Taxation Exam > Taxation Notes > Fast Track Quick Revision Income Tax > Income from Salaries (Section 15 to 17), Part - 1
Income from Salaries (Section 15 to 17), Part - 1
| S 15. Charge | ||||
| Which income is charged under the head Salaries | Where there exists a relationship of employer and employee. Where an individual is bound to follow the instructions of other it is said that there exists a relationship of ER and EE. | |||
| When is salaries charged to tax. | Salaries charged to tax either on DUE or RECEIPT whichever matures earlier Exception : Following salaries charged to tax only on receipt basis. | |||
| Advance salary. | Bonus | Salary in lieu of notice period | Arrears of salary if salary is increased with retrospective effect | |
| However all perquisites are taxable on provided basis. But LIP on due basis, Re-imbursement on paid basis. | ||||
Allowances = Cash + Particular Purpose + Fixed | ||||||||||||||||||
| Fully Exempted Allowances | S 10(7). ER : CG. EE : Indian Citizen working abroad then allowances and perquisites fully exempt. | Allowances to High Court / Supreme Court Judges is fully exempt. | Salary to UNO employees is fully exempt. | |||||||||||||||
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| Fully Taxable Allowances (SCOPE DRAFT) | Servant | City Compensatory | Overtime | Project | Entertainment |
| Dearness | Rural | Absent | Fixed Medical | Tiffin | |
| High cost of living | Marriage | Telephone | Holiday Home | ||
| Physically fit allowance | Lunch | Breakfast | Dinner | ||
| Special Allowances | Part 1 exemption | Amount spend towards official or specified purpose. | Part 2 exemption | Amount as specified in Income Tax Rules. | ||
| THAR DUCT | Transport allowance | upto Rs. 1,600 pm / Rs. 3,200 pm is exempt. | ||||
| Transfer | Helper | Acadamic | R & D | Children Education | upto Rs. 100 pm is exempt. Max 2 child. | |
| Daily | Uniform | Conveynce | Trevalling | Hostel | upto Rs. 300 pm is exempt. Max 2 child. | |
| Outstation allowances | 10,000 p.m. or 70% of allowance whichever is lower is exempt. | |||||
| Partially exempted Allowances (HRA) | Maximum | 50% of SAS / 40% of SAS | Least is exempt from tax. |
| Actual | Actual | ||
| Formula | Rent paid – 10% of SAS | ||
| SAS = BS + DA() + Commission (if) | |||
| Deduction u/s 16(ii) : Entertainment Allowance | Deduction u/s 16(iii) : Professional Tax | ||
| Deduction allowed only to Govt. EE. | Professional tax / Employment tax | ||
| Maximum | 5,000 | Least is deductible | Deduction allowed in the financial year of payment. Where this tax is paid by ER on behalf of EE then it is first added to gross salary and then deduction is allowed. |
| Actual | Actual | ||
| Formula | 20% of basic Salary | ||
| Specified Employee. If any of the 3 condition is satisfied an employee is treated as specified employee. [17(2)(iii)] | Non Specified Employee. | |
| 1. | Employee + Director | If none of the conditions are satisfied then employee is treated as non specified employee. |
| 2. | Employee + Substantial Interest. S 2(32) An employee holding atleast 20% voting power in a company. | |
| 3. | Income from Salary less salary in kind exceeds Rs. 50,000 | |
| S 17(2). Perquisites. [Category A Perquisites : AFLO SUL GMHCC EA]. Taxable in both the case of employees : Specified EE and Non Specified EE. | ||||||||||||||||||
| A |
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| AS shall be computed on due basis for the period accommodation is occupied by EE. AS = Accommodation Salary = BS + DA() + Commission + all taxable allowances + Fees. AS do not include perquisites, ER’s contribution towards PF and DA not forming part of salary. | ||||||||||||||||||
| Hotel Accommodation : 24% of AS or hire charges whichever is lower is taxable. Exempt for upto 15 days if hotel accommodation is provided to EE if transferred from one city to another city. | ||||||||||||||||||
| F | Furniture | Owned by Employer : | 10% pa of the original cost of the asset is taxable. |
| Hired by Employer : | Actual hire charges is taxable. |
| L | Life Insurance Premium | Paid by EE. | Deduction allowed u/s 80C. |
| Paid by ER on behalf of EE. | Taxable under head Salary on due basis and deduction allowed u/s 80C on paid basis. | ||
| Exempt. | Staff group insurance is fully exempt from tax. |
| O | Obligation of EE discharged by ER | Official Purpose | Fully exempt | Texable on paid basis |
| Personal Purpose | Amount re imbursed is fully paid basis. taxable. |
| S | Sale of movable assets. | Purchase price of the movable asset | xxx | ||||
| Less : Depreciation for completed year | |||||||
