The facts about your salary
All remuneration including allowances,
perquisites and arrears of salary received by an employee from the
employer or ex-employer constitutes the salary income of an individual. Allowances
directly add to an
individual's monetary income, while perquisites are in the nature of benefits,
concessions or facilities that
an employee is privileged to receive. What goes into the three groups, viz;
salaries, allowances and
perquisites is described here. Look at the following points for more you want to
know about your salary.
1.What
constitutes salary
2. How do I compute my salary income
3. How do I claim deductions and rebates and
pay my taxes
4. Exemption limits for certain items of
salary and allowances
5. Taxable value of perquisites
6. Deductions permissible from gross
salary
1. What
Constitutes Salary
There are total 3 groups
that constitute your salary-
Salary Group
Basic Salary, Advance Salary,
Incentive, Bonus, Attendance Bonus, Leave Encashment [EL],
Gratuity [EL], Arrears of Salary, Suggestion Award, Pension, Compensation
under VRS [EL],
Long service award etc.
Allowances Group
Dearness Allowance including
Additional / Fixed / Variable D. A., House Rent Allowance [EL], Lunch Allowance,
Conveyance Allowance [EL], Children's Education Allowance [EL],
Technical/IT(Info Tech) Allowance,
Night Shift Allowance, Overtime Allowance, Leave Travel Assistance[EL],
Personal Allowance, Special
Allowance, Ad-hoc / Miscellaneous Allowance, I.B.R. Allowance / HIR allowance,
Transfer Allowance,
City compensatory Allowance, Cash handling allowance, Washing allowance, Kit
allowance, Fire
fighting allowance, etc.
Perquisites Group
Rent free unfurnished house, Rent
free furnished house, Motor car facility, Reimbursement of Gas,
Electricity & Water, Club facility, Domestic Servant Facility, Interest Subsidy
on Loan ,
Reimbursement of medical bills, Reimbursement of Hospital bills, Reimbursement of
telephone bills,
Benefits derived by employee stock option, and so on.
EL: Exempt up to certain limit
2. How do I Compute my Salary Income
First, work out gross salary as sum of
items under the groups salary, allowances &
perquisites. In doing so, consider:
- Exemption limits for certain items of
salary and allowances
- Value of perquisites to be regarded as taxable
Next, deduct the amounts that are allowable
from gross salary to arrive at your taxable income from salaries.
3. How do I
Claim Deductions and Rebates and pay my Taxes
Step-1
You need to make a declaration to Corporate
Finance (Salary) listing the amounts invested or
those that you have committed to pay during the financial year which would entitle
you to
claim a tax rebate. In fact you need to submit copies of receipts / certificates to
the
company evidencing actual payments made. You can make this declaration as early as
possible during the financial year (1st April to 31st March) but in any case not
later than the
10th of February.
Step-2
In case you are repaying a housing loan,
you could claim a deduction for the interest
paid on the loan. You need to obtain a certificate from the Housing Finance Co.
that
separately states the principal amount and interest that you have repaid during the
financial year.
Please submit this certificate along with the above mentioned declaration before
10th of February.
Step-3
Include in your declaration applicable
deductions under Chapter VI-A relating to certain
payments made by you.
Step-4
Corporate Finance (Salary) will consider
your declaration and estimate your taxable salary income
as well as your tax liability. The income tax will be deducted in equal
installments from your monthly
salary and pay it to the government on your behalf. In case extra tax has been
deducted, it will be
repaid to you through your monthly salary after the end of the year.
Note: Please appreciate
that it is the company’s obligation by law to deduct the correct
amount of tax from your salary. Therefore, you are urged to cooperate and make
correct
declarations well in time.
4. Exemption
Limits for Certain Items of Salary and Allowances
A. Leave Salary or Leave Encashment
Leave salary received at the time of
retirement or at the time of superannuation or at the time of
termination of service is exempt from tax up to the least of the following amounts.
(Routine
encashment of earned leave during the course of employment is fully taxable.)
a. Leave salary actually received.
b. Eight months average salary.
c. Amount specified by Govt. i.e. Rs. 2,40,000/- (retired after 1 July 1997)
d. One month average salary for every completed year of service after
deducting
leave availed while in service.
Note:
I. -For calculating Completed years of service, any
fraction of year is to be ignored.
II. Average salary is worked out from the salary drawn by employee during
the ten months before his retirement.
-Salary = Basic Salary + Dearness Allowance
B. Gratuity
Gratuity received at the time of retirement
or superannuation or termination of service is exempt
from tax up to the least of the following amounts-
a. Gratuity actually received
b. Amount specified i.e. Rs. 3,50,000/-
c. 15 days salary based on 26 days in a month for every completed year
of service.
Note:
-Completed year of service includes part of the year in excess of six months.
-Salary refers to the last pay drawn.
-Salary = Basic Salary + Dearness Allowance
C. Compensation received under VRS
Under an approved scheme of Voluntary
Retirement Scheme, the maximum amount
of exemption is Rs. 5,00,000/-.
D. House Rent Allowance (HRA)
House rent allowance received by an
employee is exempt from tax up to the least of the following:
a. House Rent Allowance actually received
b. 50% of salary if HRA received in Mumbai, Calcutta, Delhi, Chennai and 40%
of salary if HRA in other cities.
c. Rent paid in excess of 10% of salary.
Note:
-Salary = Basic Salary + Dearness Allowance
-Exemption for HRA is not available if employee is staying in his own house or not
paying any
rent for occupying house .
