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Income Tax: Treatment of Income under the head Salaries [As amended by Finance Act, 2018]

Income Tax: Treatment of Income under the head Salaries [As amended by Finance Act, 2018]


Treatment of Income under the head Salaries

1.1 Salary is defined to include:

a) Wages
b) Annuity
c) Pension
d) Gratuity
e) Fees, Commission, Perquisites, Profits in lieu of or in addition to
Salary or Wages
f) Advance of Salary
g) Leave Encashment
h) Annual accretion to the balance of Recognized Provident Fund
i) Transferred balance in Recognized Provident Fund
j) Contribution by Central Government or any other employer to Employees
Pension Account as referred in Sec. 80CCD
1.2 Points to consider:
a) Salary income is chargeable to tax on “due basis” or “receipt basis”
whichever is earlier.
b) Existence of relationship of employer and employee is must between the
payer and payee to tax the income under this head.
c) Income from salary taxable during the year shall consists of following:
i. Salary due from employer (including former employer) to taxpayer during
the previous year, whether paid or not;
ii. Salary paid by employer (including former employer) to taxpayer during
the previous year before it became due;
iii. Arrear of salary paid by the employer (including former employer) to
taxpayer during the previous year, if not charged to tax in any earlier
year;
Exceptions –
Remuneration, bonus or commission received by a partner from the firm is
not taxable under the head Salaries rather it would be taxable under the
head business or profession.
tax-treatment-of-income-under-head-salary
1.3 Place of accrual of salary:
a) Salary accrues where the services are rendered even if it is paid
outside India;
b) Salary paid by the Foreign Government to his employee serving in India
is taxable under the head Salaries;
c) Leave salary paid abroad in respect of leave earned in India shall be
deemed to accrue or arise in India.
Exceptions –
If a Citizen of India render services outside India, and receives salary
from Government of India, it would be taxable as salary deemed to have
accrued in India.
1.4 Taxability of various components of salary:

S.No. Section Particulars Taxability/Exemption
1. 17 Basic salary Fully taxable
2. 17 Dearness Allowance (referred to as ‘DA’) Fully taxable
3. 17 Bonus, fees or commission Fully taxable
A. Allowances
4. 10(13A)
read with Rule 2A
House rent allowance Least of the following is exempt:

a) Actual HRA Received

b) 40% of Salary (50%, if house situated in Mumbai,
Calcutta, Delhi or Chennai)

c) Rent paid minus 10% of salary

* Salary = Basic + DA (if part of retirement benefit) +
Turnover based Commission

Note
:

i. Fully taxable, if HRA is received by an employee who is
living in his own house or if he does not pay any rent

ii. It is mandatory for employee to report PAN of the
landlord to the employer if rent paid is more than Rs.
1,00,000 [Circular No. 08 /2013 dated 10-10-2013].

5. 10(14) Children education allowance Up to Rs. 100 per month per child up to a maximum of 2
children is exempt
6. 10(14) Hostel expenditure allowance Up to Rs. 300 per month per child up to a maximum of 2
children is exempt
7. 10(14) Transport Allowance granted to an employee to meet
expenditure for the purpose of commuting between place of
residence and place of duty
Rs. 3,200 per month granted to an employee, who is blind or
deaf and dumb or orthopedically handicapped with disability
of lower extremities
8. Sec. 10(14) Allowance granted to an employee working in any transport
business to meet his personal expenditure during his duty
performed in the course of running of such transport from
one place to another place provided employee is not in
receipt of daily allowance.
Amount of exemption shall be lower of following:

a) 70% of such allowance; or

b) Rs. 10,000 per month.

9. 10(14) Conveyance allowance granted to meet the expenditure on
conveyance in performance of duties of an office
Exempt to the extent of expenditure incurred for official
purposes
10. 10(14) Travelling allowance to meet the cost of travel on tour or
on transfer
Exempt to the extent of expenditure incurred for official
purposes
11. 10(14) Daily allowance to meet the ordinary daily charges incurred
by an employee on account of absence from his normal place
of duty
Exempt to the extent of expenditure incurred for official
purposes
12. 10(14) Helper/Assistant allowance Exempt to the extent of expenditure incurred for official
purposes
13. 10(14) Research allowance granted for encouraging the academic
research and other professional pursuits
Exempt to the extent of expenditure incurred for official
purposes
14. 10(14) Uniform allowance Exempt to the extent of expenditure incurred for official
purposes
15. 10(7) Any allowance or perquisite paid or allowed by Government
to its employees (an Indian citizen) posted outside India
Fully Exempt
16. Allowances to Judges of High Court/Supreme Court (Subject
to certain conditions)
Fully Exempt.
17. 10(45) Following allowances and perquisites given to serving
Chairman/Member of UPSC is exempt from tax:

