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The facts About Your Salary All remuneration including allowances, perquisites and arrears of salary received by an employee

from the employer or ex-employer constitutes the salary income of an individual. Allowances directly add to an individual's monetary income, while perquisites are in the nature of benefits, concessions or facilities that an employee is privileged to receive. What goes into the three groups, viz; salaries, allowances and perquisites is described here. Look at the following points for more you want to know about your salary.

1.What constitutes salary


2. 3. 4. 5. 6. How do I compute my salary income How do I claim deductions and rebates and pay my taxes Exemption limits for certain items of salary and allowances Taxable value of perquisites Deductions permissible from gross salary

1. What Constitutes Salary There are total 3 groups that constitute your salarySalary Group Basic Salary, Advance Salary, Incentive, Bonus, Attendance Bonus, Leave Encashment [EL], Gratuity [EL], Arrears of Salary, Suggestion Award, Pension, Compensation under VRS [EL], Long service award etc. Allowances Group Dearness Allowance including Additional / Fixed / Variable D. A., House Rent Allowance [EL], Lunch Allowance, Conveyance Allowance [EL], Children's Education Allowance [EL], Technical/IT(Info Tech) Allowance, Night Shift Allowance, Overtime Allowance, Leave Travel Assistance[EL], Personal Allowance, Special Allowance, Ad-hoc / Miscellaneous Allowance, I.B.R. Allowance / HIR allowance, Transfer Allowance, City compensatory Allowance, Cash handling allowance, Washing allowance, Kit allowance, Fire fighting allowance, etc. Perquisites Group Rent free unfurnished house, Rent free furnished house, Motor car facility, Reimbursement of Gas, Electricity & Water, Club facility, Domestic Servant Facility, Interest Subsidy on Loan , Reimbursement of medical bills, Reimbursement of Hospital bills, Reimbursement of telephone bills, Benefits derived by employee stock option, and so on. EL: Exempt up to certain limit

Top 2. How do I Compute my Salary Income First, work out gross salary as sum of items under the groups salary, allowances & perquisites. In doing so, consider:

- Exemption limits for certain items of salary and allowances - Value of perquisites to be regarded as taxable Next, deduct the amounts that are allowable from gross salary to arrive at your taxable income from salaries.

3. How do I Claim Deductions and Rebates and pay my Taxes Step-1 You need to make a declaration to Corporate Finance (Salary) listing the amounts invested or those that you have committed to pay during the financial year which would entitle you to claim a tax rebate. In fact you need to submit copies of receipts / certificates to the company evidencing actual payments made. You can make this declaration as early as possible during the financial year (1st April to 31st March) but in any case not later than the 10th of February. Step-2 In case you are repaying a housing loan, you could claim a deduction for the interest paid on the loan. You need to obtain a certificate from the Housing Finance Co. that separately states the principal amount and interest that you have repaid during the financial year. Please submit this certificate along with the above mentioned declaration before 10th of February. Step-3 Include in your declaration applicable deductions under Chapter VI-A relating to certain payments made by you. Step-4 Corporate Finance (Salary) will consider your declaration and estimate your taxable salary income as well as your tax liability. The income tax will be deducted in equal installments from your monthly salary and pay it to the government on your behalf. In case extra tax has been deducted, it will be repaid to you through your monthly salary after the end of the year. Note: Please appreciate that it is the companys obligation by law to deduct the correct amount of tax from your salary. Therefore, you are urged to cooperate and make correct declarations well in time.

Top 4. Exemption Limits for Certain Items of Salary and Allowances A. Leave Salary or Leave Encashment

Leave salary received at the time of retirement or at the time of superannuation or at the time of termination of service is exempt from tax up to the least of the following amounts. (Routine encashment of earned leave during the course of employment is fully taxable.) a. Leave salary actually received. b. Eight months average salary. c. Amount specified by Govt. i.e. Rs. 2,40,000/- (retired after 1 July 1997) d. One month average salary for every completed year of service after deducting leave availed while in service. Note: I. -For calculating Completed years of service, any fraction of year is to be ignored. II. Average salary is worked out from the salary drawn by employee during the ten months before his retirement. -Salary = Basic Salary + Dearness Allowance B. Gratuity Gratuity received at the time of retirement or superannuation or termination of service is exempt from tax up to the least of the following amountsa. Gratuity actually received b. Amount specified i.e. Rs. 3,50,000/c. 15 days salary based on 26 days in a month for every completed year of service. Note: -Completed year of service includes part of the year in excess of six months. -Salary refers to the last pay drawn. -Salary = Basic Salary + Dearness Allowance C. Compensation received under VRS Under an approved scheme of Voluntary Retirement Scheme, the maximum amount of exemption is Rs. 5,00,000/-. D. House Rent Allowance (HRA) House rent allowance received by an employee is exempt from tax up to the least of the following: a. House Rent Allowance actually received b. 50% of salary if HRA received in Mumbai, Calcutta, Delhi, Chennai and 40% of salary if HRA in other cities. c. Rent paid in excess of 10% of salary. Note: -Salary = Basic Salary + Dearness Allowance -Exemption for HRA is not available if employee is staying in his own house or not paying any rent for occupying house .

