Taxation of Salaries

1
Taxation of Salaries

• Nilesh M Kapadia Co.
• Chartered Accountants

2
Taxation of Income

• Income classified under various heads, for each
  of which there are different rules of
  computation
• Income from salaries
• Income from House Property
• Profits Gains from Business / Profession
• Capital Gains
• Income from other sources

3
Income from salaries

• Salary is chargeable to tax on "due" or "receipt"
  basis whichever is earlier and includes wages,
  annuity or pension, gratuity, fees, commission,
  perquisites or profits in lieu of salary, advance
  salary, leave encashment, etc.

4
Perquisites

• Rent-free accommodation.
• concession in rent.
• amount paid by employer in respect of any
  obligation which otherwise would have been
  payable by employee.
• value of any fringe benefit or amenity (excluding
  the fringe benefits chargeable to tax under
  Chapter XII-H) as prescribed.
• any sum payable either directly or through a fund
  by employer (other than recognised PF, approved
  superannuation fund etc.) to effect an assurance
  on the life of the employee or to effect a
  contract for an annuity.

5
Valuation of Perks

• Interest free or concessional loan
• Use of movable assets
• Transfer of movable assets
• Rent-free unfurnished accommodation -For
  accommodation owned by employer - situated in
  cities having population exceeding 4 lakhs as per
  2001 census, 20 of the salary For accommodation
  taken on lease or rent actual rent or 20 of
  salary, whichever is lower as reduced by rent
  actually paid by the employee.
• Gas, electricity or water supply or Free Domestic
  Servants provided at cost

6
Income from salaries

• Profits in lieu of Salary (S. 17(3))- It includes
  
• any compensation from employer or former employer
  on termination or modification of the terms of
  employment.
• any receipt from employer/former employer or from
  provident/other fund (other than gratuity,
  commuted pension, retrenchment compensation,
  house rent allowance, provident fund or such
  other funds) to extent not consisting of
  contributions by assessee/interest on such
  contributions.
• any sum received under a keyman insurance policy
  including the sum allocated by way of bonus on
  such policy.
• Any sum received before his joining any
  employment or after cessation of his employment.

7
Leave Travel Concession or Assistance S. 10(5)
Rule 2B

• available to Indian as well as foreign citizen
  for himself/spouse/children/dependent parents,
  brothers and sisters.
• limited to amount actually spent on travelling of
  employee and his family members.
• during employment or on retirement or on
  termination.
• for travelling to any place in India.
• allowed twice in a block of four calendar years.
• block commenced from calendar year 1986. (Current
  block 2006-10).
• exemption on travel concession will not be
  admissible to more than two surviving children of
  an individual born after 1-10-1998.
• allowance in cases of destination connected by
  air/rail is restricted to economy class air
  fare/A.C. first class fare. For places not
  connected by rail, please refer Rule 2B.

8
House Rent Allowance S. 10 (13A) Rule 2A

• The least of the following is exempt from tax
• 50 of salary, (residential house situated at
  Mumbai, Kolkata, Delhi or Chennai) and 40 of
  salary where residential house is situated at any
  other place
• actual house rent allowance received by the
  employee
• excess of rent paid over 10 of salary.

9
Leave Encashment S. 10(10AA)

• Encashment of earned leave while in service will
  be treated as income. S. 17(1)(va).
• Encashment of earned leave on retirement would
  however, be exempt to the extent of least of
• 10 months salary calculated on the basis of last
  10 months average salary or
• Rs. 3,00,000
• Amount equivalent to earned leave
• Actual amount paid by the employer
• Entitlement to earned leave not to exceed 30 days
  for every year of actual service.
• Limits provided for aggregate maximum from any
  number of employers.

10
Medical benefits (S. 17)

• Medical treatment provided to an employee or any
  member of his family (spouse, children and
  dependent brothers, sisters and parents) will be
  exempt in the following cases
• treatment in a hospital (including dispensary or
  clinic or nursing home) maintained by the
  employer,
• treatment in any hospital maintained by the
  Government, or any local authority or any other
  hospital approved by Govt.,
• treatment in respect of prescribed diseases in a
  hospital approved by the Chief Commissioner,
  provided certificate from the hospital specifying
  the disease and receipt for amount paid is
  attached along with the return of income,
• medical insurance only under a Central Government
  approved scheme,
• reimbursement of Insurance premium for mediclaim
  etc.,
• reimbursement of amounts actually spent for
  medical treatment other than treatment referred
  in (i), (ii) (iii) above, not exceeding in
  aggregate Rs. 15,000 in F.Y.,
• actual expenditure on medical treatment outside
  India, including expenditure on travel and stay
  abroad as also on travel and stay abroad of one
  attendant, to the extent permitted by RBI.
  Expenditure on travel abroad will be exempt only
  if the gross annual total income of the employee
  excluding this perquisite is Rs. 2 lakhs or less.

