Description
The PPT about salary details, allowances, HRA House rent allowance, typeof prequisites, equity shares, section 80C, house property
Income from the head ?Salary?
Meaning of Salary
• Relationship between payer and payee - Income under the head ?Salaries? covers all remuneration due/paid to a person in respect of services rendered by him under an express or implied contract of employment. • Charge under this head of income presumes the relationship of an employer and an employee between the payer and payee in contrast to that of a principal and an agent. • The distinction between the two types of relationship is vital because income earned by an employee from his employer is chargeable under the head ?Salaries?, whereas income earned by an agent is chargeable either under the head ?Profits and gains of business or profession? or under the head ?Income from other sources?—Cowan v. Seymour [1920] 1 KB 500 (CA).
• EMPLOYER AND EMPLOYEE VIS-A-VIS PRINCIPAL AND AGENT - An employee works under the direct control and supervision of his employer. He not only receives instructions from his employer but is subject to right of the employer to control the manner in which he should carry out the instructions. On the other hand, an agent is generally free to carry out his principal‘s instructions according to his own discretion.
EMPLOYER AND CONTRACTOR - THEIR RELATIONSHIP
• It may be true in a broad sense to say that one who is employed is an employee and it would certainly sound funny to refer to a bank president as an employee of his bank. • While, however, it is strictly correct to say that everyone who is an employee is employed by another, it is not equally true to say that everyone who is employed by another is his employee. • For instance, a solicitor who is engaged by a client to do certain work for him is employed by him for that purpose, as his doctor who gives his professional skill to a patient, but no one would think of referring to either of these professional men as an employee of his client or his patient—Carter v. Great West Lumber Co. [1919] 3WWR 901.
Section 17 (1)
Salary includes:
a. wages ; b. any annuity or pension ; c. any gratuity ; d. any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages ; e. any advance of salary ; f. any payment received in respect of any period of leave not availed by him ; g. the portion of the annual accretion in any previous year to the balance at the credit of an employee participating in Recognised Provident Fund to the extent it is taxable ; h. transferred balance in a Recognised Provident Fund to the extent it is taxable; and i. the contribution made by the Central Government in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD
Allowances
• Allowance is generally defined as fixed quantity of money or other substance given regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by the employee or as compensation for unusual conditions of that service—Mutual Acceptance Co. v. FCT [1944] 69 CLR 389. • It is fixed, pre-determined and given irrespective of actual expenditure. Under the Act, it is taxable under section 15 on ?due? or ?receipt? basis, whichever comes earlier, irrespective of the fact that it is paid in addition to or in lieu of salary
Allowances exempt to the extent used:
• Travelling allowance/transfer allowance- Any allowance (by whatever name called) granted to meet the cost of travel on tour or on transfer (including any sum paid in connection with transfer, packing and transportation of personal effects on such transfer). Conveyance allowance -Conveyance allowance granted to meet the expenditure on conveyance in performance of duties of an office (it may be noted that an expenditure for covering the journey between office and residence is not treated as expenditure in performance of duties of the office and, consequently, such expenditure is not exempt from tax). Daily allowance -Any allowance whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty. Helper allowance -Any allowance (by whatever name called) to meet the expenditure on a helper where such helper is engaged for the performance of official duties. Research allowance -Any allowance (by whatever name called) granted for encouraging the academic research and other professional Uniform allowance Any allowance (by whatever name called) to meet the expenditure on the purchase or maintenance of uniform for wear during the performance of duties of an office.
•
•
• • •
Allowances where exemption not dependant on expenditure
• Transport allowance is granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty.
– It is exempt up to Rs. 800 per month (Rs. 1,600 per month in the case of an employee who is blind or orthopaedically handicapped).
Allowances
• Children education allowance- This allowance is given for children‘s education.
– The amount exempt is limited to Rs. 100 per month per child up to a maximum of two children.
• Hostel expenditure allowance-This allowance is granted to an employee to meet the hostel expenditure on his child.
– It is exempt from tax to the extent of Rs. 300 per month per child up to a maximum of two children.
