Income Tax Act,

1961
Dr. Ashwini Sanmath
Ph.D. MBA (Finance)
 Units
I. General Law affecting Taxation & Basic Concepts
II. Salaried Income
III. House Property and Income Tax
IV. Income from Business and Professions and Taxation Laws
V. Capital Gains Tax
VI. Other Sources of Income & Exempted Income
VII.Income Tax Authorities
VIII.Powers of Income Tax Authorities
IX. Penalties Imposable, Offences and Prosecutions
General Laws Affecting Taxation &
Basic Concepts

Unit I
Content

• Introduction
• Constitutional Basis for Taxation
• Hindu Law
• Provisions for Taxation of Partnership Firms
• Basic Concepts of Taxation Law
Income Tax

• Short title, extent and commencement.—

(1) This Act may be called the Income-tax Act, 1961.
(2) It extends to the whole of India.
(3) Save as otherwise provided in this Act, it shall
come into force on the 1st day of April, 1962.
Introduction

• The Income Tax Act was enacted in the year 1961 and
is the statute under which everything related to taxation is
listed.
• This includes levy, collection, administration and recovery
of income tax.
• The act basically aims to consolidate and amend the rules
related to taxation in the country.
• Source of income for Government
• Deployed for various purposes and projects of the government for
development of the Nation
• Taxes are determined by the Central and State Governments along
with local authorities like municipal corporations.
• The government cannot impose any tax unless it is passed as a law.
Constitutional Basis for Taxation

• Constitution of India which allocates the power to levy various taxes between
the Central and the State.
• An important restriction on this power is Article 265 of the Constitution which
states that “No tax shall be levied or collected except by the authority of
law”.
• Therefore, each tax levied or collected has to be backed by an accompanying
law, passed either by the Parliament or the State Legislature.
 List - I entailing the areas on which
only the parliament is competent to
Article 246 of the make laws,
Indian Constitution,

Schedule VII List - II entailing the areas on which

only the state legislature can make
enumerates these laws, and
subject matters with
the use of three
List - III listing the areas on which both
lists: the Parliament and the State
Legislature can make laws upon
concurrently.
Central Government of India: Taxes as per
Union List

• 82 - Income Tax
• 83 - Custom Duty
• 84 - Excise Duty
• 85 - Corporation Tax
• 86 - Taxes on capital value of assets, exclusive of agricultural land
• 87 - Estate duty in respect of property other than agricultural land
• 88 - Duties in respect of succession to property other than agricultural land.
• 89 - Terminal taxes on goods or passengers, carried by railway, sea or air; taxes
on railway fares and freight.
• 90 - Taxes other than stamp duties on transactions in stock exchanges and
futures markets.
• 91 - Rates of stamp duty in respect of bills of exchange, cheques, promissory
notes, bills of lading, letters of credit, policies of insurance, transfer of
shares, debentures, proxies and receipts.
• 92A - Taxes on sale or purchase of goods other than newspapers, where such
sale or purchase takes place in the course of inter-State trade or commerce
• 92B - Taxes on the consignment of goods in the course of inter-state trade or
commerce
• 97 - All residuary types of taxes not listed in any of the three lists of Seventh
Schedule of Indian Constitution
Taxes as per State List
• 45 - Land revenue, including the assessment and collection of revenue,
the maintenance of land records, survey for revenue purposes and
records of rights, and alienation of revenues.
• 46 - Taxes on agricultural income.
• 47 - Duties in respect of succession to agricultural land.
• 48 - Estate Duty in respect of agricultural land
• 49 - Taxes on lands and buildings.
• 50 - Taxes on mineral rights.
• 51 - Duties of excise for following goods manufactured or produced
within the State (i) alcoholic liquors for human consumption, and (ii)
opium, Indian hemp and other narcotic drugs and narcotics.
• 53 - Electricity Duty: Taxes on the consumption or sale of electricity.
• 54 - Taxes on sale of petroleum crude, high speed diesel, motor spirit (commonly known as
petrol),Natural gas aviation turbine fuel and alcohol liquor for human consumption but not
including sale in the course of interstate or commerce or sale in the source of international
trade or commerce such goods.
• 56 - Taxes on goods and passengers carried by roads or on inland waterways.
• 57 - Taxes on vehicles suitable for use on roads.
• 58 - Taxes on animals and boats.
• 59 - Tolls.
• 60 - Taxes on profession, trades, callings and employments.
• 61 - Capitation taxes.
• 62 - Taxes on entertainment and amusements to be extent levied and collected by a
panchayat or Municipality or a regional council or a district council.
• 63 - Stamp duty
HUF – Hindu Undivided Family

