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Income from Salary
"Salary" is the remuneration received by or accruing periodically to an individual for service rendered as a result of expressed or implied contract. Compensation or remuneration even in the following circumstances is chargeable to Income-tax under the head 'Salaries': -
It is, therefore, clear that apart from current years salary, even advance salary and/or arrears of salary may be taxed in the year of receipt. More specifically and elaborately, the Income-tax Act has stipulated that salary includes :-
Receipts from Provident Fund chargeable to tax; Profit in lieu of or in addition to salary or wages; Gratuity; Contribution of employer to Recognised Provident Fund in excess of prescribed limit; Interest on credit balance of Recognised Provident Fund in excess of notified rates;
definition of 'salary' is inclusive and not exclusive.
IS RELATIONSHIP OF EMPLOYER AND EMPLOYEE NECESSARY ? No, payment can be taxed under this section unless the relationship of employer and employee exists between the payer and payee. The employer and employee relationship is the relationship of a master and servant, and it distinctly differs from that existing between a principal and agent. Primarily, the degree of control of the employer over the employee would be a deciding factor, as the agent is generally not under the complete Control and supervision of his principal. That is why even the emoluments received by an Member if Parliament/ M.L.A. are not taxable under the head "Salary" because of the absence of employer and employee relationship.
WHAT IS THE PLACE OF ACCRUAL OF SALARY? The golden rule is that it accrues where the service is rendered. Leave salary paid to a person employed in India on leave to a foreign country is treated to be the arisen in India. However, if a citizen of India service outside India and receives salary from the of India, it would be taxable as salary to have accrued in India. PENSIONS TO BE TAXED AS SALARY? Pensions are taxed under the head 'Salaries'. The of standard deduction is also available on them.
IS ADVANCE SALARY TO BE TAXED IN THE YEAR OF RECEIPT? The I.T. Act contemplates tax on salary which is due, whether paid or not, tax is attracted at the latest possible point of time which is the date when the salary accrues or becomes due. However, where any salary paid in advance is assessed in the year of payment, it cannot be taxed again when it becomes due. Similarly, if arrears of salary have been assessed on the 'due' basis in the past, they are not liable to be taxed again when they are paid.
WHAT IS TAX FREE SALARY AND HOW IS IT TAXED? When the salary is paid 'tax-free' the employee has to return in his total income the gross salary, i.e. aggregate of the net-salary received plus the amount of tax paid on his behalf by the employer. It does not make any difference whether the tax is borne by the employer voluntarily or under a contractual obligation.
IS SALARY PAYABLE FOR LEAVE-PERIOD TO NONRESIDENTS TAXABLE EVEN IF LEAVE IS SPENT OUTSIDE INDIA? Yes. The salary paid for services rendered in India is regarded as income earned in India, so as to specifically provide that any salary payable for rest period or leave period which is both proceeded or succeeded by service in India forms part of the service contract of employment will also be regarded as income earned in India and so is to be taxed.
