Income from Salaries

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You will come to know how to calculate taxable income from salaries.


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PowerPoint Presentation : INCOME FROM SALARIES The following rules are applied in case of salary income :- Those income are taxable as salary income where the relationship between the receiver & giver of salary is employee & employer. Salary is taxable on due or receipt basis whichever comes earlier. Advance salary is taxable in the year of receipt. Arrears of salary are taxable on receipt basis if they are not taxed earlier on due basis. Bonus is taxable on actual receipt basis only.

PowerPoint Presentation : 6. Whenever net salary is given then we have to add the followings to arrive as a gross basic salary :- a) Tax Deducted at Source (TDS) b) Employee contribution to statutory as well as non statutory funds. c) Any deduction from salary by the employer towards recovery of any loan or advance given by him to employee. d) Any deduction from salary at the request of the employee such as outside loan repayment. e) Insurance premium, etc. Foregoing of salary – chargeable to tax. Surrender of salary to govt. – not taxable.

PowerPoint Presentation : 9. Profit in lieu of salary includes :- a) compensation due or received by an assessee in connection with the termination of employment. b) modificaition of the terms & condition of employment. c) sum received in lumpsum or otherwise by an assessee from any person before joining any employment or after cessation of such employment. 10. Dearness Allowance :- It is an allowance given by the employer to the employee to compensate him for the rise in the cost of living. This of 2 type :- a) Dearness Allowance (in terms of employment/ included for retirement benefits/ forming part of basic salary)

PowerPoint Presentation : They all means the same. DA here is a taxable item of salary but forms part of basic salary for all purpose except for “salary” for deduction u/s 16(ii) {here salary means only gross basic salary}. b) Dearness Allowance (not in terms of employment/ not included for retirement benefits/ not forming part of basic salary) DA is a taxable item of salary but doesnot form part of basic salary for any purpose except for the meaning of “salary” for calculating exemption u/s 10(10) i.e. gratuity exemption – covered by POGA {here salary means basic salary+DA weather in terms or not in terms

PowerPoint Presentation : 11. The following are fully taxable under the heads salaries if given by the employer to employee in relation to the employment :- a) Fixed medical allowances b) Project allowances c) Lunch/dinner allowances d) Servant allowances e) Telephone allowances f) Warden allowance g) Entertainment allowance h) City compensatory allowance

PowerPoint Presentation : 12. Treatment of Providend Fund :- Statutory Providend Fund (SPF) Recognised Providend Fund (RPF) Unrecognised Providend Fund (URPF) Public Providend Fund (PPF) Employers Contribution Exempt Up to 12% of salary = Exempt Excess over 12% = Taxable in the hands of employee as Salary income Exempt Not Applicable Interest Credited Every Year Exempt Int.up to 8.25%pa=Exempt Excess 8.25%pa =Taxable In the hands of employee as Salary income Exempt Exempt Amount Received on Maturity/ withdrawal Exempt u/s 10(11) Exempt u/s 10(12) Own contribution = Not Income Employers cont. =taxable as salary Int. on own cont. =taxable as IFOS Int. on Employers cont.=taxable as salary Exempt u/s 10(11) Min –500pa Max – 70,000pa

PowerPoint Presentation : 12. Treatment of Providend Fund :- Statutory Providend Fund (SPF) Recognised Providend Fund (RPF) Unrecognised Providend Fund (URPF) Public Providend Fund (PPF) Deduction u/s 80C on Employees Contribution Available Available Not Available Available

PowerPoint Presentation : d) Any payment by employer towards life insurance/ securing an annuity for employee other than group insurance scheme, employee state insurance scheme since these are not regarded as perquisite u/s 17(2)(v) – Reimbursement e) Fringe benefits u/s 17(2)(vi) – Facility 13. Perquisites u/s 17(2) :- A) Taxable Perquisite for All Employees :- a) Value of rent free accomodation u/s 17(2)(i) – Facility b) Value of concession in rent u/s 17(2)(ii) – Facility c) Amount paid by an employer in respect of any obligation which otherwise would have been payable by the employee u/s17(2)(iv) – Reimbursement

PowerPoint Presentation : B) Taxable Perquisite for Specified Employees :- Facility such as motorcar, servants, gas, water etc. are taxable only in the hands of the following specified employees u/s 17(2)(iii) -- Facility a) Director Employee b) Employee having 20% or more voting power c) Employee drawing salary in excess of Rs. 50,000/- i.e.[Gross salary – value of any perquisite –employers contribution to RPF in excess of 12% of salary – interest accrued to RPF in excess of 9.5%pa – entertainment allowance u/s 16(ii) – professional tax u/s 16(iii)]

PowerPoint Presentation : C) Rules for Valuation of Perquisites :- a) Value of Rent-free Unfurnished/ Furnished Accomodation :- Central government & State government Employees Other Employees Owned by employer Taken on lease or Rent by employer Rent-free Unfurnished Accomodation Valued as per Government rule Population > 4 lacs 10% of salary Population < 4 lacs 7.5% of salary Least of :- Actual Rent Paid 10% of Salary Add for Furnishing 10%pa on Original cost OR Actual hire charges 10%pa on Original cost OR Actual hire charges 10%pa on Original cost OR Actual hire charges Less Rent Recovered Less Rent Recovered by Employer Less Rent Recovered by Employer Less Rent Recovered by Employer

PowerPoint Presentation : Salary (bonus, commission, allowance), but does not include :- 1. DA (not in terms) 2. Employers contribution to providend fund in excess of 12% of salary 3. Exempted allowance 4. Taxable perquisite 5. Arrears salary 6. Advance salary 7. Deduction u/s 16(ii)