• Hindu Undivided Family (‘HUF’) is treated as a

‘person’ under section 2 (31) of the Income Tax Act,
1961.
• HUF is a separate entity for the purpose of
assessment under Income Tax Act, 1961.
HUF
• Assessment of HUF
• Ancestral Property
• Partition of HUF
• Assessment after Partition (Sec 171)
• Partition- Total or Partial (Sec 171(9))
• Taxability of HUF
• Deduction from Gross total Income
• Rate of Tax: Alternate Min. Tax if less than 18.5 % of Adjusted Total Income
 It is an arrangement where parties, known as
partners, agree to cooperate to advance their
mutual interests.

The partnership firm must file a partnership

income tax return under the Income Tax Act
Partnership 1961.

Firms: The partnership firms are liable to income tax

at 30% of gross income.

The partnership firm has to pay an income tax

surcharge of 12% if the total income exceeds
Rs.1 crore.
 • Partnership firm is subjected to taxation under
the Income Tax Act, 1961.

Provision • It is the umbrella Act for all the matters relating to

income tax and empowers the Central Board of
of tax for Direct Taxes (CBDT) to formulate rules (The
Income Tax Rules, 1962) for implementing the
Partnershi provisions of the Act.
• The CBDT is a part of Department of Revenue in
p Firms the Ministry of Finance.
• Assessed as Partnership firm or as
AOP (Association of Persons)
 • Assessee 2(7)
• Assessment Year
Basic • Previous Year
Concepts • Income
of • Person
• Capital Assets
Taxation
• Agriculture Income
Law • Capital and revenue Receipts
• Capital and revenue Expenditure
• Capital Expenditure
• Revenue Expenditure
Heads of Income for Income Tax

• Income Under Head Salary

• Income from House Property
• Profits and gains from Business and Profession
• Income from Capital gains
• Income from Other Sources
Unit II
Salaried Income
(Income under the head
Salary)
 Content

• Introduction
• Salary - Meaning and Definition
• Important Concepts
• Exclusions
• Perquisites
• Deductions
Section
15- Salaries
16 - Deductions from salaries.
17 - “Salary”, “perquisite” and “profits in
lieu of salary”
Basic elements of Salary
• Payer and payee must have employer and employee
(or Master & Servant) relationship; and
• Payment must have been made by the employer in
such capacity
Employer-employee relationship
• Criteria for employer-employee relationship
• Payment in employer’s capacity
• Contract of service vs contract for service
• Agent and Principal
• Salary received by a partner
• Salary received by proprietor from his proprietorship firm\
• Remuneration to director
• Pension received by the widow
• Remuneration received by Judges
Salary
• As per sec. 17(1) of the Income-tax Act, 1961, salary includes the following
• a) Wages;
• b) Any annuity or pension;
• c) Any gratuity;
• d) Any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages;
• e) Any advance of salary;
• f) Any payment received in respect of any period of leave not availed of by the assessee;
• g) The portion of the annual accretion in any previous year to the balance at the credit of an
employee, participating in recognised provident fund, to the extent it is taxable;
• h) Transferred balance in a Recognised Provident Fund to the extent it is taxable.
• i) Contribution made by the employer in the previous year, to the account of an employee under
a pension scheme referred to in sec. 80CCD [National Pension Scheme and Atal Pension Yojana]
• Salary & Wages are identical in the Income-tax Act
• Voluntary Payments: The Act does not make any difference between voluntary and contractual
payment. Both are taxable as salary.
• Remuneration for Extra Work: Where an employee gets extra payment from his employer (in such
capacity) for work performed outside the duties of his office and thus, such payment shall be
taxable as salary.
• Salary from more than one source: If an individual receives salary from more than one employer
during the same previous year, salary from each employer shall be accumulated and taxable under
the head “Salaries”.
• Salary from former, present or prospective employer is chargeable to tax under the head
“Salaries”. E.g. Pension from a former employer and advance salary from prospective employer
shall be taxable under the head “Salaries”.
• Foregoing of salary: Once salary has been earned by an employee, its subsequent waiver does not
make it exempt from tax liability. Such waiver shall be treated as application of the income.
Basis of Charge
• Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis, whichever is
earlier. Hence, taxable salary includes:
• a) Advance salary (on ‘receipt’ basis): Salary paid in advance is taxable under the
head ‘Salaries’ in the year of receipt.
• Note: Such advance salary shall not be included again in the total income when the salary
becomes due.
• b) Outstanding salary (on ‘due’ basis): Salary falling due is taxable under the
head ‘Salaries’ in the year in which it falls due.
• Note: Such due salary shall not be included again in the total income when it is received.
• c) Arrear salary: Any increment in salary with retrospective effect which have not
been taxed in the past, such arrears will be taxed in the year in which it is
allowed. Arrear salary are taxable on receipt basis
Computation of Salary
Allowances
Allowances
Fully Taxable Partly Taxable Fully Exempt