a) Value of rent free official residence

b) Value of conveyance facilities including transport
allowance

c) Sumptuary allowance

d) Leave travel concession

Fully Exempt
18. Allowances paid by the UNO to its employees Fully Exempt
19. 10(45) Allowances to Retired Chairman/Members of UPSC (Subject to
certain conditions)
Exempt subject to maximum of Rs. 14,000 per month for
defraying the services of an orderly and for meeting
expenses incurred towards secretarial assistant on contract
basis.
20. Sec. 10(14)
read with Rule 2BB
Special compensatory Allowance (Hilly Areas) (Subject to
certain conditions and locations)
Amount exempt from tax varies from Rs. 300 to Rs. 7,000 per
month.
21. Sec. 10(14)
read with Rule 2BB
Border area, Remote Locality or Disturbed Area or Difficult
Area Allowance (Subject to certain conditions and
locations)
Amount exempt from tax varies from Rs. 200 to Rs. 1,300 per
month.
22. Sec. 10(14)
read with Rule 2BB
Tribal area allowance in (a) Madhya Pradesh (b) Tamil Nadu
(c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g)
West Bengal (h) Bihar (i) Orissa
Up to Rs. 200 per month is exempt
23. Sec. 10(14)
read with Rule 2BB
Compensatory Field Area Allowance. If this exemption is
taken, employee cannot claim any exemption in respect of
border area allowance (Subject to certain conditions and
locations)
Up to Rs. 2,600 per month is exempt
24. Sec. 10(14)
read with Rule 2BB
Compensatory Modified Area Allowance. If this exemption is
taken, employee cannot claim any exemption in respect of
border area allowance (Subject to certain conditions and
locations)
Up to Rs. 1,000 per month is exempt
25. Sec. 10(14)
read with Rule 2BB
Counter Insurgency Allowance granted to members of Armed
Forces operating in areas away from their permanent
locations. If this exemption is taken, employee cannot
claim any exemption in respect of border area allowance
(Subject to certain conditions and locations)
Up to Rs. 3,900 per month is exempt
26. Sec. 10(14)
read with Rule 2BB
Underground Allowance to employees working in uncongenial,
unnatural climate in underground mines
Up to Rs. 800 per month is exempt
27. Sec. 10(14)
read with Rule 2BB
High Altitude Allowance granted to armed forces operating
in high altitude areas (Subject to certain conditions and
locations)
a) Up to Rs. 1,060 per month (for altitude of 9,000 to
15,000 feet) is exempt

b) Up to Rs. 1,600 per month (for altitude above 15,000
feet) is exempt

28. Sec. 10(14)
read with Rule 2BB
Highly active field area allowance granted to members of
armed forces (Subject to certain conditions and locations)
Up to Rs. 4,200 per month is exempt
29. Sec. 10(14)
read with Rule 2BB
Island Duty Allowance granted to members of armed forces in
Andaman and Nicobar and Lakshadweep group of Island
(Subject to certain conditions and locations)
Up to Rs. 3,250 per month is exempt
30. 10(14) City Compensatory Allowance Fully Taxable
31. 10(14) Fixed Medical Allowance Fully Taxable
32. 10(14) Tiffin, Lunch, Dinner or Refreshment Allowance Fully Taxable
33. 10(14) Servant Allowance Fully Taxable
34. 10(14) Project Allowance Fully Taxable
35. 10(14) Overtime Allowance Fully Taxable
36. 10(14) Telephone Allowance Fully Taxable
37. 10(14) Holiday Allowance Fully Taxable
38. 10(14) Any Other Cash Allowance Fully Taxable
B. Perquisites
39. 17(2)(i)/(ii)

read with

Rule 3(1)

