 7!A&/311J/51 ;&! I#.( 7!A&/85/8/311J (*A*.(<I+DI ID.A$< #&DI+A&I$7 &!(ID!+* C#M;.*A*I#+ #F I+C#M! F&#M (A$A&I!( &!(ID!+* A+D

+AM! A+D ADD&!(( #F *)! !M;$#7!& (A$A&7BA(IC (A$A&7G-A%!( A&&!A&( #F (A$A&7 AD A+C! (A$A&7 B#+.( $!A ! (A$A&7 C#MMI((I#+ ;!+(I#+ %&A*.I*7(*#*A$ !R*-+* +#* !R!M;* .G( 51) C#MMI*!D A$.! #F ;!+(I#+(*# !R*!+*

&(

&(

+#* !R!M;* .G( 51) A$$#-A+C!((*# !R*!+* !R!M;* .G( 51) !+*!&*AI+M!+* A$$#-A+C!(

32

D!A&+!(( A$$#-A+C! CI*7 C#M;!+(A*#&7 A$$#-A+C! )#.(! &!+* A$$#-A+C! #*)!& (;!+*) ;!&S.I(I*!((*# *)! !R*!+* *ARAB$!) ;&#FI* I+ $I!. #F (A$A&7 %&#(( (A$A&7 $!((<D!D.C*I#+ .G( 51 5) !+*!&*AI+M!+* A$$#-A+C! (.G( 52(3) 3) ;&#F!((I#+A$ *AR(.G( 52(8)) A$$#-A+C!(*# !R*!+* +#*

+!* (A$A&7 C)A&%!AB$! *# *AR

3E

Ho6 can I calcula$e !y Salary Inco!e' *hese calc%lations are best left to yo%r internal h%man reso%rce or acco%nts department8 Ne<ertheless& here is a =%ic> table that can ?%ide yo% to ?ettin? an %nderstandin? of ho' to calc%late yo%r salary income8 .%t some of yo% mi?ht find the terms and 'ords %sed a little technical& so don@t say 'e didn@t 'arn yo%A8for simplification p%rposes& 'e ha<e %sed ro%nd n%mbers for the table8 %>am:le Amount (in #s ) 511'111 51'111 C'111 811 55C'B11 /C'111 /5'111 Salary Income 51J'B11

Item Basic (alary' ;ension' Annuity' Bonus' Dearness Allowance' Commission' Ad9ance (alary' Arrears of (alary Add %ratuity $ea9e !ncashment' Commuted ;ension' Add ;erquisites and ;rofits in addition to or in lieu of (alary Add !mployerDs contri>ution to recogni@ed ;ro9ident Fund in e=cess of 53L of salary (ross Salary $ess Deduction for !ntertainment Allowance $ess Deduction for !mployment *a=

;lease recogni@e that not all these line items might >e applica>le to you' the a>o9e is :ust an illustrati9e e=ample to demonstrate how one can calculate oneDs (alary Income4 !RAM;$!<M( .rmilla is employed with D&!AM -#&" $*D as a secretary since 5st april 3112 during the year ended 85st march 311J' she recei9ed the following

Basic salary &( 5C'111 per month )ouse rent allowance &( 3'C11 per month Amount recei9ed for meeting con9eyance e=penses &( C11 per month 4(he has spend &( E111 in the year for commuting on >usiness wor? &eim>ursement of medical >ill &( 3'B11

;erquisite in respect of concessional lunch during office hours &( 0'C11

3B

C#M;.*! *)! I+C#M! C)A&%!AB$! *# *AR #F M( .&MI$$A F#& *)! A7 311J/51 (#$.*I#+< M( .&MI$$A ;A+< (*A*.(/I+DI ID.A$ &!(ID!+* A+D #&DI+A&I$7 &!(ID!+* C#M;.*A*I#+ #F I+C#M! F&#M (A$A&7 &( (A$A&I!( (A$A&I!( (5C'111R 53) )#.(! &!+* (3'C11R53) MA"! .; A$$#-A+C! (5'111R53) &!C!I !D F#& M!!*I+% C#+ !7A+C! C#+ !7A+C! A$$#-A+C! (5'C11R53) 2'111 $!((< !R!M;* .G( 51 (50) E'111 %&#(( (A$A&7 $!((< D!D.C* .G( 51 (50) *# !R*!+* (;!+* I+C#M! F&#M (A$A&I!( / 3'33'111 / 3'33'111 81'111 53'111 &( 5'B1'111 03'111 A((* 7&/311J/51 ;& 7&/85/8/1J

+#*!/$.+C) ,&( 0'C11' (I+C! *)I( A$$#-A+C! I( ;AID D.&I+% #FFIC! 4*).( )#.&( *)I( -I$$ +#* B! *&!A*!D A( (A$A&7 M!DICA$ BI$$/&( 3'B11'(I+C! I* I( A &!IMB.&(!M!+* I* -I$$ +#* B! *&!A*!D A( (A$A&74

Biblio8ra:;y
3J

 Varsha Ainapure, Mukund Ainapure Direct and Indirect taxes. Mumbai: Manan Prakashan, 2000 A.M. Sharma Understanding Wage System. Delhi: Himalaya Publication House, 200 State !ank o" #ndia $""icers% Association &Mumbai 'ircle(, Service Conditions at a Glance, 200) State !ank o" #ndia http://www.statebankofindia.com/ http://www.onlinesbi.com/ #ncome *a+ Department http:,,---.incomet a+india..o/.in,

0oo.le http:,,---..o o.le.co.in,

81