(i)Entertainment Allowance (i)House Rent (i)Allowances to

(ii)Dearness Allowance Allowance [u/s High Court
(iii)Overtime Allowance 10(13A)] Judges
(iv)Fixed Medical
Allowance
 Allowances
Fully Taxable Partly Taxable Fully Exempt
(v)City Compensatory (ii) Special (ii)Allowance
Allowance (to meet increased Allowances [u/s paid by the United
cost of living in cities) 10(14)] Nations Organization
(vi)Interim Allowance (iii)Compensatory
(vii)Servant Allowance Allowance received
(viii)Project Allowance by a judge
(ix)Tiffin/Lunch/Dinner (iv)Sumptuary
Allowance allowance
(x)Any other cash allowance granted to High Court
(xi)Warden Allowance or
(xii)Non-practicing Allowance Supreme Court
(xiii)Transport allowance Judges
to employee (v)Allowance granted
other than blind/ deaf and to Government
dumb/ orthopedically employees outside
handicapped employee India.
Allowances which are partially taxable
1. House rent allowance [Section 10(13A)]: HRA is a special allowance
specifically granted to an employee by his employer towards payment
of rent for residence of the employee. HRA granted to an employee is
exempt to the extent of least of the following:
Metro Cities (i.e. Delhi, Kolkata, Other Cities
Mumbai, Chennai)
1) HRA actually received for the 1) HRA actually received for the
relevant period relevant period
2) Rent paid (-) 10% of salary for 2) Rent paid (-) 10% of salary
the relevant period for the relevant period
3) 50% of salary for the relevant 3) 40% of salary for the relevant
period period
 S. Name of Allowance
No.
1. Any Special Compensatory Allowance in the nature of
Special Compensatory (Hilly Areas) Allowance or High
Altitude Allowance or Uncongenial Climate Allowance or
Snow Bound Area Allowance or Avalanche Allowance
Extent to which allowance is exempt
` 800 or ` 300 per month depending upon
the specified locations
` 7,000 per month in Siachen area of Jammu
and Kashmir

2. Any Special Compensatory Allowance in the nature of ` 1,300 or` 1,100 or

border area allowance or remote locality allowance or ` 1,050 or ` 750 or ` 300 or
difficult area allowance or disturbed area allowance
` 200 per month depending upon the
specified locations

3. Special Compensatory (Tribal Areas/Schedule ` 200 per month

Areas/Agency Areas) Allowance [Specified States]

