May 302015
 

Taxation of Allowances

Meaning of allowance

Allowance is generally defined as fixed quantity of money or other substance given regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by the employee or as compensation for unusual conditions. It is fixed, pre-determined and given irrespective of actual expenditure

Under income tax act for exemption purpose allowances are categorized under three heads. One of the commonly used category is allowances which are based on actual amount expended by an employee. In our previous blog we discuss in detail 6 types of allowance where allowances are exempt up-to amount actually expended by employee.

Here in this blog we will discuss 2nd category of allowances which are exempted up-to amount specified in the income tax rules.

When Exemption Does Not Depend Upon Expenditure-

Name of allowance Brief Description of allowance Amount to be exempted from taxation
Special compensatory (Hill Areas) Allowance It includes any special compensatory allowance in the nature of special compensatory (hilly areas etc.) allowance or high altitude allowance or uncongenial climate allowance or snow bound area allowance or avalanche allowance. Amount exempt from tax varies from Rs. 300/- per month to Rs. 7000/- per month
Border area allowance It includes any special compensatory allowance in the nature of border area allowance or remote locality allowance or difficult area allowance or disturbed area allowance. The amount of exemption varies from Rs.200/- per month to Rs. 1,300/- per month
Tribal areas/Scheduled areas allowance Tribal area allowance is given in(a)Madhya Pradesh;

(b)Tamil Nadu;

(c) Uttar Pradesh;

(d)Karnataka;

(e)Tripura;

(f)Assam;

(g)West Bengal;

(h)Bihar;

(i)Orissa.

Rs.200/- per month
Allowance for transport employees It is an allowance granted to an employee working in any transport system to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided that such employee is not in receipt of daily allowance. The amount of exemption-a.    70% of such allowance; or

b.    Rs. 10,000/- per month, whichever is lower.

Children education allowance This allowance is given for children’s education. The amount exempt is limited to Rs. 100/- per month per child up to a maximum of two children.
Hostel expenditure allowance This allowance is granted to an employee to meet the hostel expenditure on his child It is exempt from tax to the extent of Rs. 300/- per month per child up to a maximum of two children.
Compensatory field area allowance If the exemption is taken,the same employee cannot claim any exemption in respect of border area allowance mentioned above. Exemption is limited to Rs. 2,600/- per month in some cases.
Compensatory modified area allowance If the exemption is taken the same employee cannot claim any exemption in respect of border area allowance mentioned above. Exemption is limited to Rs. 1,000/- per month in some cases.
Counter insurgency allowance It includes any special allowance in the nature of counter-insurgency allowance granted to the members if armed forces operating in areas away from their permanent locations.If this exemption is taken, the same employee cannot claim any exemption in respect of border area allowance mentioned above. Exemption is limited to Rs. 3,900/- per month in some cases.
Transport allowance Transport allowance is granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty. It is exempt up to Rs.800 per month. After FA 2015 get assent from president the exemption for this allowance increased to Rs. 1600/- per month.
Underground allowance Underground allowance is granted to an employee who is working in uncongenial,unnatural climate in underground mines. Exemption is limited to Rs. 800/- per month
High altitude allowance It is granted to the members of armed forces operating in high altitude areas. It is exempt from tax up to Rs.1,060/- per month (for altitude of 9,000 to 15,000 feet) orRs. 1,600 per month (for altitude above 15,000/-feet).
Highly active field area allowance This special allowance is granted to the members of armed forces in the nature of special compensatory highly active field area allowance. It is exempt from tax up to Rs.4,200/- per month. 
Island duty allowance This is special allowance is granted to the members of armed forces in the nature of Island (duty) allowance in Andaman and Nicobar and Lakshadweep group of Island. It is exempt up to Rs. 3,250/- per month.

