Salary Income

A. Y. --- 2024-2025
P. Y. --- 2023-2024
 SALARY
• An income can be taxed under the head salaries only if there is a
relationship of an employer and employee between the payer and payee.

Salary includes
• Wages,
• Annuity
• Pension,
• Gratuity,
• Fees,
• Commission,
• Perquisites,
• Leave encashment,
• Arrears of salary
 Computation of Salary Income
1
I Basic Salary Fully Taxable ********
II Fees Fully Taxable ********
III Commission Fully Taxable *******
IV Bonus Fully taxable ******
V Gratuity ( Retirement Benefits)Sec 10(10) Note 1 *****
VI Pension – Sec 10(10A) Note 2 *****
VII Leave Encashment-Sec 10(10AA) Note 3 *****
VIII Retrenchment Compensation – Sec 10( 10B) Note 4 *****
IX VRS Compensation- Sec 10(10C) Note 5 ******

Contd…….
 Computation of Salary Income
2
X Allowances
a. Dearness Allowances- (Forming part of Retirement Fully ********
Benefit) Taxable
b. Dearness Allowances- ( Not forming part of Fully *******
Retirement Benefit) Taxable
c. House Rent Allowance – Sec 10(13A) ********
Less : Exemption ( least of following 3)
i) Actual HRA
ii) 50% ( Metro city) or 40 % (other City) of
salary
iii) Actual Rent Paid – 10% of salary ( *******
******)
[Salary=Basic +DA(forming part of
RB)+Commission ( based on fixed % on
turnover)]
 Computation of Salary Income
3
d. Children Education Allowances *****
Less : exempted @ Rs.100 per month per child upto 2 (****) *****
children
e. Children Hostel Allowances *****
Less : exempted @ Rs.300 per month per child upto 2 (****) *****
children
f. Entertainment Allowance *****
g. Uniform Allowance *****
h. Transport Allowance for deaf ,dumb & orthopedically *****
handicapped ( Exempted upto Rs.3200p.m)
i. Conveyance Allowance *****
j. Other Allowances *****

Contd
….
 Computation of Salary Income
XI Perquisites U/S 17(2)
4
a. Rent Free Accomodation Note 6
i. If Accommodation is taken on Lease Rent by Employer
!5% of Salary OR Lease Rent Whichever is Less *****
ii If accommodation is owned by Employer *****
Population Exceeding 25Lakh -----15% of Salary
Population >10 -25 Lakh -----10% of Salary
Other case --- 7.5% of salary
[SALARY = Basic +DA (forming ret.ben) +Bonus+Commission
+Fees +All taxable Allowances ] ,Not the Perquisites,
PF,Gratulty, Pension ,Leave Encashment,VRS etc
b. Gas , Electricity, Water Note 7 *****
c. Domestic Servant Note – 8 *****
d. Interest on loan Note -9 *****
Contd.
.
 Computation of Salary Income
5
e. Education facility Note 10
f. Medical facility Note 11
g Car/ Chauffer Note -12
h. LTC-Leave travel Concession Note -13
i. Use of movable asset Note -14
j. Sale of Movable Asset by an emplyer to employee Note-15
l. Lunch/Refreshment Note -16
m. Free Transport Note -17
n. Gifts /Voucher Note-18
o. Credit Card Note -19
p. Club Expenditure Note -20
q. ESOP-employees stock option plan Note -21 Contd.
.
 Computation of Salary Income
6
r. Life ibnsurance premium paid by employer
s. Free Telephone/mobile

XII Employer’s Contribution to P.F ( in excess of 12% of Basic

+DA)
XIII Interest on P.F. ( in excess of 9.5%)
Total Salary *******
**
Less : Deduction
U/s 16(i)- Standard Deuction – Rs.50000or amount of salary (******)
whichever is lower
U/s 16(ii) Entertainment Allowance (only for Govt employee (******)

U/s 16(iii) –professional tax paid (******)

INCOME FROM SALARY *******

 Note 1
Gratuity 10(10)

After Death
After Death( both Govt
During Service After Retirement
& Non Govt)
(Fully Taxable)
Fully Exempted

