Oct 312014
 

Tax implication in case of Medical Treatment at a Private Hospital

Who are treated as private hospital under income tax act?

An employee may sometimes be given treatment at a private hospital and not necessarily at a hospital maintained by the Government or any local authority, which may not be approved for the medical treatment of employees of the Government. Such a hospital is normally treated as a private hospital.

Tax implication in case private hospital is approved by Chief Commissioner:-

If Private Hospital is approved by the Chief Commissioner of Income Tax, having regard to the prescribed guidelines for the purposes of medical treatment, any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family is completely exempt from income tax under Clause (ii) of the proviso to Section 17 (2) of the I.T. Act.

Hence, proper planning should be adopted for getting an employee or a member of his family treated at a private hospital which is approved by the Chief Commissioner.

Documents required for claiming exemption:-

Attaching a certificate with the I.T. Return from the hospital specifying the disease and the amount paid to the hospital.

Indoor Medical Treatment at an Approved Hospital

The expenditure incurred by the employer on the indoor treatment at an approved hospital is not treated as a perquisite within the meaning of Section 17(2) of the I.T. Act.

Medical Treatment at Hospital: Allowance

If an employee instead of being provided free treatment in a hospital is given an allowance for hospital treatment, the allowance would not be liable to exemption under the Proviso to Section 17 (2) and would be taxed in the hands of the employee.

Note:- Tax planning should be adopted by the employee so that he does not receive any hospital treatment allowance as such but receives reimbursement of expenditure or payment for hospital treatment in full by the employer.

 Medical Treatment at Hospital: Reimbursement

Where an employee or any member of his family is provided with free medical treatment in any hospital maintained by the employer, the value of the perquisite is nil.

 The same is the case where free hospital treatment is either provided or is reimbursed by the employer for an employee or a member of his family in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of the medical treatment of its employee or any private hospital approved by the Chief Commissioner of Income Tax for the treatment of prescribed ailments and diseases. This is so under the provisions of the proviso to Section 17 (2) of I.T. Act, 1961.

Medical Treatment at Unrecognized Hospitals

If an employee or a member of his family is provided with free medical treatment in an unrecognized hospital, it is not exempt from income tax under the proviso to Section 17(2) of the I.T. Act.

 However, by various judicial decisions it has been held that the value of medical reimbursement facility provided by the employer to employee should not be treated as a taxable perquisite.

 Conclusions:

  1. On general grounds without resorting to the specific provisions of the proviso to Section 17(2) of the I.T. Act, the value of the medical treatment in unrecognized hospitals is also to be treated as tax-free. But this is likely to cause litigation.
  1. Employers and employees should avoid medical treatment of the employees in unrecognized hospitals or clinics.
  1. Up-to Rs. 15,000 p.a. medical treatment at unrecognized hospitals would also not be income.

 By: SensysTechnologies

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

Oct 302014
 

Due dates for the Month of November 2014

05-11-2014
Service Tax
- Service Tax payments by Companies for October
06-11-2014
Central Excise
- Payment of Excise Duty for all Assessees (other than SSI Units)
07-11-2014
Income Tax
- TDS Payment for October
10-11-2014
Central Excise
- Filing ER-1 Return (Other than SSI Units)
– Filing Quarterly ER-2 Return by 100% EOUs
– Filing monthly ER-6 Return by specified class of Assessees regarding principal inputs.
15-11-2014
Providend Fund
- PF Payment for October
20-11-2014
MVAT
– TDS Payment for October
21-11-2014
ESIC
- ESIC Payment for October
MVAT *
– MVAT Monthly Return for October (TAX>1000000/-)
MVAT
– Monthly payment of October
30-11-2014
Central Excise
Filing Annual Financial information Statement in Form ER-4 by the specified Assessees.
Income Tax
- Return of Income & Wealth of all assessees covered under Transfer Pricing Regulations
MVAT
– Audit Report in Form No. 704
Profession Tax
- Payment of October
*If payment of MVAT made as per time prescribed, additional 10 days are given for uploading e-return
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Oct 292014
 

Tax Planning in the case of loan taken for construction or renovation of self occupied house property

As we know for a salaried person purchasing a house is huge investment and proper tax planning is necessary for take maximum possible advantage of the same. Here an attempt is made to understand various tax benefits available to salaried person under various head and implication that favorably impacted the employees tax bill.

