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Permissible Deductions from Salary Income
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(b) If the professional tax is paid by the employer on behalf of an employee, it is first included in the salary of the employee as a
‘perquisite’ (since it is an obligation of the employee discharged by the employer, it is taxable whether the employee is a
specified employee or not) and then the same amount is allowed as deduction on account of ‘Professional Tax’ from gross
salary.
Notes :
(a) Professional tax or tax on employment, levied by a State under article 276 of the Constitution, is allowed as deduction onlyin the
year in which Professional Tax is paid.
The income chargeable under the head “Salaries” is computed after making the following deductions :
(i) Deduction for Entertainment Allowance (if eligible) [Sec. 16(ii)]
(ii) Professional Tax [Sec. 16(iii)]
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INCOME TAX
Provisions relating to
SALARY
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounts, Costing, Tax, FM • For: CA, CS, CWA, MBA, M.Com & B.Com
K-83, West Patel Nagar, New Delhi-8. Ph:9811597535. Website: www.academyofaccounts.org
(1) Children Education Allowance
(Max. for two Children)*
Rs.100 p.m.
Fully Taxable
Exempt upto
Rs.50 per Meal
Exempt
Exempt
:
Following Allowances are exempt upto extent specified
and balance if remains is taxable
(d) In any other case
Allowance granted to meet cost of tour or transfer.
Conveyance Allowance for performance of duties.
Allowance granted to engage Helper.
Allowance granted for Uniform of office.
Allowance granted to meet ordinary daily charges incurred on account of
absence from his normal place of duty.
(6) Allowance granted for encouraging the academic research and other
professional pursuits.
:
(1)
(2)
(3)
(4)
(5)
(c) Free Food or Non-Alcohlic Beverages provided during working hours at
office / business premises or through paid vouchers
Following Allowances are exempt upto extent
they are utilized balance if remains is taxable
:
Exempt: Nil
Taxable: Actual Amount Received
(b) Free Food or Non-Alcohlic Beverages provided during working hours in
a remote area or offshore installation
For Non Government Employees :
:
(a) Rs. 5000
(b) 20% of Salary2
(c) Actual Amount Received
Exempt : Whichever is Least (a,b,c)
Taxable : Amount Received - Exempt
2
Meaning of Salary: Basic Pay only
(a) Tea and snacks provided during working hours
For Government Employees :
Free Food or Non-Alcohlic Beverages
Entertainment Allowance
If Medical Facilities are provided outside India
(a) 50% (Metro Cities) or 40% (Other cities) of salary1
(b) Rent Paid - 10% of Salary1
(c) Actual Amount Received
Exempt : Whichever is Least (a,b,c)
Taxable : Amount Received - Exempt
1
Meaning of Salary : Basic Pay + D.A.(Forming) + Commission (only if % of sales)
:
:
:
House Rent Allowance
Medical Expenses incurred on the treatment
Cost of stay abroad
Cost of travel of the patient and one attendant
(assessee or any other family member)
Allowances
Notes :
(a) If bills are issued in the name of the employer then it is fully exempt to ‘Non-Specified Employees’ (limit of Rs.15,000 is not applicable for them)
(b) Medical facilities may be provided to the assessee or his family members, which includes :
(i) Spouse and Children (dependent on assessee or not)
(ii) Parents, brothers, sisters (only if wholly or mainly dependent on the assessee)
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Exempt upto extent permitted by RBI
Exempt upto extent permitted by RBI
Exempt if the Gross Total Income (before adding this expenditure)
of the assessee doses not exceeds Rs.2,00,000.
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Medical facility is provided in an hospital maintained by employer
Medical facility is provided in an hospitalmaintained by Govt./Approved by Govt.
Medical facility is provided in an hospitalApproved by Chief Commissioner
Medical facility is provided in a private hospital/nursing home/clinic
Personal health insurance policy or group medical insurance premium
If Medical Facilities are provided in India
Medical Facilities
:
:
:
:
:
Exempt
Exempt
Exempt
Exempt upto Rs.15,000
Exempt
(b) It may be provided to the assessee or his family members, which includes :
(i) Spouse and Children (dependent on assessee or not)
(ii) Parents, brothers, sisters (only if wholly or mainly dependent on the assessee)
(c) The exemption is not available for more than two surviving children of the assessee. However his restriction is not applicable in respect to children
born before 01.10.1998 and multiple birth after the date.
