Income tax

By:-
Gaurav Kumar Bisen
Assistant Professor
VARIOUS HEADS OF INCOME
(SECTION 14)

1) INCOME FROM SALARY (SEC. 15 – 17)

2) INCOME FROM HOUSE PROPERTY (SEC. 22 – 27)
3) INCOME FROM BUSINESS & PROFESSION (SEC. 28 –
44)
4) INCOME FROM CAPITAL GAIN (SEC. 45 – 55)
5) INCOME FROM OTHER SOURCES (SEC. 56 – 59)
 What is Income from
Salary?
Salary Income is the paycheque you get every month from your
employer.

Thus we can say that Any payment made by an employer to an employee

for the services rendered by him is chargeable to tax as salary and
envisages a ‘contract of employment’. The employer - employee
relationship or master-servant relationship is an essential ingredient of a
‘contract of employment’ as against a ‘contract for employment’.
BASIS OF
CHARGE[SECTION 15]:
As per Section 15, salary
consists of the following:-
1. Any salary due from an employer or a former employer to
an assessee in the previous year, whether actually paid or
not.
2. Any salary paid or allowed to him in the previous year by
or on behalf of an employer or a former employer, though
not due or before it became due.
3. Any arrears of salary paid or allowed to him in the
previous year by or on behalf of an employer or a former
employer, if not charged to income-tax for any earlier
previous year.
4. Salary is chargeable to tax either on ‘due’ basis or on
‘receipt’ basis, whichever is earlier. Once taxed on due basis,
the same salary will not once again be taxed on receipt and
vice versa.
Standard Deduction [Section 16(ia)]:-

A standard deduction is allowed

against the salary income subject to a
limit of 50,000/- or the amount of
salary whichever is less.
TAX TREATMENT OF DIFFERENT FORMS OF SALARIES:-

1. Advance salary:-
Taxable on receipt basis, in the year in which it is received. Relief
under section 89 available.

2. Arrears of salary:-
Taxable on receipt basis if the same is not taxed earlier on due
basis. Relief under section 89 available.

3. Salary in lieu of notice period:-

Taxable under section 15
4. Salary to a partner:-
Salary paid to a partner is an appropriation of profits. It
is therefore not taxable under the head “Salaries” but is
taxable under head “profit and gains of business or
profession”

5. Fees and commission:-

Taxable as salary irrespective of the fact that they are
paid in addition to or in lieu of salary

6. Salary paid tax free:-

Taxable amount includes the salary as well as the tax
borne by the employer
7. Salary forgone:-
Application of salary already due; hence taxable

8. Salary diverted at source by overriding title:-

Not taxable

9. Deferred Salary:-
Taxable at the point of deferral if deferral is at the
option of the employee
 Profit in lieu of salary

 Compensation from the employer or former employer at or in

connection with termination of employment or modification of the
terms and conditions of employment
 Any payment from the employer or former employer or from a PF or
other fund, to the extent it does not consist of employee's contribution
or interest thereon
 Any sum received under a Keyman insurance policy including bonus on
such policy
 Any amount received in lump sum or otherwise from any person before
joining or after cessation of employment
ALLOWANCES
1. FULLY TAXABLE ALLOWANCES:-

(a) DEARNESS ALLOWNACES OR DEARNESS PAY

(b) MEDICAL ALLOWANCE
(c) TIFFIN ALLOWANCE
(d) SERVANT ALLOWANCE
(e) NON – PRACTICING ALLOWANCE
(f) HILL ALLOWANCE
(h) WARDEN & PROCTOR ALLOWANCE
(i) DEPUTATION ALLOWANCE
(j) OVER – TIME ALLOWANCE
(k) OTHER UNSPECIFIED ALLOWANCE
2. PARTIALLY TAXABLE ALLOWANCE:-

(a) HOUSE RENT ALLOWANCE:-

SALARY = BASIC SALRY + D.P. + COMM. ON SALES

(i) ACTUAL H.R.A.

(ii) ACTUAL RENT PAID – 10% OF SALARY

(iii) METROPOLITAN CITY – 50% OF SALARY OR OTHER CITY

40% OF SALARY

TAXABLE H.R.A. = ACTUAL H.R.A. – LEAST OF (i) (ii) OR (iii)

(b) ENTERTAINMENT ALLOWANCE :-
IT IS EXEMPT FOR GOVT. EMPLOYEES ONLY
UPTO

(i) 1/5 OF BASIC SALARY OR

(ii) ₹ 5000 OR

(iii) ACTUAL AMOUNT RECEIVED

WHICHEVER IS LESS IS EXEMPT

(c) SPECIAL ALLOWANCE EXEMPTED UPTO
ACTUAL EXPENDITURE AS NOTIFIED IN SEC. (10)
(14) (i) OF INCOME TAX ACT, 1961:-

(i) TRAVELLING ALLOWANCE

(ii) DAILY ALLOWANCE
(iii) CONVEYANCE ALLOWANCE FOR
PERFORMANCE OF SPECIAL DUTY
(iv) HELPER ALLOWANCE
(v) ACADEMIC ALLOWANCE
(vi) UNIFORM ALLOWANCE
(d) SPECIAL ALLOWANCE EXEMPTED UPTO ACTUAL
EXPENDITURE AS NOTIFIED IN SEC. (10) (14) (ii) OF INCOME
TAX ACT, 1961:-
(iv) ALLOWANCE TO EMPLOYEE WORKING IN TRANSPORT
COMPANY:-

(a) 70% OF ALLOWANCE RECEIVED

(b) ₹ 10000 PER MONTH

WHICHEVER IS LESS IS TAX FREE

(v) CHILDERNS EDUCATION ALLOWANCE IS EXEMPT UPTO ₹
100 P.M. PER CHILD MAXIMUM FOR TWO CHILDRENS

(vi) CHILDRENS HOSTEL ALLOWANCE IS EXEMPT UPTO ₹ 300

P.M. PER CHILD MAXIMUM FOR TWO CHILDRENS

(vii) TRANSPORT ALLOWANCE IS EXEMPT UPTO ₹ 3200 P.M.