(A) Person having gross Income of Rs. 5 lacs with house loan

Table 1 Before Budget 2014 ( House loan is there) Person Having Income Upto Rs. 5 lacs Table 2 After Budget 2014 ( House loan is there) Person Having Income Upto Rs. 5 lacs
Gross Salary Rs.500000 Gross Salary Rs.500000
less deduction U/S 80 + 80CCC Rs.-100000 less deduction U/S 80 + 80CCC Rs.-150000
Taxable salary Rs. 400000 Taxable salary Rs. 350000
Loss from HP (due to interest on loan   taken for construction or renovation of house) Rs.1,50,000 Loss from HP (due to interest on loan   taken for construction or renovation of house) Rs.-200000
Net Taxable income Rs.2,50,000 Net Taxable income Rs.1,50,000

(B) Person having gross Income of Rs. 10 lacs with house loan

Table 3 Before Budget 2014 ( House loan is there)
Person Having Income Upto Rs. 10 lacs
Table 4 After Budget 2014 ( No House loan is there)
Person Having Income Upto Rs. 10 lacs
Gross Salary Rs.10,00,000 Gross Salary Rs.10,00,000
less deduction U/S 80c + 80CCC Rs.-100000 less deduction U/S 80c + 80CCC Rs.-150000
Taxable salary Rs.9,00,000 Taxable salary Rs.8,50,000
Loss from HP (due to interest on loan   taken for construction or renovation of house) Rs.1,50,000 Loss from HP (due to interest on loan   taken for construction or renovation of house) Rs.2,00,000
Net Taxable income Rs.7,50,000 Net Taxable income Rs.6,50,000

 Calculation of tax bill:-

Table 5 Tax Liability before Budget 2014
(House loan is there)
Table 6 Tax Liability before Budget 2014
( House loan is there)
Tax Rate Tax Tax Rate Tax
Upto 2 lacs 0 0 Upto 2.5 lacs 0 0
Next 3 Lacs 10% Rs.30000 Next 2.5 Lac 10% 25000
On Remaining   2.50 Lacs 20% Rs.50,000 On Remaining 1.5 Lacs 20% 30000
Total Tax before surcharge   Rs. 80000 Total Tax before surcharge   55,000
Surcharge 3% Rs. 2400 Surcharge 3% Rs. 1650
Total Tax   Rs. 82400 Total Tax   Rs. 56,650

Table 7 Net change in Total tax Structure having gross income Rs. 10 lacs.

Total Tax liability before budget Rs. 82400
Total Tax liability after budget Rs.-56650
Net Benefit Rs.25750
% Benefit 31.25%

Conclusion:

Person who will have gross income Rs. 10 lacs during financial year 2014-15, he can save a tax of Rs. 25,750. In such a case his tax liability will decline by 31.25 % as compare to tax rules in the assessment year 2014-15. If higher gross income will be there than percentage saving in tax will be less as compare to low income. The effect of amendments in various provisions of income tax is summarized below:-

Amendment under section 24(1).

In this section the person can claim for deduction for the interest on loan taken for construction or renovation of house property.

In this case, self-occupied property the entire amount of interest shall be considered as loss from the house property and same can be adjusted from other person’s income. So in this way, the person can minimise his taxable income as well as the tax liability.

In the assessment year 2014-15, the maximum limit under this section was Rs. 1,50,000 which is now raised to Rs.200,000 in the new finance bill of 2015-2016. This was also a very important amendment in the tax rules. This change has given great relief to all those assesses who have taken loan for construction or renovation of house property.

Benefit of this amendment

With optimum tax planning, person having gross income of Rs. 5 lacs, in the assessment year 2015-16 his or her tax liability will be zero as his taxable income will be less than     Rs..2,50,000. While in previous tax rules, his tax liability will be Rs. 5150 (i..e., 10 % on 50,000 + 3% surcharge).

With proper tax planning and by taking the benefits of all these three important amendments, the person having gross income of Rs.10 lacs can minimize his gross total income to Rs.6.5 lacs from Rs. 7.5 lacs. In this way his gross total income will decline by 13.33%. While, in this case his or her net tax liability will diminish by Rs. 25,750 and percentage decrease in this shall be 31.25%.

