Notes on Salary

Components of Salary and their taxability

Component
Taxability
Exemption /Relief/Rebate
1
Basic Salary
Fully Taxable

2
Dearness Pay
Fully Taxable

3
Arrears of Salary
Fully Taxable on receipt basis
Relief Under section 89 is available
4
Leave Salary received during service
Fully taxable
Relief Under section 89 is available
5
Leave salary received at the time of
retirement whether on superannuation
or otherwise


Least of :-
i
Earned leave not availed during service X average salary
(** Maximum 30 days for every completed year of service )
ii
Average Salary X 10
iii
Maximum amount notified by the Government -Rs. 300000 wef 2.4.1988
iv
Amount actually received
6
Salary in lieu of notice
Fully Taxable

7
Bonus, Fees ,Commission
Fully Taxable

8
Gratuity

Exemption is limited to



a ½ X completed year of service (ignoring part of the year) X average salary
** average salary means salary for 10 months immediately preceding the month in which the employee retires or his services are terminated



B Rs. 3,50,000



C amount actually received
9
Pension
Fully Taxable

10
Annuity from Employer
Fully Taxable


11
Annual accretion to the credit balance in recognized Provident Fund

i
Employers contribution less 12% of salary is taxable
ii
Interest credited less interest @9.5% is taxable
12
Retrenchment Compensation


Amount Received Less
i
Amount calculated under section 25F(b) of the Industrial Disputes Act
ii
Rs. 5000000 being the amount notified by the Government
iii
Amount actually received. Relief under section 89 is available
13
Remuneration for extra work
Fully Taxable


14
Voluntary Payments
Fully Taxable

Exempt




i
Lump sum payment made gratuitously or by way of compensation or otherwise to the widow or other legal heir of the employee who dies while in service is exempt :- Circular 573 dt: 21.8.1990
ii
Govt. Employees –Circular No 776 dt. 8.6.1999
15
Payment at the time voluntary retirement or separation


As per section 10 (10C)- Scheme if approved under rule 2BA- Maximum amount exempt is Rs. 5 lakhs
16
Salary received by foreign national
Fully taxable


17
Privilege leave standing to the credit of the deceased employee
Paid to the legal heir of the deceased

Exempt under Circular F: 35: /1/65-IT (B) dt. 5.11.1965

B:
Allowances
i
Dearness allowance
Fully Taxable

ii
City Compensatory Allowance
Fully Taxable

iii
House Rent Allowance

Exempt subject to the extent as under

Least of :
i
50% of the salary in case the accommodation is situated in Delhi, Mumbai, kolkatta or Chennai or else 40% of the salary
ii
House rent allowance actually received in respect of period during which the accommodation is actually occupied by the assesseee
iii
Rent paid -10% of the salary

iv
Entertainment Allowance
Fully Taxable

v
Fixed Medical Allowance
Fully Taxable

vi
Tiffin Allowance
Fully Taxable

viii
Servant Allowance
Fully Taxable

viiii
Project Allowance
Fully Taxable



Special Allowance under section 10(14) read with rule 2BB



Exempt
i
Any allowance granted to meet the cost of travel on tour or transfer

Amount Received less account actually spent
ii
Any allowance to meet daily charges on tour

"
iii
Conveyance allowance granted to meet the expenditure incurred on conveyance

"
iv
Any allowance granted to meet expenditure incurred on helper for performance of official duty

"
v
Any allowance granted for encouraging academic, research or training pursuits

"
vi
Any allowance granted to meet the expenditure incurred on purchase or maintenance of uniform worn during performance of official duty

"
vii
Children education allowance

Amount received less amount of allowance or Rs. 100 per child of maximum 2 children ,which ever is less
viiii
Hostel Expenditure

Actual amount received less Rs. 300 per month , which ever is less
ix
Transport allowance granted to meet expenditure incurred for communication from residence to office and vice versa

Amount received less amount of allowance or Rs. 800 per month whichever is lower

Leave travel Concession
Received for himself or his family in connection with proceeding on leave to any place in India
In block of 4 years 2 journeys are allowed. The four blocks will be 2002-2005 and so on


Taxable Amount :
Actual amount

i
For journeys performed by air
Air economy class fare of the national carrier by the shortest route to the place of destination

ii
Where place of origin of journey and destination are connected by rail and the journey is performed by any mode of transport other than by air
Air conditioned first class rail fare by the shortest route to the place of destinations

iii
Where place of origin of journey and destination of part thereof are not connected by rail
Where a recognized public transport system exists, the first class or deluxe class fare on such transport by the shortest route to the place of destination
Where no recognized public transport system exists , the air conditioned first class fare , for the distance of the journey by the shortest route, as if the journey has been performed by rail.
Perquisite in respect of Moveable assets
10% of the actual cost of the asset
Nothing is taxable if laptop or computer is provided.

Medical Facilities


Medical treatment provided to employee or any member of his family in hospital maintained by the employer
Fully exempt

Amount paid or reimbursed in respect of the medical treatment of employee or any member of his family in hospital maintained by the
Government
Local Authority
Approved by the Government for medical treatment of its employee’s
Fully Exempt

Amount paid or reimbursed in respect of medical treatment of prescribed diseases of employee or any member of his family in hospital approved by the CCIT

Fully exempt, if employee attaches with return a certificate fro hospital specifying the disease treated and receipt for amount paid
Group Medical Insurance
Fully Exempt

Reimbursement of premium paid by employee to effect or keep in force medical insurance on his life of life of any member of his family
Fully exempt

Reimbursement or payment of medical treatment of employee or any member of his family in private hospital or clinic

Amount spent less Rs. 15000 or amount spent which ever is less
Reimbursement or payment of medical treatment or any member of his family outside India

Amount spent less amount permitted by RBI
Reimbursement or payment of cost abroad of patient (ie employee or any member of his family ) for medical treatment abroad and one attendant accompanying patient

Amount spent less amount permitted by RBI
Reimbursement or payment of cost of travel abroad of patient (ie employee or any member of his family )n for medical treatment abroad and one attendant accompanying patient

Fully exempt, if gross total income (computed before including such travel expenses of patient and attendant ) does not exceed Rs. 200000/- . Else fully taxable