PROJECT FOR DIRECT & INDIRECT TAXES

COMPUTATION OF INCOME FROM SALARY
A CASE STUDY OF ANY EMPLOYEE

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CERTIFICATE FROM THE ORGANIZATION

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Has/ have successfully completed a study on Procedure of Computation of Income from Salary - A case of State Bank of India and have submitted the project report on the same.

The study conducted was satisfactory. We wish them all the best.

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TABLE OF CONTENTS

Executive Summary.................................................................................................4 Remuneration: what is it? ....................................................................................5 Components of Remuneration System………………………………………….7 What is deducted from salary? ........................................................................10 What exemptions are made in salary? ……………………………………......11 Case Study: State Bank of India…………………………………………………...13 Acknowledgements ...…………………………………………………………………20 Bibliography………………………………………………………………………………21

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Executive Summary
The following case study acquaints the reader with the Remuneration System of the Public Sector Bank – State Bank of India. It gives the reader a brief insight about the fundamentals of what constitutes a salary structure for an employee. Then through a Balance Sheet of the Company we will explain the various elements listed and their relevance. Notes are mentioned for the same. In conclusion we have prepared a sample salary slip to show how SBI remunerates its employees.

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Remuneration: what is it?
Remuneration is pay or salary, typically monetary payment for services rendered, as in an employment. Pay is described in employment legislation as "wages". The employer has a duty to pay wages, which are generally dealt with as an express term in the contract of employment. Wages comprise the basic rate of pay plus any other monetary element (e.g. overtime, bonus, commission etc.). Wages may be paid in the form of an annual salary, where it is usual to pay on a monthly basis, or, for hourly paid employees, at weekly intervals. Salaried employees are usually paid one-twelfth of their annual salary each month. Hourly paid personnel are usually paid for the number of hours worked during the relevant week. The basic salary or rate of pay may be supplemented by any overtime, bonus or commission earned. This then becomes gross wages from which the employer is required to deduct the appropriate national insurance contributions and income tax due.

What is included in salary?
According to Section 17(1) salary includes: 1. wages and salaries including advance of salary 2. fees and commission 3. perquisites 4. addition to salaries or wages 5. payment received by an employee in respect of any period of leave not availed of by him, i.e. leave encashment 6. annual accretion to the balance at the credit of an employee participating in a recognize provident fund to the extent it is taxable

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Perquisites
It is a personal advantage or benefit derived by virtue of employment office or position. A perquisite denotes an additional monetary benefit going into the pocket of or enriching the employee. Some perquisites are taxable while some are non taxable. The taxable perquisites should be included in salary income.

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Components of a Remuneration System

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 Direct Compensation
Basic pay It’s the monthly base amount a person is entitled to. This is the biggest part of the pay, typically 50-60 per cent of the cost to the company (CTC). The basic tends to form a higher portion of the salary at junior levels. At senior levels, the proportion of basic goes down and variable pay components such as target-linked bonuses come into the picture. Basic determines the other components of an employee’s pay such as provident fund (PF) contribution (both by employee and employer) and house rent allowance, entitlement to loans by employers and, sometimes, designations and salary grades are linked to the basic. Dearness allowance Dearness allowance is a part of a person’s salary in India. It is calculates as a percent of the basic salary. The amount calculated is then added to the basic pay as well as the HRA to get the total salary. It is calculated on the basis of consumer price index. Dearness allowance is basically given by the company so that rise in prices of consumer price index will be compensated by increase in dearness allowance. As consumer price index is very volatile and variable dearness allowance is has a separate heading in salary slip. City compensatory allowance City Compensatory allowance is an additional allowance. It is not exempted from tax like HRA. It enables the employee to bear the high cost of living prevailing in an urban area or a city. If an employee is stationed at a bigger city, the person is required to spend more therefore the employer compensates the employee with this allowance.

