Income from Salary - Taxability of allowances

Allowances are a fixed monetary amount paid by the employer to the employees for meeting some particular expenses, whether personal or for performance of his duties. It can be divided into following types:-

A. Allowances, which are fully exempt:-

Citizen of India : Allowances to a citizen of India, who is a Government employee, rendering services outside India.

HC and SC Judges : Allowances given to HC and SC Judges. (Compensatory Allowance or Sumptuary allowance)

Amount received from UNO : Allowances received by an employee of UNO from his employer.

B. Allowances - which are fully taxable:-

C. Allowances partly taxable and partly exempt.

1 :- House rent allowance

Other points:-

1]For the purpose of (c) (i.e. 40% / 50% limit), place of resident is relevant, and not the place of service.

2] Meaning of Salary: Salary = Basic + DA (if forming part of retirement/ provided in terms of employment) + Commission as a percentage of turnover.

2 Allowances, which are exempt to the extent of amount received or the limit specified, (whichever is less).

3. Allowances which are exempt to the extent spent:- 

• Conveyance allowances
• Helper allowances
• Uniform allowances
• Travelling allowances/Transfer allowances

Read More

Salaried Taxpayee are not claimed the Income under the head "Salaries" - New Circular

INCOMES NOT INCLUDED UNDER THE HEAD "SALARIES" (EXEMPTIONS)

Any income falling within any of the following clauses shall not be included in computing the income from salaries for the purpose of section 192 of the Act :-

The value of any travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding (a) on leave to any place in India or (b) after retirement from service, or, after termination of service to any place in India is exempt under Section 10(5) subject, however, to the conditions prescribed in Rule 2B of the Rules.

For the purpose of this clause, "family" in relation to an individual means:

• the spouse and children of the individual; and
• the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.

It may also be noted that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.

Death-cum-retirement gratuity or any other gratuity is exempt to the extent specified from inclusion in computing the total income under Section 10(10). Any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence service is exempt.  Gratuity received in cases other than those mentioned above, on retirement, termination etc is exempt up to the limit as prescribed by the Board. Presently the limit is Rs. 10 lakhs w.e.f. 24.05.2010 [Notification no. 43/2010 S.O. 1414(E) F.No. 200/33/2009-ITA-1 dated 11th June 2010].

Any payment in commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all- India services or to the members of the defence services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority] or a corporation established by a Central, State or Provincial Act, is exempt under Section10(10A)(i). As regards payments in commutation of pension received under any scheme of any other employer, exemption will be governed by the provisions of section 10(10A)(ii). Also, any payment in commutation of pension from a fund referred to in Section 10(23AAB) is exempt under Section 10(10A)(iii).

Any payment received by an employee of the Central Government or a State Government, as cash-equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement, whether on superannuation or otherwise, is exempt under Section 10(10AA)(i). In the case of other employees, this exemption will be determined with reference to the leave to their credit at the time of retirement on superannuation or otherwise, subject to a maximum of ten months' leave. This exemption will be further limited to the maximum amount specified by the Government of India Notification No.S.O.588(E) dated 31.05.2002 at Rs. 3,00,000/- in relation to such employees who retire, whether on superannuation or otherwise, after 1.4.1998.

Under Section 10(10B), the retrenchment compensation received by a workman is exempt from income-tax subject to certain limits. The maximum amount of retrenchment compensation exempt is the sum calculated on the basis provided in section 25F(b) of the Industrial Disputes Act, 1947 or any amount not less than Rs.50,000/- as the Central Government may by notification specify in the Official Gazette, whichever is less. These limits shall not apply in the case where the compensation is paid under any scheme which is approved in this behalf by the Central Government, having regard to the need for extending special protection to the workmen in the undertaking to which the scheme applies and other relevant circumstances. The maximum limit of such payment is Rs. 5,00,000/- where retrenchment is on or after 1.1.1997 as specified in Notification No. 10969 dated 25-06-1999.

Under Section 10(10C), any payment received or receivable (even if received in installments) by an employee of the following bodies at the time of his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of public sector company, a scheme of voluntary separation, is exempt from income-tax to the extent that such amount does not exceed Rs. 5,00,000/-:

1. A public sector company;
2. Any other company;
3. An Authority established under a Central, State or Provincial Act;
4. A Local Authority;
5. A Cooperative Society;
6. A university established or incorporated or under a Central, State or Provincial Act, or, an Institution declared to be a University under section 3 of the University Grants Commission Act, 1956;
7. Any Indian Institute of Technology within the meaning of Section 3 (g) of the Institute of Technology Act,1961;
8. Such Institute of Management as the Central Government may by notification in the Official Gazette, specify in this behalf.