 By: SensysTechnologies

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

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

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

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.

By: SensysTechnologies

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

Oct 182014
 

Benefits available to salaried employees in AY 2015-16

Amendment was in the tax slab.

Although there is no change in the existing tax rate yet new Government had increased the minimum limit from Rs. 2,00,000 to Rs. 2,50,000. There were no changes in the tax slab from last 2 years in tax slabs.

So definitely, this is one of the very important announcements in new finance bill. Following are the tax slabs of Assessment Year 2014-15 & 2015-16.

Table 1: Tax Slabs

Tax Slabs 2014-15 Tax Slabs 2015-16
Income Tax Rate Income Tax Rate
Upto Rs. 2 Lacs 0 Upto Rs. 2.5 Lacs 0
Rs. 2 Lacs to Rs. 5 Lacs 10% Rs. 2.5 Lacs to Rs. 5 Lacs 10%
Rs. 5 Lacs to Rs. 10 lacs 20% Rs. 5 Lacs to Rs. 10 lacs 20%
Above Rs. 10 Lacs 30% Above Rs. 10 Lacs 30%

For senior citizen with Age group of 60 years or above but less than 80 years than their minimum tax limit is Rs. 300,000 instead of Rs. 250,000.

 On the other hand, senior citizen with age of 80 years or more than they do not need to pay tax of initial income of Rs. 500,000.

 Amendment is under section 80C and 80CCC.

Earlier, the maximum qualifying investments for deduction from total income was Rs. 1, 00,000 (even more amount was investment in specified schemes) which was raised to Rs. 1, 50,000. 

 So if no loan is taken by the employee to construct or renovate the house & having total salary income Rs. 5 lacs  than his total taxable income will decline by Rs. 50,000 (after availing this deduction) which is 12.5 % of earlier base income.

 The above conclusion can be examined with below table:-

(A) Person Having Income Rs. 5 lacs with no house loan

Table 2 Before Budget 2014 ( NO House loan is there) Table 3 After Budget 2014 ( NO House loan is there)
Gross Salary Rs. 500000 Gross Salary Rs. 500000
less deduction U/S 80C +80CCC Rs. -100000 less deduction U/S 80 + 80CCC Rs.-150000
Taxable salary Rs. 400000 Taxable salary Rs. 350000
Loss from HP (due to interest on loan   taken for construction or renovation of house) 0 Loss from HP (due to interest on loan   taken for construction or renovation of house) 0
Net Taxable income Rs. 400000 Net Taxable income Rs. 350000

Now tax liability can be calculated as below:-

Table 4 Tax Liability before Budget 2014 ( NO House loan is there) Table 5 Tax Liability before Budget 2014 ( NO House loan is there)
Tax Rate Tax Tax Rate Tax
Upto 2 lacs 0 0 Upto 2.5 lacs 0 0
Next 2 Lacs 10% Rs. 20000 Next 1 Lac 10% Rs. 10000
Total Tax before surcharge   Rs. 20000 Total Tax before surcharge   Rs.10000
Surcharge 3% Rs. 600 Surcharge 3% Rs. 300
Total Tax Rs. 20600 Total Tax Rs.10300
Less: Rebate ** Rs. 2000
Net Tax Rs. 8300

  Table 6 Net change in Total tax Structure having gross income Rs. 5 lacs.

Total Tax liability before budget Rs. 20600
Total Tax liability after budget Rs.-10300
Net Benefit Rs. 10300

Rebate u/s 87A of Rs 2000 will also be admissible if the person income does not exceed Rs. 500000.

 By: Sensys Technologies

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

Oct 172014
 

PENSION – Legal Issues and Taxation

Fundamentals facts about pension:-

  • Pension is a “Defined Retirement Benefit” plan.
  • This is taxed as salary in the hands of the employee.
  • For employer, pension is just like other employee benefit plan and any expenses incurred shall be disclosed on face of “Profit and Loss Account” under “Employee Expenses”.
  • Any future liability shall be actuarially valued and disclosed on the face of balance sheet as separate line item under appropriate head.
  • Pension expenses are deductible on payment basis to the employee u/s 37 of income tax act.
  • While calculating TDS for payments made to employee, pension payments are consider on due basis.

Who is eligible for pension / family pension

Person himself, his/her spouse, children below 25 year of age, unmarried daughter.

