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Salary Design

and
Tax Implication
By
Omprakash Todwal
Anagram.

Income Tax Rules - Salary


What is Salary?

Wherever there is
Employer Employee
relationship

Chargeability of
Salary?

Chargeable on due or
receipt basis which
ever 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
Value

Entertainment
Hospitality (5% of value in
case of Hotel )
Conference / sales
Promotions
Employees Welfare
Conveyance / tour
expenses
Hotel Expenses/Boarding /
Lodging
Telephone
Maintenance & depreciation
cost of Motor Car
Maintenance of House
Accommodation

Clause 115 WB (2) 50 %


of Value
Festival Celebrations

Health Club or similar


facilities
Club Facilities
Gifts
Scholarships

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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