PowerPoint Presentation : b) Perquisite of sweeper/ gardner/ watchman/ personal attendant :- Actual cost to employer XX Less : Amount recovered from employee ( XX) Taxable Portion XX Perquisites of servants Appointed by employer Appointed by employee & expenses reimbursed by employer Mere facility taxable u/s 17(2)(iii) in the Hands of specified Employees only Employees liability met by employer, Fully taxable u/s 17(2)(iv) in the hands Of all employees Cost to employer Is taxable Cost to employer Is taxable

PowerPoint Presentation : c) Perquisite of gas/ Electric energy/ Water stream etc. :- Generated from Employers own Business resources Purchased form outside (Connection in name of Employer) Reimbursed to employee (Connection in name of Employee) Perquisite Value Taxable u/s 17(2)(iii) At actual cost to Employer Taxable u/s 17(2)(iii) Taxable u/s 17(2)(iv) As mere Facility As employees liability Met by employer Includes partly official & partly personal/ totally personal (Value as above less amount recovered from employee)

PowerPoint Presentation : d) Perquisite value of interest free loan/ concessional loan to assessee & family member :- Loan exceeds Rs. 20,000/- Housing loan – 10%pa Vehicle loan – 10%pa Any other loan – 13%pa Loan for medical treatment Loan reimbursement to employee Considering as a loan Taxable u/s 17(2)(vi) i.e all employees Due Interest :- 1. Take the maximum amount outstanding as on the last day of each month for each type of loan. 2. Multiply it by prescribed rate of interest as discussed above on monthly basis. 3. Interest calculation are simple interest. # Perquisite Value = Due Interest – Interest Paid by Employee Taxable u/s 17(2)(vi) i.e all employees Not taxable

PowerPoint Presentation : e) Perquisite of Free/ Subsidised meal :- Taxable u/s 17(2)(vi) i.e, all employees Expenditure by employer per meal XX Less : Rs. 50 per meal (XX) Less : Amount recover from employee ( XX ) Taxable Perquisite XX # Free Snacks = Fully Exempt (during working hours) # Meals in Remote Area = Fully Exempt f) Perquisite of travel/ touring/ accomodation/ Other expenses provided by employer for holiday etc. :- Taxable u/s 17(2)(vi) i.e, all employees g) Perquisite of Free/ Concessional education facilities for any member of employees household :- 1. For Assesees Children :- Cost to employer (per month per child) XX Less : 1000 per month per child (XX) Less : Amount recovered from employee ( XX ) Taxable perquisite u/s 17(2)(iii) XX

PowerPoint Presentation : 2. For Other Relatives :- Cost to employer (per month per child) XX Less : Amount recovered form employee ( XX ) Taxable Perquisite u/s 17(2)(iii) XX 3. Reimbursed by employer :- Fully Taxable u/s 17(2)(iv) 4. Bills directly in the name of employer :- Fully Taxable u/s 17(2)(iii) h) Perquisite of Gift etc. :- Taxable u/s 17(2)(vi) i.e, all employees Perquisite Value Gift Voucher/ Token Cheque/ Cash Gift Excess of Rs. 5000/- Fully Taxable

PowerPoint Presentation : i) Perquisite of Credit Card expenses/ Meal Entertainment expenses :- Fully Taxable u/s 17(2)(vi) i.e, all employees j) Perquisite of Club Fees :- Fully Taxable u/s 17(2)(vi) i.e, all employees k) Perquisite of Free/ Concessional Transport Facilities by an employer engaged in business of passanger/goods :- Taxable u/s 17(2)(iii) i.e, specified employees only Market Value XX Less : Amount paid by the employee ( XX ) Taxable Perquisite XX # Perquisite is not taxable for employees of Railways & Airways

PowerPoint Presentation : l) Perquisite of Movable Assets sold by an employer to its employees at nominal price :- Taxable u/s 17(2)(vi) i.e, all employees Estimated cost on the date of such assets XX Less : Amount recovered from employee ( XX ) Taxable Perquisite XX # Depreciate Computer @ 50% on wdv. # Depreciate Motarcar @ 20% on wdv. # Depreciate Otherasset @ 10% on original cost. # Depreciation has to be calculated for completed years prior to acquisition by employee. m) Perquisite of use of Movable Assets :- Taxable u/s 17(2)(vi) i.e, all employees 10%pa of the Actual Cost/ Amount of Rent/ Charges paid or Payable XX Less : Amount recovered from employee ( XX ) Taxable Perquisite XX # Asset other than laptops, computer & cellular phone.

PowerPoint Presentation : n) Perquisite for Medical Treatment Treatment In hospital owned By employer Fully Exempt Medical Insurance/ Medi-claim Fully Exempt Re-imbursement of Expenses Treatment in India Treatment outside India Govt. Hospital Approved Hospital Others Permission Of RBI GTI does not exceed Rs. 2,00,000/- before Travelling expenditure Travelling Expenditure Stay of employee & one attended Medical Treatment Exempt up to Rs. 15,000- In a year Fully Exempt Fully Exempt

PowerPoint Presentation : 14. Deduction u/s 16 :- a) Entertainment Allowance u/s 16(ii) Govt. Employee Non-govt. Employee Deduction least of :- Actual Amount Received 1/5 th of Basic Salary Rs. 5000/- No Deduction b). Professional Tax u/s 16(iii) :- Any amount paid by the employee as professional tax or deducted by the employer from the salary of the employee is allowed as deduction to the employee u/s 16(iii)

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