RELEVANT FOR THE HEAD "SALARIES" It is not true that every income received by an employee from his employer is taxable. Any income falling within any of the following paragraphs shall not be included in computing the income from salaries: - (1) The value of any travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding
(2) Death-cum-retirement gratuity or any other gratuity which is exempt to the extent specified from inclusion in computing the total income. (3) Any payment in commutation of pension received under the Civil Pension (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the Civil/Defense services under the Union/State/Local Authority or a Corporation established by a Central, State or Provincial Act. Payments in commutation of pension received under any scheme of any other employer, exemption will be governed by the provisions of Section 10(10A) (ii). (4) Any payment received by an employee of the Central /State Government, as cash-equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement on superannuation or otherwise, is exempt. In the case of other employees it is subject to a maximum of ten month's leave. This exemption has an overall max. limit of Rs. 2,40,000 [S.0.1015 (E) dated 27.11.97). (5) Under Section 10(10B), the retrenchment compensation received by a workman is exempt from income-tax subject to certain limits. (6) Under Section 10(10C), any payment received by an employee of the notified bodies at the time of his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of public sector company, a scheme of voluntary separation, is exempted to the extent that such amount does not exceed five lakh rupees (7) Any sum received under a Life Insurance Policy, including the sum allotted by way of bonus on such policy other than any sum received under sub-section (3) of Section 80DDA. (8) Any payment from a Provident Fund to which the Provident Funds Act, 1925 (19 of 1925), applies. (9) Under Section 10(13AJ of the Income-tax Act, 1961, any special allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee is exempt from Income-tax to the extent as may be prescribed. (10) Under section 10(14) exemption of notified allowances is provided. The CBDT has prescribed guidelines for the purpose of classes (i) and (ii) of Section 10(14) vide Notification No.SO617(E) dated 7th July/ 1995 (F.No.l42/9/95TPL)which has been amended vide Notification SO No.403(E) dated 24.4.2000 (F,No.l42/34/99-TPL). 11) Under Section 10(15)(iv)(i) of the Income-tax Act, interest payable by the Government on deposits made by an employee of the Central Government or a State Government or a public sector company from out of his retirement benefits, in a notified scheme, is exempt. (12) Income by way of pension received by an individual or family pension received by any member of the family of an individual who has been in the service of the Central Government or State Government and has been awarded 'Param Vir Chakra" or "Maha Vir Chakra" or "Vir Chakra" or such notified gallantry award, is exempt. (13) Under Section 17 of the Act, exemption from tax will also be available, under prescribed conditions, in respect of any medical treatment provided to an employee or any member of his family or premium paid by the employer in respect of approved medical insurance taken for his employees or reimbursement of insurance premium to the employees for such medical insurance for the employee or his family members. A 'perquisite' is defined in the Oxford as 'any casual emolument, or profit attached to an office or position in addition to the salaries or wages'. In sunlit words, perquisites are the benefits in addition to normal salary to which the employee has a right to by virtue his employment. In simple language, 'perquisites 1 are benefits or amenities provided in kind by the employer free of cost or at a concessional rate. Their value, to the extent these go to reduce expenditure that the employee normally would have otherwise incurred in obtaining these benefits and amenities, is regarded as part of taxable salary. As a golden rule, the taxable value of perquisites in the hands of the employee, is its cost to the employer. However, there are specific rules for valuation of certain perquisites.
WHO IS A SPECIFIED EMPLOYEE AND WHAT PERQUISITES ARE TAXABLE IN HIS HANDS? The specified employees include the following:-
The value of any benefit or amenity granted or provided free of cost or at concessional rates to these specified persons would be a 'perquisite' taxable in their hands.
WHAT ARE THE OTHER TAXABLE PERQUISITES? LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001. The other taxable perquisites which are taxable in a prescribed manner include the folio wing: -
THE LAW APPLICABLE FOR TAXATION OF PERQUISITES w.e.f. 1.4.2001. The definition of "perquisite" has been amended to include the value of any prescribed fringe benefit or amenity. The fringe benefits are to be calculated in the manner prescribed in the Income-tax Rules. It has further been laid down that 'profits in lieu of salary shall include amounts received in lump sum, in installments or in any manner, even prior to employment or after cessation of employment, for the purposes of taxation.
HOW IS RENT FREE UNFURNISHED ACCOMMODATION VALUED ? LAW APPLICABLE, AT THE OPTION OF THE ASSESSEE, UPTO 30.9.2001. For the purposes of calculating perquisite value of rent free residential accommodation, the employees have been classified into three categories as follows: -
For the first category of employees, the of the rent free unfurnished Accommodation is taken as the rent payable by such employee in accordance with the Government Rules for allotment of residences to its officers. In the case of second category of employees, the value of rent free unfurnished accommodation is taken at 10% of the salary of the employee for the period during which it is occupied by him. However, where the Fair Rental Value of the accommodation is less than 10% calculated above, the Assessing Officer is empowered to restrict the value of the perquisite to such Fair Rental Value. In the case of third category of employees, the value of rent free unfurnished accommodation is taken 10% of salary plus excess of Fair Rental Value over 60% of salary, if the property is located in the four metros. In any other place, the value will be taken as 10% of salary plus excess of Fair Rental Value over 50% of salary.
