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[ Income under the Head Salaries and Deductions under Chapter VIA

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Contents
1 2 2a 2b 2c 2d 2e 3 Heads of Income and Calculation of Total Income Salary Basis Of Charge Profit in lieu of Salary Allowances and Exemptions Deductions under the head Salaries Perquisites (ESOP’s Discussed) Deductions under Chapter VIA – List and imp deductions in brief

1. Computation of Total Income Deductions. Rebates and Relief Salaries Other Sources Computation of Total Income House Property Capital Gains Business and Profession .

Allow ances and Exemp tions . Profit in lieu of Salary 3. Income under the head “Salaries” Salaries 5. Perquisites 1. Basis of Charge 4.2. Deductions Sec 15 to 17 2.

etc. annuity or pension. advance salary. Basis of Charge – Sec 15 and 17 Salary is chargeable to tax on "due" or "receipt" basis whichever is earlier and Includes • • • • • • • • • wages. . fees. perquisites or profits in lieu of salary. gratuity. leave encashment. commission.2a.

2b. Any sum received before his joining any employment or after cessation of his employment. . Profits in lieu of Salary – Sec 17 (3) any compensation from employer or former employer on termination or modification of the terms of employment any receipt from employer/former employer or from provident/other Fund to extent not consisting of contributions by assessee / interest on such contributions. any sum received under a key man insurance policy including the sum allocated by way of bonus on such policy.

Allowances House Rent Allowance Leave Travel Allowance (Concession) Special and Other Allowances .2c.

2c. Allowances – cont’d Sr.No Sec and Rule Nature of Allowance Exemption Conditions 200910 Exemption Conditions 2010-11 1 Sec 10A rule 2A House Rent Allowance 1.An amount 50% of salary if residence in Del/Mum/Cal/Mad & 40% of salary if at any other place.The excess of rent paid over 10% of salary Salary = Basic + DA + Commission Same .HRA recd for the period accommodation is occupied in the Previous year 3. 2.

2c.No Sec and Rule Nature of Allowance Exemption Conditions 2009-10 Exemption Conditions 2010-11 Sec 10(5) and Rule 2B 3 Leave Travel Concession or Assistance Based on Actual Expenditure Available only in respect of fare Available for shortest route Not for more than 2 children Same Salary = Basic + DA + Commission . Allowances – cont’d Sr.

Sr. a Same b c d Border Area allowance Tribal Area Allowance Allowance for Transport Employees Same Same Same e Children Education allowance Rs. Exemption Specified Exemption varies from Rs.300 pm /per child max of 2 children Exemption limited to Rs.6000 whichever is lower.7000 pm Exemption varies from Rs.1600 in case of blind employee Exemption limited up to Rs.100 pm /per child max of 2 children Same f g Hostel Expenditure allowance Compensatory field area allowance Rs.200 pm 70% or Rs.N o Sec and Rule Nature of Allowance Exemption Conditions 200910 Exemption Conditions 201011 4 Sec 10(14) rule 2BB Special Allowances Nature of Allowance Special Compensatory Allowance (hilly areas) The amount of exemption is the amount of allowance or the amount utilised for the specific purpose.2600/-pm Exempt up to Rs.1600 for altitude above 15000 feet Exempt up to Rs.300 to Rs.1060pm up to 15000 feet altitude and Rs.1300 pm Rs.800 pm and Rs.800 pm Exemption up to Rs.200 to Rs.3250/-pm Same Same h i Transport Allowance Underground Allowance Same Same j k High Altitude Allowance Island Duty Allowance Same Same .

No Sec and Rule Nature of Allowance Exemption Conditions 200910 Exemption Conditions 201011 Other Allowances Allowance to Govt Employees o/s India 5 Sec 10(7) Wholly exempt from Tax 6 7 8 Sec 10(14) rule 2BB Tiffin Allowance Fixed Medical allowance Servant allowance Wholly taxable Wholly taxable Wholly taxable 9 Allowance to High Court & Supreme Court Judges Not taxable u/s 22A(2) & 22C of High Court Act 10 Allowance recd from UNO Not Taxable by virtue of Sec 2 of UN Act .Sr.

No Sec and Rule Nature of Allowance Exemption Conditions 2009-10 Exemption Conditions 2010-11 Sec 10(5) and Rule 2B 3 Leave Travel Concession or Assistance Based on Actual Expenditure Available only in respect of fare Available for shortest route Not for more than 2 children Same Salary = Basic + DA + Commission .2c. Exemptions Sr.

or 2.2d. Entertainment Allowance (S. the least of — 1. Deductions – Sec 16 A. C.Y. 16(i)) No standard deduction is allowed from A. Rs. . or 3. actual amount of entertainment allowance. Standard Deduction (S. 16(iii)).000. 20% of salary. 5. 16(ii)) For government employees. 2006-07 onwards B. Tax on employment on paid basis (S.

especially one of a kind expected or promised” . Perquisites Dictionary Meaning : “A Gain or Profit incidentally made from employment in addition to regular salary or wages.2e.

iv. W.00. .000/-.e. value of any fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H) as prescribed. ii.) to effect an assurance on the life of the employee or to effect a contract for an annuity. approved superannuation fund etc. Perquisites – cont’d As defined in I. any sum payable either directly or through a fund by employer (other than recognised PF. iii. value of rent-free accommodation. 1. following clauses are substituted/added. Perquisites taxable in hands of all employees: i.f. 1-4-2010. amount paid by employer in respect of any obligation which otherwise would have been payable by employee.T Act : A. v. (a) value of any security or sweat equity shares allotted or transferred by employer/former employer as free or concessional cost. value of concession in rent. to an extent it excess Rs.2e. (b) an amount of contribution to an approved superannuation fund by the employer.