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 Indirect Compensation
Travelling allowance It depends on area to area. Conveyance allowance is basically paid to cover an employee’s work-related travel needs. An employee has to travel during the job so this takes care of the transportation expenses. Up to Rs 800 is exempt from tax every month. This component helps make the pay more tax-efficient and influences the take home pay of those at lower levels of pay. Provision for newspaper In certain factories/establishments the employees are reimbursed the cost of Newspapers while in some other factories/establishments the employees are paid monthly newspapers allowance instead of reimbursement of the cost of the Newspapers. This allowance is called newspaper allowance. Telephone allowance All officers of SMGS III and above, all Branch Managers and other functionaries who are permitted by competent authority are eligible for this allowance. In addition to free calls, reimbursement will be as under: TEGS VII – 2000 calls per month TEGS VI – 1500 calls per month SMGS IV & V – 800 calls per month MMGS II & III – 300 calls per month JMGS I – 200 calls per month

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What is deducted from salary?
Deductions under section 16
 Entertainment allowance : sec 16 (2) -It is only given to the government employees -It is initially included in the gross taxable salary -Thereafter section 16(2) allows a deduction from salary to the government employees to the least of the following: (a) 1/5th of the basic salary (it would include dearness allowance excluding bonus, perks, allowances) (b) Rs. 5000 (c) Amount of entertainment allowance actually received - A non- government employee is no entitled to any deduction for EA  Professional tax : sec 16(3) Section 16 (3) allows a deduction from salaries of the amount of a tax on employment by or under any law by the state government under article 276 of the constitution

Deductions under section 80
 Deduction under sec80C (a) Life insurance premium: payment of premium which is in excess of 20% of actual capital sum assured shall not be included in gross qualifying amount. (b)contribution to statutory provident fund (c) National saving certificates  Deduction under sec80D Medical insurance premium paid: The maximum amount of deduction is rs.15000 for normal citizen and rs.20000 for senior citizen

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What exemptions are made in salary?
Exemptions under section 10
 Leave travel concession : sec 10(5) It is exempt to the following extent: -in the case of an individual -the value of any travel concession or assistance received by or due to him -From his employer for himself and his family, in connection with his proceeding on leave to nay place in India.  Encashment of leave salary : sec 10(10AA) - It means cash received by an employee against leave earned but not taken and accumulated. - Leave encashment while in service is taxable In case of government employee: Any payment received by an employee of the central govt or state govt as the encashment of the earned leave to his credit at the time of his retirement, is wholly exempt from tax In case of other employees: Leave salary is exempt to the extent of the least of the following amounts: -Encashment of the earned leave, not exceeding 30 days per each completed year of service -10 months average salary on basis of basic salary drawn for 10 months immediately preceding the date of retirement -The amount notified by the government which is 3, 00,000 -And the amount actually received  Payment from statutory / public provident fund : sec 10(11) -A provident fund to which the provident funds act, 1925 applies -Or from the provident fund set up and notified by the central government
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 Payment from recognized P.F : sec 10(12) -The accumulated balance due and becoming payable, -To nay employee participating in a recognized provident fund -To the extent provided in rule 8 of part A of the 4th schedule to the act  House rent allowance : sec10 (13A) -Any special allowance granted to an employee by his employer to specifically meet expenditure actually incurred on the payment of rent for residential accommodation occupied by him -Where as no exemption is available: 1. When such accommodation occupied by the Assesse is owned by him 2. The Assesse has not actually incurred any expenditure on payment of the rent in respect of such accommodation occupied by him.

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CASE STUDY: STATE BANK OF INDIA
 Salary slips of different management levels

Grade Designation Basic pay Dearness allowance City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance Gross PF (Employers contribution) Net [Gross + employers contribution to PF] PF (Employees contribution) CTC (per month) Annual CTC

JMGS – I Assistant Manager 10000 18 400 850 350 2750 14368 1000

JMGS – I Assistant Manager 14880 27 540 1265 350 2750 19812 1488

JMGS – I Assistant Manager 21040 38 540 1788 350 2750 26506 2104

15368 1000 16368 196416

21300 1488 22788 273456

28610 2104 30714 368568

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Grade Designation Basic pay Dearness allowance City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance Gross PF (Employers contribution) Net [Gross + employers contribution to PF] PF (Employees contribution) CTC (per month) Annual CTC