Mar 192015
 

To give more clarity to the users of our blog, here an attempt is made for detail case study on computation of income under salary. Please see the below case study:-

Mrs. X an employee director of XYZ Ltd. submit the following information relevant for the assessment year 2015-16:

Income Details Expenditure / Investment Details
Salary component details  
Salary Rs. 2,56,000
Entertainment allowance Rs. 1,06,000
Bonus Rs.1,11,200
Education allowance-    For her grandchildren Rs. 2,000
Payments made by employer Contributions by Mrs A
Income tax-penalty by employer Rs.1,500
Medical expenses reimbursed by employer Rs 12,10
Travel concession –    Actual expenditure on fare is more than Rs 51,300 Rs51,000
Reimbursement of gas bills Rs11,500
Payment of delegation fee to FICCI for attending All India Conference of Corporate Manager and Tax Executives Rs 3,000
Employer’s contribution towards recognised provident fund Rs47,920
Employer’s contribution to superannuation fund Rs.7,200
Employer’s contribution to approved gratuity fund on accrual basis Rs 2,700
(A) Contribution towards recognised provident fund Rs 30,000
(B) contribution towards superannuation fund Rs 7,200
Facilities availed as per terms of employment Expenditure in respect of facilities availed
Free residential telephone Rs11,000
Furnished flat for concessional rate – lease rent of the house Rs 1,60,800;
cost of maintenance of ground (including salary of Gardner) Rs2,000
Salary of two watchmen Rs 11,000
Salary of sweeper Rs 6,200
Rent of air conditioner Rs. 2,000
Cost of furniture Rs.18,000
Car (1900cc) owned by the employer given partly for official and partly for private use –cost of car
Maintenance of car Rs48,000,
Salary of driver-    10% of the expenditure is attributable for the journey between office and residence and back Rs 24,000
(A) Rent of furnishing house paid to the employer : Rs.11,200(B) Payment in respect of use of car : Rs.6,000,as per service rule Mrs has to pay an amount equal to Rs.2 per km., whenever car is for personal purposes; however, nothing is payable in respect of journey from office to residence and back
Taxes Paid
Professional tax paid by Mrs X :Rs1,650
Details of other incomes Investments
Arrears of bonus of 2008-09 (not taxed earlier) Rs52,000
Interest credited in PF account @ 14%-    credited on August 10,2013 Rs14,000
Dividend from XYZ Ltd., a foreign company Rs 57,880
Agricultural income from Nepal Rs 2,29,160
Mrs X is a retired Government employee. She gets a sum of Rs.14,700 per month as pension from the Government.
(A) insurance premium for a policy on the life of her husband Rs.5,200-sum assured Rs.90,000
(B) insurance premium for a policy 10,000 on the life of her father Rs 4,000
(C) deposits in 10-years accounts under the post Office Saving Banks ( CTD) Rules including advanced deposit of April –May 2014 Rs 2,400
(D) payment of school fees of 2 children Rs.19,200 for each child

Now the above case is analyse and computed as below:

Table 1 – Computation of Gross Salary

Components of salary Explanation Computed Amount
(In Rs)
Salary      256,000
Entertainment allowance      106,000
Bonus      111,200
Education allowance for grandchildren        2,000
IT penalty paid by the employer        1,500
Payment of electricity bills      11,000
Reimbursement of gas bills      11,500
Arrears of bonus 4      52,000
Furnished house at concessional rent 1      90,340
Salary of two watchmen      11,000
Salary of sweeper        6,200
Salary of gardener        2,000
Car [12 * (Rs. 2,400 + Rs. 900)] (amount recovered from Mrs is not deductible)      39,600
Excess of employer’s contribution towards provident fund over 12% of salary 3      17,200
Interest credited in PF account in excess over 9.5% (i.e., Rs14, 000 * 4.5 /14)        4,500
Pension from government (Rs14, 700 * 12)      176,400
Gross salary        898,440

Table 2 Analysis of Deduction allowable from Gross Salary

Nature of Deduction Explanation Amount Involve
(In Rs)
Less : Deduction under section 16
Standard deductible Now not available Nil
Entertainment allowance Not applicable to this case being Mrs A is not govt employee Nil
Professional tax Allow on actual payment basis 1,650
Total Deduction 1,650

Table 3 Computation of Net Income

Components of Income Explanation Amount Involve
(In Rs)
Gross Salary Table 1    898,440
Less : Deductions Table 2        (1,650)
Net Salary    896,790
Dividend from XYZ Ltd.      57,880
Agricultural income from Nepal    229,160
Gross Total Income 1,183,830
Less : Deduction under sec 80C (Max allowable Rs 1,50,000) 5      80,800
Net Income 1,103,030

Explanations:

  1. Valuation of the perquisites in the form of concessional rent

Step 1: Salary for the purposes of valuation of perquisite:

Components of salary Explanation Computed Amount
(In Rs)
Salary 2,56,000
Entertainment allowance 1,06,000
Bonus 1,11,200
Education allowance for grandchildren See Blogs 2,000
Pension from government 1,76,400
Total   6,51,600

Step 2: Lease rent of the unfurnished house is Rs 1,60,800.