House rent Allowance
• 50 % of ?salary‘ (BDCM) or 40 % of ?salary‘ • House rent allowance received by the employee in respect of the period during which rental accommodation is occupied by the employee • The excess of rent paid over 10 per cent of salary • Amount exempt from tax - The least of the above three is exempt from tax.
HRA
• MEANING OF SALARY - ?Salary? for the purpose of HRA exemption means basic salary and includes dearness allowance if terms of employment so provide. • It also includes commission based on a fixed percentage of turnover achieved by an employee as per terms of contract of employment • Exemption is denied where an employee lives in his own house, or in a house for which he does not pay any rent or pays rent which does not exceed 10 per cent of salary.
HRA
• The amount of exemption in respect of house rent allowance received by an employee depends upon the following : a. ?salary? of the employee ; b. house rent allowance ; c. rent paid ; and d. the place where house is taken on rent. • When these four are the same throughout the previous year, the exemption should be calculated on ?annual? basis. When, however, there is a change in respect of any of the aforesaid factors, then the exemption shall be worked out on ?monthly? basis.
Problem on HRA
• X, who resides in Kanpur, receives Rs. 78,000 as basic pay during the previous year 2008-09. He stays in his father’s house up to August 31, 2008 for which he does not pay any rent and thereafter in an accommodation taken on monthly rent of Rs. 3,000. The employer, however, pays Rs. 700 per month as house rent allowance throughout the previous year. • As the sum of house rent allowance paid is the least of the three sums [viz., (a) Rs. 31,200, i.e., 40 per cent of salary, (b) Rs. 8,400, i.e., house rent allowance, and (c) Rs. 13,200, i.e., excess of rent paid over 10 per cent of salary], he claims that entire house rent allowance is exempt from tax. Is he legally correct?
Solution
• The mode of computation of X is not correct, as salary of the period during which rented accommodation is not occupied by X is not to be taken into account— • The exemption is calculated on the basis of the least of the following : – (a) Rs. 2,600 per month (being 40% of monthly salary) ; or
– (b) Rs. 700 per month (being the amount of house rent allowance) ; or – (c) Rs. 2,350 per month [being the excess of rent paid over 10% of salary, i.e., Rs. 3,000 per month —10% of Rs. 6,500 per month (i.e., Rs. 78,000 ÷ 12)].
• As the least of the three sums is Rs. 700 per month, amount exempt from tax is Rs. 4,900 @ Rs. 700 per month for 7 months during which the rented accommodation is occupied by X. • Hence, the amount of house rent allowance chargeable to tax is to be worked out as Rs. 3,500 (i.e., Rs. 8,400 — Rs. 4,900).
Perquisites
• ?a gain or profit incidentally made from employment in addition to regular salary or wages, especially one of a kind expected or promised?.-Webster • ?any casual emolument or benefit attached to an office or position in addition to salary or wages?.- Murray’s… • ?property acquired otherwise than by inheritance : a casual profit : anything left over that a servant or other has by custom a right to keep : a tip expected upon some occasion : emoluments : something regarded as falling to one by right?.- The Chambers… • signifies some benefit in addition to the amount that may be legally due by way of contract for services rendered
Section 17(2)
Perquisite includes :
a. the value of rent-free accommodation provided to the assessee by his employer b. the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer c. the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases : i. by a company to an employee who is a director thereof ii. by a company to an employee, who has substantial interest in the company ; iii. by any employer to an employee other than (i) and (ii) above and whose income under the head ?Salaries?, exceeds Rs. 50,000
d. any sum paid by the employer in respect of any obligation which but for such payment would have been payable by the assessee; e. any sum payable by the employer, whether directly or through a fund other than a recognised provident fund or approved superannuation fund or a deposit-linked insurance fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity; and f. the value of any other fringe benefit or amenity as may be prescribed
Types of perquisites
• Furnished/unfurnished house without rent or at concessional rent– Where accomodation owned by employer: 15% of salary – Where accomodation leased by employer: rent or 15% of salary whichever is lower. – Salary for this purpose: basic salary, dearness allowance/pay, if terms of employment so provide, bonus, commission, fees, all other taxable allowances and any monetary payment which is chargeable to tax (by whatever name called).
• Add: Cost of furniture
– 10% of original value or hire charges, whichever applicable
• If concessional rent, then find out total cost and deduct amount paid as rent. Balance would be the perquisite.