The exemption of amount received under VRS has been extended to employees of the Central Government and State Government and employees of notified institutions having importance throughout India or any State or States. It may also be noted that where this exemption has been allowed to any employee for any assessment year, it shall not be allowed to him for any other assessment year. Further, if relief has been allowed under section 89 for any assessment year in respect of amount received on voluntary retirement or superannuation, no exemption under section 10(10C) shall be available.

Any sum received under a Life Insurance Policy (Sec 10(10D), including the sum allocated by way of bonus on such policy other than the following is exempt under section 10(10D):

• any sum received under section 80DD(3) or section 80DDA(3); or
• any sum received under a Keyman insurance policy; or
• any sum received under an insurance policy issued on or after 1.4.2003, but on or before 31-03-2012, in respect of which the premium payable for any of the years during the term of the policy exceeds 20 percent of the actual capital sum assured; or
• any sum received under an insurance policy issued on or after 1.4.2012 in respect of which the premium payable for any of the years during the term of the policy exceeds 10 percent of the actual capital sum assured; or
• any sum received under an insurance policy issued on or after 1.4.2013 in cases of persons with disability or person with severe disability as per Sec 80U or suffering from disease or ailment as specified in Sec 80DDB, in respect of which the premium payable for any of the years during the term of the policy exceeds 15 percent of the actual capital sum assured

However, any sum received under such policy referred to in (iii), (iv) and (v) above, on the death of a person would be exempt.

Any payment from a Provident Fund to which the Provident Funds Act, 1925, applies or from any other provident fund set up by the Central Government and notified by it in the Official Gazette is exempt under section 10(11).

Under section 10(13A) of the Act, any special allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee is exempt from Income-tax to the extent as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations. According to Rule 2A of the Rules, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be the least of the following:

1. the actual amount of such allowance received by the assessee in respect of the relevant period i. e. the period during which the accommodation was occupied by the assesse during the financial year; or
2. the actual expenditure incurred in payment of rent in excess of one-tenth of the salary due for the relevant period; or

• where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50% of the salary due to the employee for the relevant period; or
• where such accommodation is situated in any other places, 40% of the salary due to the employee for the relevant period.

For this purpose, "Salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in Rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the House Rent Allowance or any portion thereof from the total income of the employee.  Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance upto Rs.3000/- per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of

tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.

Further if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report PAN of the landlord to the employer. In case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee.

Section 10(14) provides for exemption of the following allowances :-

• Any special allowance or benefit granted to an employee to meet the expenses wholly, necessarily and exclusively incurred in the performance of his duties as prescribed under Rule 2BB subject to the extent to which such expenses are actually incurred for that purpose.
• Any allowance granted to an employee either to meet his personal expenses at the place of his posting or at the place he ordinarily resides or to compensate him for the increased cost of living, which may be prescribed and to the extent as may be prescribed.

However, the allowance referred to in (ii) above should not be in the nature of a personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to his place of posting or residence.

The CBDT has prescribed guidelines for the purpose of Section 10(14) (i) & 10 (14) (ii) vide notification No.SO 617(E) dated 7th July, 1995 (F.No.142/9/95-TPL)which has been amended vide notification SO No.403(E) dt 24.4.2000 (F.No.142/34/99-TPL). The transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of duty is exempt to the extent of Rs. 1600 p. m. or Rs 3200 p.m. (for a person who is blind or deaf and dumb or is orthopaedically handicapped with disabilities of lower extremes) vide notification S.O.No. 395(E) dated 13.05.98 r/w S.O. No. 1002 (E) dated 13.04.2015 & S.O. No. 2604 (E) dated 23.09.2015.

Under Section 10(15)(iv)(i) of the Act, interest payable by the Government on deposits made by an employee of the Central Government or a State Government or a public sector company out of his retirement benefits, in accordance with such scheme framed in this behalf by the Central Government and notified in the Official Gazette is exempt from income-tax. By notification No.F.2/14/89-NS-II dated 7.6.89, as amended by notification No.F.2/14/89-NS-II dated 12.10.89, the Central Government has notified a scheme called Deposit Scheme for Retiring Government Employees, 1989 for the purpose of the said clause.

Any scholarship granted to meet the cost of education is not to be included in total income as per provisions of section 10(16) of the Act.

Section 10(18) provides for exemption of any income by way of pension received by an individual who has been in the service of the Central Government or State Government and has been awarded "Param Vir Chakra" or "Maha Vir Chakra" or "Vir Chakra" or such other gallantry award as may be specifically notified by the Central Government. Family pension received by any member of the family of such individual is also exempt [Notifications No.S.O.1948(E) dated 24.11.2000 and 81(E) dated 29.1.2001, which are enclosed as per Annexure VIII & IX]. “Family” for this purpose shall have the meaning assigned to it in Section 10(5) of the Act. DDO may not deduct any tax in the case of recipients of such awards after satisfying himself about the veracity of the claim.