E. Leave Travel Allowance
Leave travel allowance not exceeding
the amount of actual travel fare incurred by the employee for
self and family to travel to any place in India while on leave is exempt.
Note:
-Exemption can be claimed only for two
trips during the block of four calendar years (1998- 2001).
-Air fare is also allowable
-Tickets, etc. should be preserved by the employee and produced on demand by the
assessing tax officer.
F. Conveyance Allowance
Exempt up to Rs.800/- per month.
G. Children's Education Allowance
This allowance is exempt from tax to
the extent of Rs. 50 /- per month per child up to a maximum of two children.
5. Taxable
Value of Perquisites
a. Rent Free Unfurnished residential
accommodation provided by company
-------------For accommodation
provided in the cities other than Mumbai, Calcutta, Delhi, Chennai
CONDITION |
TAXABLE AMOUNT |
| a. If
fair rent less than 10% of salary |
Fair
rent |
| b. If
fair rent more than 10 % of salary but less than 50% of salary |
10 %
of salary |
| c. If
fair rent more than 50% of salary |
Fair
rent minus 40% of salary |
-------------If house provided in Mumbai,
Calcutta, Delhi, Chennai
CONDITION |
TAXABLE AMOUNT |
| a. If fair rent
less than 10% of salary |
Fair rent |
| b. If fair rent
more than 10 % of salary but less than 60% of salary |
10 % of salary |
| c. If fair rent
more than 60% of salary |
Fair rent minus
50% of salary |
Note:
-The perquisite is to be valued only for the period that the accommodation
was occupied by the employee.
-Fair rent means rent of similar property in the same locality or muncipal
valuation, whichever is higher.
-Salary includes the pay, allowances, bonus or commission payable monthly or
otherwise, plus reimbursement
of gas, electricity & water plus profession tax / income tax paid by
company on behalf of the employee .
-Salary does not include the following
(i) Company's contributions to the provident fund account of the employee
(ii) Tax - exempt portion of allowances.
b. Rent-free furnished residential accommodation provided by company
i. Calculate taxable value
of rent - free accommodation as if it were unfurnished (see no. 1 above).
ii. Add 10% of original
cost of furniture provided by company in case the furniture is owned by the company.
In case the furniture is hired, the actual higher charges paid by the company
should be considered.
Note: Furniture includes TV. Sets,
Refrigerator, Video, Tape recorder, Soft furnishing and other house hold appliances.
c. Motor Car Facility
The company provides motor car facility
partly for the performance of the employee's duties and partly for
employee's private and personal purposes. All the expenses on the maintenance and
running the car are met
or reimbursed to the employee by the company.
The value of this perquisite is worked out
as:
i. Where the horse power (hp.) rating of the car does not exceed 16: Rs.600 per
month
ii. Where the horse power (hp.) rating of the car exceeds 16. : Rs.800 per month
In either case, Rs.300 per
month should be added to the value of the perquisite if a chauffeur has also been
provided.
d. Reimbursement of Gas, Electricity and Water
Taxable value of perquisite = amount
reimbursed to the employee.
e. Club Facility
Taxable value of perquisite = bills
for club fees paid by company.
f. Free use of domestic Servant
i. Taxable value of perquisite =
wages of domestic servant reimbursed by company to employee.
ii. In case Sweeper, Watchman or a Gardner is provided by the company, the taxable
value of the perquisite =
Rs. 120/- per month per servant.
g. Interest Free Loan OR Loan provided at concessional Rate of Interest
i. Loan directly
given by the company:
Taxable value of the perquisite = reasonable amount of interest calculated
at differential between rate of interest
at which loans are usually available outside and rate at which loan is given to
employee.
ii. Concession in interest
through an arrangement, on loans given to employees by outside agency:
Taxable value of the perquisite = amount
of interest subsidised by the company.
h. Reimbursement of medical bills / hospitalisation bills
Taxable value of the perquisite =
amount reimbursed in excess of Rs.15,000/- per annum.
i. Reimbursement of telephone bills
Taxable value of the perquisite = charges
for long distance personal calls by employee reimbursed by company.
j. Value of employees stock options
With effect from assessment year
2000-01, the difference between the market price of the share or other
security offered to the employee and the cost at which it is offered to the
employee shall be taxed as a
perquisite. The benefit shall be taxed in the year in which the right of such
option is exercised or is
exercised and transferred in the name of any other person.
6. Deductions
Permissible from Gross Salary
a. Standard Deduction
Standard
Deduction u/s 16(i) for the assessment years 1999-2000 to 2001-02 is as under-
| Salary
income before giving standard deduction (i.e., after giving deduction in respect of
entertainment allowance and professional tax) |
Amount of standard
deduction |
|
| Rs.1
lakh or less |
One-third
of gross salary or Rs.25,000, whichever is less |
| More
than Rs.1 lakh but not more than Rs.5 lakh |
Rs.20,000 |
| More
than Rs.5 lakh |
Nil |
For the assessment
year 1998-99, standard deduction shall be one-third of gross salary or Rs.20,000,
whichever is less. Standard deduction on the above basis is allowed to all employees
irrespective of their designations and regardless of the fact whether any expenditure
incidental to employment has actually been incurred by the employee. Standard deduction is
granted even in respect of pension and gratuity.
b. Tax on Employment (profession tax)
Amount of deduction = Profession tax paid.
c. Deductions under Chapter VI-A
To arrive at the taxable salary the
company will consider deductions allowed in respect of certain payments in
case the employee has declared them to the company.
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