Rent free unfurnished accommodation provided to Central and
State Government employees
License fees determined in accordance with rules framed by
Government for allotment of houses shall be deemed to be
the taxable value of perquisites.
40. 17(2)(i)/(ii)

read with

Rule 3(1)

Unfurnished rent free accommodation provided to other
employees
Taxable value of perquisites

i. If house property is owned by the employer, the taxable
value of perquisite shall be:

A. 15% of salary, if population of city where accommodation
is provided exceeds 25 lakhs

B. 10% of salary, if population of city where accommodation
is provided exceeds 10 lakhs but does not exceed 25 lakhs

C. 7.5% of salary, if accommodation is provided in any
other city

ii. If house property is taken on lease or rent by the
employer, the taxable value of perquisite shall be:

i. Lease rent paid or payable by the employer or 15% of the
salary, whichever is lower

*Salary includes:

a) Basic Pay

b) Dearness Allowance (only to the extent it forms part of
retirement benefit salary)

c) Bonus

d) Commission

e) All other allowances (only taxable portion)

f) Any monetary payment which is chargeable to tax

But does not include

i. Value of any perquisite

ii. Employer’s contribution to PF

iii. Benefits received at the time of retirement like
gratuity, pension etc.

Note:

1) Rent free accommodation is not chargeable to tax if
provided in remote area.

2) Rent free accommodation provided to High Court or
Supreme Court Judges, Union Ministers, Leader of Opposition
in Parliament, an official in Parliament and Serving
Chairman and members of UPSC is tax free perquisite.

3) The value so determined shall be reduced by the amount
of rent, if any, recovered from the employee.

4) If employee is transferred and retain property at both
the places, the taxable value of perquisites for initial
period of 90 days shall be determined with reference to
only one accommodation (at the option of the assessee). The
other one will be tax free. However after 90 days, taxable
value of perquisites shall be charged with reference to
both the accommodations.

41. 17(2)(i)/(ii)

read with

Rule 3(1)

Rent free furnished accommodation Taxable value of perquisites shall be computed in following
manner:

a) Taxable value of perquisite assuming accommodation to be
provided to the employee is unfurnished

b) Add: 10% of original cost of furniture and
fixtures (if these are owned by the employer) or actual
higher charges paid or payable (if these are taken on rent
by the employer).

c) Less: The value so determined shall be reduced by
the amount of rent, if any, recovered from the employee

42. 17(2)(i)/(ii)

read with

Rule 3(1)

Accommodation provided in a hotel

Hotel accommodation will not be chargeable to tax if :

a) It is provided for a total period not exceeding in
aggregate 15 days in the financial year; and

b) Such accommodation in hotel is provided on employee’s
transfer from one place to another place.

Taxable value of perquisite shall be lower of following:

a) Actual charges paid or payable by the employer to such
hotel; or

b) 24% of salary

43. 17(2)(viii)

read with Rule 3(2)

Motor Car / Other Conveyance Taxable value of perquisites
(See Note 1 below)
43A. 17(2)(iv) Any sum paid by employer in respect of any obligation of an
employee
Fully Taxable
44. 17(2)(viii)

read with Rule 3(3)

Services of a domestic servant including sweeper, gardener,
watchmen or personal attendant (taxable only in case of
specified employee [See Note 4])
Taxable value of perquisite shall be salary paid or payable
by the employer for such services less any amount
recovered from the employee.
45. 17(2)(viii)

read with Rule 3(4)

Supply of gas, electricity or water for household purposes Taxable value of perquisites:

➢ Manufacturing cost per unit incurred by the employer., if
provided from resources owned by the employer;

➢ Amount paid by the employer, if purchased by the employer
from outside agency

Note:

1. Any amount recovered from the employee shall be deducted
from the taxable value of perquisite.

2. Taxable in case of specified employees only [ See note 4]

46. 17(2)(viii)

read with Rule 3(5)

Education Facilities Taxable value of perquisites
(See Note 2 below)
47. 17(2)(viii)

read with Rule 3(6)

Transport facilities provided by the employer engaged in
carriage of passenger or goods (except Airlines or
Railways)
Value at which services are offered by the employer to the
public less amount recovered from the employee shall
be a taxable perquisite
48. 17(2)(v) Amount payable by the employer to effect an insurance on
life of employee or to effect a contract for an annuity
Fully Taxable
49. 17(2)(vi)
read with Rule 3(8)/3(9)
ESOP/ Sweat Equity Shares Fair Market value of shares or securities on the date of
exercise of option by the assessee less amount
recovered from the employee in respect of such shares shall
be the taxable value of perquisites.