Under Section 17 of the Act, exemption from tax will also be available in respect of:-

• the value of any medical treatment provided to an employee or any member of his family, in any hospital maintained by the employer;
• any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or of any member of his family:
• in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees;
• in respect of the prescribed diseases or ailments as provided in Rule 3A(2) of the Rules in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines as provided in Rule 3(A)(1)of the Rules,
• premium paid by the employer in respect of medical insurance taken for his employees (under any scheme approved by the Central Government or Insurance Regulatory and Development Authority) or reimbursement of insurance premium to the employees who take medical insurance for themselves or for their family members (under any scheme approved by the Central Government or Insurance Regulatory and Development Authority);
• reimbursement, by the employer, of the amount spent by an employee in obtaining medical treatment for himself or any member of his family from any doctor, not exceeding in the aggregate Rs.15,000/- in an year;
• As regards medical treatment abroad, the actual expenditure on stay and treatment abroad of the employee or any member of his family, or, on stay abroad of one attendant who accompanies the patient, in connection with such treatment, will be excluded from perquisites to the extent permitted by the Reserve Bank of India. It may be noted that the expenditure incurred on travel abroad by the patient/attendant, shall be excluded from perquisites only if the employee's gross total income, as computed before including the said expenditure, does not exceed Rs.2 lakhs.

For the purpose of availing exemption on expenditure incurred on medical treatment, "hospital" includes a dispensary or clinic or nursing home, and "family" in relation to an individual means the spouse and children of the individual. Family also includes parents, brothers and sisters of the individual if they are wholly or mainly dependent on the individual.

It is pertinent to mention that benefits specifically exempt u/s 10(13A), 10(5), 10(14), 17 etc. of the Act would continue to be exempt. These include benefits like house rent allowance, leave travel concession, travel expense allowance on tour and transfer, daily allowance to meet tour expenses as prescribed, medical facilities subject to conditions.

In this connection it is to be noted that as per sec. 10 (14) read wit rule 2BBany allowance granted to meet the cost of travel on tour or on transfer includes any sum paid in connection with transfer, packing and transportation of personal effects of such transfer shall be exempt. Also any allowance, whether, granted for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence form his normal place of duty shall be exempt.

Read More

November-2016 Advance Salary to CG Employee - MF instructed to Banks

Government of India

Department of Expenditure

Office of Controller General of Accounts

Mahalekha Niyantrak Bhawan

Block-E, G.P.O. Complex, I.N.A., New Delhi-110023

Ph:No.011-24665337-40/Fax No.011-24627678

No.S-11012/1(6)/Banks/2016-17/RBD/1815-47

Dated: 18.11.2016

To
Shri P.Vijaya Kumar,
Chief General Manager,
Reserve Bank of India
Department of Currency Management,
Central Office, 4th Floor, Amar Building,
Sr.P.M.Road, P.B.No.1379,
MUMBAI – 400001

FAX NO:022-22662442

Sir,

This is with reference to Ministry of Finance, Department of Expenditure OM No.25(30)/E.Coord/2016, dated 17th November 2016 regarding release of Part Salary in advance amounting to Rs.10000/- form the salary for the month of November 2016 in the form of Cash Pay-out to all Non Gazetted Employees of Central Government. Also refer your office letter dated 11.11.2016 which mentions that Government Departments may be allowed to draw cash beyond the stipulated limit of Rs.10,000/- in exceptional cases only on production of evidence justifying their cash requirements in writing.

Necessary instructions may please be issued immediately to all the banks in view of the Ministry of Finance OM dated 17.11.2016 referred above to enable Govt. offices to release advance salary as per above mentioned OM.

Yours faithfully,

sd/-

(Dr.Shakuntla)

Joint Controller General of Accounts

For More Details Click Here

Read More

Salary and Pension of October-16 before Diwali Festival.

Recently Maharashtra Government issued a resolution dated 20/10/16 to All departments to disbursed the Salary and Pension for the month of October, 2016 before Diwali Festival.

We all are well-known about Diwali Festival of this year.  It is coming soon at the end of Day of Current Month i.e. October.  As per Government Resolution issued by Finance Department dated 20/10/16, disbursement of Salary/Pension for the month of October, 2016 should make before 25th October, 2016 along will all eligible Allowances.

October-16 Salary before 25/10/2016 GR

Read More

TDS on Salary ­ Key points an employee should know

Recently this article published in www.caclubindia.com by CMA Ramesh Krishnan.  This article is specialy for salaried Employee, which is as under :

Introduction: Taxation on salary is the vital area which should know not only by the employer but also employee should aware about this area. Section.192 of the Income tax act is crucial section under TDS which deals with the TDS deduction on Salary. This section describes the complete process of tax deduction from salary of employees. In this article, I will try to highlight some major points which a person as an employee should know and cooperate with employer to comply with the requirement of section 192 and ensure the correct deduction of tax from his/her salary.