Step 3: The perquisites value of the unfurnished house (lower of lease rent & 15% of salary):

Salary 651600
Value of unfurnished house
(15% of salary) 97740

Step 4: Value of furniture:

Cost of furniture 18000
Rent of AC 2000
10% of cost of furniture 1800
Value of furniture 3800

Step 5: Value of concession

Value of unfurnished house Step 3 97740
Value of furniture Step 4 3800
Rent recovered 11200
Value for computation 90340
  1. Reimbursement of medical expenses, free residential telephone, free refreshment, payment of conference fees and leave travel concession reimbursed by the employer are not taxable in the hands of the employee.
  1. Employer’s contribution towards superannuation fund and approved gratuity funds are not taxable.
  1. X is entitled to claim relief under section 89 read with 21 A in respects of arrears of bonus.
  1. Deduction under section 80C is the total of the following qualifying amounts.

 

PF Contribution 30,000
Superannuation fund for contribution                      7,200
Insurance premium on the life of husbands                      5,200
Insurance premium on the life of father                            -
Deposits under the Post Office Saving Bank (CTD) Rules (including advance deposits)                                    -
School fees of 2 children 38,400
Total                              80,800


Mar 032015
 

Limit of deduction under 80CCC raised

Budget 2015-16 – Raising the limit of deduction under 80CCC

Existing Provision:-

Under the existing provisions contained in sub-section (1) of the section 80CCC, an assessee, being an individual is allowed a deduction upto one lakh rupees in the computation of his total income, of an amount paid or deposited by him to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from a fund set up under a pension scheme.

Reason for amendment:

In order to promote social security, it is proposed to amend sub-section (1) of the said section so as to raise the limit of deduction under section 80CCC from one lakh rupees to one lakh and fifty thousand rupees only, within the overall limit provided in section 80CCE.

Period for which income is eligible for deduction:

This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years. This means income earn in previous year 2015-16 and subsequent year is eligible for higher deduction.

Note On Relevant Clauses Of Finance Bill 2015

Clause 16 of the Bill seeks to amend section 80CCC of the Income-tax Act relating to deduction in respect of contribution to certain pension funds.

Under the existing provisions contained in sub-section (1) of the aforesaid section, an assessee, being an individual is allowed a deduction up to one lakh rupees in the computation of his total income, of an amount paid or deposited by him to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from a fund set up under a pension scheme.

It is proposed to amend sub-section (1) of the said section so as to raise the limit of deduction from one lakh rupees to one hundred and fifty thousand rupees.

This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent years.

EXTRACT OF RELEVANT CLAUSES FROM FINANCE BILL 2015

Amendment of section 80CCC

In section 80CCC of the Income-tax Act, in sub-section (1), for the words “one lakh rupees”, the words “one hundred and fifty thousand rupees” shall be substituted with effect from the 1st day of 25 April, 2016.

Analysis:

Even after pension scheme limit in revised upwards, there may not be major benefits to individual tax payers. The overall cap of investment under sec 80C and 80CCC is still one lakh and fifty thousand rupees only.

The only benefit is to risk averse investor who are looking for comfortable old age life. Now area of choice shifted mere from PPF of pension if one desires so. Now whether you invest in PPF or pension scheme, you will get same tax treatment.

 

Feb 192015
 

Restructure your compensation with perquisites and other long terms benefits

In our earlier blogs we have already discuss in detail about structuring your compensation plan. Here we are providing you few more tips which will help you in restructuring your salary so as to minimize your tax bill:-

Make use of perquisites

One smart way to avoid tax is to opt for a company leased car instead of buying one yourself. Instead of you paying the EMI out of your post-tax income, your employer pays the EMI and includes it in your CTC. This cuts the tax significantly because you are taxed only for the perk value of the car, which is between Rs 1,800 a month (for cars of up to 1600 cc) and Rs 2,400 a month (for cars bigger than 1600 cc).

If your employer is willing to fund a professional course, the taxable value of such a perk will only be at 10% of the course fee. This means, for a benefit of, say Rs 70,000, you will be taxed for only Rs 7,000.