What is the tax treatment for family pension received by the legal heirs of a deceased employee

It will be taxable under the head ‘income from other source’ .under section 57(iia).

A standard deduction shall be allowed to the legal heir @33.333% of such pension or Rs. 15,000, whichever is less.

Important point:

Divorced wife loses the status of a legally wedded wife and as such is not entitled to the award of family pension. However, the eligible child/children from a divorced wife shall be entitled to the share of family pension which the mother would have received at the time of death of her husband had she not been divorced.

 What are the document to be filled for family pension in case of death?

  • Certificate of income, required to be submitted by a claimant member of family (other than spouse) along with application form. (Form 14)
  • PPO and death certificate after the death of a pensioner/family pensioner
  • Department of Personnel, P.G. & Pensions(DOPPW), Government of India, New Delhi has issued the O.M. No. 1/16/2011-P&PW(E) dated 20.9.2012 regarding- Family pension, this O.M. is being uploaded on the ICAR web-site icar.org.in for information and further guidance.

What are the documents to be filled when the name of the claimant member is not available in the records?

The certificates prescribed at serial number 9(v) of Form 14 may be accepted. In addition to these certificates:-

  • PAN Card, Matriculation Certificate, Passport.
  • CGHS Card, Driving License
  • Voter’s ID card and Aadhar Number may also be accepted.

The Applicant has also to prove that no other surviving member in the family, who may have a prior entitlement for family pension, is eligible. For this purpose the above and/or any other document such as marriage/death/income certificate of the other member, which may be essential in a given situation may be used.

FOR DETAIL OF OTHER FORMS PLEASE REFER WEBSITE www.pensionersportal.gov.in

TAX TREATMENTS

  • Tax is deductible under section 192 of income tax act on payment.
  • Family pension received by the dependence of the employee is taxable under the head income from other source.
  • TDS is not deductible on family pension as it is not covered under section 192 of the Income tax act
  • Exemption under section 10 (18) if any income by way of pension / family pension shall be exempt if such individual has been in the service of central government/ state government and has been awarded Paramvir Chakra or Mahavir Chakra, or Vir Chakra or such other Gallantry awards as may be notified.

Exemption of family pension received by the family members of armed forces (including paramilitary forces) personnel killed in action in certain circumstances 10 (19).

By: SensysTechnologies

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

Oct 162014
 

Common Issues in Computing Salary

What is consider in salary income?

salary is a form of periodic payment from an employer to an employee. It is specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis.

Salary is a fixed amount of money or compensation paid to an employee by an employer in return for work performed. Salary is commonly paid in fixed intervals

What is considered as salary income?

Section 17(1)​ of the Income-tax Act defines the term ‘salary’. However, not going into the technical definition, generally whatever is received by an employee from an employer in cash, kind or as a facility is considered as salary.

What are allowances? Are all allowances taxable?

​ Allowances are fixed periodic amounts, apart from salary, which are paid by an employer for the purpose of meeting some particular requirements of the employee. There are generally three types of allowances for the purpose of Income-tax – taxable allowances, fully exempted allowances and partially exempted allowances.

​My employer reimburses to me all my expenses on grocery and children’s education. Would these be considered as my income?

​Yes, these are in the nature of perquisites and should be valued as per the rules prescribed in this behalf.​

During the year I had worked with three different employers and none of them deducted any tax from salary paid to me. If all these amounts are clubbed together, my income will exceed the basic exemption limit. Do I have to pay taxes on my own?

​Yes, you will have to pay self-assessment tax and file the return of income.​

Even if no taxes have been deducted from salary, is there any need for my employer to issue Form-16 to me?

​Form-16 is a certificate of TDS. In your case it will not apply. However, your employer must issue a salary statement.​

Is pension income taxed as salary income?

​Yes. However, pension received from the United Nations Organisation is exempt.​

​Is Family pension taxed as salary income?

​No, it is taxable as income from other sources.

If I receive my pension through a bank who will issue Form-16 or pension statement to me- the bank or my former employer?

​The bank.​

Are retirement benefits like PF and Gratuity taxable?

​In the hands of a Government employee Gratuity and PF receipts on retirement are exempt from tax.