THE LAW APPLICABLE FOR TAXATION OF PERQUISITES w.e.f. 1.4.2001. Under the new Rule 3, for purposes of valuation of perquisite of accommodation, employees are of two categories only- Union. & State Govt. employees and Others.
WHAT IS THE NEW DEFINITION OF "SALARY' FOR THIS PURPOSE ? The definition of "salary' for calculating perquisite value is the same as per earlier Rules. The only change is that, medical allowances and reimbursement for treatment of serious illnesses as prescribed in provision below Section 17 (2) (vi) have now been excluded. For the purpose of calculating the perquisite, 'salary' includes basic salary or wages, D.A., Bonus, Commission, Fees, taxable allowances as well as payments made by the employer (like Income-tax, electricity, gas etc.).
'Fair rent' is the rent which a similar accommodation is able to get in the same locality or the Municipal value of the accommodation, whichever is higher. Where the accommodation is hired by the employer, it is the actual rent paid for the accommodation. Where it is owned by the employer, maintenance expenses of garden and salary of the gardener, if borne by the employer, are also to be taken into account.
HOW IS RENT FREE FURNISHED ACCOMMODATION VALUED? LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001. Where the accommodation is furnished, the perquisite value of unfurnished accommodation is increased in all the above three categories by the actual hire charges for the furniture or 10% per annum of the original cost of furniture, if it is owned by the employer.HOW IS A RESIDENCE, PROVIDED AT CONCESSIONAL RATES, VALUED? LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001. First, the perquisite value of the accommodation is determined in the above manner as if it was provided free of rent. From the amount so, determined, a deduction is made of the rent actually paid by employee. The balance amount is the perquisite value to "be added to the taxable salary. THE LAW APPLICABLE FOR TAXATION OF PERQUISITES w.e.f. 1.4.2001. Now, under the newly notified Rules, the value of residential accommodation provided by the employer to the employee during the previous year relevant to the A.Y. 2002-03 shall be determined on the basis provided in the Table below:-
However, nothing contained in this sub-rule would be applicable to any accommodation located in a 'remote area 1 provided to an employee working at a mining site or an onshore oil exploration site, or a project execution site or an accommodation provided in an offshore site of similar nature. Also, where on account of his transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value with reference to the Table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations as per the above Table.
HAS THE SCOPE OF THE WORD "ACCOMMODATION" BEEN WIDENED ? Yes. The scope of the word "accommodation" has been widened by clarifying that it includes a house, flat, farm house, hotel accommodation, guest house, a caravan, mobile home, ship etc. However, the value of any accommodation located ' in a remote area' provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site or an accommodation provided in an offshore site will not be treated as a perquisite. A project site for the purposes of this sub-rule means a site of project upto the stage of its commissioning. A remote area means an area located at least 40 kilometers away from a town having a population not exceeding 20,000 as per the latest published all India census. Off-shore sites of similar nature do not have to meet any requirement of distance. ARE FREE EDUCATIONAL FACILITIES TAXABLE AS A PERQUISITE? LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001. The basic rule is that any expenditure incurred by the employer in providing educational facilities to any family member of the employee normally is a perquisite. Where the educational institution is run by the employer, the value of this perquisite is the cost of education in a similar institution in or around the same locality. THE LAW APPLICABLE FOR TAXATION OF PERQUISITES W.E.F. 1.4. 2001. Under the new rules, free or concessional education shall be valued in a manner assuming that such expenses are borne by the employee, and would cover cases where an employer may be running, maintaining or directly or directly financing the educational institution. Any amount paid by the employee for such facilities or services shall be deducted from the above amount. However where such educational institution itself is maintained and owned by the employer or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, the sub-rule shall not apply if the cost of such education or such benefit per child does not exceed Rs. 1000 p.m.