1. Declaration of the Income details: Every employer need to collect the declaration from each employee about the income other than his/her salary income from their organization. This declaration needs to be given by the employee either beginning of the every financial year (April) or at the time of joining with new employer whichever is earlier. This declaration should be in the form 12C as per rule 26B and it should contain-

a. Employee name/PAN/Residential status

b. Income other than Salary like House property/Business/Capital gain/ Other sources

c. TDS or advance tax payment paid or deducted if any

2. Declaration of Investments and other deduction: Apart from the income details the employee has to declare his/her investment/savings details which eligible under chapter VI­A , such as various section like 80C/80D/80DD/80DDB/80E/80G/80U/80TTA etc. This will be declared in the form of 12B, In this form employee has to declare the following details-

a. Income from his/her previous employment (if he joining mid of the financial year)

b. Projected investment which eligible for chapter VI­A for the financial year

c. House property interest details (self occupied/let out)

d. Rent payment in case of claiming HRA exemption u/s.10(13A)

e. Children with education details for claiming Children education & hostel expenses allowance u/s.10(14)

This declaration also needs to submit with employer in the beginning of the financial year or at the time of joining whichever is earlier.

This above 2 declarations is the responsibility of the employee to give without fail with the employer to ensure proper & correct TDS deduction from the salary of an employee. 

After receiving those declarations, responsibility starts with employer. from here I will continue the article in Frequently asked questions (FAQ) mode-

How the employers calculate the tax of employee?

Ans: Employer will follow the steps like

a. Employer first arrive the Salary income of the employee in working organization with considering the eligible deductions/exemptions/allowance under the head Salaries.

b. Second step, in case employee joined mid of the financial year, employer adds the salary income of the employee from their previous employment.

c. After that employer will add the Income other than salary declared by the employee in form 12C with considering the deductions mentioned in the form.

d. Then they will arrive the eligible deduction under chapter VI­A as per employee declaration

e. Finally employer need to calculate the employee`s total tax liability for the year. During final liability, employer need to consider the any tax deducted from his income already during the financial year from any source and any advance tax paid by employee on his/her own. This TDS/advance tax only consider based on the payment proof or certificate from the deductor.

Based on the arrived tax liability, employer starts deduct the TDS from the employee`s salary in the equal monthly installment for the year or remaining period incase joined during mid of the year. 

What will happen if the employee fails to declare these forms? 

Ans: If employee fails to declare these forms, employer will consider the Salary income for the

present employment without giving the exemptions/deductions to arrive the tax liability. It will lead

the more or excess TDS deduction from the employee`s salary.

What is the consequence if the employee not declaring the Other Incomes and previous employment income to employer?

Ans: If the employee not declaring the other income details and previous employment details, there will not be any problem for the employer because employer has responsibility to ensure the TDS deduction from the salary paid from their company only. However, employee may get the huge tax burden and interest liability u/s.234B & 234C in the year end or at the time of filling the income tax return. If the employee fails to declare the previous employment income details, there may be chance of considering deduction under Chapter VI­A and basic exemption and house property interest deduction double time by the both employer and finally while consolidating salary from the both employer, it will be allowed one time and end up the employee with huge tax liability.

What is the consequence if employee declares wrong details in the declaration?

Ans: Giving incorrect or wrong information in the declaration will lead the excess or short deduction of tax and put the employee in to trouble during year end or income tax filling stage.

What are the documents need to be submitted with employer along with declaration?

Ans: Declarations need to be submitted first however supporting documents for other incomes and deductions during the year end to finalise the tax workings mostly by Jan/Feb/Mar, because employer responsibility to ensure to collect the proper documents for any deductions/exemptions.  Incase employee declared the details and not produce the documents with the employer also will lead the huge tax liability at the year end and gives the burden to employee.

Whether employee needs to produce the Original proof with employer?

Ans: Yes. Employee needs to submit the original proof of documents with employer for his all exemption and deductions claim to avoid the double deductions in multiple time.

Whether rent receipts & agreement is mandatory to claim the HRA exemption?

Ans: Yes. Original rent receipts are mandatory to claim the HRA exemption, rental agreement can be provided as optional but receipts are the base for claiming the exemption

What will deduction for rent if salary structure not having HRA portion?

Ans: Incase salary structure not having HRA component, then employee can opt the deduction u/s.80GG of rent paid subject to maximum of Rs.2500 per month deduction

Whether original medical bills required claiming the medical reimbursement?

Ans: Yes. Medical reimbursement of Rs.15000 per annum maximum exemption allowed, to avail this employee has to submit original medical bills with employer .However fixed medical allowance is fully taxable.

Whether proofs are require for claiming Leave Travel Allowance?

Ans: Previously it is mandatory to submit the document proofs but after the Supreme Court judgment in case of CIT vs Larsen & Toubro Ltd in 2009, for claiming LTA, proofs are not required only declaration if enough to claim the same.