(d) Aforesaid exemption is available in respect of two journeys performed in a block of four calendar years. The different blocks are :
(i) 1998-2001 (i.e. 01.01.1998 to 31.12.2001)
(ii) 2002-2005 (i.e. 01.01.2002 to 31.12.2005)
(iii) 2006-2009 (i.e. 01.01.2006 to 31.12.2009)
(iv) 2010-20013 (i.e. 01.01.2010 to 31.12.2013)
(e) If an assessee has not availed travel concession or assistance during the specified four year block periods on one of the two permitted occasions (or on
both occasions), exemption can be claimed in the first calendar year of the next block (but in respect of one journey only). In such case, the exemption
so availed will not be counted for the purposes of claiming the future exemptions allowable in respect of two journeys in the subsequent block.
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(2) Children Hostel Allowance
(Max. for two Children)*
Rs.300 p.m.
(3) Transport Allowance
Rs.800 p.m.
(4) Transport Allowance
(For Blind & Handicapped)
*
{
Rs.1,600 p.m.
(5) Transport Allowance to those
who works in transport industry
70% of such Allowance
(Max. upto Rs.6,000 p.m.)
(6) Tribal Area Allowance
Rs.200 p.m.
(7) Underground Allowance
Rs.800 p.m.
The exemption is not available for more than two surviving children of the assessee. However his
restriction is not applicable in respect to children born before 01.10.1998 and multiple birth after the
date.
After Retirement Benefits
Leave Salary
 If received during service :
All Employee (Government / Non Government) :
Exempt : Nil
Taxable : Fully Taxable
 If received after Retirement :
For Central or State Govt. Employees :
Exempt : Fully Exempt
Taxable : Nil
For Other Employees :
(a) Rs.3,00,000
(b) 10 x Average Salary*
(c) [Actual Leave available p.a. or 30 (whichever is less)] x [completed years of service] x Avg. Salary*
-[Leave taken during service period]
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}
(d) Actual Amount Received
Exempt : Whichever is Least (a,b,c,d)
Taxable : Amount Received - Exempt
1
*Average Salary : Average of 10 Months Salary drawn immediately proceeding the date of retirement
1
Meaning of Salary : Basic Pay + D.A.(Forming) + Commission (only if % of sales)
(a) Rs.10,00,000 (Prior to 24.05.2010 it was Rs.3,50,000)
3
(b) 15 x Last Month’s Salary x No. of completed year of service or part exceeding 6 months thereof
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(c) Actual Amount Received
Exempt : Whichever is Least (a,b,c)
Taxable : Amount Received - Exempt
3
Meaning of Salary : Basic Pay + D.A.(Both Type)
For employees NOT covered under payment of ‘Gratuity Act 1972’ :
(a) Rs.10,00,000 (Prior to 24.05.2010 it was Rs.3,50,000)
(b) 15 x Average Salary** x No. of completed year of service
30
(c) Actual Amount Received
Exempt : Whichever is Least (a,b,c)
Taxable : Amount Received - Exempt
1
**Average Salary : Avg. of 10 Months Salary drawn immediately proceeding the month of retirement
1
Meaning of Salary : Basic Pay + D.A.(Forming) + Commission (only if % of sales)
Pension
 Uncommuted (Monthly)
All Employee (Government / Non Government) :
Exempt : Nil
Taxable : Fully Taxable
 Commuted (Lumpsum)
For Employees of Central Govt, State Govt. or Statutory Corporation :
Exempt : Fully Exempt
Taxable : Nil
For Other Employees :
Exempt : Upto ‘One Half’ of the ‘Total Commuted Value’ which he/she is normally
entitled to received But if he/she also receives Gratuity then ‘One Third’
of such Pension
Taxable : Amount Received - Exempt
Valuation of Leave Travel Concession in India
Gratuity
 For Government Employees :
Exempt : Fully Exempt
Taxable : Nil
 For Non Government Employees :
For employees covered under payment of ‘Gratuity Act 1972’ :
: (a) Amount of air-conditioned first class rail fare by the shortest route, or
(b) Amount spent.
Whichever is less is exempt [(a) or (b)]
: (a) Amount of air-conditioned first class rail fare by the shortest route, or
(b) Amount spent.
Whichever is less is exempt [(a) or (b)]
: (a) First class or deluxe class fare by the shortest route, or
(b) Amount spent.
Whichever is less is exempt [(a) or (b)]
: (a) Amount of air-conditioned first class rail fare by the shortest route, or
(as if the journey had been performed by rail)
(b) Amount spent
Whichever is less is exempt [(a) or (b)]
When journey is performed by rail
Where the places of origin of journey and
destination are connected by rail and journey is
performed by any other mode
Where the places of origin of journey and
destination are not connected by rail but
a recognised public transport system exists
Where the places of origin of journey and
destination are neither connected by rail nor a
recognised public transport system exists
Notes :
(a) Journey may be performed while in service or after retirement.