IS PERQUISITE VALUE OF MOTOR CAR PROVIDED FOR OFFICIAL USE CHARGEABLE TO TAX? No. As per chart given below:-
WHAT IS PERQUISITE VALUE OF MOTOR CAR PROVIDED FOR PERSONAL USE? LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001. Usually, where the car is owned or hired by the employer, the perquisite value is determined as the expenditure inferred by the employer on the maintenance and running of the motor car, including emoluments, if any, of the driver and for the normal depreciation attributable to the use of the car for the private purposes of the employee. LAW APPLICABLE FOR TAXATION OF PERQUISITE OF MOTOR CAR W.E.F. 1.4. 2001.
Under the new Rules, w.e.f. 1.4.2001, the calculation of Value of Perquisite per calendar month of car, if used partly in the performance of duties & partly for private or personal purposes of his own or any member of his household is determined as given here-in-below:-
The perquisite value in such case will be determined as under:-
HOW WILL THE PERQUISITE BE COMPUTED WHERE THE EMPLOYEE OWNS ANY OTHER AUTOMOTIVE CONVEYANCE BUT THE ACTUAL RUNNING MAINTENANCE CHARGES ARE MET OR REIMBURSED TO HIM BY THE EMPLOYER? The perquisite value, will be determined as under:-
As per the old and the new rules, firstly, the value of the perquisite has to be arrived at as given above and then from the amount so determined, deduction is made from the actual amount paid by the employee for private use of the car. The balance is the perquisite value in this case.
Such other cars shall be deemed to be for personal use and the value of perquisite shall be computed accordingly. Where fuel and upkeep cost of the employees, car is borne or reimbursed by the employer, the amount reasonably attributable to business use is not to be charged as perquisite. For this, user details in the form of log books; odometer readings etc. should be maintained.
For claiming higher amount of official use in respect of reimbursement of car expenses or wholly official use of car provided by an employer, the following details and documents need to be maintained:-
No, these rules of valuation for employee owned cars should not be taken to apply to conveyance allowance regularly paid or payable to the employee under terms of employment or otherwise. The conveyance allowance is a cash disbursement and is to be taxed separately as an allowance subject to the provisions contained in Section 10(14). The present rules provide for the computation of value of perquisite where the expenses on the running or maintenance of employee owned car is met or reimbursed by. the employer.
WHAT IS THE MOST IMPORTANT CHANGE TO BE KEPT IN MIND WHILE CALCULATING THE PERQUISITE VALUE OF CARS? One of the most important changes incorporated is in the cubic capacities of motorcars. Previously, the cubic capacities of small motorcars was specified as not exceeding 1.88 litres whereas now the limit is 1.6 litres.
WHAT IS PERQUISITE VALUE OF FREE SUPPLY OF GAS, ELECTRICITY AND WATER FOR HOUSE-HOLD CONSUMPTION? LAW APPLICABLE, AT THE OPTION OF THE ASSESSEE, UPTO 30.9.2001. In case the supply is made from resources owned by the employer, the perquisite value is 'Nil'. Where the supply is taken from third party, the perquisite value would be the expenses incurred by the employer. In case the supply is partly for official and partly for private purposes, the perquisite value is its actual cost to the employer or 6.25% of salary, whichever is Less, THE LAW APPLICABLE FOR TAXATION OF PERQUISITES W.E.F. 1.4. 2001. For free supply of gas, electricity and water for household consumption the old rules already provide that the amount paid by the employer to the agency supplying the amenity shall be the value of perquisite. However, when the supply is made from employer's own resources, the value of perquisite was taken as Nil. The separate provision in the old rules of valuation at 6.25% of salary of the taxpayer for part official use is discontinued. Under the new rules even where the supply is made from the employer's own resources, the manufacturing cost per unit incurred by the employer would be the value of perquisite. Any amount paid by the employee for such facilities or services is reduced from this amount.