What is the solution after submit the proofs also employer missed to consider or fail to submit the proofs but employee has the original documents?

Ans: Incase employee submitted all the documents but employer not consider or missed to consider the deductions and exemptions or employee fail to submit the documents before employer deduct the tax, then employee can claim the exemption and deductions based on the proof available with him/her in their Income tax return. However Leave Travel Concession or Allowance cannot claim by employee on their own in the income tax return since that need employer confirmation about the leave details etc.

Whether the employer can allow the 80G deduction during tax calculation?

Ans: Employer can allow the donations which are eligible for 100% deduction such as Government scheme like National defence fund, Prime Minister relief fund, Earth quake relief fund etc. but other donations which are comes under 50% eligibility need to be claimed by the employee in the income tax return directly.

How employee can ensure the TDS deducted from the employer has been deposited?

Ans: In the normal course the employer has to deposit the TDS deducted from the employee`s salary within 7th of the following month except March deduction (March deduction can be paid within 30th of April) every month employee cannot check whether paid or not however quarterly once employer has to submit the TDS return the same will be reflect in to employee`s form 26AS, So employees can login in their form 26AS and check whether TDS deducted from their salary has been deposited or not. If not, they can check with their employer accordingly.

Conclusion: The above points and information are very basic information to know as an employee to ensure their TDS from salaries. Basically the cooperation between the employer and employee in the TDS deduction will make more effective to minimize the error and ensure the proper deduction.

Souce: www.caclubindia.com

Read More

Salary modes & Income Tax reliefs by amended Finance Act, 2014 for Asstt. Year 2015-16.

Advance learning on tax treatment of various forms of salary like bonus, overtime pay, salary in lieu of notice period, etc. (Theory)

Tax treatment of advance salary :
Advance salary received by an employee is taxed in the year of receipt. The rule behind this is the basis of taxability of salary, i.e., salary is taxed on due or receipt basis, whichever is earlier. However, an employee can claim relief under section 89 (discussed later) in respect of advance salary.

Arrears of salary :
Arrears of salary received by an employee are taxed in the year of receipt if the same were not taxed earlier on due basis. However, an employee can claim relief under section 89 (discussed later) in respect of arrears of salary.

Tax treatment of bonus :
Bonus received by an employee is charged to tax in the year of receipt. Relief under section 89 can be claimed in respect of arrears of bonus received during the year.

Tax treatment of fees or commission :
Fees or commission received by the employee from the employer are charged to tax as salary income. Commission will be taxed as salary income, irrespective of the fact that it is received as fixed monthly amount or is received as a percentage of any particular item like turnover achieved by the employee.

Tax treatment of salary in lieu of notice period :
Salary in lieu of notice period is charged to tax on receipt basis, i.e., it is charged to tax in the year of receipt.

Gifts received from the employer :
Any voluntarily gift received by the employee from the employer is charged to tax as salary income (perquisite). However, non-monetary gifts are exempt upto Rs. 5,000. The detailed tax treatment of gift in the form of perquisite is discussed in advance learning on perquisites.

If gift has no relation to the service rendered by the employee, then the same can be charged to tax under the head “Income from other sources”.

Compensation received from the employer :
Compensation received from the employer in connection with modification of terms of employment will be charged to tax as salary income, i.e., profits in lieu of salary.

Pay for extra work :
If an employee receives any payment in respect of extra work done by him then the same is charged to tax under the head “Salaries”. In other words, remuneration received for extra work will be charged to tax as salary income.

Tax treatment of allowances :
Tax treatment of various allowances is discussed in the advance learning on allowances.

Tax treatment of perquisites :
Tax treatment of various perquisites is discussed in the advance learning on perquisites.

Tax treatment of retirement benefits :
Tax treatment of various retirement benefits is discussed in the advance learning on retirement benefits.

Tax treatment of salary received by a partner :
For taxing any income under the head “Salaries”, the relation of the payer and payee should be that of the employer and the employee. In case of a partnership firm, the partners are not the employees of the firm and, hence, salary received by the partners from the firm is not charged to tax under the head “Salaries”. Salary received by partner from the firm is charged to tax under the head “Profits and gains of business or profession”.

Tax treatment of salary received by an Indian citizen deputed outside India :
Salary received by an Indian citizen deputed outside India by the Government is treated as income deemed to be accrued or arisen in India and will be taxed in India. However, in such a case allowance and perquisites will be exempt from tax.

Tax treatment of salary foregone by the employee :
Salary is charged to tax on due or receipt basis whichever is earlier, hence, salary foregone by the employee is charged to tax on due basis, even though it is not received by him. In other words, salary foregone after its accrual is charged to tax, even though it is not received by the employee.