E. Leave Travel Allowance Leave travel allowance not exceeding the amount of actual travel fare incurred by the employee for self and family to travel to any place in India while on leave is exempt. Note: -Exemption can be claimed only for two trips during the block of four calendar years (19982001). -Air fare is also allowable -Tickets, etc. should be preserved by the employee and produced on demand by the assessing tax officer. F. Conveyance Allowance Exempt up to Rs.800/- per month. G. Children's Education Allowance This allowance is exempt from tax to the extent of Rs. 50 /- per month per child up to a maximum of two children. Top 5. Taxable Value of Perquisites a. Rent Free Unfurnished residential accommodation provided by company -------------For accommodation provided in the cities other than Mumbai, Calcutta, Delhi, Chennai
CONDITION TAXABLE AMOUNT

a. If fair rent less than 10% of salary b. If fair rent more than 10 % of salary but less than 50% of salary c. If fair rent more than 50% of salary

Fair rent 10 % of salary Fair rent minus 40% of salary

-------------If house provided in Mumbai, Calcutta, Delhi, Chennai


CONDITION TAXABLE AMOUNT

a. If fair rent less than 10% of salary b. If fair rent more than 10 % of salary but less than 60% of salary c. If fair rent more than 60% of salary

Fair rent 10 % of salary Fair rent minus 50% of salary

Note: -The perquisite is to be valued only for the period that the accommodation was occupied by the employee.

-Fair rent means rent of similar property in the same locality or muncipal valuation, whichever is higher. -Salary includes the pay, allowances, bonus or commission payable monthly or otherwise, plus reimbursement of gas, electricity & water plus profession tax / income tax paid by company on behalf of the employee . -Salary does not include the following (i) Company's contributions to the provident fund account of the employee (ii) Tax - exempt portion of allowances. b. Rent-free furnished residential accommodation provided by company i. Calculate taxable value of rent - free accommodation as if it were unfurnished (see no. 1 above). ii. Add 10% of original cost of furniture provided by company in case the furniture is owned by the company. In case the furniture is hired, the actual higher charges paid by the company should be considered. Note: Furniture includes TV. Sets, Refrigerator, Video, Tape recorder, Soft furnishing and other house hold appliances. c. Motor Car Facility The company provides motor car facility partly for the performance of the employee's duties and partly for employee's private and personal purposes. All the expenses on the maintenance and running the car are met or reimbursed to the employee by the company. The value of this perquisite is worked out as: i. Where the horse power (hp.) rating of the car does not exceed 16: Rs.600 per month ii. Where the horse power (hp.) rating of the car exceeds 16. : Rs.800 per month In either case, Rs.300 per month should be added to the value of the perquisite if a chauffeur has also been provided. d. Reimbursement of Gas, Electricity and Water Taxable value of perquisite = amount reimbursed to the employee. e. Club Facility Taxable value of perquisite = bills for club fees paid by company. f. Free use of domestic Servant i. Taxable value of perquisite = wages of domestic servant reimbursed by company to employee. ii. In case Sweeper, Watchman or a Gardner is provided by the company, the taxable value of the perquisite = Rs. 120/- per month per servant. g. Interest Free Loan OR Loan provided at concessional Rate of Interest

i. Loan directly given by the company: Taxable value of the perquisite = reasonable amount of interest calculated at differential between rate of interest at which loans are usually available outside and rate at which loan is given to employee. ii. Concession in interest through an arrangement, on loans given to employees by outside agency: Taxable value of the perquisite = amount of interest subsidised by the company. h. Reimbursement of medical bills / hospitalisation bills Taxable value of the perquisite = amount reimbursed in excess of Rs.15,000/- per annum. i. Reimbursement of telephone bills Taxable value of the perquisite = charges for long distance personal calls by employee reimbursed by company. j. Value of employees stock options With effect from assessment year 2000-01, the difference between the market price of the share or other security offered to the employee and the cost at which it is offered to the employee shall be taxed as a perquisite. The benefit shall be taxed in the year in which the right of such option is exercised or is exercised and transferred in the name of any other person.

Top 6. Deductions Permissible from Gross Salary a. Standard Deduction

Condition

Deduction Amount Lower of 33.33% Of gross salary Or Rs.25,000/Rs.20,000/NIL

A B C

Gross salary does not exceed Rs.1,00,000/Gross salary over Rs.1,00,000/- and up to Rs.5,00,000/Gross salary exceeds Rs.5,00,000/-

b. Tax on Employment (profession tax) Amount of deduction = Profession tax paid. c. Deductions under Chapter VI-A

To arrive at the taxable salary the company will consider deductions allowed in respect of certain payments in case the employee has declared them to the company.

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