| EXEMPT if : | a. | Computer or electronic item related to compute | 50% WDV | xxx | |||
| b. | Motor Car | 20% WDV | |||||
| 1. | Sale of SIT by ER to EE | c. | Other Asset | 10 % SLM | xxx | ||
| Cost of the asset to the employer | |||||||
| 2. | Gift of asset upto Rs.5,000. | Less : Sale price of asset to employee | xxx | ||||
| Value of sale of movable asset | xxx | ||||||
| U | Use of asset | Owned by Employer : | 10% pa of the original cost of the asset is taxable. |
| Hired by Employer : | Actual hire charges is taxable. | ||
| Exempt | Use of computer, laptop and telephone is exempt from tax. |
| L | Loan Facility from ER’s own account | SBI lending rate as on 1-4 x amount of each loan outstanding on the last day of each month. | ||
| Not taxable if | 1. | If aggregate of loan amount do not exceeds Rs. 20,000. | ||
| 2. | Loan is taken for medical treatment of specified disease. | |||
| G | Gifts | in Kind | upto Rs. 5,000 is exempt from tax. |
| In cash | fully taxable. It is bonus taxable on receipt basis. |
| M | Meal Facility | Own canteen | Meals provided during office hours at office premises. | Texable | Cost to the employer |
| Exempt | upto Rs, 50 per meal | ||||
| Meals provided during office hours and eatable at eating joints. | Texable | Amount paid | |||
| Exempt | upto Rs, 50 per meal | ||||
| Outsourced canteen | • Tea or snacks fully exempt from tax. | ||||
| Exempt | |||||
| • Meal provided in remote area or off shore installation fully exempt from tax. | |||||
| H | Holiday Home / Facility : Tour, Travel & Accommodation | Provided uniformly to all employees | Cost to the employer is taxable. |
| Provided only to keyman / selected employees. | Market fees of similar guest house / hotel is taxable. | ||
| Exempt | Official purpose is exempt. |
| C | Credit Card Facility | Personal Purpose | Amount paid / re imbursed is taxable |
| Official Purpose | Exempt. Proper record has to be maintained for claiming exemption. |
C | Club Facility | Personal Purpose | Amount paid / re imbursed is taxable | |
| Official Purpose | Exempt. Proper record has to be maintained for claiming exemption. | |||
| Exempt | Corporate membership is exempt. | Health Club for all EE is exempt. | ||
| E | ESOP | FMV on exercise date less recovery is taxable. |
| A | Approved Superannuation Fund | ER’s contribution in excess of ₹ 1,50,000 is taxable |
The document Income from Salaries (Section 15 to 17), Part - 1 is a part of the Taxation Course Fast Track Quick Revision Income Tax.
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FAQs on Income from Salaries (Section 15 to 17), Part - 1
| 1. What is considered as income from salaries for taxation purposes? |  |
Ans. Income from salaries for taxation purposes includes all forms of compensation received by an individual for their employment, including basic salary, bonuses, commissions, allowances, and any other monetary benefits received from the employer.
| 2. Are there any deductions available for income from salaries? | |
Ans. Yes, there are various deductions available for income from salaries. Some common deductions include contributions to the Employees' Provident Fund (EPF), contributions to the National Pension Scheme (NPS), standard deduction, and deductions for medical insurance premiums, among others.
| 3. How is income from salaries taxed? | |
Ans. Income from salaries is taxed based on the income tax slab rates applicable to an individual. The tax rates vary based on the individual's income level, and different slabs have different tax rates. Additionally, certain exemptions and deductions are also available to reduce the taxable income.
| 4. Do I need to report income from salaries if I receive Form 16 from my employer? | |
Ans. Yes, it is essential to report income from salaries even if you receive Form 16 from your employer. Form 16 is a certificate issued by the employer that provides details of your salary and tax deductions. However, it is the individual's responsibility to accurately report their income and claim any deductions or exemptions while filing their income tax return.
| 5. Can I claim a tax refund if excess tax has been deducted from my income from salaries? | |
Ans. Yes, if excess tax has been deducted from your income from salaries, you can claim a tax refund while filing your income tax return. The refund is calculated based on the total tax liability for the year and the amount of tax already paid. If the tax deducted is higher than the actual tax liability, the excess amount can be claimed as a refund.
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