Perquisites (contd.)
• Supply of gas, electricity or water for household purposes • Education facility to employee‘s family members
– If for employee then exempt – If fixed allowance for children, then Rs. 100/300 exempt – Payment/reimbursement of children‘s school fees taxable – Education in employer‘s institute: Rs. 1000 pm
• Leave travel concession - twice in a block of four years
– Current block 2010-13 – For family including dependent parents, brothers and sisters – Carry over possible – Actual expenditure
• Amount paid by an employer in respect of any obligation which otherwise would have been payable by the employee
Amount payable by employer to effect an assurance/annuity on the life of employee
• Amount payable by an employer, directly or indirectly, to effect an assurance on the life of the assessee or to effect a contract for an annuity, is taxable in the hands of all employees. • This rule is, however, not applicable if the employer makes contribution/payment towards the following—
– recognised provident fund (up to 12 per cent of salary of the employee); – approved superannuation fund (upto 1 lakh); – group insurance schemes; – employees‘ state insurance schemes;
Interest free loan/loan at concessional interest
Step 1 Step 2 Step 3 Step 4 Step 5 Find out the outstanding balance as on the last day of each month. Find out rate of interest charged by the State Bank of India (SBI) as on the first day of the relevant previous year in respect of loan for the same purpose advanced by it Calculate interest for each month of the previous year on the outstanding amount mentioned in Step 1 at the rate of interest given in Step 2. From the total interest calculated for the entire previous year under Step 3, deduct interest actually recovered, if any, from the employee during the previous year. The balancing amount [i.e. Step 3 minus Step 4] is taxable value of the perquisite.
Exemption 1 If a loan is made available for medical treatment in respect of diseases specified (the exemption is, however, not applicable to the amount reimbursed to the employee under any medical insurance scheme). Exemption 2 Where the amount of original loan (or loans) does not exceed Rs. 20,000.
Movable assets sold at nominal price
• Cost to employer • Less normal wear and tear (WDV)
– 50% for electronic gadgets – 20% for cars – 10% for others
• Less selling price • Balance: perquisite
Medical facilities
• If owned by employer, maintained by govt.- entire amount exempt • If in other clinics- upto Rs. 15,000 pa.
Provision of car
• If owned by employee and used partly for private and partly for official purposes (expenses met by employer)
– Step 1 - Find out actual expenditure incurred by the employer – Step 2 - Less: Amount used for official purposes (i.e., a sum calculated at the rate of Rs. 1,200 per month where the cubic capacity of the engine does not exceed 1.6 litres or Rs.1,600 per month if such capacity exceeds 1.6 litres; and Rs. 600 per month if chauffeur is provided or a higher sum for official purposes as per records of the employer – Step 3 - Less: Amount recovered from employee
Other perquisites
• Lunch/ refreshment provision
– Food and non-alcoholic beverages in office premises or through non-transferable paid vouchers usable only at eating joints – Only if value per meal exceeds Rs. 50
• Gifts, vouchers or token: upto Rs. 5000 • Valuation of perquisite in respect of accommodation • Credit cards • Club membership • Others
Sweat equity shares
• If the following conditions are satisfied, value of sweat equity shares will be taxable in the hands of employees— 1. The security or shares involved are ?specified security? or ?sweat equity shares?. For this purpose, specified security means ?securities as defined in section 2(h) of the Securities Contracts (Regulation) Act and where employees stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme?. 2. Section 2(h) of the Securities Contracts (Regulation) Act defines securities to include the following— a. shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
Definition of securities (contd.)
b. derivative; c. units or any other instrument issued by any collective investment scheme to the investors in such schemes; d. security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; e. units or any other such instrument issued to the investors under any mutual fund scheme; f. Government securities; g. such other instruments as may be declared by the Central Government to be securities; and h. rights or interest in securities.
If sweat equity shares qualify as perquisite
• If the conditions are satisfied then the perquisite will be taxable in the hands of employee in the previous year in which shares or securities are allotted or transferred to the employee. • For this purpose, one has to find out fair market value of shares or securities according to the prescribed method (it will be prescribed by the Central Board of Direct Taxes). • Fair market value of shares or securities will be calculated on the date on which the employee exercises the option. • Amount actually paid or recovered from the employee in respect of such shares or securities shall be deducted.