In the hands of non-Government employee, gratuity is exempt subject to the limits prescribed in this regard and PF receipts are exempt from tax, if the same are received from a recognised PF after rendering continuous service of not less than 5 years.​

Are arrears of salary taxable?

​Yes. However, the benefit of spread over of income to the years to which it relates to can be availed for lower incidence of tax. This is called as relief u/s 89 of the Income-tax Act.​

Can my employer consider relief u/s 89 for the purposes of calculating the TDS from salary?

​ Yes, if you are a Government employee or an employee of a PSU or company or co-operative society or local authority or university or institution or association or body. In such a case you need to furnish Form No. 10E to your employer. ​

My income from let out house property is negative. Can I ask my employer to consider this loss against my salary income while computing the TDS on my salary?

​Yes, however, losses other than house property loss cannot be considered while determining the TDS from salary.​

​Is leave encashment taxable as salary?

​ It is taxable if received while in service. Leave encashment received at the time of retirement is exempt in the hands of the Government employee. In the hands of non-Government employee leave encashment will be exempt subject to the limit prescribed in this behalf under the Income-tax Law.​

​Are receipts from life insurance policies on maturity along with bonus taxable?​

​​​As per section 10(10D), any amount received under a life insurance policy, including bonus is exempt from tax. Following points should be noted in this regard:

  • Exemption is available only in respect of amount received from life insurance policy.
  • Exemption under section 10(10D)​ is unconditionally available in respect of sum received for a policy which is issued on or before March 31, 2003.

However, in respect of policies issued on or after April 1st, 2003, the exemption is available only if the amount of premium paid on such policy in any financial year does not exceed 20% (10% in respect of policy taken on or after 1st April, 2012) of the actual capital sum assured.

Amount received on the death of the person will continue to be exempt without any condition.

Oct 132014
 

Entertainment Allowance


Introduction to Entertainment Allowance:

  1. Employer pays monthly allowance to the employee to meet his expenses for entertainment for motivation. Such allowance is called as entertainment allowance.

Statutory Provision

Entertainment allowance is taxable. However deduction from taxable salary is allowed to some extent u/s 16(ii) as given below:

If assessee is a government employee (only), the least of the following three is exempted from tax u/s 16(ii).

  • The maximum limit amount of Rs.5000/- is considered.
  • 20% of value of Basic Pay which is computed under entertainment allowance.
  • The actual entertainment allowance which is provided by the employer to the employee
  1. If assessee is a private employee including employees of statutory corporation and local authority, the entire entertainment allowance is taxable i.e allowances is not deductible, and are completely chargeable to tax.
  1. Section 10(14) provides that in computing the total income of a person, any special allowance or benefit, not being in the nature of entertainment allowance or other perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose, shall not be included.

Case Study:

  1. Mr. M is an employee of Gujarat government gets Rs. 1,20,000/- as basic pay. He is also getting the entertainment allowance for Rs.15,000/-, Rs. 10,000/- as DA and Rs. 15,000/- as house rent allowance.

Gross salary would be: Rs. 1,60,000 (1,20,000+15,000+10,000+15,000).

Basic pay is only considered for computing salary for entertainment allowance. Rs. 1,20,000/- is the basic pay which is to be considered for entertainment allowance.

On computing the entertainment allowance the least of the following three is exempted from tax.

  • The maximum limit of 5,000/- is considered for computation of entertainment allowance.
  • The 20% of salary i.e.20%*1,20,000 = 24,000 is considered for computation of entertainment allowance.
  • The actual entertainment allowance of Rs.15000 is considered for computation of entertainment allowance.

The exempted EA u/s 16(ii) is Rs. 5000/- which is to be deducted from gross salary that includes entertainment allowance also. Hence, taxable salary will be Rs. 1,55,000/-. (Rs. 1,60,000-Rs. 5,000/-).

  1. Mr.N is an employee of X ltd., gets Rs. 1,80,000/- as basic pay. He is getting the entertainment allowance for Rs. 25,000/-, Rs. 20,000/- as DA and Rs. 5000/- as High cost of living allowance.

Gross salary would be: Rs. 2,30,000 (1,80,000+25,000+20,000+5,000).

As X is a private employee, the entire entertainment allowance Rs. 20,000/- is taxable. Nothing is exempted from tax. Hence, taxable salary will be Rs. 2,30,000/-.

By: Sensys Technologies

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