: (a) Amount of economy class air fare of the National carrier by the shortest route, or
(b) Amount spent
Whichever is less is exempt [(a) or (b)]
Amount of exemption
When journey is performed by air
Different situations
Value of leave travel concession and passage money received by employee is exempt as per the following provisions :
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4
SPF
Exempt
RPF
Exempt upto
1
12% of Salary
UPF
Exempt
PPF
N.A.
Employee’s Contribution
Eligible for
Deduction 80C
Eligible for
Deduction 80C
Not Eligible for
Deduction
Eligible for
Deduction 80C
Interest Credited to PF
Exempt
Exempt upto 9.5%
rate of Interest
Exempt
Exempt
Lump sum payment at
the time of retirement
Exempt
Exempt
See ‘Note 1’
Exempt
Employer’s Contribution
Notes :
(a) If any amount is charged by the employer from the salary of the employee is deductible from the above mentioned taxable values.
(b) Computer / Laptops are fully exempt
Actual Hire/Rent Charges is taxable
10% of the original Cost is taxable
Asset is taken on Hire/Rent by employer
Asset is owned by employer
Use of Movable Assets
Medical Loan
: Exempt (if provided for diseases specified in rule 3A)
Housing Loan
: 8.5% to 9.25% is taxable
Car Loan
: 8% to 9.25% is taxable
Two wheeler Loan
: 11% is taxable
Education Loan
: 10.5% & 11.5% is taxable
Personal Loan
: 12.75% is taxable
Notes :
(a) If any amount is charged by the employer from the salary of the employee is deductible from the above mentioned taxable values.
(b) Where the amount of original loan does not exceed in the aggregate of Rs.20,000 then nothing is taxable.
(c) Interest will be calculated on the maximum outstanding balance on last day of each month.
Interest Free Loan or Loan at Concessional Rate
Employee’s Provident Fund
Note1 : (i)
(ii)
(iii)
(iv)
Employee’s Contribution is Exempt
Employer’s Contribution is taxable in Salary
Interest on Employer’s Contribution is taxable in salary
Interest on Employee’s Contribution is taxable in Other Sources
1
Meaning of Salary : Basic Pay + D.A.(Forming) + Commission (only if % of sales)
Retrenchment Compensation
(a) Rs.5,00,000
(b) An amount calculated in accordance with the provions of Sec. 25F(b) of
Industrial Dispute Act. (i.e. 15 Days Average Pay for every completed year of service or part
thereof in excess of 6 months )
(c) Actual Amount Received
Exempt : Whichever is Least (a,b,c)
Taxable : Amount Received - Exempt
Compensation Received on Voluntary Retirement
(a) Rs.5,00,000
(b) Actual Amount Received
Exempt : Whichever is Least (a,b)
Taxable : Amount Received - Exempt
Note: The guidelines have been laid down in rule 2BA. The scheme of voluntary retirement should be in
accordance with the guidelines.
Accommodation is taken on lease/Rent by employer
Other Employees
: Depreciation (10% of the original cost of car) / Hire Charges (if car is hired) + chauffeur salary, is provided --- Amount
recovered from the employee, is Taxable
Private purpose
: Actual Expenses of employer --- Amount recovered from Employee, is Taxable
Private purpose
Car with cubic capicity of engine upto 1.6 liters or 1600 cc
Car with cubic capicity of engine above 1.6 liters or 1600 cc
Notes :
(a) Where more than one car is being provided for use for employee or member of his family then only one car will be valued as partly used for official
purpose and partly for private purpose and all other cars will be valued as fully used for private purpose.
(b) Car facility between office to residence and back is not chargeable to tax at all.
2
1
Private and Official purpose : Actual expenditure of employer --- Rs.900 p.m., is Taxable
: Not a perquisite (Not Taxable)
Official Purpose
Other Vehicles owned by the Employee and expenses are reimbursed by the Employer
Private and Official purpose : Rs.600 p.m.1 / Rs.900 p.m.2 + Rs.900 p.m. (If chauffeur is provided), is Taxable
Note : Nothing is deductible in respect of any amount recovered from employee.