4. Any allowance granted to an employee working in any 70% of such allowance upto a maximum of
transport system to meet his personal expenditure ` 10,000 per month
during his duty performed in the course of running such
transport from one place to another, provided that such
employee is not in receipt of daily allowance
5. Children Education Allowance ` 100 per month per child upto a maximum of
two children
6. Any allowance granted to an employee to meet the hostel ` 300 per month per child upto a maximum of
expenditure on his child two children
7. Compensatory Field Area Allowance [Specified areas in ` 2,600 per month
Specified States]
8. Compensatory Modified Field Area Allowance [Specified ` 1,000 per month
areas in Specified States]

9. Any special allowance in the nature of counter insurgency ` 3,900 per month
allowance granted to the members of the armed forces
operating in areas away from their permanent locations.

10. Any transport allowance granted to an employee who is blind ` 3,200 per month.
or deaf and dumb or orthopedically handicapped with
disability of the lower extremities of the body, to meet his
expenditure for commuting between his residence and place
of duty

12. Underground Allowance granted to an employee who is ` 800 per month

working in uncongenial, unnatural climate in underground
mines.

13. Any special allowance in the nature of high Altitude

allowance granted to the member of the armed forces ` 1,060 per month
operating in high altitude areas ` 1,600 per month
For altitude of 9,000 to 15,000 feet For above 15,000 feet
Gratuity
Pension
• Concise Oxford Dictionary defines ‘pension’ as a periodic payment
made especially by Government or a company or other employers to
the employee in consideration of past service payable after his
retirement.

• Pension is of two types: commuted and uncommuted.

• Uncommuted Pension: Uncommuted pension refers to pension received
periodically. It is fully taxable in the hands of both government and non-
government employees.
• Commuted Pension: Commutation means inter-change. Commuted pension
means lump sum amount taken by commuting the whole or part of the
pension.
Provident Fund

Types of Provident Funds

Recognised Unrecognised Statutory Public

Provident Provident Provident Provident
Fund (RPF) Fund (URPF) Fund (SPF) Fund (PPF)
Particulars Recognised PF Unrecognised PF Statutory PF Public PF

Employer’s Contribution in excess Not taxable at the Fully exempt N.A.(as there is only
Contribution of 12% of salary is time of assessee’s own
taxable as “salary” u/s contribution contribution)
17(1)