Tax treatment of surrender of salary to the Central Government :
Salary foregone after its accrual is charged to tax, even though it is not received by the employee. However, if salary is surrendered to the Central Government under section 2 of the Voluntary Surrender of Salary (Exemption from Taxation) Act, 1961, then such surrendered salary is not charged to tax.

Tax treatment of salary received from the UNO :
Salary received from the United Nations Organisation is exempt from tax as per section 2 of the United Nations (Privileges and Immunities) Act, 1947.

Tax treatment of amount received before joining the job :
Any payment received by an employee from his present employer or former employer or prospe ctive employer will be charged to tax under the head “Salaries” (as profits in lieu of salary). Hence, amount received from prospective employer will also be charged to tax under the head “Salaries”.

Relief under section 89 in respect of arrears of salary :
Under section 89, read with Rule 21A(2), an employee can claim relief in respect of arrears of salary. Relief can be computed in the following manner:
Step 1 : Calculate total tax liability (including surcharge and cess, if any) on the total income, including the additional salary of the previous year in which such salary is received.

Step 2 : Calculate total tax liability (including surcharge and cess, if any) on the total income, excluding the additional salary of the previous year in which such salary is received.

Step 3 : Find the difference between tax computed at (1) and (2) above.

Step 4 : Calculate total tax liability (including surcharge and cess, if any) on the total income, including the additional salary of the previous year(s) to which such salary relates to. 

Step 5 : Calculate total tax liability (including surcharge and cess, if any) on the total income, excluding the additional salary of the previous year(s) to which such salary relates to.

Step 6 : Find the difference between tax computed at (4) and (5) above. Relief under section 89 is the excess of tax computed at Step 3 over tax computed at Step 6. No relief is available, if tax computed at Step 3 is less than tax computed at Step 6. If the additional salary pertains to more than one previous year, then relief shall be computed in above manner by spreading such salary over the previous years to which such salary pertains to.

To read details of this Amendment Finance Act, 2013 (Click Here)

Read More

Salary paid to Indian Branches Employee's by overseas HO is fully deductible.

Where assessee, a bank incorporated in Japan, paid salaries abroad to its expatriates working in Indian branch constituting PE, in view of fact that said expenditure had been incurred wholly and exclusively for Indian branch and, no part of those expenses could be allocated to any other branch by head office, provisions of section 44C did not apply to said expenditure and thus, assessee's claim for deduction of salary expenses was to be allowed.

Where PE of assessee received interest on deposits kept with HO, it was opined that once interest received by PE was deemed to be income of PE and there was no bar in India-Japan treaty on its taxability, then it could not be excluded from computation of income earned by PE.

MAT provisions are applicable only to domestic companies and not to foreign companies.

Where assessee-bank claimed that provisions of section 115JB were not applicable to its case, in view of provisions of section 90(2), assessee's claim for lower impostion of tax in terms of article 7(3) of India-Japan DTAA had to be accepted because provisions of section 115JB are subordinate to section 90(2) and have no overriding effect on said section.

Source: www.taxmann.com

Read More

Children Education Allowance revised for Central Government Employee w.e.f. 01.01.2014

While answering to a question in Parliament on 18.7.2014, Finance Minister Shri Arun Jaitley said in a written form regarding the details of Children Education Allowance that it has been informed by the Department of Personnel and Training that the annual ceiling limit for reimbursement of Children Education Allowance (CEA) is 18,000/- per child. The Hostel Subsidy shall be 4,500/- per month per child.

The annual ceiling for reimbursement of CEA for disabled children of Government employees is 36,000/- per annum per child and the rates of Hostel Subsidy for disabled children of Government employees is 9,000/- per child per month.

These revisions are applicable with effect from 1st January, 2014.

The reimbursement is admissible for the children studying in institutions affiliated to any Board or recognised institution, whether in receipt of Government aid or not, recognised by the Central or State Government or Union Territory Administration or by University or a recognised educational authority having jurisdiction over the area where the institution is situated.

Source: CG Staff News

Read More

Salary Perquisites u/s. 17(2) for Salaried Employee.

Perquisites mean any casual emoluments, fees or profit attached to an office in addition to salary and wages. In simple words, it’s a personal advantage. It does not cover a mere reimbursement of any expenditure incidental to the employment.

Like if an employee is provided with a watchman for official use there is no personal advantage to the employee, hence there is no perquisites. If the watchman is provided for personal as well as official use, the value of the perquisites only relating to personal use is taxable. Similarly if the travelling bills for official duties are reimbursed to the employee, there is no advantage to the assesse, so it is not a perquisite.

The perquisites may be in cash or in kind or in the money or money’s worth and also in amenities which are not convertible to the money.

All cash allowance is included in the ordinary meaning of perquisites: - all cash allowance is included and hence taxable under section 17(2) of income tax act. City compensatory allowance, bad climate allowance, shift allowance and incentive bonus are included as perquisites under section 17(2) of income tax act.