Fair Market Value shall be determined as follows:

a) In case of listed Shares: Average of opening and closing
price as on date of exercise of option (Subject to certain
conditions and circumstances)

b) In case of unlisted shares/ security other than equity
shares: Value determined by a Merchant Banker as on date of
exercise of option or an earlier date, not being a date
which is more than 180 days earlier than the date of
exercise of the option.

50. 17(2)(vii) Employer’s contribution towards superannuation fund Taxable in the hands of employee to the extent such
contribution exceeds Rs.1,50,000
51. 17(2)(viii)
read with Rule 3(7)(i)
Interest free loan or Loan at concessional rate of interest Interest free loan or loan at concessional rate of interest
given by an employer to the employee (or any member of his
household) is a perquisite chargeable to tax in the hands
of all employees on following basis:

1) Find out the “maximum outstanding monthly balance” (i.e.
the aggregate outstanding balance for each loan as on the
last day of each month);

2) Find out rate of interest charged by the SBI as on the
first day of relevant previous year in respect of loan for
the same purpose advanced by it;

3) Calculate interest for each month of the previous year
on the outstanding amount (mentioned in Step 1) at the rate
of interest given in Step 2

4) From the total interest calculated for the entire
previous year (step 3), deduct interest actually recovered,
if any, from employee

5) The balance amount (Step 3-Step 4) is taxable value of
perquisite

Nothing is taxable if:

a) Loan in aggregate does not exceed Rs. 20,000; or

b) Loan is provided for treatment of specified diseases
(Rule 3A) like neurological diseases, Cancer, AIDS, Chronic
renal failure, Hemophilia (specified diseases). However,
exemption is not applicable to so much of the loan as has
been reimbursed to the employee under any medical insurance
scheme.

52. 17(2)(viii)
read with Rule 3(7)(ii)
Facility of travelling, touring and accommodation availed
of by the employee or any member of his household for any
holiday
a) Taxable value of perquisite shall be expenditure
incurred by the employer less amount recovered from
employee.

b) Where such facility is maintained by the employer, and
is not available uniformly to all employees, the value of
benefit shall be taken to be the value at which such
facilities are offered by other agencies to the public.

53. 17(2)(viii)
read with Rule 3(7)(iii)
Free food and beverages provided to the employee 1) Fully Taxable: Free meals in excess of Rs. 50 per meal less amount paid by the employee shall be a taxable
perquisite

2) Exempt from tax: Following free meals shall be exempt
from tax:

a) Food and non-alcoholic beverages provided during working
hours in remote area or in an offshore installation;

b) Tea, Coffee or Non-Alcoholic beverages and Snacks during
working hours are tax free perquisites;

c) Food in office premises or through non-transferable paid
vouchers usable only at eating joints provided by an
employer is not taxable, if cost to the employer is Rs.
50(or less) per meal.

54. 17(2)(viii)
read with Rule 3(7)(iv)
Gift or Voucher or Coupon on ceremonial occasions or
otherwise provided to the employee
a) Gifts in cash or convertible into money (like gift
cheque) are fully taxable

b) Gift in kind up to Rs.5,000 in aggregate per annum would
be exempt, beyond which it would be taxable.

55. 17(2)(viii)
read with Rule 3(7)(v)
Credit Card a) Expenditure incurred by the employer in respect of
credit card used by the employee or any member of his
household less amount recovered from the employee is
a taxable perquisite

b) Expenses incurred for official purposes shall not be a
taxable perquisite provided complete details in respect of
such expenditure are maintained by the employer

56. 17(2)(viii)
read with Rule 3(7)(vi)
Free Recreation/ Club Facilities a) Expenditure incurred by the employer towards annual or
periodical fee etc. (excluding initial fee to acquire
corporate membership) less amount recovered from the
employee is a taxable perquisite

b) Expenses incurred on club facilities for the official
purposes are exempt from tax.

c) Use of health club, sports and similar facilities
provided uniformly to all employees shall be exempt from
tax.