MMGS - II Deputy Manager 13820 25 540 1175 500 3025 19085 1382 20467 1382 21849 262188

MMGS – II Deputy Manager 19360 35 540 1646 500 3025 25106 1936 27042 1936 28978 347736

MMGS - II Deputy Manager 22920 41 540 1948 500 3025 28974 2292 31266 2292 33558 402696

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Grade Designation Basic pay Dearness allowance City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance Gross PF (Employers contribution) Net [Gross + employers contribution to PF] PF (Employees contribution) CTC (per month) Annual CTC

MMGS - III Manager 18240 33 540 1550 500 3300 24163 1824 25987 1824 27811 333732

MMGS - III Manager 21040 38 540 1788 500 3300 27206 2104 29310 2104 31414 376968

MMGS - III Manager 23520 42 540 1999 500 3300 29901 2352 32253 2352 34605 415260

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Grade Designation Basic pay Dearness allowance City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance Gross PF (Employers contribution) Net [Gross + employers contribution to PF] PF (Employees contribution) CTC (per month) Annual CTC

SMGS - IV Chief Manager 20480 37 540 1741 700 3575 27073 2048 29121 2048 31169 374028

SMGS - IV Chief Manager 23520 42 540 1999 700 3575 30376 2352 32728 2352 35080 420960

SMGS - IV Chief Manager 24140 43 540 2052 700 3575 31050 2414 33464 2414 35878 430536

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Grade Designation Basic pay Dearness allowance City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance Gross PF (Employers contribution) Net [Gross + employers contribution to PF] PF (Employees contribution) CTC (per month) Annual CTC

SMGS - V Assistant General Manager 24140 43 540 2052 700 3850 31325 2414 33739 2414 36153 433836

SMGS - V Assistant General Manager 25380 46 540 2157 700 3850 32673 2538 35211 2538 37749 452988

SMGS – V Assistant General Manager 26620 48 540 2263 700 3850 34021 2662 36683 2662 39345 472140

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Grade Designation Basic pay Dearness allowance City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance Gross PF (Employers contribution) Net [Gross + employers contribution to PF] PF (Employees contribution) CTC (per month) Annual CTC

TEGS - VI Deputy General Manager 26620 48 540 2263 900 4125 34496 2662 37158 2662 39820 477840

TEGS - VI Deputy General Manager 28660 52 540 2436 900 4125 36713 2866 39579 2866 42445 509340

TEGS – VI Deputy General Manager 29340 53 540 2494 900 4125 37452 2934 40386 2934 43320 519840

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Grade Designation Basic pay Dearness allowance City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance Gross PF (Employers contribution) Net [Gross + employers contribution to PF] PF (Employees contribution) CTC (per month) Annual CTC

TEGS – VII General Manager 29340 53 540 2494 1000 4400 37827 2934 40761 2934 43695 524340

TEGS – VII General Manager 31600 57 540 2686 1000 4400 40283 3160 43443 3160 46603 559236

TEGS – VII General Manager 32600 59 540 2771 1000 4400 41370 3260 44630 3260 47890 574680

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Acknowledgements
We as a group hereby give our sincere thanks to Prof. Mr. Sandeep L. Chopde for giving us this opportunity to use our knowledge in the subject of “Accountancy” and improve our knowledge in the subject of “Taxation”. We would like to thank Mr. Suhas Phalnikar, Branch Manager of SBI, Fort and Mrs. Pratima Avasare, Branch Manager, Andheri for providing us with valuable information regarding the project. We also thank Mumbai Education Trust for providing us with the books, notes, the invaluable information and help.

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Bibliography
 Varsha Ainapure, Mukund Ainapure Direct and Indirect taxes. Mumbai: Manan Prakashan, 2000  A.M. Sharma Understanding Wage System. Delhi: Himalaya Publication House, 2004  State Bank of India Officers’ Association (Mumbai Circle), Service Conditions at a Glance, 2008  State Bank of India http://www.statebankofindia.com/ http://www.onlinesbi.com/ Income Tax Department http://www.incometaxindia.gov.in/

 Google http://www.google.co.in/

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