Employee’s Eligible for deduction Not eligible for Eligible for Eligible for
Contribution u/s 80C, where an deduction deduction u/s 80C, deduction u/s 80C,
employee exercises the where an employee where an employee
option of shifting out exercises the option exercises the option
of the default tax of shifting out of of shiftingout of
regime Provided under the default tax the default tax
section 115BAC(1A) regime provided regime provided under
under section section 115BAC(1A)
115BAC(1A)
Interest Amount in excess Not taxable at the time Fully exempt N.A.
Credited of 9.5% p.a. is of credit of
on Employer’s taxable as interest
Contribution “salary” u/s
17(1)
Interest Amount in Not taxable at the time of Exempt Fully exempt
Credited excess of 9.5% credit of Interest upto
on Employee’s p.a. is taxable as Employee’s contribution is certain limit
Contribution “salary” u/s of Fully exempt
not
Amount 17(1) taxable. contribution u/s 10(11)
withdrawn on Exempt u/s Exempt
retirement/ 10(12) subject to Interest on Employee’s
contribution is taxable under
u/s
termination certain ‘Income from Other Sources’. 10(11)
conditions
detailed in Employer’s contribution and
the chart interest thereon is salary
below
Profits of in lieu of salary
• (i) Compensation on account of termination of his employment
• (ii) Compensation on account of modification of the terms and
conditions of employment
• (iii) Payment from provident fund or other fund
• (iv) Keyman Insurance policy
• (v) Lump sum Payment or otherwise
 (1) Retrenchment compensation [Section
10(10B)]
• The retrenchment compensation means the compensation paid under Industrial Disputes Act,
1947 or under any Act, Rule, Order or Notification issued under any law. It also includes
compensation paid on transfer of employment under section 25F or closing down of an
undertaking under section 25FF of the Industrial Disputes Act, 1947.
• It may be noted that compensation on account of termination and due to modification in
terms and conditions of employment would be taxable as “profits in lieu of salary”. However,
the retrenchment compensation would be exempt under section 10(10B), subject to following
limits.
• (a) Amount calculated in accordance with the provisions of section 25F of the Industrial
Disputes Act, 1947
• i.e., 15 days average pay x completed years of service and part thereof in excess of 6 months
Or
• (b) An amount, not less than ` 5,00,000 as may be notified by the Central Government in
this behalf,
(2) Voluntary Retirement Receipts [Section 10(10C)]
• Lump sum payment or otherwise received by an employee at the time of voluntary retirement would be taxable as
“profits in lieu of salary”. However, it would be exempt under section 10(10C), subject to the following conditions:
• Eligible Undertakings - The employees of the following undertakings are eligible for exemption under this
clause:
(i) Public sector company
(ii) Any other company
(iii) An authority established under a Central/State or Provincial Act
(iv) A local authority
(v) A co-operative society
(vi) An University established or incorporated under a Central/State or Provincial Act and an Institution
declared to be an University by the University Grants Commission
(vii) An Indian Institute of Technology
(viii)Such Institute of Management as the Central Government may, by notification in the Official Gazette,
specify in this behalf
(ix) Any State Government
(x) The Central Government
(xi) An institution, having importance throughout India or in any State or States, as the Central Government
may specify by notification in the Official Gazette.
Perquisites
• The term ‘perquisite’ indicates some extra benefit in addition to the
amount that may be legally due by way of contract for services rendered.
In modern times, the salary package of an employee normally includes
monetary salary and perquisites like housing, car etc.
• Perquisite may be provided in cash or in kind.
• Reimbursement of expenses incurred in the official discharge of duties is not
a perquisite.
• Perquisite may arise in the course of employment or in the course of
profession. If it arises from a relationship of employer-employee, then the
value of the perquisite is taxable as salary. However, if it arises during the
course of profession, the value of such perquisite is chargeable as profits and
gains of business or profession.
• Perquisite will become taxable only if it has a legal origin. An unauthorised
advantage taken by an employee without his employer’s sanction cannot be
considered as a perquisite under the Act.
(A) Perquisites taxable in the case of all
employees
• Rent Free Accommodation:
• Exception: Rent-free official residence provided to a Judge of a High Court or to a Judge of the Supreme
Court is not taxable if they exercise the option of shifting out of the default tax regime provided under
section 115BAC(1A).
• Concession in rent: Value of any accommodation provided to the assessee by his employer at a concessional
rate.
• Payment by the employer in respect of an obligation of employee
• Amount payable by an employer directly or indirectly to effect an assurance on the life of the assessee
• Specified security or sweat equity shares allotted or transferred, by the employer
• Amount or the aggregate of amounts of any contribution made to the account of the assessee by
employer
• - in a recognised provident fund
• - in NPS
• - in an approved superannuation fund
• Annual accretion to the balance at the credit of the recognised
provident fund/NPS/approved superannuation fund which relates to the
employer’s contribution and included in total income (on account of
the same having exceeded ` 7,50,000)
•Any other fringe benefit or amenity: The value of any other fringe benefit
or amenity as may be prescribed by the CBDT [Section 17(2)(viii)]. Rule 3(7)
prescribed the following other benefits or amenity taxable in case of all
employees.
- Interest free or concessional loan
- Travelling, touring and accommodation
- Free or concessional food and non-alcoholic beverages
- Gift, voucher or token in lieu of such gift
- Credit card expense
- Club expenditure
- Use of movable assets
- Transfer of movable assets
- Other benefit or amenity [For valuation, refer discussion on valuation of
perquisite]
 (B) Tax free perquisites in all cases
Telephone Telephone provided by an employer to an employee at his residence

Transport Facility Transport facility provided by an employer engaged in the business of

carrying of passengers or goods to his employees either free of charge
or at concessional rate;

