Pre-computation steps “Income Under Head Salary”

 Pre-computation steps “Income Under Head Salary”  Pre-computation steps - Income Under Head Salary, Salary Computation
Sep 152014
 

Pre-computation steps “Income Under Head Salary”

As we know that majority of person assessed comprised of salaried employed and hence economic significance of correct computation can not be undermine. As we know in last hour we got confused what to consider in computation of salary. Here, an attempt is made  to highlight basic points to be kept in mind before computing salary:-

Factors

Description

Why required to be considered?
Person – assessable Never changes – Its always being “Individual – Natural Person Selection of correct forms
Selection of financial year and assessment year Year in which income is earned is Previous Year.Year next to previous year is Assessment year.In few exceptional cases previous year and assessment year can be same. Relevant act, rules, principles and basis of calculation of income.
Date of Birth / Sex Date of Birth of Assessee. Used to ascertained tax slab rates applicable on him.
Contractual nature of services rendered If nature of services falls within the scope of salary – than only can be computed under head “Income under the head salary”.However, in practical scenario, what happens even nature of work done is same / similar but terms of contact are like job work or professional services. In such cases income is computed under head “Income under the head Business & Profession”. Whether income earned falls under salary head for computation perpose.
Country jurisdiction in which salary is earned In almost all cases, it is based on the place where services are rendered. However, there are few exception in case of government employees, where even if services are being rendered outside are included in computation. Determines the applicability of salary definitions under income tax act.
Residential status Mainly depends upon presence in India, exception apart. From income tax point of view all salaried Assessee can be sub-divided into three category:-1)      Resident asseesee2)      Non-resident assessee3)      Not – ordinary resident Determines the gross income to be considered for computing salary income.
Application / Diversion of Income or expenses for earning income These three are technical words of income tax act and can be understand with the table:-

Basis of difference Diversion of income Application of income, i.e., expenses – Application of income may be grouped under two broad heads:-

  1. For computing taxable income such expenses are allowed to be deducted – Allowable Expenses
  2. Other Expenses – Disallowed expenses
Tax Treatment In case income is diverted by over riding title such income shall be computed in the hands of person to whom it is diverted In case of application of income, income is taxable in the hands of person earning such income and only allowable expenses are allowed to be deducted from such income.

In complex cases this division shall be made carefully.

 Person to whom income shall be included.
Income (Most of the Assessee error in considering it correctly) Be caution, apart from salary you get from employer, you have some other incomes which are needs to be disclosed while filling income tax return:-

  1. Interest of your saving account, NSC etc
  2. Interest of your fixed deposits
  3. Dividends
  4. Notional income in case of more than one house property
  5. Interest payable on single house property that you possesses
  6. Gifts you received in the previous year
  7. Other
 Needs different data sources to secure correct amount of income.
Donations given All donation given by assessee shall be accompanied with following documents:-
–  80G or other relevant registration certificate of trust
–  Registration certificate shall be effective for the year in which payment is made
–  Proof of paymentCaution :- Employer never consider donation you given while calculating your tax deduction at source (TDS).		 For claiming correct amount of donation
Tax return forms applicable Selection of correct return form is necessary for correct processing of income. Tax return forms for AY 2014-15 are based on source of income for individuals and for easy selection of relevant forms this can be summarized as under:-

Source of Income Forms
Salary Interest House property Business & Profession Partnership Business Capital gains and other sources

Yes

Yes

One

 ITR 1

Yes

Yes

Yes

Yes

 ITR 2

Yes

Yes

Yes

Yes

Yes

 ITR 3

Yes

Yes

Yes

Yes

Yes

 ITR 4

In case of Individuals having small business units with ownership of one house property ITR 4S can be filled.