Conditions (contd.)
• ?Sweat equity shares? means ?equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called?. 2. Specified security or sweat equity shares are allotted or transferred on or after April 1, 2009. If these securities or shares are transferred before April 1, 2009, then employer is liable to pay fringe benefit tax 3. Specified security or sweat equity shares are allotted by the employer or former employer to the employee. 4. Specified security or sweat equity shares may be transferred to the employee or former employee, directly or indirectly. 5. These securities or shares are transferred to the employee either free of cost or at a concessional rate.
Section 80C
• The following are the main provisions of section 80C— • Under section 80C, deduction is available from gross total income.
– Deduction under section 80C is available only to an individual or a Hindu undivided family. – Deduction is available on the basis of specified qualifying investments/contributions/deposits/payments made by the taxpayer during the previous year. – The investment, deposit, etc. can be made out of taxable income or otherwise. – The gross qualifying amount is allowed as deduction subject to a maximum of Rs. 1,00,000. – The maximum amount deductible under sections 80C, 80CCC and 8CCD cannot exceed Rs. 1 lakh.
80C
1. Life insurance premium
• including payment made under children‘s deferred endowment assurance policy • subject to a maximum of 20 per cent of sum assured • Self, spouse, children (min 2 years)
2. Contributions towards of non-commutable pension plan/ superannuation fund/pension plan 3. Contribution towards provident fund 4. Contribution towards 15 year public provident fund- self, spouse, children
80C
5. Subscription to National Savings Certificates, 6. Contribution for participating in the unit-linked insurance plan (ULIP) of Unit Trust of India or LIC Mutual Fund (min 5 years) 7. Payment for notified annuity plan of LIC (ie. New Jeevan Dhara, New Jeevan Akshay, New Jeevan Dhara 1, New Jeevan Akshay 1 and New Jeevan Akshay II or Jeevan Akshay III) or any other insurer.) 8. Subscription towards notified units of Mutual Fund or UTI
80C
9. Contribution to notified pension fund set up by Mutual Fund or UTI (i.e., Retirement Benefit Pension Fund of UTI) 10. Any sum paid (including accrued interest) as subscription to Home Loan Account Scheme of the National Housing Bank or contribution to any notified deposit scheme or pension fund set up by the National Housing Bank 11. Any sum paid as subscription to any scheme of— a. public sector company engaged in providing long-term finance for purchase/construction of residential houses in India (i.e., public deposit scheme of HUDCO); b. housing board constituted in India for the purpose of planning, development or improvement of cities/towns 12. Tuition fees (not including any payment towards development fees/donation/payment of similar nature) to any university/college/educational institution in India for full time education of any two children.
80C
13. Any payment towards the cost of purchase/construction of a residential property (including repayment of loan taken from Government, bank, cooperative bank, LIC, National Housing Bank, assessee‘s employer where such employer is public company/public sector company/university/co-operative society) (min 5 years) 14. Amount invested in approved debentures of, and equity shares in, a public company engaged in infrastructure including power sector or units of a mutual fund proceeds of which are utilised for the developing, maintaining, etc., of a new infrastructure facility 15. Amount deposited as term deposit for a period of 5 years or more in accordance with a scheme framed by the Central Government. 16. Subscription to any notified bonds of National Bank for Agriculture and Rural Development (NABARD). 17. Amount deposited under Senior Citizens Saving Scheme. 18. Amount deposited in five year time deposit scheme in post office.
• Sec 80D-medical insurance premium
– For self/spouse /children- upto Rs. 15000 – If senior citizens also included, another 5,000
• Sec 80E- Interest paid while repaying education loan
– Loan for higher education – For self/spouse/children/ward – Out of taxable income – Upto 7 years or payment of interest
Income from House Property
• Let out/Self occupied • If let out, then:
– Gross annual value – Less: municipal taxes – Net annual value – Less: Std. deduction @ 30% – Less: Interest on borrowed capital
• If self occupied: NAV taken as NIL • Interest allowed upto Rs. 1,50,000 • If more than one house, any one can be treated as self occupied.
doc_454224879.ppt
The PPT about salary details, allowances, HRA House rent allowance, typeof prequisites, equity shares, section 80C, house property
Income from the head ?Salary?