Non Govt Govt Employee

Exemption (least of
3) Employee Fully Exempted
i. Actual amount Exemption (least of Fraction
ii. Rs.10 lakh 3) of year in
iii. ½ month’s Covered under i.Actual Amount excess of
average Gratuity Act ii. Rs.10Lakh 6months
salary(based on iii. 15day’s salary for should be
last 10 month’s completed yr.of considere
salary) for Not Covered under service d
complered years Gratuity Act [(15/26) *salary per
Fraction of year month.*completed
ignored year of service]
Note 2 Pension
sec 10 (10A)

Uncommuted After Death

Pension Commuted
Pension Taxable as IFOS in
Fully taxable the hand of legal
heir
Non Govt Govt Employee
Employee Exempted

If Gratuity Exemption = !/3 rd of total pension

Received

Exemption= ½ of total
If Gratuity not
pension
received
 Note 3 Leave Salary Encashment
U/S 10(10AA)

After Death
During Service
After Retirement Fully Exempted
Fully Taxable

Exemption(Least of 4)
Average Salary =last 10 i. Actual Amount
month’s average salary Non Govt Employee ii. Rs.3 lakh
iii.10 *Average Salary
Salary = Basic +DA forming p.m
Retirement Benefit + Fixed iv. Max 30 day’s
% of commission on Av.Salary for every
turnover completed year after
Govt Employee deducting leave taken
Fully Exempted (Ignore fraction of year)
Note 4

Retrenchment Compensation

Govt Employees Other Employees

(Fully Exempted)

Exemption U/S 10 (10B)

i. Actual Amount
ii. Rs.5 lakh
iii. 15 day’s average pay X completed year of
service
(Fraction in excess of 6 month is considered)
Note 5

VRS u/s 10 (10C)

Exemption = least of following 2

i. Actual Amount
ii. Rs.5,00,000
 Perquisites- meaning
• It may be defines as any casual emolument or benefits
given to the employee or any member of his
household in addition to salary and wages.

• Member of Household shall include Spouse,

Children, parents ,servants and dependants.
 Note 6- Rent Free Accommodation (RFA) /Rent Free
Furnished Accommodation RFFA
• If Accomodation is Owned by Employer
Value of RFA = 15% of salary or 10% of salary or 7.5% of salary
• If Accomodation is hired by Employer
Value of RFA= 15%of salary or Lease Rent whichever is less

Salary = Basic +DA (forming ret.ben) +Bonus+Commission +Fees +All

taxable Allowances ] ,Not the Perquisites, PF,Gratulty, Pension ,Leave
Encashment,VRS etc

• Value Of RFFA= RFA +10% of Cost of Furniture or Hire Charges of

Furniture

• If Accomodation is provided at Hotel, Guest House etc.

I. Upto 15days – perquisite = Nil
II. Above 15days-Perquisites Value =24% of salary or Actual Charges of
Such Hotel whichever is less
• Note – 7 Gas ,Electricity & Water
If facility is provided from own sources :
Perquisites value = Manufacturing Cost to Employers
If facility is hired or purchased by Employer:
Perquisites value = Purchase /Hire prices paid by employer
• Note – 8- Free Domestic Service ( cook, gate Keeper, Servant etc.)
Perquisites Value =Cost to Company/Employer
• Note – 9 - Interest on Loan
Loan is not a perquisite but interest on such loan is a perquisite.
Interest on Loan is calculated on the balance of loan as on last day of each
month.
Loan upto Rs.20,000 is exempted. But if loan amount is more than
Rs.20,000-Interest on loan shall be on the total loan amount.
Rate of Interest is as per prevailing interest rate of SBI
Interest on loan is not taxable if loan is for medical treatment of prescribed
disease subject to non availability of any insurance amount.
 Note 10- Education facility

Free Education
If

If provided to
Children of
Employee Scholarship
If provided to If provided to Given to
Employee (Cost upto Children of
Rs.1000p.m /per Other Relatives
-Not taxanle Employee- Not
child is - Fully Taxable Taxable
exempted but if
Cost is >Rs.1000
it is fully taxable)
 Note 11- Medical Facility
• Fixed Medical Allowance- Taxable
• Family means spouse, children dependant parents, brother,sister

1.In a hospital/NH
Exempted maitained by
employer
In India 2.In a Govt Hospital
3.In any hospital for
Taxable in excess of specified Disease
Rs.15,000
4.Medical Insurance
Med of employee paid by
ical
facili employer
ty Travel Exp.of Employee
5.Reimbursement of
and any attendant is Medical expenses
exempted if GTI <2lacs upto Rs.15,000
Outside
India
Stay Exp +Medical
Expense is exempted sub
to RBI limit
 Note -12 – Car & Chauffer