57. 17(2)(viii)
read with Rule 3(7)(vii)
Use of movable assets of the employer by the employee is a
taxable perquisite
Taxable value of perquisites

a) Use of Laptops and Computers: Nil

b) Movable asset other than Laptops, computers and Motor
Car*: 10% of original cost of the asset (if asset is owned
by the employer) or actual higher charges incurred by the
employer (if asset is taken on rent) less amount
recovered from employee.

*See Note 1 for computation of perquisite value in
case of use of the Motor Car

58. 17(2)(viii)
read with Rule 3(7)(viii)
Transfer of movable assets by an employer to its employee Taxable value of perquisites

a) Computers, Laptop and Electronics items: Actual cost of
asset less depreciation at 50% (using reducing
balance method) for each completed year of usage by
employer less amount recovered from the employee

b) Motor Car: Actual cost of asset less depreciation
at 20% (using reducing balance method) for each completed
year of usage by employer less amount recovered from
the employee

c) Other movable assets: Actual cost of asset less
depreciation at 10% (on SLM basis) for each completed year
of usage by employer less amount recovered from the
employee.

59. 17(2)(viii)
read with Rule 3(7)(ix)
Any other benefit or amenity extended by employer to
employee
Taxable value of perquisite shall be computed on the basis
of cost to the employer (under an arm’s length transaction) less amount recovered from the employee.

However, expenses on telephones including a mobile phone
incurred by the employer on behalf of employee shall not be
treated as taxable perquisite.

60. 10(10CC) Tax paid by the employer on perquisites (not provided for
by way of monetary payments) given to employee
Fully exempt
61. 10(5) Leave Travel Concession or Assistance (LTC/LTA), extended
by an employer to an employee for going anywhere in India
along with his family*

*Family includes spouse, children and dependent
brother/sister/parents. However, family doesn’t include
more than 2 children of an Individual born on or after
01-10-1998.

(Subject to certain conditions)

The exemption shall be limited to fare for going anywhere
in India along with family twice in a block of four years:

• Where journey is performed by Air – Exemption up to Air
fare of economy class in the National Carrier by the
shortest route

• Where journey is performed by Rail – Exemption up to
air-conditioned first class rail fare by the shortest route

• If places of origin of journey and destination are
connected by rail but the journey is performed by any other
mode of transport – Exemption up to air-conditioned first
class rail fare by the shortest route.

• Where the places of origin of journey and destination are
not connected by rail:

* Where a recognized public transport system exists –
Exemption up to first Class or deluxe class fare by the
shortest route

* Where no recognized public transport system exists –
Exemption up to air conditioned first class rail fare by
shortest route.

Notes
:

i. Two journeys in a block of 4 calendar years is exempt

ii. Taxable only in case of Specified Employees [ See note 4]

62. Proviso to section 17(2) Medical facilities in India a) Expense incurred or reimbursed by the employer for the
medical treatment of the employee or his family (spouse and
children, dependent – parents, brothers and sisters) in any
of the following hospital is not chargeable to tax in the
hands of the employee:

i. Hospital maintained by the employer.

ii. Hospital maintained by the Government or Local
Authority or any other hospital approved by Central
Government

iii. Hospital approved by the Chief Commissioner having
regard to the prescribed guidelines for treatment of the
prescribed diseases.

b) Medical insurance premium paid or reimbursed by the
employer is not chargeable to tax.

63. Proviso to section 17(2) Medical facilities outside India Any expenditure incurred or reimbursed by the employer for
medical treatment of the employee or his family member
outside India is exempt to the extent of following (subject
to certain condition):

a. Expenses on medical treatment – exempt to the extent
permitted by RBI.

b. Expenses on stay abroad for patient and one attendant –
exempt to the extent permitted by RBI.

c. Expenditure incurred on travelling of patient and one
attendant- exempt, if Gross Total Income (before including
the travel expenditure) of the employee, does not exceed
Rs. 2,00,000.