Meaning of Salary
• Relationship between payer and payee - Income under the head ?Salaries? covers all remuneration due/paid to a person in respect of services rendered by him under an express or implied contract of employment. • Charge under this head of income presumes the relationship of an employer and an employee between the payer and payee in contrast to that of a principal and an agent. • The distinction between the two types of relationship is vital because income earned by an employee from his employer is chargeable under the head ?Salaries?, whereas income earned by an agent is chargeable either under the head ?Profits and gains of business or profession? or under the head ?Income from other sources?—Cowan v. Seymour [1920] 1 KB 500 (CA).
• EMPLOYER AND EMPLOYEE VIS-A-VIS PRINCIPAL AND AGENT - An employee works under the direct control and supervision of his employer. He not only receives instructions from his employer but is subject to right of the employer to control the manner in which he should carry out the instructions. On the other hand, an agent is generally free to carry out his principal‘s instructions according to his own discretion.
EMPLOYER AND CONTRACTOR - THEIR RELATIONSHIP
• It may be true in a broad sense to say that one who is employed is an employee and it would certainly sound funny to refer to a bank president as an employee of his bank. • While, however, it is strictly correct to say that everyone who is an employee is employed by another, it is not equally true to say that everyone who is employed by another is his employee. • For instance, a solicitor who is engaged by a client to do certain work for him is employed by him for that purpose, as his doctor who gives his professional skill to a patient, but no one would think of referring to either of these professional men as an employee of his client or his patient—Carter v. Great West Lumber Co. [1919] 3WWR 901.
Section 17 (1)
Salary includes:
a. wages ; b. any annuity or pension ; c. any gratuity ; d. any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages ; e. any advance of salary ; f. any payment received in respect of any period of leave not availed by him ; g. the portion of the annual accretion in any previous year to the balance at the credit of an employee participating in Recognised Provident Fund to the extent it is taxable ; h. transferred balance in a Recognised Provident Fund to the extent it is taxable; and i. the contribution made by the Central Government in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD
Allowances
• Allowance is generally defined as fixed quantity of money or other substance given regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by the employee or as compensation for unusual conditions of that service—Mutual Acceptance Co. v. FCT [1944] 69 CLR 389. • It is fixed, pre-determined and given irrespective of actual expenditure. Under the Act, it is taxable under section 15 on ?due? or ?receipt? basis, whichever comes earlier, irrespective of the fact that it is paid in addition to or in lieu of salary
Allowances exempt to the extent used:
• Travelling allowance/transfer allowance- Any allowance (by whatever name called) granted to meet the cost of travel on tour or on transfer (including any sum paid in connection with transfer, packing and transportation of personal effects on such transfer). Conveyance allowance -Conveyance allowance granted to meet the expenditure on conveyance in performance of duties of an office (it may be noted that an expenditure for covering the journey between office and residence is not treated as expenditure in performance of duties of the office and, consequently, such expenditure is not exempt from tax). Daily allowance -Any allowance whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty. Helper allowance -Any allowance (by whatever name called) to meet the expenditure on a helper where such helper is engaged for the performance of official duties. Research allowance -Any allowance (by whatever name called) granted for encouraging the academic research and other professional Uniform allowance Any allowance (by whatever name called) to meet the expenditure on the purchase or maintenance of uniform for wear during the performance of duties of an office.
•
•
• • •
Allowances where exemption not dependant on expenditure
• Transport allowance is granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty.
– It is exempt up to Rs. 800 per month (Rs. 1,600 per month in the case of an employee who is blind or orthopaedically handicapped).
Allowances
• Children education allowance- This allowance is given for children‘s education.
– The amount exempt is limited to Rs. 100 per month per child up to a maximum of two children.
• Hostel expenditure allowance-This allowance is granted to an employee to meet the hostel expenditure on his child.
– It is exempt from tax to the extent of Rs. 300 per month per child up to a maximum of two children.
