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Salary Income
The following income shall be chargeable to income-tax under the head Salaries
- Salary due from an employer or a former employer whether the amount is paid or not.
- Salary received from or on behalf of an employer or a former employer whether the amount is due or not.
- Arrears of salary received from or on behalf of an employer or a former employer, if it is not taxed earlier.
Salary includes:
Wages
Annuity or pension
Gratuity
Fees, commissions, perquisites, profits in lieu of or in addition to any salary or wages
Advance salary
Leave Encashment
Annual accretion to the balance at the credit of an employee participating in a recognised provident fund
Basic
Basic salary is fully taxable
Dearness Allowance (DA)
DA is fully taxable
House Rent Allowance (HRA)
HRA is a special allowance given to an employee to meet his rent expenses. It is exempt to the extent of least of the following:
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| Mumbai /Kolkata / Delhi/ Chennai |
Other cities |
| HRA actually received |
HRA actually received |
| Rent paid in excess of 10% of salary |
Rent paid in excess of 10% of salary |
| 50% of salary |
40% of salary |
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Notes:
1. Salary for HRA = Basic + DA + commission if paid as a fixed percentage of sales
2. The above exemption is available only on actual payment of rent
Calculation of taxable amount
Let us explain this with an example. Say, you live in Delhi and your salary structure for a month is as follows:
Basic - Rs 12,000
HRA - Rs 5,000
Other taxable allowances - Rs 2,000
Monthly rental expenses � Rs. 7,000
Now, HRA will be exempt to the extent of the least of:�
- Rs 6,000 (50 per cent of salary); or�
- Rs 5,000 (HRA received); or��
- Rs 5,800 (excess of rent paid over 10 per cent of salary)�
i.e. HRA exemption will be Rs. 5,000..
Conveyance allowance
It is an allowance granted to the employee by his employer to meet the expenses incurred on commuting from home to the place of his residence.
Conveyance allowance is exempt to the extent of Rs. 800. An orthopaedically handicapped employee enjoys a higher exemption of Rs. 1,600.
Children Education Allowance and Hostel expenditure allowance
Children education allowance of Rs.100 per child (max up to two children) and hostel expenditure allowance of Rs.300 per child (max up to two children) will be exempt from tax.
Leave Travel Concession (LTA)
LTA is the value of any travel concession or assistance received from his employer by the employee for him and his family.
The exemption is limited to the following:
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| Air travel |
Economy fare of national carriers (India Airlines or Air India) by the shortest route |
| Rail travel |
First class AC fare by the shortest route
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| Road |
Public transport - First class fare or deluxe class fare by the shortest route.
If there is no recognized transport, the value of exemption will be air-conditioned first class rail fare by the shortest route, as if the journey had been performed by rail. |
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Notes:
1. This concession can be claimed for a maximum of two journeys in a block of 4 years.
2. If the assessee has not availed the concession during any such block, he can carry forward the concession for one of the journeys to the next block, provided he avails the same in the first calendar year of the next block.
Perquisites
Perquisites are the benefits in addition to normal salary to which the employee has a right to by virtue his employment.
The following perquisites will be taxable in the hands of the employees:
1. Rent-Free Accommodation.
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| Serial Number |
Circumstances |
Where accommodation is unfurnished |
Where accommodation
is furnished |
| (1) |
(2)
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(3) |
(4)
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| (1) |
Where the accommodation is provided by the Central Government or any State Government to the employees either holding office or post in connection with the affairs of the Union or of such State or serving with any body or undertaking under the control of such Government on deputation
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Licence fee determined by the Central Government or any State Government in respect of accommodation in accordance with the rules framed by such Government as reduced by the rent actually paid by the employee. |
The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
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| (2) |
Where the accommodation is provided by any other employer and�
(a) where the accommodation is owned by employer, or
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(i) 20% of salary in cities having population exceeding 4 lakhs as per 2001 census;
(ii) 15% salary in other cities,
in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee. |
The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
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(b) where the accommodation is taken on lease or rent by the employer.
