Income From Salary

Notes By Wilson

Income from Salary Any Income will be chargeable under the head income from salary if it is received by the relationship of  employer & employee or ‘master’ & ‘Servant’. Example 1. Mr. A(Employee A(Employee))

Salary

XY Ltd(Employer Ltd(Employer))

Income from Salary [IFS]

Example 2. Mr. A(Partner A(Partner))

Salary

XY Ltd(Partnership Ltd(Partnership firm) firm )

Income from Salary [IFS]

Example 3. Mr. A(Prof. A(Prof. of R College) College)

Paper setting fees

XY Ltd(Rizvi Ltd(Rizvi College) College)

Income from Salary [IFS]

Mumbai University

Example 4. Mr. Govinda (MLA (MLA))

Salary Income from Salary [IFS]

Government .

Notes By Wilson

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Basic Salary :

Basic Salary means the minimum amount given by the employer to his employee. It will be always Fully Taxable on Receipt basis or accrued (due) basis. If net basic salary is given than it will be always converted into Gross Example 1   

Basic Salary [Net] Rs. 10000 p.m. P.F deducted Rs. 500 p.m. Loan Installment deducted Rs 5000 Solution: Basic Salary [Net][10000 * 12] = 12000 Add: P.F [500 *12] = 6000 Add: Loan Installment = 5000

Example 2 

Basic Salary [After deducting P.F Rs 500 p.m. and Loan installment 5000] Rs. 120000 Solution: Basic Salary [Net] Add: P.F [500 *12] Add: Loan Installment Basic Salary

= 120000 = 6000 = 5000 = 131000

Example 3   

Basic Salary Rs. 10000 p.m. P.F deducted Rs. 500 p.m. Loan Installment deducted Rs 5000 Gross Solution: Basic Salary [Gross][10000 * 12] = 120000

Example 4  

Basic Salary [Net] Rs. 180000. Income Tax deducted @ 10% of Salary Solution: Basic Salary [Net][ 90% Add: Income Tax 10% Basic Salary[Gross ] 100%

= 180000 = 20000 = 5000

Notes By Wilson

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Arrears of Salary: Arrears of Salary means salary under despite between the employer and employee. It  will be always fully taxable on receipt basis. It will be taxable in th yer which it is actually received. #Arrears of Salary: Example 1. Arrears of Salary = Taxable 2. Arrears of Salary = Taxable[For PY 05 – 06] 3. Arrears of Salary = Ignore [Taxed Earlier] 4. Arrears of Salary = Taxable [ After Settlement of Dispute]

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Advance Salary: Advance Salary means salary taken in advance by the employee from the emplouer it will be always full Taxable Example 1. Advance Salary = Taxable 2. Advance salary for sons marriage = Taxable 3. Advance against salary = Ignore 4. Advance for purchase of Furniture = Ignore

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Bonus / Ex-gratia: Bonus is always fully taxable on receipt basis it will be taxable in the year which it is actually received. Example 1. Bonus =Taxable 2. Bonus received [For PY 05-06] 3. Bonus declared = Ignore 4. Bonus Receivable = Ignore

Notes By Wilson

Deduction In this topic an individual will get 2 deductions 1. Entertainment Allowance 2. Profession Tax

Entertainment Allowance U/S 16(i) Entertainment Allowance is the allowance given by the Employers to the employers for the entertainment of his client and customers

Entertainment Allowance U/S 16(i) Government Employee

Non – Government Employee

# First Include [Taxable]

# First Include [Taxable]

# Then Deduction a)1/5 of Basic Salary b)Actual Amount Received c)Maximum Rs. 5000

# No Deduction

Profession Tax paid U/S 6(iii) Profession tax is a tax on employment it will be allowed as a deduction to all the employees. It will be allowed as a deduction on payment basis. Profession Tax paid U/S 6(iii)

Paid by the Employer

Paid by the Employee

# First Include [Taxable]

# Don’t Include[Expense]

# Then Deduction

# Only Deduction

Notes By Wilson

Allowances

Exempt

Office Purpose

Taxable

Personal Purpose

CUT HRD

C3 T H

U S 10 14 U S 10 13 A Note: Allowance are the fixed amount given by the employer to his employees to meet their expenses.