C. Deduction from salary
1. 16(ia) Standard Deduction Rs. 40,000 or the amount of salary, whichever is lower (Any
salaried person)
2. 16 (ii) Entertainment Allowance received by the Government
employees (Fully taxable in case of other employees)
Least of the following is exempt from tax:

a) Rs 5,000

b) 1/5th of salary (excluding any allowance, benefits or
other perquisite)

c) Actual entertainment allowance received

3. 16(iii) Employment Tax/Professional Tax. Amount actually paid during the year. However, if
professional tax is paid by the employer on behalf of its
employee than it is first included in the salary of the
employee as a perquisite and then same amount is allowed as
deduction.
D. Retirement Benefits
Leave Encashment
1. 10(10AA) Encashment of unutilized earned leave at the time of
retirement of Government employees
Fully Exempt
2. 10(10AA) Encashment of unutilized earned leave at the time of
retirement of other employees (not being a Government
employee)
Least of the following shall be exempt from tax:

a) Amount actually received

b) Unutilized earned leave* X Average monthly salary

c) 10 months Average Salary**

d) Rs. 3,00,000

* While computing unutilized earned leave, earned leave
entitlements cannot exceed 30 days for each completed year
of service rendered to the current employer

** Average salary = Average Salary*** of last 10 months
immediately preceding the retirement

***Salary = Basic Pay + DA (to the extent it forms part of
retirement benefits)+ turnover based commission

Retrenchment Compensation
3. 10(10B) Retrenchment Compensation received by a workman under the
Industrial Dispute Act, 1947 (Subject to certain
conditions).
Least of the following shall be exempt from tax:

a) Amount calculated as per section 25F(b)of the Industrial
Disputes Act, 1947;

b) Rs. 5,00,000; or

c) Amount actually received

Note:

i. Relief under Section 89(1) is available

ii. 15 days average pay for each completed year of
continuous service or any part thereof in excess of 6
months is to be adopted under section 25F(b) of the
Industrial Disputes Act,1947

Gratuity
4. 10(10)(i) Gratuity received by Government Employees (Other than
employees of statutory corporations)
Fully Exempt
5. 10(10)(ii) Death -cum-Retirement Gratuity received by other employees
who are covered under Gratuity Act, 1972 (other than
Government employee) (Subject to certain conditions).
Least of following amount is exempt from tax:

1. (*15/26) X Last drawn salary** X completed year of
service or part thereof in excess of 6 months.

2. Rs. 20,00,000

3. Gratuity actually received.

*7 days in case of employee of seasonal establishment.

** Salary = Last drawn salary including DA but excluding
any bonus, commission, HRA, overtime and any other
allowance, benefits or perquisite

6. 10(10)(iii) Death -cum-Retirement Gratuity received by other employees
who are not covered under Gratuity Act, 1972 (other than
Government employee) (Subject to certain conditions).
Least of following amount is exempt from tax:

1. Half month’s Average Salary* X Completed years of
service

2. Rs. 10,00,000

3. Gratuity actually received.

*Average salary = Average Salary of last 10 months
immediately preceding the month of retirement

** Salary = Basic Pay + DA (to the extent it forms part of
retirement benefits)+ turnover based commission

Pension
7. Pension received from United Nation Organization by the
employee of his family members
Fully Exempt
8. 10(10A)(i) Commuted Pension received by an employee of Central
Government, State Government, Local Authority Employees and
Statutory Corporation
Fully Exempt
9. 10(10A)(ii) Commuted Pension received by other employees who also
receive gratuity
1/3 of full value of commuted pension will be exempt from
tax
10. 10(10A)(iii) Commuted Pension received by other employees who do not
receive any gratuity
1/2 of full value of commuted pension will be exempt from
tax
11. 10(19) Family Pension received by the family members of Armed
Forces
Fully Exempt
12. 57(iia) Family pension received by family members in any other case 33.33% of Family Pension subject to maximum of Rs. 15,000
shall be exempt from tax
Voluntary Retirement
13. 10(10C) Amount received on Voluntary Retirement or Voluntary
Separation (Subject to certain conditions)
Least of the following is exempt from tax:

1) Actual amount received as per the guidelines i.e. least
of the following

a) 3 months salary for each completed year of services

b) Salary at the time of retirement X No. of months of
services left for retirement; or

2) Rs. 5,00,000

Provident Fund
14. Employee’s Provident Fund For taxability of contribution made to various employee’s
provident fund and interest arising thereon see Note 3.
National Pension System (NPS)
15. 10(12A)
/10(12B)
National Pension System Any payment from the National Pension System Trust to an
assessee on closure of his account or on his opting out of
the pension scheme referred to in section 80CCD, to the
extent it does not exceed 40% of the total amount payable
to him at the time of such closure or his opting out of the
scheme.