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Actual amount of lease rental paid or payable by the employer or 20% of salary whichever is lower as reduced by the rent, if any, actually paid by the employee.
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The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
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| (3) |
Where the accommodation is provided by the employer specified in serial number (1) or (2) above in a hotel (except where the employee is provided such accommodation for a period not exceeding in aggregate 15 days on his transfer from one place to another)
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Not applicable
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24% of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, which is lower, for the period during which such accommodation is provided as reduced by the rent, if any, actually paid or payable by the employee:
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Notes:
1. Where on account of his transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place:
Value of perquisite = Value of one such accommodation which has the lower value with reference to the table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the Table.
2. Gardener, sweeper or watchman or a personal attendant provided by the employer:
Value of the perquisite = the actual cost incurred by the employer as reduced by any amount paid by the employee for such services
3. Gas, water and electricity:
- If the facility is provided from his own resources,
Value of the perquisite = manufacturing cost p.u. incurred by the employer
- If the gas, water or electricity procured from outside agency,
Value of the perquisite = actual amount paid by the employer
4. Interest free or concessional loans provided by employer to employee or his family members:
Value of the perquisite will be determined as the sum equal to the interest computed at the rate charged per annum by the State Bank of India as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it. This sum will be calculated on the maximum outstanding monthly balance.
5. Free or concessional educational facilities:
Value of the benefit = the sum equal to the amount of expenditure incurred by the employer in that behalf
Where the educational institution is maintained and owned by the employer,
Value of the benefit = cost of such education in a similar institution in or near the locality
Where the educational institution itself are provided to the children of the employee,
Value of the benefit = Nil, if the value of such benefit per child does not exceed Rs. 1,000 p.m.
6. Use of movable assets:
Where any movable asset (other than laptops and computers) is provided by the employer to employee or any member of his household,
Value of the benefit = 10% per annum of the actual cost of such asset or the amount of rent or charge paid or payable by the employer.
7. Transfer of movable asset for free or at concessional rates:
Where the employer transfers any movable asset to the employee or any member of his household,
Value of the benefit = the actual cost of such asset to the employer as reduced by the cost of normal wear and tear calculated at the rate of 10% of such cost for each completed year
Notes:
In the case of computers and electronic items, the normal wear and tear would be calculated at the rate of 50% and in the case of motor cars at the rate of 20% by the reducing balance method.
8. Medical expenses:
- Value of medical treatment provided by the employer to an employee or any member of his family will be nil, if the treatment is provided:
- in any hospital maintained by the employer or
- 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
- for any prescribed diseases in any hospital approved by the Chief Commissioner
- Medical insurance premium paid by an employer for an employee under an approved scheme will not be treated as a perquisite
- Medical insurance premium paid or reimbursed by an employer for an employee or any of his family members under an approved scheme will not be treated as a perquisite
- Reimbursement of medical expenses incurred on treatment of the employee or any member of his family [other than that referred to in clause (1)] will be exempt to the extent of Rs.15000.
- Expenditure incurred by the employer on the following will be excluded from perquisites only if the belowmentioned conditions are satisfied:
- medical treatment of the employee, or any member of the family of such employee, outside India;
- travel and stay abroad of the employee or any member of the family of such employee for medical treatment;
- travel and stay abroad of one attendant who accompanies the patient in connection with such treatment
Conditions:
(A) the expenditure on medical treatment and stay abroad shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India; and
(B) the expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, computed before including the said expenditure, does not exceed two lakh rupees
Deductions for Gross Salary u/s 16:
Taxable salary will be computed after deducting the following amounts from gross salary computed according to the aforementioned provisions:
a. Entertainment Allowance (only for Government employees):
The entertainment allowance will be deducted to the extent of least of the following:
- 1/5th of salary or
- 5,000
b. Profession Tax paid by the employee
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