 Correct submission of forms
Form 26AS This is the assesses ledger in the department’s account. All payments made by assessee, directly or indirectly (TDS / TCS / Advance Tax etc.)  and all refunds made by department are recorded in this statement. Verifies your claims for TDS and advance tax payments.
Why return is being filed
  • Proof of income being earned
  • Required while applying for visa etc
  • The strong proof of measuring your financial strength
 So even if you are not required for file your return it is better to file your return.

The above points are basic points which every person shall have in mind for computing his salary income.

 

Impact on Employees of Enhancement of wage ceiling from Rs. 6500/- to Rs. 15000/-

 Impact on Employees of Enhancement of wage ceiling from Rs. 6500/- to Rs. 15000/-  PF Wages Celing Increased
Sep 152014
 

Impact on employees of Enhancement of wage ceiling from Rs. 6500/- to Rs. 15000/-

Vide notification dated 22.08.2014 Ministry of Labour and employment has enhanced the ceiling of wage from Rs. 6500/- to Rs. 15000/- for the computation of contribution to Provident fund for both employer and employee contribution.

Extract of the Notification

608(E)- In exercise of powers conferred by section 6A read with sub section (1) of section 7 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), the central government hereby makes the following, further to amend the Employees’ Provident Funds Scheme, 1952, namely:-

  1. (1) This Scheme may be called the Employees’ Provident Funds (Amendment) Scheme, 2014.
    (2) It shall come into force on and from the 1st day of September, 2014.
  2. In the Employees’ Provident Funds Scheme, 1952,-

(a)    In paragraph 2, in clause (f), in sub-clause (ii), for the words “six thousand and five hundred rupees”, the words “fifteen     thousand rupees” shall be substituted;
(b)   In paragraph 26, in sub-paragraph (6), for the word “six thousand and five hundred rupees” the words “fifteen thousand rupees” shall be substituted;
(c)    In paragraph 26A, in sub-paragraph (2), in the proviso, for the words “six thousand and five hundred rupees” wherever they occur, the words “fifteen thousand rupees” shall be substituted.

[F No.- S-35012/1/2012-SSII]

609(E)- In exercise of powers conferred by section 6A read with sub section (1) of section 7 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), the central government hereby makes the following, further to amend the Employees’ Pension Scheme, 1995, namely:-

  1. (1) This Scheme may be called the Employees’ Pension (Amendment) Scheme, 2014.
    (2)    It shall come into force on and from the 1st day of September, 2014.
  2. In the Employees’ Pension Scheme, 1995 (hereinafter referred to as the principal Scheme), in paragraph 3, in sub- paragraph 2, in the proviso, for the words “rupees six thousand and five hundred”, whenever occur, the words “fifteen thousand rupees” shall be substituted.
  3. In the principal scheme , in paragraph 6, in clause (a), after the words, figures and letter “or 27A of the Employees’ Provident Fund Scheme, 1952”, the words “and whose pay on such date is less than or equal to fifteen thousand rupees” shall be inserted.

Download Circular

Impact on Employees

On Take Home

As a result of the above notification every employee whose salary is less than Rs. 15000 is comes under the mandatory requirement of contribution to the Provident fund.

Earlier the limit was Rs. 6500/- PM and employee was required to pay Rs. 780/- as contribution through his employer, and employees whose salary was in excess of Rs. 6500/- was not required to contribute to the fund.  The same provision is continued in the above notification.

Through this notification, the department has widened the scope Provident Fund by enhancing the salary limit. As a result of the notification employees getting salary more than Rs. 6500/- and up to Rs. 15000/- also comes the umbrella of Provident fund. The above enhancement will reduce their take home ranging from Rs. 781/- to Rs. 1800/- depending upon the salary bracket in which falls.

However, this step will encourage saving and investment in the economy. Therefore, this will positively impact employee in terms of enhances capital receipt at the time of retirement.

Impact on Computation of Taxable Income

The above contribution will be eligible for deduction u/s 80C under the income tax Act 1961.

Impact on Employers Cost:

As a result of the above amendment in the provisions of Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, employer cost will increase from 780 to 1800 depending upon the slab of the employees.

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