Note:
Partial withdrawal from NPS shall be exempt to the extent
of 25% of amount of contributions made by the employee.

E.
Arrear of Salary and relief under section 89(1)
1. 15 Arrear of salary and advance salary Taxable in the year of receipt. However relief under
section 89 is available
2. 89 Relief under Section 89 If an individual receives any portion of his salary in
arrears or in advance or receives profits in lieu of
salary, he can claim relief as per provisions of section 89
read with rule 21A
F. Other Benefits
1. Lump-sum payment made gratuitously or by way of
compensation or otherwise to widow or other legal heirs of
an employee who dies while still in active service
[Circular No. 573, dated 21-08-1990]
Fully exempt in the hands of widow or other legal heirs of
employee
2. Ex-gratia payment to a person (or legal heirs) by Central
or State Government, Local Authority or Public Sector
Undertaking consequent upon injury to the person or death
of family member while on duty [Circular No. 776, dated
08-06-1999]
Fully exempt in the hands of individual or legal heirs
3. Salary received from United Nation Organization [Circular
No. 293, dated 10-02-1981]
Fully exempt
4. 10(6)(ii) Salary received by foreign national as an officials of an
embassy, high commission, legation, consulate or trade
representation of a foreign state
Fully exempt if corresponding official in that foreign
country enjoys a similar exemption
5. 10(6)(vi) Remuneration received by non-resident foreign citizen as an
employee of a foreign enterprise for services rendered in
India, if:

a) Foreign enterprise is not engaged in any trade or
business in India

b) His stay in India does not exceed in aggregate a period
of 90 days in such previous year

c) Such remuneration is not liable to deducted from the
income of employer chargeable under this Act