House rent Allowance
• 50 % of ?salary‘ (BDCM) or 40 % of ?salary‘ • House rent allowance received by the employee in respect of the period during which rental accommodation is occupied by the employee • The excess of rent paid over 10 per cent of salary • Amount exempt from tax - The least of the above three is exempt from tax.
HRA
• MEANING OF SALARY - ?Salary? for the purpose of HRA exemption means basic salary and includes dearness allowance if terms of employment so provide. • It also includes commission based on a fixed percentage of turnover achieved by an employee as per terms of contract of employment • Exemption is denied where an employee lives in his own house, or in a house for which he does not pay any rent or pays rent which does not exceed 10 per cent of salary.
HRA
• The amount of exemption in respect of house rent allowance received by an employee depends upon the following : a. ?salary? of the employee ; b. house rent allowance ; c. rent paid ; and d. the place where house is taken on rent. • When these four are the same throughout the previous year, the exemption should be calculated on ?annual? basis. When, however, there is a change in respect of any of the aforesaid factors, then the exemption shall be worked out on ?monthly? basis.
Problem on HRA
• X, who resides in Kanpur, receives Rs. 78,000 as basic pay during the previous year 2008-09. He stays in his father’s house up to August 31, 2008 for which he does not pay any rent and thereafter in an accommodation taken on monthly rent of Rs. 3,000. The employer, however, pays Rs. 700 per month as house rent allowance throughout the previous year. • As the sum of house rent allowance paid is the least of the three sums [viz., (a) Rs. 31,200, i.e., 40 per cent of salary, (b) Rs. 8,400, i.e., house rent allowance, and (c) Rs. 13,200, i.e., excess of rent paid over 10 per cent of salary], he claims that entire house rent allowance is exempt from tax. Is he legally correct?
Solution
• The mode of computation of X is not correct, as salary of the period during which rented accommodation is not occupied by X is not to be taken into account— • The exemption is calculated on the basis of the least of the following : – (a) Rs. 2,600 per month (being 40% of monthly salary) ; or
– (b) Rs. 700 per month (being the amount of house rent allowance) ; or – (c) Rs. 2,350 per month [being the excess of rent paid over 10% of salary, i.e., Rs. 3,000 per month —10% of Rs. 6,500 per month (i.e., Rs. 78,000 ÷ 12)].
• As the least of the three sums is Rs. 700 per month, amount exempt from tax is Rs. 4,900 @ Rs. 700 per month for 7 months during which the rented accommodation is occupied by X. • Hence, the amount of house rent allowance chargeable to tax is to be worked out as Rs. 3,500 (i.e., Rs. 8,400 — Rs. 4,900).
Perquisites
• ?a gain or profit incidentally made from employment in addition to regular salary or wages, especially one of a kind expected or promised?.-Webster • ?any casual emolument or benefit attached to an office or position in addition to salary or wages?.- Murray’s… • ?property acquired otherwise than by inheritance : a casual profit : anything left over that a servant or other has by custom a right to keep : a tip expected upon some occasion : emoluments : something regarded as falling to one by right?.- The Chambers… • signifies some benefit in addition to the amount that may be legally due by way of contract for services rendered
Section 17(2)
Perquisite includes :
a. the value of rent-free accommodation provided to the assessee by his employer b. the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer c. the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases : i. by a company to an employee who is a director thereof ii. by a company to an employee, who has substantial interest in the company ; iii. by any employer to an employee other than (i) and (ii) above and whose income under the head ?Salaries?, exceeds Rs. 50,000
d. any sum paid by the employer in respect of any obligation which but for such payment would have been payable by the assessee; e. any sum payable by the employer, whether directly or through a fund other than a recognised provident fund or approved superannuation fund or a deposit-linked insurance fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity; and f. the value of any other fringe benefit or amenity as may be prescribed
Types of perquisites
• Furnished/unfurnished house without rent or at concessional rent– Where accomodation owned by employer: 15% of salary – Where accomodation leased by employer: rent or 15% of salary whichever is lower. – Salary for this purpose: basic salary, dearness allowance/pay, if terms of employment so provide, bonus, commission, fees, all other taxable allowances and any monetary payment which is chargeable to tax (by whatever name called).
• Add: Cost of furniture
– 10% of original value or hire charges, whichever applicable
• If concessional rent, then find out total cost and deduct amount paid as rent. Balance would be the perquisite.
