direct taxes bms project

7/29/2019 Direct Taxes BMS project

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DIRECT TAXES

INCOME TAX ACT,1961

SECTION 15 TO 17


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What Is Salary?

Salary means the remuneration or the income of a person, which

he receives from his employer for rendering services to him. The relationship between the two should be that of a master and

a servant i.e. Employer and Employee and not that of Principal

and Agent or Principal and Principal.

The term Salary includes: Wages

Any Annuity or Pension

Any Gratuity

Any Fees, Commission, Perquisites or Profit in lieu of or in

addition to any salary or wages,

Any advance of salary

Any leave salary


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The term Salary includes: (Contd..)

Annual Accretion to the balance at the credit in recognizedprovident fund to the extent taxable as income deemed to be

received under section-7.

Transferred Balance of an employee participating in therecognized provident fund, to the extent taxable as income

deemed to be received under section-7

Contribution made by the Central Government in the previousyear to the account of an employee under a pension scheme

referred to in section 80CCD.


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Incomes Taxable Under The Head Salaries

a) Any salary due, from an employer or a former employer, to

an assessee in the previous year, whether paid or not (i.e.On accrual or due basis).

b) Any salary paid or allowed to him in the previous year by oron behalf of an employer or a previous employer, whether

due or not (i.e. On receipt basis).

c) Any arrears of salary paid or allowed to him in the previousyear, by or on behalf of an employer or a former employer, if

not taxed already.


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Main Characteristics Of Income Charged Under The Head

Salaries:

1. Relationship of employer and employee or master-servantrelationship is absolutely necessary between the giver and

the receiver of the sum so chargeable.

2. In income tax, there is no distinction between salary paid to

a managing director and wages paid to an ordinary worker.

3. Salary is taxable on accrual basis as well as on receipt basis.

However, the same income amount cannot be taxed twice

under both the basis.

4. During one year, salary may have been received from more

than one employer. In such cases, salaries received from all

such employers will be taxed under the head Salaries.


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5. The remuneration as an employee may have been received

from the Government, a Local Authority, A Company, Firm,

an Individual, or Hindu Undivided Family, but all are taxed as

salaries. Only an individual can receive or earn salary.

The employer may be an individual or he may be any other

person. It is quite possible that the employer may not be a

person e.g. when the employer is the Central Government

or a State Government.

6. Any salary, bonus, commission or remuneration by whatever

name called, due to or received by a partner of a firm fromthe firm is however, not regarded as Salaries.


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What Is Perquisites?

Perquisites mean any casual emolument, fee or profit

attached to an office or position, in addition to salary or

wages.

It is an additional benefit received by an employee fromemployer.

Perquisites means money or goods given or regardedas a right in addition to ones pay.


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Illustrations of Perquisites:

Provision of a motorcar or free use of a car or otherconveyance.

Free services of servants at home.

Free educational facilities for children of the employee.

Free transport provided to an employee and his family.

Income tax due on salary paid by the employer.

There are certain benefits or amenities granted by theemployer to an employee, which are technically and legally

taxable, but are not taxed as perquisites due to

departmental instructions.


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Illustrations of Exempt Perquisites:

1) Conveyance allowance for commuting to/for residenceand office is exempt up to Rs.800/- per month.

2) Reimbursement of any expenses incurred entirely for

office purpose e.g. Reimbursement of travelling,

entertainment, expenses,etc.


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Following are specifically not regarded

as Perquisites:

Expenditure on medical treatment provided to an

employee or any of his family members in any hospital

maintained by the employer.

Any sum reimbursed by the employer in respect of

expenditure incurred by the employee on his medical

treatment or of any member of his family:

i. In any government hospital or

ii. In any other approved hospital for certain prescribed

diseases or ailments.


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What Is Profit In Lieu Of Salary?

A Profit in lieu of salary is not a regular paymentreceived by the employee from the employer.

It is something which the employee receives instead of

or in place of salary.


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Deductions Allowable In Computation

Of Income From Salaries:

Various deductions are allowable, in practice are on account

of various expenses incurred to earn an income either on

actual basis (i.e. the actual amount of the expenses incurred)

or on the notional basis (i.e. irrespective of whether the

expenses is incurred or not) or partly on one basis and partly

on the other.

Section 18 lays down following deductions which are

allowable while computing the income under the headSalaries:

i. Entertainment Allowance &

ii. Profession Tax


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Entertainment Allowance: The deduction is in respect of any entertainment allowance

specifically granted to the assessee by his employer. This

deduction is available only to government employees and

is subject to certain limits.

The allowance is as follows:

i. A sum equal to 1/5th of his basic salary or

ii. Rs.5,000 or

iii. Actual sum received as entertainment allowance during

the year, whichever is the least.

This should be noted that only basic salary has to be

considered for the purpose of calculating 1/5th.


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Profession Tax

This deduction is on account of any sum paid by theassessee on account of tax on employment which is

popularly known as Profession Tax.

Where an employer pays the profession tax on behalf

of the employee the same is first treated as Perquisite

and added to gross salary.


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Name of Assessee

PAN: Asst. year 2012-13

Status: Individual Previous year ended 31-3-2012

Resident and ordinarily Resident

Computation of Income from Salaries

Name & Address of the employer Rs. Rs.

Salary

Basic salary/ Wages

Arrears of salaries

Advance salaries

Bonus

Leave salary

Commission

Pension

Gratuity (to the extent not exempt u/s 10)

Commuted value of pensions (to the extent not exempt u/s 10)

Allowances (to the extent not exempt u/s 10)Entertainment allowance

Dearness allowance

City compensatory allowance

House rent allowance

Other allowances (to the extent not spent)


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Make up Allowance

Conveyance allowance

Perquisites (to the extent taxable)

For personal use of car

Servants salary paid by employerFree Furnished Accommodation

Profits in lieu of salary

Gross salary

Less: Deductions u/s 16

i. Entertainment allowances (u/s 16 (ii))

ii. Profession tax paid (u/s 16(iii))

Net Salary Chargeable To Tax Rs.


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Some Other Adjustments/Rules:

1. Loans taken from employer is not advanced salary

since loan has to be repaid.

2. No deduction is allowable for any expenses incurred on

books and membership fees.

3. For e.g. Taxi fare for the purpose of going to office,when car was under repairs.

4. Payment of Medical insurance premium by employer is

not a taxable perquisite.

5. For e.g. Directors meeting fees

6. Reimbursement of medical expenses is not a

perquisite.


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Some Other Adjustments/Rules:

7. Use of car for personal use is not a perquisite if

he/she has paid a reasonable rate for the

personal use of the car.

8. Free lunch is not taxable as a perquisite under

executive instructions.

9. In terms of section 17(2), contribution to an

approved superannuation fund in excess of

Rs.1,00,000 is treated as taxable perquisite.

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