FOR HANDICAPPED EMPLOYEES ONLY

(viii) UNDERGROUND ALLOWANCE FOR MINE WORKERS ARE

EXEMPT UPTO ₹ 800 PER MONTH
FULLY TAX FREE ALLOWANCE:-

(i) FOREIGN ALLOWANCE TO GOVT. EMPLOYEES

(ii) SUMPTUARY ALLOWANCE TO JUDGES OF SUPREME

COURT & HIGH COURT

(iii)ALLOWANCES PAID BY U.N.O. TO ITS EMPLOYEES

(iv)PRE – DIEM ALLOWANCE FOR USE OF HOTEL,

BOARDING & LODGING
PERQUISTIES
 Perquisite
 Rent-free accommodation

 Accommodation provided at concessional rates

 Benefit or amenity granted free of cost or at concessional rates to specified employees

 Obligation of employee met by the

 Sum payable by the employer (whether directly or through a fund) to effect an assurance on
the life of the employee or to effect a contract for annuity except through a recognised PF,
Approved Superannuation Fund and Deposit Linked Insurance Fund

 Securities and Stock Awards (ESOP)

 Aggregate of employer’s contribution to Provident Fund, National Pension Scheme (NPS)

and Superannuation Fund in excess of INR 7,50,000 and the annual accretions on such
taxable contributions, computed in the prescribed manner.

 Any other fringe benefit or amenity as prescribed in Rule 3 of the Income Tax Rules, 1962
PERQUISTIES TAXABLE FOR ALL EMPLOYEES:-

1) VALUE OF RENT FREE HOUSE

2) VALUE OF CONCESSION OF RENT

3) ANY FACILITY SUCH AS HOTEL BILL OR CLUB BILL OR

TELEPHONE BILL, ETC. PAID BY EMPLOYER ON BEHALF OF
EMLOYEE

4) ANY SUM PAID BY EMPLOYER IN FUND, ETC.

PERQUISTIES WHICH ARE FULLY TAX FREE:-

1) MEDICAL BENEFITS (PAYMENT TO PRIVATE

PRACTITIONER IS TAXABLE & IN CASE OF FOREIGN
TREATMENT IF TOTAL INCOME NOT EXCEEDS ₹ 200000
THE IT IS FULLY EXEMPT OTHERWISE AMOUNT ALLOWED
BY R.B.I. IS EXEMPT)

2) TEA OR SNACKS ON WORKPLACE

3) EMPLOYERS CONTRIBUTION TO STAFF GROUP

INSURANCE
ACCOMODATION FACILITY IN HOTEL FOR GOVT. &
NON – GOVT. EMPLOYEE:-

IF ANY EMPLOYEE IS PROVIDED HOTEL FACILITY

FOR MORE THEN 15 DAYS THEN LEAST OF
FOLLOWING IS TAXABLE:-

(a) 24% OF SALARY OF DURATION OF STAY IN

HOTEL
(b) ACTUAL RENT PAID
CAR FACILITY:-

1) IF OWNER OF CAR IS EMPLOYER & CAR IS FOR

OFFICIAL USE ONLY THEN ITS VALUE IS FULLY EXEMPT
2) IF CAR IS OWNED BY EMPLOYER & IS USED FOR
PERSONAL PURPOSE ONLY THEN TAXABLE VALUE OF
CAR IS = ALL EXP. OF CAR & DRIVER + 10% DEP.
3) IF EMPLOYER HAS TAKEN CAR ON LEASE& EMPLOYEE
USES IT FOR PERSONAL PURPOSE ONLY THEN TAXABLE
VALUE WILL BE = ALL EXP. ON CAR & DRIVER
4) IF CAR IS OWNED OR HIRED BY EMPLOYER &
EMPLOYEE USES IT FOR OFFICIAL & PERSONAL BOTH
USE THEN TAXABLE VALUE WILL BE AS FOLLOWS:-

(a) IF ENTIRE EXP. ARE PAID BY EMPLOYER:-

(i) FOR SMALL CAR (LESS THEN 1.6 LITRES) ₹ 1800
P.M.
(ii) FOR LARGE CAR (MORE THEN 1.6 LITRES) ₹ 2400
P.M. (NOTE :- DRIVER ₹ 900 P.M. ADDITIONAL)

(b) IF PERSONAL EXP. ARE PAID BY EMPLOYEE:-

(i) FOR SMALL CAR (LESS THEN 1.6 LITRES) ₹ 600
P.M.
(ii) FOR LARGE CAR (MORE THEN 1.6 LITRES) ₹ 900
P.M. (NOTE :- DRIVER ₹ 900 P.M. ADDITIONAL)