CUT HRD 

Conveyance Allowance [Motor Car Allowance Scooter Allowance]

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Uniform Allowance

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Travelling/Transfer/Tour Allowance

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Helper Allowance

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Research Allowance

Amount Exempt = Amount Spent 

Notes By Wilson

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Daily Allowance

Note: 1. All the above allowances are exempt under sec 10(14) 2. All the above allowance are for office purpose only 3. If amount spent is not given than it will be fully exempt 

CUT HRD 

Commutation Allowance [ R – O – R]

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Children Education Allowance

Max Rs 800 p.m. [Normal] or Max Rs 800 p.m. [Normal]

Max Rs 100 p.m. p.c. Max 2 Children

Max Rs 200 p.m. p.c. 

Children Hostel Expenditure Allowance Max 2 Children

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Tribal Area Allowance

Max Rs 200 p.m. p.c.

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House Rent Allowance

Exempt amount will be given in question.

Note: 1. All the above allowances are exempt U/S 10(14) except house rent allowance which is exempt U/S 10(13A) 2. If any amount spent is given then it will be ignore. 3. In case of House rent Allowance [HRA]. If exempt amount is not given then it will be fully taxable.

Remaining Allowances All the remaining allowances are always fully taxable. If any amount spent is given then it w ill be ignore.

Notes By Wilson

Example. 1. Entertainment Allowance 2. Lunch Allowance 3. Tiffin Allowance 4. Over-Time Allowance 5. Project Allowance 6. Servant Allowance 7. Dinner Allowance 8. Dearness Allowance etc. 9.

Perquisites Perquisites are the personal benefits given by the employer to the employee. It is of two types: 1. Monetary Perquisites 2. Non – Monetary Perquisites. 1) Monetary Perquisites : Perquisites which are in form of money will be considered as monetary perquisites. It can be identified with the help of the following words. a)…..paid by the employer b)…..reimbursed by the employer. 2) Non – Monetary perquisites : Perquisite which is not in the form of money will be considered as non – monetary perquisites. It can be identified with the help of the following words a) Free b) Facility c) Provided

Notes By Wilson

MR GEL2 IS

TC2

#Medical facility/Medical Bills paid or reimbursed by the employer 1. Hospitals I.

Govt. Hospitals

II.

Recognized Hospitals

III.

Employer’s Hospitals

Full Exempt 

2. Others Exempt up to Rs. 15000 Note: Medi-claim Insurance premium paid by the employer or company will be fully Exempt.

#Refreshment/Tea, coffee/snacks provided by the employer

Fully Exempt  #Gift given by the Employer 1. Cash – Fully Taxable 2. Kind – a)up to Rs 5000 – Fully Exempt  b)Above Rs 5000 – Fully Taxable #Education facility / Seminar /Training provided by the employer

Fully Exempt  #Lunch facility/Meal provided by the employer in office premises

Exempt up to max Rs. 50 per meal #Leave travel and Allowance OR Leave travel Concession OR Leave travel Assistance Exempt U/S 10(5)  Amount Exempt = Amount Spent 

Notes By Wilson

#Interest Benefit [Loan taken by the employee from the Employer]

Loan Amount up to

Loan Amount up to

Rs. 20,000

Rs. 20,000

Fully Exempt

Fully Taxable

#Scholarship provided by the employer to the children of employee

Fully Exempt 

U/S10(16) #Telephone/Mobile bills paid / Reimbursed by the employer

Fully Exempt 

#Computer Laptop provided by the employer

Fully Exempt 

#Car facility/Conveyance facility provided along with chauffer by the employer 1. Office

:Ignore

2. Office to Residence :Exempt  3. Office and Personal :Taxable 4. Personal

:Taxable

Notes By Wilson

Note: 1. Entertainment Expenses reimbursed by the employer is not an income hence ignored 2. Purchase of books for the company reimbursed by the employer is not an income hence ignored