Check if your employer can provide you a laptop or tablet for professional as well as personal use. You will have to pay tax on the perk value of the gadget, which is only 10% of the price of the gadget.

Other tax-efficient perks include food coupons, which can be used at various outlets and departmental stores to buy food items. Most of big grocery chains, fast food outlets and departmental stores accept these coupons. One can take nearly Rs 30,000 worth of meal coupons and gift coupons of up to Rs 5,000 in a year. This has the potential to reduce the tax by almost Rs 10,000 for someone in the 30% tax slab.

Opt for more long-term benefits

Tax can be reduced further if you opt for certain long-term benefits. Every month, 12% of your basic pay flows into your PF account with a matching contribution by your employer. While your contribution fetches you tax benefits under Section 80C, you can opt for investments that give you additional tax benefits over and above the Rs 1.5 lakh deduction under Section 80C.

Under Section 80CCD(2), up to 10% of your basic salary is fully deductible if invested in the national Pension System (NPS). Additionally, the employer’s contribution, which is up to 10% of the basic, is deductible under Section 80CCE over and above the Rs 1.5 lakh deduction limit for Sections 80C, 80CCC and 80CCD. In the highest 30% tax bracket, it will enhance your increment by 3% of your basic salary.

Become the consultant

Another way to ensure a higher take-home salary and lower tax is by becoming a consultant. Consultants can claim deduction for work-related expenses. As a consultant, your income is taxed under the head ‘income from business or profession’ and accordingly you can claim deduction of all expenses incurred, including telephone bills, travel, entertainment, stationery and depreciation of assets. This can go a long way in reducing the taxable income for the individual.

However, there are several hassles you need to go through as a consultant.

You will have to maintain proper books of accounts and get an audit report in case the gross receipts exceed Rs 15 lakh in a year.

A consultant is also liable to pay service tax if his income exceeds Rs 10 lakh.

It is wrong to assume that the tax burden will lessen if one becomes a consultant. It will depends on how much expenditure one has incurred against receipts.

However, you have to forego some benefits you would have otherwise enjoyed as a salaried individual. For instance, HRA, LTA and medical allowance are some key benefits that consultants are not eligible for.

So we advice taxpayers to think about the long-term benefits of continuing as an employee rather than becoming fixated with the short-term tax benefits of a consultant. They stand to reap certain incidental benefits that help build long-term savings in the form of Provident Fund, as well as certain terminal benefits like gratuity and superannuation.

We are of strong belief that above article would help you in preparing a tax efficient salary structure and will help you to increase your take home salary.

Feb 192015
 

Agriculture Income To Employee

In previous document we have discuss few methods of planning your salary structure in the manner that suits tax man and in the same time minimise your tax bill. Even after availing all those benefits requirement is observed to avail some more avenues of income which are tax free and can be earned with minimal efforts. Hence we are looking forward for agriculture income, which is a need of human life.

What practically few employees doing is; while working in office of employment they give their lands to cultivate and grow to others which is managed by their family. In this way they have a additional source of income and at the same time they need not to pay additional tax. The provision related to agriculture income explained in following para.

Meaning of “Agriculture Income” : Agriculture Income means-

  1. any rent or revenue derived from the land which is situated in India and is used for agriculture purposes sec.2(1A)
  2. any income derived from the land by agricultural operation including processing of the agriculture produce, raised or received as rent –in-kind so as to render fit for the market, or sale of such produce[sec.2(1A)
  3. income attribute to a farm house subject to the conditions that on the building is situated on or in the immediate vicinity of the land and is used as a dwelling house, store house or other out building and the land is assessed to land revenue or a local rate or, alternatively ,the building is situated on or in the vicinity of land which (though not assessed to land revenue or local rate) is situated outside in urban areas, i.e., any area which comprised within the jurisdiction of a municipality or cantonment board having population of 10,000 or more in any area within such notified distance upto 8 km from the local limits of such municipality or cantonment board.

 Benefit of having Agriculture Income

  • SECTION 10(1) exempts agriculture income from tax.
  • The reason of exemption of agricultural income from central taxation is that the constitution gives exclusive power to makes laws with respect to taxes on agricultural income to the state Legislature.
  • Agricultural income is taken into consideration to determine tax on non-agricultural income in exceptional cases only.
  • With effect from the assessment year 2009-10, any income derived from saplings seedlings grown in a nursery shall be deemed to be an agricultural income.