11
Special Allowances S. 10(14)

• Following prescribed special allowances are
  exempt
• allowance, not in the nature of perquisite,
  granted to meet expenses wholly, necessarily and
  exclusively incurred in the performance of
  duties, to the extent to which actually incurred.
  
• allowance granted to meet personal expense at the
  place where duties of his office are ordinarily
  performed or at the place where he ordinarily
  resides or to compensate for increased cost of
  living as may be prescribed in Rule 2BB.

12
Deductions allowable

• Deduction available for Tax on employment on paid
  basis (S. 16(iii)). Profession Tax levied by
  Maharashtra Govt
• No standard deduction is allowed from A.Y.
  2006-07 onwards

13
Income from House Property

• In the case of one self-occupied house property
• The annual value of a self-occupied house or part
  of such house shall be nil.

14
Income from House Property

• Deduction shall be allowed as under
• Interest on borrowed capital- Rs. 1,50,000/- from
  A.Y. 2002-03 onwards, provided property is
  acquired or constructed on or after 1-4-1999 and
  such acquisition or construction is completed
  within 3 years from the end of the financial year
  in which capital was borrowed. A certificate from
  the lender certifying interest payable to him is
  furnished by the assessee.
• In other cases, Rs. 30,000.

15
Income from other sources

• All other income say
• interest on bank deposits / others
• NSC Interest
• Interest on Infra bonds/ Capital Gains Bonds
• Lottery winnings
• Dividends currently not taxable from companies
  or MFs.

16
Computation of Income/ taxes

• Income from all sources to be aggregated.
• Admissible deductions to be worked out (discussed
  later).
• Net Taxable income to be arrived at
• Tax thereon to be computed at applicable rates
  (discussed later)
• Reduce all prepaid taxes ( TDS from salaries
  etc), and find tax due / refund due.

17
Deductions admissible

• 80C  
•  LIP (restricted to 20 of capital sum assured)
• PF/ Superannuation Fund / PPF /RPF
• Deposits in P.O. Savings Bank (CTD).  
• ULIP of UTI or LIC Mutual Funds Dhanraksha 1989
• Subscriptions to NSC VIII Issues.
• Deposits with National Housing Bank.
• Housing Loan repayments
• Subscription to schemes of PSUs providing
  long-term finance for housing.
• Notified annuity plan of LIC or of any other
  approved insurer.
• Units of Mutual Fund or UTI.Notified Pension Fund
  or Mutual Fund.
• Tuition Fees (not donation or development fees)
  towards full time education of any 2 Children of
  an Individual paid to University, College,
  School, etc. in India.
• Investments in shares or debentures of approved
  public company exclusively engaged in
  infrastructure facility or power sector.
• Investments in units of notified mutual fund
  investing in approved public cos. as in 12 above.
• Term Deposit with scheduled bank as per Scheme
  to be notified

18
Deductions admissible

• 80CCC
• Payment made out of taxable income to LIC or to
  any other approved insurer under approved Pension
  Plan No individual limit subject to overall
  limit of Rs 1 lakh along with section 80C
• 80D
• Premia paid out of taxable income to approved
  scheme of GIC (Mediclaim, Bhavishya Arogya) or
  any other approved insurer. Rs 10,000 / 15,000
  for senior citizens

19
Deductions admissible

• 80E
• Repayment (out of taxable income) of interest on
  loan taken for pursuing higher education No
  limit full interest deductible
• 80G
• Donations for charitable purposes specified in S.
  80G(2) 50 of donation (100 in few cases),
  subject to maximum of 10 of Gross Income

20
Tax rates
21
Tax Rates - Contd

• Tax as per above slabs to be worked out.
• To add
• Surcharge of 10 on the tax payable will be
  levied where the income exceeds Rs. 1,000,000.
• Education Cess _at_ 2 of tax and surcharge payable.

22
Procedures

• Returns to be filed if income exceeds threshold
  mentioned above (1.00 / 1.35 lakhs)- even if
  there is full TDS
• PAN to be obtained.
• Due date 31st July.
• Interest / Penalty
• Form 2D / 2F.

23
Modalities

• Submit data sheet
• Personal details
• PAN proof (Penalty of Rs 10,000 for giving wrong
  PAN)
• Income details
• Investment proofs
• TDS / advance tax payment proofs

• Along with fees
• Rs. 500 in general cases
• Rs. 167 for PAN application with form 49A along
  with photo, address proof and identity proof
• Collect acknowledgement

24
Thank you.

• Contacts
• Nilesh M Kapadia Co.
• Chartered Accountants
• 205, Apollo Complex,
• R K Singh Marg,
• Off Old Nagardas Road,
• Andheri (East),
• Mumbai 400 069.
• Tel [phone]
• nmk_at_nmkca.com