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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
There are total 3 groups that constitute your salary-
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.
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.
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.
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
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
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.
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.
Include in your declaration applicable deductions under Chapter VI-A relating to certain payments made by you.
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 companys 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
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.
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
Under an approved scheme of Voluntary Retirement Scheme, the maximum amount of exemption is Rs. 5,00,000/-.
House rent allowance received by an employee is exempt from tax up to the least of the following:
a. House Rent Allowance actually received
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.
Exempt up to Rs.800/- per month.
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
-------------For accommodation provided in
the cities other than Mumbai, Calcutta, Delhi, Chennai
-------------If house provided in Mumbai,
Calcutta, Delhi, Chennai
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.
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
In either case, Rs.300 per month
should be added to the value of the perquisite if a chauffeur has also been provided.
Taxable value of perquisite = amount reimbursed to the employee.
Taxable value of perquisite = bills for club fees paid by company.
i. Taxable value of perquisite =
wages of domestic servant reimbursed by company to employee.
i. Loan directly
given by the company:
Taxable value of the perquisite = amount of interest subsidised by the company.
Taxable value of the perquisite = amount reimbursed in excess of Rs.15,000/- per annum.
Taxable value of the perquisite = charges for long distance personal calls by employee reimbursed by company.
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
Amount of deduction = Profession tax paid.
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.