Fully exempt
6. 10(6)(viii) Salary received by a non-resident foreign national for
services rendered in connection with his employment on a
foreign ship if his total stay in India does not exceed 90
days in the previous year.
Fully exempt
7. Salary and allowances received by a teacher /professor from
SAARC member state (Subject to certain conditions).
Fully exempt
Notes:
1. Motor Car (taxable only in case of specified employees [See note 4]
except when car owned by the employee is used by him or members of his
household wholly for personal purposes and for which reimbursement is made
by the employer)
S. No. Circumstances Engine Capacity up to 1600 cc Engine Capacity above 1600 cc
1 Motor Car is owned or hired by the employer
1.1 Where maintenances and running expenses including
remuneration of the chauffeur are met or reimbursed by the
employer.
1.1-A Used wholly and exclusively in the performance of official
duties.
Fully exempt subject to maintenance of specified documents Fully exempt subject to maintenance of specified documents
1.1-B Used exclusively for the personal purposes of the employee
or any member of his household.
Actual amount of expenditure incurred by the employer on
the running and maintenance of motor car including
remuneration paid by the employer to the chauffeur and
increased by the amount representing normal wear and tear
of the motor car at 10% per annum of the cost of vehicle less any amount charged from the employee for such
use is taxable value of perquisite.
1.1-C The motor car is used partly in the performance of duties
and partly for personal purposes of the employee or any
member of his household.
Rs. 1,800 per month (plus Rs. 900 per month, if
chauffeur is also provided to run the motor car) shall be
taxable value of perquisite
Rs. 2,400 per month (plus Rs. 900 per month, if
chauffeur is also provided to run the motor car) shall be
taxable value of perquisite
Nothing is deductible in respect of any amount recovered
from the employee.
1.2 Where maintenances and running expenses are met by the
employee.
1.2-A Used wholly and exclusively in the performance of official
duties.
Not a perquisite, hence, not taxable Not a perquisite, hence, not taxable
1.2-B Used exclusively for the personal purposes of the employee
or any member of his household
Expenditure incurred by the employer (i.e. hire charges, if
car is on rent or normal wear and tear at 10% of actual
cost of the car, if car is owned by the employer) plus salary of chauffeur if paid or payable by the
employer minus amount recovered from the employee.
1.2-C The motor car is used partly in the performance of duties
and partly for personal purposes of the employee or any
member of his household
Rs. 600 per month (plus Rs. 900 per month, if
chauffeur is also provided to run the motor car) shall be
taxable value of perquisite
Rs. 900 per month (plus Rs. 900 per month, if
chauffeur is also provided to run the motor car) shall be
taxable value of perquisite
Nothing is deductible in respect of any amount recovered
from the employee.
2 Motor Car is owned by the employee
2.1 Where maintenances and running expenses including
remuneration of the chauffeur are met or reimbursed by the
employer.
2.1-A The reimbursement is for the use of the vehicle wholly and
exclusively for official purposes
Fully exempt subject to maintenance of specified documents Fully exempt subject to maintenance of specified documents
2.1-B The reimbursement is for the use of the vehicle exclusively
for the personal purposes of the employee or any member of
his household (taxable in case of specified employee as
well as non-specified employee)
Actual expenditure incurred by the employer minus
amount recovered from the employee
2.1-C The reimbursement is for the use of the vehicle partly for
official purposes and partly for personal purposes of the
employee or any member of his household.
Actual expenditure incurred by the employer minus
Rs. 1800 per month and Rs. 900 per month if chauffer is
also provided minusamount recovered from employee
shall be taxable value of perquisite.
Actual expenditure incurred by the employer minus
Rs. 2400 per month and Rs. 900 per month if chauffer is
also provided minusamount recovered from employee
shall be taxable value of perquisite.
3
Where the employee owns any other automotive conveyance
and actual running and maintenance charges are met or
reimbursed by the employer
3.1 Reimbursement for the use of the vehicle wholly and
exclusively for official purposes;
Fully exempt subject to maintenance of specified documents Fully exempt subject to maintenance of specified documents
3.2 Reimbursement for the use of vehicle partly for official
purposes and partly for personal purposes of the employee.
Actual expenditure incurred by the employer as reduced by
Rs. 900 per month
Not Applicable
2. Educational Facilities
Taxable only in the hands of specified employees [See note 4]
Facility extended to
Value of perquisite
Provided in the school owned by the employer
Provided in any other school
Children Cost of such education in similar school less Rs.
1,000 per month per child (irrespective of numbers of
children) less amount recovered from employee
Amount incurred less amount recovered from employee
(an exemption of Rs. 1,000 per month per child is allowed)
Other family member Cost of such education in similar school less amount
recovered from employee
Cost of such education incurred
2.1 Other Educational Facilities
Particulars
Taxable Value of Perquisites
Reimbursement of school fees of children or family member
of employees
Fully taxable
Free educational facilities/ training of employees Fully exempt
3. Employees Provident Fund
Tax treatment in respect of contributions made to and payment from various
provident funds are summarized in the table given below:
Particulars Statutory provident fund Recognized provident fund Unrecognized provident fund Public provident fund
Employers contribution to provident fund Fully Exempt Exempt only to the extent of 12% of salary* Fully Exempt
Deduction under section 80C on employees contribution Available Available Not Available Available
Interest credited to provident fund Fully Exempt Exempt only to the extent rate of interest does not exceed
9.5%
Fully Exempt Fully Exempt
Payment received at the time of retirement or termination
of service
Fully Exempt Fully Exempt (Subject to certain conditions and
circumstances)
Fully Taxable (except employee’s contribution) Fully Exempt
* Salary = Basic Pay + Dearness Allowance (to the extent it forms part of
retirement benefits) + turnover based commission
Payment from recognized provident fund shall be exempt in the hands of
employees in following circumstances:
a) If employee has rendered continue service with his employer (including
previous employer, when PF account is transferred to current employer) for
a period of 5 years or more
b) If employee has been terminated because of certain reasons which are
beyond his control (ill health, discontinuation of business of employer,
etc.)
4. Specified Employee
The following employees are deemed as specified employees:
1) A director-employee
2) An employee who has substantial interest (i.e. beneficial owner of
equity shares carrying 20% or more voting power) in the employer-company
3) An employee whose monetary income* under the salary exceeds Rs.50,000
*Monetary Income means Income chargeable under the salary but excluding
perquisite value of all non-monetary perquisites
Source: Income Tax Website

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