WHAT IS THE VALUE OF PERQUISITE OF HOUSEHOLD SERVANTS PROVIDED BY THE EMPLOYER? LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, OTTO 30.9.2001. The perquisite value w.e.f. 2.6.95 is taxed as:-
THE LAW APPLICABLE FOR TAXATION OF PERQUISITES W.E.F, 1.4. 2001. Value of free service of all personal attendants including a sweeper, gardener, or watchman is to be at actual cost to the employer. Where attendant(s) is provided at the residence of employee, full cost will be taxed as perquisite in the hands of employee irrespective of degree of personal service rendered to him. Any amount paid by the employee for such facilities shall be reduced from the above amount. IF THE EMPLOYER GIVES OPTION TO ITS EMPLOYEE 'TO BUY ITS SHARES, IS IT A TAXABLE PERQUISITE? Prior to 1.4.2001, stock options were taxed at two stages i.e., as perquisite (on the amount representing the difference between the exercise price and the fair market value on the date of exercise), and as capital gains. With effect from 1.4.2001 (relevant to assessment year 2001-2002) onward, stock options issued as per guidelines of the Central Government are to be taxed only once, at the time of sale, as capital gains. In cases, where perquisite has been assessed with reference to exercise of the option by the employee under Section 17(2), the fair market value at the time of exercise of the option shall be the cost of acquisition of share for working out the capital gains. The relevant guidelines of the Central Government have been issued vide Notification No.l021(E) dt. 1.10.2001. Stock options not in conformity with the above guidelines-(non-qualified stock options) shall continue to be taxed at both the stages.
WHAT IS THE PERQUISITE FOR USE BY THE EMPLOYEE OF AN ASSET OWNED BY THE EMPLOYER? This perquisite is to be charged at the rate of 10% of the original cost of the asset as reduced by any charges paid for such use. However, Computers and laptops are exempt Further, the value of perquisite for an asset used for income for more than ten years would be taken as Nil.
IS AN AMOUNT SPENT ON MEMBERSHIP FEE BY THE EMPLOYER ON THE MEMBERSHIP OF THE EMPLOYEE IN A PROFESSIONAL INSTITUTION A TAXABLE PERQUISITE? Yes. It is a taxable perquisite.
AS PER NEW RULES WHAT IS THE POSITION OF CLUB EXPENSES BORNE BY THE EMPLOYER? Club expenses of employees borne by employers are already charged as perquisite by virtue of Section 17(2)(iv). To formalize the issue, now it has been specified that annual and periodical club fees paid by the employer is chargeable as a perquisite. However to ensure that basic facilities for the health and recreation of employees are not hit, health clubs, sports facilities etc provided uniformly to all classes of employees by the employer at the employer's premises are exempt. Where such expenses on entertainment including meals are for purposes of business and proper records for the same are maintained, no perquisite would arise.
AS PER NEW RULES WHAT IS THE POSITION OF INITIAL ONE TIME DEPOSITS OR FEES FOR CLUB MEMBERSHIPS? The initial one time deposits or fees for corporate or institutional membership, where the benefit does not remain with a particular employee after cessation of employment, are exempt.
AS PER NEW RULES WHAT IS THE POSITION OF CREDIT CARD EXPENSES BORNE BY EMPLOYERS? Credit card expenses of employees both business and personal, are often borne by employers. Such credit card payments would ordinarily be chargeable to tax as a perquisite. However, these expenses are often incurred to entertain customers and clients for the purposes of business. Therefore where such expenses on entertainment including meals are for purposes of business and proper records for the same are maintained no perquisite would arise.
