Salary Design
and
Tax Implication
By –
Omprakash Todwal
Anagram.
Income Tax Rules - Salary
What is Salary? Chargeability of Salary?
Wherever there is Chargeable on due or
Employer – Employee receipt basis which ever
relationship is earlier;
Salary Components
- Basic Salary / Wages
- Dearness Allowance
- Special Allowance
- Fee / Commission/Incentive
- Profit in lieu of salary
- Advance Salary
- Leave Encashment – Exempted up to 3 lac on
retirement
- Pension
- Annuity
- Gratuity – Exempted up to 3.5 lac
Allowances / Reimbursements
• Conveyance / Transport Allowance – Ex. Rs. 800/- pm
• House rent Allowance – Exemption u/s 10 (13)
• Medical Allowance – Fully Taxable
• Medical Reimbursement – Non Taxable up to Rs. 15,000/- pa
• Education allowance – Ex. Up to 1200/- per annum per child
up to two child
• Hostel Allowance – Rs. 300/- pm up to two child
• Leave Travel Allowance – Non Taxable twice / two journeys
in block of four years
• Hardship Allowance – Fully Taxable
• Food Allowance / Vouchers – Ex. Up to Rs. 50/- per day
• Any other Allowance – Fully taxable
Compensation
• Retrenchment : Amount fully exempted where scheme
is approved by central govt. or in other cases, amount
calculated u/s 25 (b) of Industrial Dispute Act, 1947
• Voluntary : Exempted up to Rs. 5 lac / In case of
installment receipt up to overall Rs. 5 lac
Fringe Benefit Tax – No Tax
from Employee
• Clause 115 WB (1)
– Direct or Indirect facility / amenity / privilege – Actual
cost is taxable
– Concessional ticket for family – 100 % taxable
reduced by amount recovered
– Superannuation Fund -100% of actual amount
Fringe Benefit Tax – No Tax
from Employee
• Clause 115 WB (2) – 20% of • Clause 115 WB (2) – 50 % of
Value Value
– Entertainment – Festival Celebrations
– Hospitality (5% of value in
case of Hotel ) – Health Club or similar facilities
– Conference / sales
Promotions
– Employee’s Welfare – Club Facilities
– Conveyance / tour expenses
– Hotel Expenses/Boarding / – Gifts
Lodging
– Telephone
– Scholarships
– Maintenance & depreciation
cost of Motor Car
– Maintenance of House
Accommodation
Perquisites
• Rent Free Accommodation – As prescribed
• Car – If provided by company & Partly used for
personal purpose
– Expenses born by Employer – Rs.1200/- or 1600/-
– Expenses born by Employer – Rs. 400/- or 600/-
• Chauffer – Rs . 600/- per month
• Interest / Concessional Loan – Interest as specified rate
charged by SBI on Loan over 20,000/- is taken as
taxable income
Tax Slabs…..
General -
– Up to 1 lac – Nil
– 100001- 150000 : 10%
– 150001- 250000 : 20%
– Above 250000 :30%
• For Women
– Up to 1.25 lac – Nil
– 125001- 150000 : 10%
– 150001- 250000 : 20%
– 250001 and above : 30%
Tax Slabs…..
• For Senior Citizen-
– Up to 1.35 lac – Nil
– 135001- 150000 : 10%
– 150001- 250000 : 20%
– 250001 and above : 30%
• 10 % Surcharge of tax if taxable income is above 10 lac
• 2% Education Cess on Tax
Deductions / Rebate
• Loss from House Property : Interest on Housing Loan up
to 1.5 lac if borrowed after 01/04/1999
• Under chapter VI :
– u/s 80 D Premium of Mediclaim Policy
– u/s 80 C : Up to 1 lac
• LIC
• PPF
• PF
• ELSS (notified MF Schemes) / ULIP
• NSC
• Infrastructure Bonds
• Principal Amount of Housing Loan
• Tuition fee of any of two children
• Pension Fund
Income from Other Sources
• Any income which does not fall under any head will fall
under income from other sources and will be added in
taxable income like income from commission, interest
etc.
IT Returns
• Form 24 Q – Quarterly Return to be filed by employer
within 15 days
• Form 24 – Annual return to be filed on or before 30th
June
• Income certificate from Employer : Form 16
• To be issued to the employees within one month from
last day of financial year
• IT return to be filed by individual in Form 2 D “Saral” on
or before 31st July
• In case of more than one employer in a year, Form 12 C
to be submitted to new employer by the employee
Other Investment Options
• Mutual Fund Schemes
• Initial Public Offers
• Equity : Capital Market or Derivative
• Commodity Market : Gold / Silver / Agro Commodities
• Debt Market
• Govt. Securities
• Bonds
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