Essentials condition to prove income to be agriculture income:-

- There must have a land.
– Rent or revenue should be derived from land.
– The land is one which is situated in India.
– The land is used for agricultural purposes.

How shall an employee take benefit of this provision:-

To availing this exemption, an employee shall disclose his agriculture income in the exempted income listing of return. At self assessment level no other procedural requirement needs to be met. However, in case of scrutiny employee must prove correctness of his claim to Income Tax Authority (ITA).

Further to avail this exemption, employees needs to show a relation between his income and agriculture land situated in India. Employees need not to be owner of land. The only requirement is a relation between income and agriculture land. This relation may be direct or indirect.

It shall be noted that agriculture income is added to salary income only for determining tax rates on salary income. To that extent it can be said agriculture income is indirectly taxed in terms of higher tax rates of normal salary income.

However in some cases transactions are coloured as agriculture income. This is not correct. If you get catch my ITA, it will raised huge penal and prosecution action against such person.

So after discussion the scope of taxation of agriculture income it may be concluded that even if you are not owner of land still you can avail the benefit of this exemption and minimise your tax bill. In upcoming document we will provide you practical method of availing this exemption and few other important aspects related to agriculture income.

Feb 172015
 

How to structure your salary tax efficiently

The appraisal season is just ahead and many people will be rewarded for the hard work. Several others will be lured to switch with better offers. In either case, before you sign the agreement, pay attention to the compensation structure being offered. Various components of the compensation package may not come to you immediately. Others may be fully taxable. If the compensation package is not structured properly, you might get a rude shock in your next pay cheque.

This blog tells you what you can do to minimise the tax outgo and enhance your take-home income. An employee earning Rs 60,000-70,000 a month can save over Rs 20,000 in tax in a year by realigning the package appropriately,

Opt for lower basic and variable pay

The basic pay, which is the primary component of the compensation package, is fully taxable. If the basic pay is too high, your tax liability will shoot up. However, you can’t keep it too low because the other components of the package, such as the HRA and Provident Fund benefit, are linked to the basic pay. For those in the highest tax bracket, it makes sense to keep the basic pay low, but a higher basic will not have a big impact in the lowest 10% income tax slab.

How much basic pay you should have?

Those who have to fund immediate goals would need a higher take-home pay. This can be done by lowering the basic pay component. Those focusing on building a corpus for retirement can opt for higher basic pay, as it leads to a higher contribution to the Provident Fund. Similarly, the variable pay and special allowance is also fully taxable. Any bonus will get the same tax treatment. Make sure that the employer has not loaded your CTC with these heads.

More allowances less taxes and more take home salary

Instead of a high basic pay, opt for more tax friendly allowances and reimbursements, such as conveyance, medical, telephone, and newspaper/periodicals. Some companies even offer soft furnishing allowances to cover clothing and certain household items.

However, all these allowances become taxfree only if the individual submits bills as evidence of the expenses incurred. If no bills are submitted, these become fully taxable. Selection between various types of allowances is based on individual needs and living style. Here under few allowances are discuss”

  1. Leave travel allowance (LTA) : LTA can be a big amount but you have to submit evidence of the journey.
  2. HRA: If you do not pay rent, the HRA becomes fully taxable. Even if you pay rent, the exemption is linked to your basic pay. It is the least of the following three options: the actual HRA received, 50% of basic pay (40% in non-metros), and actual rent paid minus 10% basic. If you pay a high rent and can claim exemption, include it in the package. If you live in your own house or the rent is very low, replace it with some other allowance.

When you sit down to reconfigure your pay package, keep in mind that the allowances are allocated reasonable amounts. There is no upper limit to how much a company can pay under one head. However, someone with a monthly CTC of Rs 80,000 cannot get Rs 40,000 a month for conveyance and Rs 10,000 for books and periodicals. If this component is unreasonably high, the taxman may raise an objection.

We hope this should help you design a more tax friendly compensation package for yourself. For more ways to plan your compensation package go ahead for read our further blogs.

Feb 142015
 
Calculation of TDS from Salary

Scheme of TDS: Under the scheme of tax deduction at source (TDS), persons responsible for making payment of income & covered by the scheme, are responsible to deduct tax at source & deposit the same to government treasury within the stipulated time.

The recipient of income – though gets only net amount, is liable to tax on the gross amount and the amount deducted at source is adjusted against his final tax liability.