Privilege passes and privilege Privilege passes and privilege ticket orders granted by
ticket Indian Railways to its employees;
Perquisites allowed outside India by Perquisites allowed outside India by the Government to a citizen of
the Government India for rendering services outside India;

Employer’s contribution to staff group Employer’s contribution to staff group insurance scheme;
insurance scheme;

Annual premium by employer on Payment of annual premium by employer on personal accident policy
personal accident policy effected by him on the life of the employee;
Refreshment Refreshment provided to all employees during working hours in
office premises;

Subsidized lunch Subsidized lunch provided to an employee during working hours at

office or business premises provided the value of such meal is upto
` 50; This exemption is available only if the employee exercises the
option of shifting out of the default tax regime provided under
section 115BAC(1A).

Recreational facilities Recreational facilities, including club facilities, extended to

employees in general i.e., not restricted to a few select employees;
Amount spent on training of Amount spent by the employer on training of employees or amount
employees paid for refresher management course including expenses on
boarding and lodging;
Sum payable by employer to a RPF Sum payable by an employer to a RPF or an approved
or an approved superannuation fund superannuation fund or deposit-linked insurance fund established
under the Coal Mines Provident Fund and Miscellaneous provisions
Act, 1948 or the Employees’ Provident Fund and Miscellaneous
Provisions Act, 1952 upto the limit prescribed;
Tax Free Perquisites
Telephone Telephone provided by an employer to an employee at his residence
Transport Facility Transport facility provided by an employer engaged in the business of
carrying of passengers or goods to his employees either free of charge or
at concessional rate;
Privilege passes and privilege ticketPrivilege passes and privilegeticket orders granted by Indian
Railways to its employees;
Perquisites allowed outside India by Perquisites allowed outside India by the Government to a citizen of India
the Government for rendering services outside India;
Employer’s contribution to staff group Employer’s contribution to staff group insurance scheme;
insurance scheme;
Annual premium by employer on Payment of annual premium by employer on personal accident policy
personal accident policy effected by him on the life of the employee;

Refreshment Refreshment provided to all employees during working hours in office

premises;
Subsidized lunch Subsidized lunch provided to an employee during working hours at office
or business premises provided the value of such meal is upto ` 50; This
exemption is available only if the employee exercises the option of
shifting out of the default tax regime provided under section 115BAC(1A).
Recreational facilities Recreational facilities, including club facilities, extended to employees in general
i.e., not restricted to a few select employees;
Amount spent on training of employees Amount spent by the employer on training of employees or amount paid for
refresher management course including expenses on boarding and lodging;

Sum payable by employer to a RPF or Sum payable by an employer to a RPF or an approved superannuation fund or
an approved superannuation fund deposit-linked insurance fund established under the Coal Mines Provident Fund and
Miscellaneous provisions Act, 1948 or the Employees’ Provident Fund and
Miscellaneous Provisions Act, 1952 upto the limit prescribed;

Leave travel concession Leave travel concession if the assessee exercises the option of shifting out of the
default tax regime provided under section 115BAC(1A), subject to the conditions
specified under section 10 (discussed below)

Note: Value of Leave travel concession provided to the High Court judge or the Supreme Court Judge and members of his family are
completely exempt without any conditions if they exercise the option of shifting out of the default tax regime provided under section
115BAC(1A).
Medical facilities Medical facilities subject to certain prescribed limits [Refer proviso to section
17(2)];
Rent-free official residence Rent-free official residence provided to a Judge of a High Court or the Supreme
Court if they exercise the option of shifting out of the default tax regime provided
under section 115BAC(1A);
Conveyance facility Conveyance facility provided to High Court Judges under section 22B of the High
Court Judges (Conditions of Service) Act, 1954 and Supreme Court Judges under
section 23A of the Supreme Court Judges (Conditions of Service) Act, 1958 if they
exercise the option of shifting out of the default tax regime provided under section
115BAC(1A).
 • Exemption in respect of Leave travel concession [Section 10(5)]
(i)This clause exempts the leave travel concession (LTC) received by
employees from their employers for proceeding to any place in India,
(a)either on leave or
(b)after retirement from service or
(c)after termination of his service.
1 Air Amount not exceeding the air economy fare of the
National Carrier by the shortest route to the place of
destination.
2 Any other mode:
(i) Where rail service is available Amount not exceeding the air- conditioned first class
rail fare by the

shortest route to the place of destination

(ii) Where rail service is not available

(a) a recognised public amount not exceeding the 1st class or deluxe class fare, as
transport system exists the case may be, on such transport by the shortest route
to the place of destination