.e. on the maximum outstanding monthly balance as reduced by interest actually paid by employee – However. perquisite value for loans (net of amount reimbursed under medical insurance scheme) given for medical treatment of specified disease or petty loans up to Rs. 1-4-2000. of the loan given to the employee or any member of his household shall be at the rates charged by State Bank of India in respect of the loans for the same purpose advanced by the employer. 20.000 is not taxable. Perquisites – cont’d Determination of the value of prescribed fringe benefit or amenity • Interest free or concessional loan Value of perquisite w.2e.f.

Perquisites – cont’d Employees Stock Option Plan ESOP .2e.

ESOP . . – Nurtures entrepreneurship. – Granted to an employee. – At a predetermined price. – A risk-based compensation – need for lower taxation. encourage and retain talented employees. ESOP Objective – Attract. – To apply for the specified security of a company.Introduction Employee Stock Option is: – A right but not an obligation. – Compensation in terms of ownership and profit share.

ESOP – Flow of Events Grant of Options Tax Trigger Vesting of Options Valuation of Shares on date of Vesting Exercise of Options Allotment of Shares Fringe Benefit Tax Sale of shares Capital Gains .

FBT on ESOPs has been abolished and once again ESOPs have been included in the purview of Perquisites under Section 17 (2). would be taxable as a perquisite in the hands of the employees. .ESOP – Latest Status • Taxation of ESOP/ESPS/Sweat Equity With abolition of Fringe Benefit Tax from 20092010. as the difference between the fair market value of the shares as on the date of exercise and the exercise price. The value of the ESOPs determined on the date of exercise.

No specific provision on taxability of ESOPs • April 1. 1999 to March 31.Section 17(2)(iiia) inserted in the Income Tax Act. 2007 –Section 17(2)(iiia) was withdrawn and following proviso to Section 17(2)(iii) inserted “Provided that nothing contained in this sub-clause shall apply to the value of any benefit provided by a company free of cost or at concessional rate to its employees by way of allotment of shares. 2000 upto March 31.Taxation of ESOPs .Pre Finance Act 2007 • Prior to April 1. debentures. 2000 .Specific provision .” . 1999 . or warrants directly or indirectly under any Employees’ Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued in this behalf by the Central Government. 1961 (“Act”) to tax benefit on exercise/allotment of shares issued free of cost or at concessional price. • April 1.

Taxation of ESOPs . if the Plan did not satisfy the Central Government Guidelines.Pre Finance Act 2007 – Cont’d The new proviso sought to introduce the following: • Single point taxation at the time of sale of shares in case of ESOP compliant with Central Government guidelines • Character of income – Capital Gains in the hands of the employee • No responsibility on the employer to report and/or withhold tax However. . the income continued to be taxed as a perquisite in the hands of the employee at the time of exercise.

90 % Rs.000 10.000 3. 10.000 Rs.000 Less: Purchase Price of Mr.300 Less : Market value on allotment date @ 1000 Short Term capital Gain Short Term capital Gain Tax @ 15 % 13. Vijay sold shares in July 09 .@ 500 Taxable Perquisite for Mr.545 • • • • Mr. Vijay . the same continues to attract FBT. an employee was allotted 10 shares. Vijay Assuming Mr. Vijay is in highest tax bracket Tax @ 30. 5. Vijay .000 450 If allotment is made prior to April 1.000 Rs. • • • • Market value of shares on allotment date 15-Apr-09. 2009.@ 1.@ 1. . • Case – Mr. 5.Tax implication on ESOP when allotment or transfer of shares is made on or after April 1. 1.000 Rs.

spouse .children or parents Upto Rs.20000 .100000/whichever is less.N o Sec Description Deduction for 2009-10 Deduction for 2010-11 1 Sec 80 C LIP PF/SAF/PPF/RPF Deposits in PO/Savings Bank ULIP NSC Housing Loan Repayment(principal) Deposits National Housing Bank Annuity/Pension Schemes Mutual Fund Tution Fees for education of 2 childn only Invst in shares or debentures of public co exclusively in Infrastrucure of power sector Term Deposits with scheduled Bank 100% of the amount invested /paid or Rs. Deductions under VI-A Sr. Same 2 Sec 80 D Insurance premium on the health of self.15000 Insurance premium on the health of dependent parent(senior citizen) Upto Rs.3.

000 for ordinary disability.40000/.N o Sec Description Deduction for 2009-10 Deduction for 2010-11 3 Sec 80DD Medical treatement & rehabilitation of dependent. Rs.000 for ordinary disability.3.75000/- Same .50.2010 4 Sec 80DDB Amount actually paid for such disease or ailments as specified Rs.(Rs.0% Same 9 Sec 80U Income of a person with disability Rs.75. Rs.50.f 01. Rs.60000/.for senior citizen) Same 5 Sec 80E Repayment on loan for higher education Entire amount of Interest paid on this loan Same 6 Sec 80G Donations for charitable purposes 50 % Generally and 100 % in case of PM relief funds and Gujrat earthquake relief fund.04.0% Same 8 Sec 80GGC Any sum contributed to any political party 100. Deductions under VI-A – Cont’d Sr.000 for severe disability Rs.000 for severe disability w. 1. Same 7 Sec 80GGA Donations for Scientific Research 100.e.00.

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