DEDUCTION OF TAX FROM SALARIES

Any person responsible for paying any income chargeable under the head “salaries” is required to deduct at source on the amount payable. Tax is to be calculated at the rates prescribed for the financial year in which payment to employees is made.

POINTS TO CONSIDERED FOR COMPUTE THE SALARY & TAX THEREON

1.House rent allowance exemption- exemption pertaining to house rent allowance should be calculated by the employer on the basis of specified limit provided by the section10(13A) of income tax act.

2.Deduction from gross total income- Employer should taken into consideration amount deductible under sections 80C, 80CCD, 80CCG, 80D, 80DDB, 80E, 80EE, 80GG, 80GA, 80TTA, and 80U. The employer should not give any deduction in respect of donation (deduction under section Sec 80G) given by the employee.

3. TAX LIABILITY- Tax is deductible on the taxable income at the rate applicable for the financial year 2014-15, which is reproduced below for your reference:-

3.1 For a resident senior citizen (who is 60 years or more at any time during the previous year but less than 80 years on the last day of previous year i.e., born during April 1,1935 and march 31,1955):-

Net income range Income-tax rates Surcharge Education cess Secondary & higher education
Up to Rs 3,00,000 Nil Nil Nil Nil
Rs.3,00,000-Rs.5,00,000 10% of (total income minus Rs.3,00,000) Nil 2% of income-tax 1% of income-tax
Rs.5,00,000-Rs.10,00,000 Rs.20,000+20% of(total income minus Rs.5,00,000) Nil 2% of income tax 1% of income- tax
Rs.10,00,000-Rs 1,00,00,000 Rs1,20,000+30% of (total income minus Rs.10,00,000) Nil 2% of income- tax 1% of income- tax
Above Rs 1,00,00,000 Rs.28,20,000+30% of (total income minus Rs.1,00,00,000 10% of income tax 2% of income- tax &surcharge 1%of income –tax & surcharge-

3.2 .For a resident super senior citizen (who is 80 years or more at any time during the previous year, i.e., born before April 1, 1935)-

Net income range Income-tax rates surcharge Education cess Secondary &higher education cess
Up to Rs 5,00,000 Nil Nil Nil Nil
Rs.5,00,000 – Rs. 10,00,000 20% of (total income minus Rs.5,00,000) Nil 2% of income -tax 1% of income-tax
Rs 10,00,000 – Rs 1,00,00,000 Rs.1,00,000+ 30% of (total income minus Rs.10,00,000) Nil 2% of income -tax 1% of income-tax
Above Rs1,00,00,000 Rs.28,00,000+30% of (total income minusRs.1,00,00,000) 10% of income-tax 2% of income –tax & surcharge 1% of income-tax & surcharge

3.3 Any other case of individual, every HUF / AOP / BOI / AJP :-

Net income range Income-tax rates Surcharge Education cess Secondary & higher education
Up to Rs 2,00,000 Nil Nil Nil Nil
Rs.2,00,000-Rs.5,00,000 10% of (total income minus Rs.2,50,000) Nil 2% of income-tax 1% of income-tax
Rs.5,00,00-Rs.10,00,000 Rs.25,000+20% of(total income minus Rs.5,00,000) Nil 2% of income tax 1% of income- tax
Rs.10,00,000-Rs 1,00,00,000 Rs1,25,000+30% of (total income minus Rs.10,00,000) Nil 2% of income- tax 1% of income- tax
Above Rs 1,00,00,000 Rs.28,25,000+30% of (total income minus Rs.1,00,00,000) 10% of income tax 2% of income- tax & surcharge 1%of income –tax & surcharge

**The rates are subject to maximum marginal relief.

TDS RATES IN CASE PAN NO IS NOT FURNISHED
If the recipient does not furnish his PAN to the deductor, tax will be deducted by virtue of section 206AA at the normal rate or the rate of 20% whichever is higher.

4. WHEN A PERSON IS EMPLOYED BY TWO OR MORE EMPLOYERS DURING THE FINANCIAL YEAR – In such a case tax will be deducted by each employer separately. However, the employee is under obligation to declare salary receive & tax deducted thereon from other employers to one of the employers by submitting information in Form no. 12B.

5. TDS CERTIFICATE – TDS certificate will be given to the employee in form no. 16 annually on or before if few condition are satisfied. Form no. 16 can be given in digital signature. The employer should also give a statement of perquisites / profit in lieu salary.