A perquisite is taxable as salary only when it is provided by the employer during the continuance of employment: - any perquisites allowed by a person other than employer is taxable as income from other sources. For example tips received by hotel waiters from customers are taxable as income from other sources

Non user of the perquisites by an assesse is of no consequences unless the right to perquisites is foregone before it accrues to him: - there may be circumstances under which the employee may not make use of the perquisites provided by the employer. Where the income is accrued or received but it is subsequently given up, it remain the income of the recipient [CIT vs. ShoorjiVallabhdas and co. (1962) 46 ITR 144 (SC)]. The voluntary forgoing by the employee of the salary due to him is normally a mere application of income and the salary is nonetheless taxable. Unless the assesse forgoes his right of the provision of such perquisites before the income accrues, the notional income has to be brought to charge as perquisites equitant to the value of rent free accommodation [CIT vs. Bawa Singh Chauhan (1984) ITR 8].

Wide scope of the inclusive definition of perquisites: - the definition of the perquisites is inclusive but not limited to them only. The scope of an inclusive definition cannot be restricted only to those words which accrue in definition, but with extend to many other things not mentioned in it. Therefore, any other item not listed in the definition of perquisites will have to be evaluated in accordance with the general and commercial meaning of the word perquisites.
Section 17(2) of income tax perquisites includes.

1. Rent free accommodation under section 17(2) 1
2. Accommodation in concessional rate of rent under section 17(2) 2
3. Any benefit or amenity to the specified employee who is either a director of has a substantial interest in the company or whose income under salaries exceeds Rs. 50000 under section 17(2)3
4. Obligation of the employee paid or reimbursed by the employer under section 17(2)4
5. Any sum payable by the employer to effect an assurance on the life of the assesse or to effect a contract of annuity under section 17(2) 5
6. Prescribed fringe benefits or amenity under section 17(2)6

Source: www.caclubindia.com

Read More

Latest Conveyance Allowance rates to Government Servants.

Maharashtra State Government has been issued a resolution regarding Conveyance allownace to all state Government Employee vide No. Pravas 1013/Pra.Kra.13/Seva-5 dated 23/09/2013. The State Government had amended Conveyance rates against resolution dated 03/03/2010 by apendix-7. 

The Traveling/Conveyance Allowance and there Dearness Allowances had rises by State Government to State Government Employee who are working under the Service Rule of Maharashtra State.  The State Government has revised following Conveyance Rates:



Rates - Conveyance Allowance to Government Servants (Click Here)

Rates of Travelling Allowance and Daily Allowance (Click Here)

Read More

Salary Allowances and Exempted Allowances.

Allowance is defined as a fixed quantity of money or other substance given regularly in addition to salary for meeting specific requirements of the employees. As a general rule, all allowances are to be included in the total income unless specifically exempted. Exemption in respect of following allowances is allowable to the exent mentioned against each :-

House Rent Allowance:- Provided that expenditure on rent is actually incurred, exemption available shall be the least of the following :

(i) HRA received.
(ii) Rent paid less 10% of salary.
(iii) 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi) Salary here means Basic + Dearness Allowance, if dearness allowance is provided by the terms of employment.

Leave Travel Allowance: The amount actually incurred on performance of travel on leave to any

place in India by the shortest route to that place is exempt. This is subject to a maximum of the air economy fare or AC 1st Class fare (if journey is performed by mode other than air) by such route, provided that the exemption shall be available only in respect of two journeys performed in a block of 4 calendar years.

Certain allowances given by the employer to the employee are exempt u/s 10(14). All these exempt allowance are detailed in Rule 2BB of Income-tax Rules and are briefly given below:

For the purpose of Section 10(14)(i), following allowances are exempt, subject to actual expenses incurred:

(i) Allowance granted to meet cost of travel on tour or on transfer.

(ii) Allowance granted on tour or journey in connection with transfer to meet the daily charges incurred by the employee.

(iii) Allowance granted to meet conveyance expenses incurred in performance of duty, provided no free conveyance is provided.

(iv) Allowance granted to meet expenses incurred on a helper engaged for performance of official duty.

(v) Academic, research or training allowance granted in educational or research institutions.

(vi) Allowance granted to meet expenditure on purchase/ maintenance of uniform for performance of official duty.

Under Section 10(14)(ii), the following allowances have been prescribed as exempt.

Type of Allowance	Amount exempt
(i) Special Compensatory Allowance for hilly areas or high altitude allowance or climate allowance.	Rs.800 common for various areas of North East, Hilly areas of UP, HP. & J&K and Rs. 7000 per month for Siachen area of J&K and Rs.300 common for all places at a height of 1000 mts or more other than the above places.
(ii) Border area allowance or remote area allowance or a difficult area allowance or disturbed area allowance.	Various amounts ranging from Rs.200 per month to Rs.1300 per month are exempt for various areas specified in Rule 2BB.
(iii) Tribal area/Schedule area/Agency area allowance available in MP, Assam, UP., Karnataka, West Bengal, Bihar, Orissa, Tamilnadu, Tripura	Rs.200 per month.
(iv) Any allowance granted to an employee working in any transport system to meet his personal expenditure during duty performed in the course of running of such transport from one place to another place.	70% of such allowance upto a maximum of Rs.6000 per month.