(b) no recognised public amount equivalent to the air- conditioned first class rail
transport system exists fare, for the distance of the journey by the shortest route,
as if the journey had been performed by rail
DEDUCTIONS FROM SALARY
• The income chargeable under the head ‘Salaries’ is computed after
making the following deductions:
• (1) Standard deduction [Section 16(ia)]
• (2) Entertainment allowance [Section 16(ii)]
• (3) Professional tax [Section 16(iii)]
 Income under the head “Salaries” Amount (`) Amount (`)

Salary/Bonus/Commission etc. Taxable A

BC
Allowance
Value of Taxable Perquisites Gross Salary
(A+B+C) D
Less: Deductions under Section 16 Standard
deduction of upto ` 50,000
Entertainment Allowance to Government employee, xxx xxx
if the assessee exercises the option of shifting out

of the default tax regime provided under section 115BAC(1A)

Professional Tax paid, if the assessee exercises the option of
shifting out of the default tax regime provided under section xxx E
115BAC(1A)
Net taxable income from Salary (D-E)

F
Standard Deduction
• A standard deduction of Rs. 50,000 or the amount of salary,
whichever is lower, is to be provided to the employees.

Entertainment allowance
Entertainment allowance received is fully taxable and is first to be included
in the salary and thereafter the following deduction is to be made from
gross salary:

The amount of deduction will be lower of:

(i) One-fifth of his basic salary or
(ii) ` 5,000 or
(iii) Entertainment allowance received.
Professional tax on employment
• Professional tax or taxes on employment levied by a State under
Article 276 of the Constitution is allowed as deduction only when it is
actually paid by the employee during the previous year.
• The total amount by way of professional tax payable in respect of any
one person shall not exceed ` 2,500 per annum.
• However, the amount paid during the previous year can be more than
` 2,500 as the employee may have paid the professional tax of an
earlier year during the previous year
Profits in lieu of Salary, Sec- 17(3)

Amount from an
unrecognised Amount received
Terminal
provident fund or under Keyman
Compensation
unrecognised Insurance Policy
superannuation fund
Important Concepts

• Surrender of Salary – Exempt from taxation if surrendered to CG

• Foregoing of Salary – once earned is taxable
• Place of Accrual – Place of render of services
• Arrears of Salary – Due or received still taxable
• Basis of Accounting - doesn't depend of method of Accounting
• Exempt Income
• Bonus
Exclusions

LTC – Leave travel Concession

Gratuity - exempt up to the least of below

• 10L or
• Or gratuity actually received
• 15days salary based on last drawn salary for each completed yr or part
of the yr in 6 months
• Pension
• Leave Salary
Retrenchment Compensation

VRS Compensation

Provident Fund

• Statutory Provident Fund

• Recognized Provident Fund
• Unrecognized Provident Fund

Superannuation Fund

House rent Allowance

Special Allowances
Perquisites
Perquisites Which are taxable in case Rent free accocmodation
of all type of companies

Motor car
Perquisites taxable only in the hands Services of sweeper, gardener, watchman, personal
attendant
of specific employees
Gas, electricity, water supply

Tea, or non alcoholic beverages

Perquisites exempt from Tax Free meals provided by employer up to Rs 50/day
Amount Spent for training the
employees

Annual Premium paid by the employer

for the Accident insurance policy

The amount of telephone bills

Any recreational facility

 • Entertainment Allowances
• Deduction only for government
employees for least of the following
• Rs. 5000/-
• 1/5th of the Basic Salary
Deductions • Actual entertainment allowance
received for the previous Yr.
• Professional Tax
• Actual amount paise is deducted