Perquisites (contd.)
• Supply of gas, electricity or water for household purposes • Education facility to employee‘s family members
– If for employee then exempt – If fixed allowance for children, then Rs. 100/300 exempt – Payment/reimbursement of children‘s school fees taxable – Education in employer‘s institute: Rs. 1000 pm
• Leave travel concession - twice in a block of four years
– Current block 2010-13 – For family including dependent parents, brothers and sisters – Carry over possible – Actual expenditure
• Amount paid by an employer in respect of any obligation which otherwise would have been payable by the employee
Amount payable by employer to effect an assurance/annuity on the life of employee
• Amount payable by an employer, directly or indirectly, to effect an assurance on the life of the assessee or to effect a contract for an annuity, is taxable in the hands of all employees. • This rule is, however, not applicable if the employer makes contribution/payment towards the following—
– recognised provident fund (up to 12 per cent of salary of the employee); – approved superannuation fund (upto 1 lakh); – group insurance schemes; – employees‘ state insurance schemes;
Interest free loan/loan at concessional interest
Step 1 Step 2 Step 3 Step 4 Step 5 Find out the outstanding balance as on the last day of each month. Find out rate of interest charged by the State Bank of India (SBI) as on the first day of the relevant previous year in respect of loan for the same purpose advanced by it Calculate interest for each month of the previous year on the outstanding amount mentioned in Step 1 at the rate of interest given in Step 2. From the total interest calculated for the entire previous year under Step 3, deduct interest actually recovered, if any, from the employee during the previous year. The balancing amount [i.e. Step 3 minus Step 4] is taxable value of the perquisite.
Exemption 1 If a loan is made available for medical treatment in respect of diseases specified (the exemption is, however, not applicable to the amount reimbursed to the employee under any medical insurance scheme). Exemption 2 Where the amount of original loan (or loans) does not exceed Rs. 20,000.
Movable assets sold at nominal price
• Cost to employer • Less normal wear and tear (WDV)
– 50% for electronic gadgets – 20% for cars – 10% for others
• Less selling price • Balance: perquisite
Medical facilities
• If owned by employer, maintained by govt.- entire amount exempt • If in other clinics- upto Rs. 15,000 pa.
Provision of car
• If owned by employee and used partly for private and partly for official purposes (expenses met by employer)
– Step 1 - Find out actual expenditure incurred by the employer – Step 2 - Less: Amount used for official purposes (i.e., a sum calculated at the rate of Rs. 1,200 per month where the cubic capacity of the engine does not exceed 1.6 litres or Rs.1,600 per month if such capacity exceeds 1.6 litres; and Rs. 600 per month if chauffeur is provided or a higher sum for official purposes as per records of the employer – Step 3 - Less: Amount recovered from employee
Other perquisites
• Lunch/ refreshment provision
– Food and non-alcoholic beverages in office premises or through non-transferable paid vouchers usable only at eating joints – Only if value per meal exceeds Rs. 50
• Gifts, vouchers or token: upto Rs. 5000 • Valuation of perquisite in respect of accommodation • Credit cards • Club membership • Others
Sweat equity shares
• If the following conditions are satisfied, value of sweat equity shares will be taxable in the hands of employees— 1. The security or shares involved are ?specified security? or ?sweat equity shares?. For this purpose, specified security means ?securities as defined in section 2(h) of the Securities Contracts (Regulation) Act and where employees stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme?. 2. Section 2(h) of the Securities Contracts (Regulation) Act defines securities to include the following— a. shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
Definition of securities (contd.)
b. derivative; c. units or any other instrument issued by any collective investment scheme to the investors in such schemes; d. security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; e. units or any other such instrument issued to the investors under any mutual fund scheme; f. Government securities; g. such other instruments as may be declared by the Central Government to be securities; and h. rights or interest in securities.
If sweat equity shares qualify as perquisite
• If the conditions are satisfied then the perquisite will be taxable in the hands of employee in the previous year in which shares or securities are allotted or transferred to the employee. • For this purpose, one has to find out fair market value of shares or securities according to the prescribed method (it will be prescribed by the Central Board of Direct Taxes). • Fair market value of shares or securities will be calculated on the date on which the employee exercises the option. • Amount actually paid or recovered from the employee in respect of such shares or securities shall be deducted.