(v) Children education allowance.		Rs.100 per month per child upto a maximum 2 children.
(vi) Allowance granted to meet hostel expenditure on employee’s child.		Rs.300 per month per child upto a maximum two children.
(vii) Compensatory field area allowance available in various areas of Arunachal Pradesh, Manipur Sikkim, Nagaland, H.P., U.P. & J&K.		Rs.2600 per month.
(viii) Compensatory modified field area allowance available in specified areas of Punjab, Rajsthan, Haryana, U.P., J&K, HP., West Bengal & North East.		Rs.1000 per month
(ix) Counter insurgency allowance to members of Armed Forces.		Rs.3900 Per month
(x) Transport Allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of residence & duty.		Rs.800 per month.
(xi) Transport allowance granted to physically disabled employee for the purpose of commuting between place of duty and residence.		Rs.1600 per month.
(xii) Underground allowance granted to an employee working in under ground mines.	Rs.800 per month.
(xiii) Special allowance in the nature of high altitude allowance granted to members of the armed forces.	Rs. 1060 p.m. (for altitude of 9000-15000 ft.) Rs.1600 p.m. (for altitude above 15000 ft.)
(xiv) Any special allowance granted to the members of the armed forces in the nature of special compensatory highly active field area allowance	Rs. 4,200/- p.m.
(xv) Special allowance granted to members of armed forces in the nature of island duty allowance. (in Andaman & Nicobar & Lakshadweep Group of Islands)	Rs. 3,250/- p.m.

Read More

Salaried Employee, How to split Salary Income Section-wise?

I would like to share this important information for salaried employee who paid or deduct Tax as TDS and submit Income Tax Return annually.  Normally Salaried employee does not know all sections of Income Tax related with Form No. 16. and thus they are in trouble after furnishing Annual Return to Income Tax Department.  Salary Income classified into 6 parts.

• CHARGE-ABILITY
• DEDUCTIONS
• DEFINITIONS
• EXEMPTIONS
• ALLOWANCES
• VALUATION OF PERQUISITES

All the parts are related with Income Tax Sections found in Form No. 16.  The following table are clarify all the conclusions regarding Salary Income.

SECTION NUMBER	DETAILS
Sec 15	CHARGEABILITY
Sec 16 : DEDUCTIONS:-
Sec 16(ii)	ENTERTAINMENT ALLOWANCE
Sec 16(iii)	PROFESSION TAX
Sec 17 : DEFINITIONS:-
Sec 17(1)	SALARY
Sec 17(2)	PERQUISITES
Sec 17(3)	PROFITS IN LIEU OF SALARY
EXEMPTIONS:-
Sec 10(5)	VALUE OF TRAVEL CONCESSION OR ASSISTANCE
Sec 10(6)	IN CASE OF A FOREIGN NATIONAL
Sec 10(7)	INDIAN CITIZENS EMPLOYED ABROAD BY GOVERNMENT OF INDIA
Sec 10(45)	IN CASE OF CHAIRMAN OR MEMBER OF UNION PUBLIC SERVICE COMMISSION
Sec 10(10)	GRATUITY
Sec 10(10A)	PENSION
Sec 10(10AA)	LEAVE SALARY
Sec 10(10B)	RETRENCHMENT COMPENSATION
Sec 10(10C)	VOLUNTARY RETIREMENT / SEPARATION SCHEME
Sec 10(10CC)	TAX ON NON MONETARY PERQUISITES
Sec 10(11)	STATUTORY / PUBLIC PROVIDENT FUND
Sec 10(12)	RECOGNISED PROVIDENT FUND
Sec 10(13)	APPROVED SUPERANNUATION FUND
ALLOWANCES:-
Sec 10(13A)	HOUSE RENT ALLOWANCE
Sec 10(14)	SPECIAL ALLOWANCES(Allowances prescribed by the CBDT under Rule 2BB of the Income-tax Rules as exempt to the extend spent or up to specified limit)
VALUATION OF PERQUISITES:-
Sec 17(2)(i)	RESIDENTIAL ACCOMODATION FREE OF COST
Sec 17(2)(ii)	RESIDENTIAL ACCOMODATION AT A CONCESSIONAL RENT
Sec 17(2)(iii)	BENEFITS OR AMENITIES TO SPECIFIED EMPLOYEES
Sec 17(2)(iv)	ANY SUM PAID BY THE EMPLOYER IN RESPECT OF ANY OBLIGATION OF THE EMPLOYEE

Read More