Car facility

If Owned by
Employer and
If Owned & maintained by If Owned &
Maintained by Employee IF Owned by Maintained by
Employer A. For Office – Employee & Employee
A. For Office – Nil Nil Maintained by
B. For Personal – Employer
B. For Personal Use –
Actual Maint Cost 10% of original A. For Office- Nil
Cost B. For Personal
NIL
+10% of Original
Cost of car C. For Both – upto –Actual
C. For Both – upto 16 HP Maintenance Cost
16HP –Rs.1800pm –Rs.600p.m. C. For Both – upto
And above 16HP And Above 16HP 16 Hp M.C is
Rs.2400p.m. Rs.900 Rs.i800p.m.and
above 16 HP MC is
rs.2400p.m.

p.m.
 Note -12 – Chauffer
Note - & 13 Leave Travel Concession(LTC)

Note 12- Chauffer

• A. If provided with the Car
For Office – Nil
For personal – Driver’s salary
For Both –Rs.900 p.m.
• If Only Driver is provided – Driver’s Salary

Note – 13 – LTC
Exemption is available only in respect of fare of going anywhere in India alongwith
family(spouse+children) twice in a block of 4years.
Either 1st class Rail fare OR Economy class Air Fare by the shortest route
Or
Actual Amount Spent whichever is less
 Note -14- Use Of Movable Asset

Laptop/Computer/Mobi
le/Phone –
Fully Exempted
Owned by Employer-
10% of original Cost
Use of Movable
Asset for Personal Use
Asset
Hired by Employer-
Actual Charges paid by
employer
Other Asset for Official
Use -
Fully Exempted
 Note -15- Movable asset Sold by Employer to Employee

• For Computer /laptop/Printer etc. – Depreciation @50% (WDV)

• For Car – Depreciation @ 20%( WDV)
• For Other Asset – Depreciation @ 10% (SLM)

Perquisite Value Calculation is as follows:

Original Cost ***

Less Accumulated Dep as per method for each year (**)
for completed year only
WDV at the time of sale ***
Less Amount paid by Employee (**)
Perquisite Value ***
 Note – 16 –Lunch & Refreshment
Note- 7- Transport facility
Lunch & refreshment
• If Provided during Office Work & Extended Office Work-
Fully Exempted
• Food provided at any other place – Cost in excess of
Rs.50/meal is taxable ( as reduced by amount recovered from
employee)

Transport Facility
In the hands of Railway and Airline Employees - - Nil
In the hands of Others- (Actual Fare – Amount recovered
from employees)
 Note -18 - Gift
Note- 19 – Credit Card
Note -20- Club Expenses

• Note -18 – GIFT

Gift in cash/gift voucher is fully taxable
Gift in kind in excess of Rs.5,000 is taxable

• Note -19- CREDIT CARD / Note – 20 – CLUB EXPENSES

Taxable as follows :
Expenditure incurred bu employer on behalf of employee *****
Less – Expenditure for official purpose (****)
Less –Any amount recovered from employee (****)
Taxable perquiste *****
 Note -21- ESOP

• Employee Stock Option Plan(ESOP)/SWEAT EQUITY

Fair market value of the stock issued to employee
as the date on which the employee exercised the option *****
( but taxable in the year in which it is allotted)
Less : Actual amount paid by employee (****)

Taxable Perquisites ****

Fair market value= Average of Opening and Closing value

 PROVIDENT FUND
Types SPF( RPF (Recognized PF) URPF PPF(Pub
Statutory ( Unrecognised PF) lic
PF) Providen
t Fund)
Employer’s Exempt from Exempt upto 12% of Exempt Employer
Contribution Tax salary. does not
Salary = Basic contribute
+DA(forming part of
Ret. Benefit)+Fixed %
on commission
Emplyee’s Available Available Not Available Available
Contribution
u/s 80C
Interest credited to Exempt Exempt upto 9.5% NA Exempt
PF
Lumpsum payment Exempt Exempt, provided Employer’s Cont. – Not
at the time of employee retires job Taxable Salary taxable
Retirement after 5years of Employee’s Cont. –
continuous service Not Taxable
Interest on Employees
Cont- IFOS