Conditions (contd.)
• ?Sweat equity shares? means ?equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called?. 2. Specified security or sweat equity shares are allotted or transferred on or after April 1, 2009. If these securities or shares are transferred before April 1, 2009, then employer is liable to pay fringe benefit tax 3. Specified security or sweat equity shares are allotted by the employer or former employer to the employee. 4. Specified security or sweat equity shares may be transferred to the employee or former employee, directly or indirectly. 5. These securities or shares are transferred to the employee either free of cost or at a concessional rate.
Section 80C
• The following are the main provisions of section 80C— • Under section 80C, deduction is available from gross total income.
– Deduction under section 80C is available only to an individual or a Hindu undivided family. – Deduction is available on the basis of specified qualifying investments/contributions/deposits/payments made by the taxpayer during the previous year. – The investment, deposit, etc. can be made out of taxable income or otherwise. – The gross qualifying amount is allowed as deduction subject to a maximum of Rs. 1,00,000. – The maximum amount deductible under sections 80C, 80CCC and 8CCD cannot exceed Rs. 1 lakh.
80C
1. Life insurance premium
• including payment made under children‘s deferred endowment assurance policy • subject to a maximum of 20 per cent of sum assured • Self, spouse, children (min 2 years)
2. Contributions towards of non-commutable pension plan/ superannuation fund/pension plan 3. Contribution towards provident fund 4. Contribution towards 15 year public provident fund- self, spouse, children
80C
5. Subscription to National Savings Certificates, 6. Contribution for participating in the unit-linked insurance plan (ULIP) of Unit Trust of India or LIC Mutual Fund (min 5 years) 7. Payment for notified annuity plan of LIC (ie. New Jeevan Dhara, New Jeevan Akshay, New Jeevan Dhara 1, New Jeevan Akshay 1 and New Jeevan Akshay II or Jeevan Akshay III) or any other insurer.) 8. Subscription towards notified units of Mutual Fund or UTI
80C
9. Contribution to notified pension fund set up by Mutual Fund or UTI (i.e., Retirement Benefit Pension Fund of UTI) 10. Any sum paid (including accrued interest) as subscription to Home Loan Account Scheme of the National Housing Bank or contribution to any notified deposit scheme or pension fund set up by the National Housing Bank 11. Any sum paid as subscription to any scheme of— a. public sector company engaged in providing long-term finance for purchase/construction of residential houses in India (i.e., public deposit scheme of HUDCO); b. housing board constituted in India for the purpose of planning, development or improvement of cities/towns 12. Tuition fees (not including any payment towards development fees/donation/payment of similar nature) to any university/college/educational institution in India for full time education of any two children.
80C
13. Any payment towards the cost of purchase/construction of a residential property (including repayment of loan taken from Government, bank, cooperative bank, LIC, National Housing Bank, assessee‘s employer where such employer is public company/public sector company/university/co-operative society) (min 5 years) 14. Amount invested in approved debentures of, and equity shares in, a public company engaged in infrastructure including power sector or units of a mutual fund proceeds of which are utilised for the developing, maintaining, etc., of a new infrastructure facility 15. Amount deposited as term deposit for a period of 5 years or more in accordance with a scheme framed by the Central Government. 16. Subscription to any notified bonds of National Bank for Agriculture and Rural Development (NABARD). 17. Amount deposited under Senior Citizens Saving Scheme. 18. Amount deposited in five year time deposit scheme in post office.
• Sec 80D-medical insurance premium
– For self/spouse /children- upto Rs. 15000 – If senior citizens also included, another 5,000
• Sec 80E- Interest paid while repaying education loan
– Loan for higher education – For self/spouse/children/ward – Out of taxable income – Upto 7 years or payment of interest
Income from House Property
• Let out/Self occupied • If let out, then:
– Gross annual value – Less: municipal taxes – Net annual value – Less: Std. deduction @ 30% – Less: Interest on borrowed capital
• If self occupied: NAV taken as NIL • Interest allowed upto Rs. 1,50,000 • If more than one house, any one can be treated as self occupied.
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