6. SALARY WITHOUT TDS OR WITH LOWER TDS – To get salary without TDS or with lower TDS, the employee will have to approach the assessing officer by submitting an application in Form no.13 under the section 197.

7. Other points:-

7.1 TAX ON PREQUISITE PAID BY EMPLOYER – Section 192(IA) provides that the employer responsible for paying an income in nature of perquisite referred to in section 17 (2) may pay at his option, tax on the whole without making any deduction therefrom. In case employer opts to make payment of tax on perquisites, such tax payments will added back to income of employee. However, such tax payments shall not be allowed as tax deduction in the hands of employer.

7.2 MORE THAN ONE EMPLOYER – When an employee has more than one employer, he is required to furnish in form no.12B to one of the employer the detail of salary due /receive by him other employer.

Only after submission of information in FORM no 12B, it becomes obligation of the employer (to whom Form No 12B is submitted) to deduct tax at the source after considering the information submitted by the employee.

7.3 Relief under section 89: Section 192(2A) provides that in respect of salary payment of employees deduction of tax at source is to be made after allowing relief under section 89. To avail this benefit the concerned employees should furnish information in Form no. 10E to the employer.

7.4 Supporting documents: No need to collect supporting evidence for giving exemption in respect of LTC/ Conveyance allowance. For other deduction and allowances employees must have proper supporting documents and must satisfy himself for correctness of claim by employee.

7.5 Tax deduction in respect of other incomes of employee: Following points are notable before including other income of employees for tax deduction:-

  • The employee may (or may not) declare his other income to employer.
  • If the employee wants to declare his other incomes to the employer, then such information should be given plain paper to the employer.
  • The employer may declare details of his other incomes (including loss under the head” Income from house property” but not any other loss) & tax deducted thereon by others.

If the aforesaid information is not submitted by the employee to the employer, then employer cannot take into consideration other incomes of the employee.

Oct 282014
 

 Taxable Perquisite Value of Educational Facilities Rule 3(5)

Perquisite:-

It is a casual emolument or benefit attached to an office or position in addition to salary or wages. Here we are talking about free education facility provided few economic giant like NHPC etc.

When NOT TAXABLE in the hands of employees:-

Type of perquisite cover under section 17(2)

When is tax free

Education facility to employees’ family members

Not taxable if the employee is non-specified employee.


The tax implication of different mode of education facility can be explained as below:-

Nature of facility Beneficiary Manner of providing facility Taxability in the hands of employee
Training of employee Indirectly employer is benefited in terms improved productivity. This may be in house or sourced from outside institution Not Taxable
Fixed Education allowance for children (Max. cap is two children) Employee as net cash in hand increases. Direct Expenses Exempt up to Rs. 100 per month for a maximum of 2 children.
Hostel allowance Employee as net cash in hand increases. Direct Expenses Exempt up to Rs. 300 per month for a maximum of 2 children.
School fees directly paid by employer No increase in net cash flow. An indirect benefit to employee. Direct Expenses to school Taxable
Reimbursement of expenses for education ( i.e., tuition fees) Direct benefit. Direct expenses Taxable. [Circular no 35/7/65 – IT(B), dtd. 12th Feb, 1965]

Education institution owned and maintain by employer

OR

Education facility is provided in other institute by reason of employee’s employment with employer

Facility given to employee’s children Direct benefit No cash outflow Cost of such education in similar institution less Rs. 1,000 per month per child less amount recover from employee
Facility given to employee’s member of household Direct benefit No cash outflow Cost of such education in similar institution less amount recover from employee
Scholarship by employer Cash flow in employee hand increases. Direct expenses Not Taxable

 Same may be explained with the help of following diagram:-

By: SensysTechnologies

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Oct 272014
 

Reimbursement of Medical Expenses

General Principle

In the form of allowance Taxable
In the form of reimbursement Generally Tax – Free

The above conclusion is well explained in different situations of your life:-

Medical Expenses Allowance

An employee should avoid the receipt of an allowance for medical expenses but should rather take medical reimbursement, so that it is tax-free.

Medical Expenses: Reimbursement

Where an employee is allowed to get reimbursement for the medical expenses incurred by him at a hospital maintained by the employer or a Government approved hospital, the entire amount of reimbursement is tax-free and is not treated as a taxable perquisite.