: Not a perquisite (Not Taxable)
Car is owned/ hired by the Employer and Expenses are met by the Employee
Basic Salary + D.A.(forming) + Commission (any type) + Bonus + Fees + All Taxable Allowances
+ Any Other Monetary Payment (not being a perquisite)
Official Purpose
*Salary =>
Population of the city exceeds 25,00,000
=> 15% of Salary* is taxable
(a) 15% of Salary*
Population of the city does not exceeds
(b) Actual Rent / Hire charges paid by employer
25,00,000 but exceeds 10,00,000
=> 10% of Salary* is taxable
whichever is less is taxable [(a) or (b)]
Population of the city is bellow 10,00,000
=> 7.5% of Salary* is taxable
Notes :
(a) If accommodation is provided in a hotel then 24% of Salary* or Actual Charges paid by employer (whichever is less) is taxable. Aggregate of 15
days of hotel accommodation is exempt, when it is in connection with the transfer.
(b) If any amount is charged by the employer from the salary of the employee for providing accommodation is deductible from the above mentioned
taxable values in all situations.
Accommodation is owned by employer
Taxable value is as determined by the Govt
Central & State Govt. Employees
Accommodation
Perquisites
5
10
: Not a perquisite (Not Taxable)
Private purpose
: Actual Expenses of employer --- Amount recovered from Employee, is Taxable
Private purpose
: Actual Expenses by employer + Depreciation (10% of the original cost of car) / Hire Charges (if car is hired)
--- Amount recovered from the employee, is Taxable
Private purpose
Actual Hire/Rent Charges is taxable
10% of the original Cost is taxable
Notes:
(a) If any amount is charged by the employer from the salary of the employee for providing domestic servant is deductible from the above mentioned
taxable values.
Any amount spent/reimbursed by the employer is fully taxable to the employee
Domestic Servants
Notes :
(a) If any amount is charged by the employer from the salary of the employee for providing furniture is deductible from the above mentioned taxable
values.
(b) If furniture is provided with the accommodation then taxable value of the furniture will be added with the taxable value of the accommodation and
then deduction for amount charged by employer will be deducted. Now accommodation will be termed as ‘Furnished Accommodation’.
Furniture is taken on Hire/Rent by employer
Furniture is owned by employer
Furniture
Private and Official purpose : Rs.1,800 p.m.1 / Rs.2,400 p.m.2 + Rs.900 p.m. (If chauffeur is provided) is Taxable
Note : Nothing is deductible in respect of any amount recovered from employee.
: Not a perquisite (Not Taxable)
Official Purpose
Car is owned/ hired by the Employer and Expenses are met by the Employer
Private and Official purpose : Actual expenditure of employer --- Rs.1,800 p.m.1 / Rs.2,400 p.m.2 --- Rs.900 p.m. (If chauffeur is provided) --Amount recovered from the employee (if any), is Taxable
: Not a perquisite (Not Taxable)
Official Purpose
Car owned by the Employee and expenses are reimbursed by the Employer
Private and Official purpose : Not a perquisite (Not Taxable)
: Not a perquisite (Not Taxable)
Official Purpose
Car owned by the Employee and Expenses are met by him
Cars and Other Vehicles
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Manufacturing cost is Taxable
Supplied by employer from own sources
:
:
Motor Car
Any other assets
Amount paid by employer in respect of any obligation which otherwise would have been payable by the employee is
fully taxable in all cases.
Employees Obligation met by Employer
Notes :
(a)* There is no restriction on number of children.
(b) If any amount is charged by the employer from the salary of the employee is deductible from the above mentioned taxable values.
(c) School fees directly paid by employer is taxable to all employees, but if bills are issued in the names of the employer and paid by employer then
it is not taxable to ‘Non-Specified Employees’.
(d) Amount spent on training and education of the employee is not taxable.
Reimbursement of expenditure / expenses incurred by the employeris taxable
Education is provided in other institutes
Education is provided to the other relatives of the employee
Cost of education / Value of benefit is taxable
: Exempt
: Cost of education - Rs.1,000 p.m. per child*
Education institute is owned/maintained by employer
Education
Original cost -- 10% Depreciation for each completed year (straight line method)
-- Amount charged to employee
Original cost -- 20% Depreciation for each completed year (reducing balance method)
-- Amount charged to employee
Original cost -- 50% Depreciation for each completed year (reducing balance method)
-- Amount charged to employee
Education is provided to the children of the employee
Cost of education / Value of benefit does not exceed Rs.1,000 p.m.
Cost of education / Value of benefit exceeds Rs.1,000 p.m.
:
Computer related
electronic items
Sale of Movable Assets
Notes :
(a) If any amount is charged by the employer from the salary of the employee for providing ‘Gas, Electricity and Water Supply’ is deductible from the
above mentioned taxable values.
(b) If bills are issued in the names of the employer and paid by employer then it is not taxable to ‘Non-Specified Employees’.
Actual amount Paid/Payable to the agency is Taxable
Purchased by employer from outside agency
Gas, Electricity or Water Supply
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