Seminar on Salary - Taxation

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Fay Ross
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1 Seminar on Salary - Taxation CA CHANDRASHEKHAR V. CHITALE Chairman, Direct Taxation Committee, MCCIA

2 Salary - Taxation ALLOWANCES

3 Allowances Fixed money or substance or compensation given regularly in addition to salary. Allowances form part of salary. Taxable in hands of EMPLOYEE if no specific exemption provided under the Income Tax Act, 1961.

4 COVERAGE Three types : 1. Fully exempted allowances. 2. Partly exempted allowances. 3. Fully taxable allowances.

5 Fully Exempted Allowances Allowances are fully exempt from tax. Examples foreign allowance, sumptuary allowance to High Court / Supreme Court Judges, allowances from U.N.O.

6 Tax Free Allowances Rule 2BB For the purposes of sub-clause (i) of clause (14)) of section 10, prescribed allowances, by whatever name called, shall be the following, namely : (a) to (f) as per the list

7 TAX FREE ALLOWANCES (a) any allowance granted to meet the cost of travel on tour or on transfer; For the purpose allowance granted to meet the cost of travel on transfer includes any sum paid in connection with transfer, packing and transport

8 TAX FREE ALLOWANCES (b) allowance granted on tour or journey in connection with transfer, to meet the ordinary daily charges incurred on account of absence from his normal place of duty; (c) allowance granted for conveyance in performance of duties of an office Provided that free conveyance is not provided by the employer;

9 TAX FREE ALLOWANCES (d) any allowance granted to meet the expenditure incurred on a helper where such helper is engaged for the performance of the duties of an office or employment of profit; (e) allowance granted for encouraging the academic, research and training pursuits in educational and research institutions;

10 TAX FREE ALLOWANCES (f) allowance granted for the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit.

11 Partly Exempted Allowances Partly Exempted Allowances Basis amount of allowance spent Basis up to a fixed amount Eg. house rent allowance, Eg. special allowances to special allowances to meet official meet personal expenses, etc expenditure, etc

12 Fully Taxable Allowances Includes all allowances not included in fully exempt or partially exempt category by whatever name called. Examples city compensatory allowance, tiffin allowance, dearness allowance, fixed medical allowance etc.

13 House Rent Allowance Least of following exempt from Tax: 1. Residential house in Metro city - 50 % of Salary Residential house at other place - 40% of Salary 2. House rent allowance received. 3. Rent paid in excess of 10 % of salary.

14 House Rent Allowance Salary for this purpose = Basic salary + Dearness allowance employment so provide) + (if terms Commission payable (if paid as a fixed percentage of turnover). of

15 Special Allowances For Meeting Official Expenditure Given to employees to meet expenses exclusively in performance of official duties. Are exempt to the extent amount actually incurred for the purpose for which it is given.

16 Special Allowances For Meeting Official Expenditure Examples traveling allowance, daily allowance, conveyance allowance, helper allowance, research allowance and uniform allowance.

17 Transport Allowance Provided to an employee for commuting between his residence and the place of his duty. Exempt up to Rs. 800 per month and in case blind or handicapped employee's Rs. 1,600 per month.

18 Children Education Allowance Paid for education of employee s children. Exempt up to Rs 100 per month per child up to maximum of two child if expenses made in India.

19 Children Hostel Allowance Paid for education of employee s children. Exempt up to Rs 300 per month per child up to maximum of two child if expenses made in India.

20 THANK YOU Any Questions?

Advance learning on Allowances (Practical)

Advance learning on Allowances (Practical) Various forms of salary : Illustration From the following information provided by Mr. Kumar, compute his income chargeable to tax under the head salaries. Basic