For details on government approved hospital either go to www.incometaxindia.gov.in

Medical Reimbursement up to Rs. 15,000

If an employee receives money for his medical treatment or the treatment of any member of his family or any of his dependent relatives then a sum up to Rs. 15,000 p.a. is not treated as a taxable perquisite as per Clause (b) of the provision to Section 17 (2) of the I.T. Act.

Caution:-

  • The expenditure is actually incurred on his medical treatment or
  • For treatment of any member of the family or a dependant relative.

Relex:-

  • There is no condition that the medical treatment should be at any of the approved hospitals.
  • It could be at any place and from any type of doctor belonging to Allopathic, Ayurvedic, Unani or Naturopathy system of medicine.

Practical issue:-

Issue:- Whether health improvement / maintenance items like horlick, nutrient etc are also covered under medical treatment? If so, could medical treatment on the same be included in the reimbursement bill?

There is no clear guidance or case law on the issue. From the plain reading of the section and rules, it is clear that exemption is only in case if reimbursement is claim for medical treatments only. These are add – on or food supplement of daily requirements and hence could not be claim for exemption issue.

Issue:- Who is responsible to ensure medical bill being genuine?

It is employee responsibility to give original and genuine bills to employer. In case it is proved that bills were not genuine, the case come under forgery of Indian Penal Code and employer can sack employee.

By: SensysTechnologies

For any further information or query you can be reached to experts of our panel at contact@sensysindia.com

Oct 272014
 

Medical Treatment in India of an Employee’s Family Member

Under the provisions of Section 17(2), a good deal of the expenditure incurred by the employee on medical treatment, paid for by the employer, is not treated as a taxable perquisite.

This is secured by the proviso to Section 17(2) of the I.T. Act which says that the value of any medical treatment provided to any member of his family in any hospital maintained by the employer is completely exempt from income tax in the hands of employee.

Where any sum is paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or the treatment of any member of his family-

(a) in any hospital maintained by the employer, the Government or any local authority or any other hospital approved by the Government for the purpose of medical treatment of his employees;

(b) in respect of the prescribed diseases or ailments, in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines, it is not treated as taxable perquisite at all.

Documentary requirement:-

In respect of expenditure on nature specified in (b) above employee shall have following document in his possession and certify copy of the same shall also furnished to his employer:-

  • A certificate from the hospital about the disease and the amount paid.

 Tax Planning:-

Employee should make proper tax planning and see that either the hospital where he or the member of his family is treated is a Government hospital or an approved hospital or is a private one, then it is approved by the Chief Commissioner of Income Tax.

 The above benefits are in addition to following benefits:-

  • A sum up to the maximum extent of Rs. 15,000 paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or any member of the family in a previous year.
  • Expenditure incurred by the employer on the medical treatment of the employee or any member of the family outside India.

 Prescribed Diseases

For the purpose of above exemption prescribed diseases defined under the rules of income tax are reproduce below for the sake of easy reference:-

 Rule 3A-(2) For the purpose of sub-clause (b) of clause (ii) of the proviso to clause (2) of Section 17, the prescribed diseases or ailments shall be the following namely,

(a) cancer;

(b) tuberculosis;

(c) acquired immunity deficiency syndrome;

(d) disease or ailment of the heart, blood, lymph glands, bone marrow, respiratory system, central nervous system, urinary system, liver, gall bladder, digestive system, endocrine glands or the skin, requiring surgical operation;

(e) ailment or disease of the eye, ear, nose or throat, requiring surgical operation;

(f) fracture in any part of the skeletal system or dislocation of vertebrae requiring surgical operation or orthopedic treatment;

(g) gynecological or obstetric ailment or disease requiring surgical operation, cesarean operation or laparoscopic intervention;

(h) ailment or disease of the organs mentioned at (d), requiring medical treatment in a hospital for at least three continuous days;

(i) gynecological or obstetric ailment or disease requiring medical treatment in a hospital for at least three continuous days;

(j) burn injuries requiring medical treatment in a hospital for at least three continuous days;

(k) mental disorder, neurotic or psychotic requiring medical treatment in a hospital for at least three continuous days;

(l) drug addiction requiring medical treatment in a hospital for at least seven continuous days;

(m) anaphylactic shocks including insulin shocks, drug reactions and other allergic manifestations requiring medical treatment in a hospital for at least three continuous days.

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