For credit card and club expenses to be exempt for business purposes, the following documentation needs to be maintained:
SOME VEHICLE IS SOLD BY EMPLOYER TO ITS EMPLOYEE, IS IT A TAXABLE PERQUISITE? LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO.9.2001. is a taxable perquisite only when the vehicle is sold below the market price. The difference between the target price and the sale price would be the taxable THE LAW APPLICABLE FOR TAXATION OF PERQUISITES W.E.F. 1.4. 2001. Often an employee or member of his household benefits from the transfer of movable asset (not being shares or Securities) at no cost or at a cost less than its market .Value from the employer. The difference between the cost of the movable asset (not being shares or securities) and the sum, if any, paid by the employee, Shall be taken as the value of perquisite. In case of a movable asset, which has already been put to use, the original cost shall be reduced by a sum of 10% of such original cost for every completed year of use of the asset.
AS PER NEW RULES DO ELECTRONIC GADGETS GET SPECIAL TREATMENT IF SOLD TO EMPLOYEE? Yes. Owing to a higher degree of obsolescence, in case of computers and electronic gadgets, the value of perquisite shall be worked out by reducing 50% of the actual cost by the reducing balance method for each completed year of use. Electronic gadgets in this case means data storage and handling devices like computer, digital diaries and printers. They do not include household appliance (i.e. white goods) like washing machines, microwave ovens, mixers, hot plates, ovens etc. In case of cars, similarly, the value of perquisite shall be worked out by reducing 20% of its actual cost by the reducing balance method for each completed year of use.
ARE GIFTS MADE IN KIND BY EMPLOYER TAXABLE PERQUISITES? LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001. Yes. The perquisite value would be the market price of the gifted article. THE LAW APPLICABLE FOR TAXATION OF PERQUISITES W.E.F. 1.4. 2001. It is customary in India, as it is in other parts of the world, to provide presents directly or indirectly in the form of vouchers or tokens to employees on social and religious occasions like Diwali, Christmas, New Year, the anniversary of the organization etc. Such gifts upto Rs.5000 in the aggregate per annum would be exempt, beyond Rs.5,000 it would be taxed as a perquisite. However, gifts made in cash or convertible into cash, like gift cheques etc. do not fall in the purview of this rule.
Under the old rules where an employee avails of free or concessional journeys in conveyance owned by the employer's undertaking for the purpose of transport of passengers or goods, the value of perquisite was taken as Nil. However, under the new rules the value at which such benefit or amenity is offered by such undertaking to the public, the value of perquisite shall now be taken as such value as reduced by any amount actually paid by the employee. The conveyance may be owned, leased or made available by any other arrangement by the undertaking. However Journey tickets for leave travel, tours and transfers which are already exempt under Sections 10(5) and 10(14) would continue to be exempt
AS PER NEW RULES WHAT IS THE PERQUISITE IF EMPLOYEE AVAILS OF INTEREST FREE OR CONCESSIONAL LOANS? It is common practice to provide interest free or concessional loans to employees. The value of such perquisite would be the excess of interest payable at prescribed interest rate over interest, if any, actually paid by the employee. The prescribed interest rate now is 10% p.a. for loans for housing/conveyance and 13% p.a. for other loans. Perquisite value would be calculated on the basis of the maximum outstanding monthly balance by the simple interest method. Such housing or conveyance loans must be for 'acquiring capital assets' i.e., house or conveyance, as the case may be, and not for repairs thereof, however extensive they may be. For valuing perquisites under this rule, any other method of calculation and adjustment otherwise adopted by the employer shall not be recognised for purposes of this rule.
IS THE PERQUISITE AVAILING OF INTEREST FREE OR CONCESSIONAL LOANS EXEMPT IN ANY CASE? Yes, small loans upto Rs.20,000 in the aggregate are exempt. Loans for medical treatment specified in Rule 3A are also exempt, provided the amount of loan for medical reimbursement is not reimbursed under any medical insurance scheme. Where any medical insurance reimbursement is received, the perquisite value at normal rates shall be charged from the date of reimbursement on the amount reimbursed, but not repaid against the outstanding loan taken specifically for this purpose.
WHAT IS THE POSITION OF LOANS OUTSTANDING AS ON 1 st APRIL, 2001? It has been specifically clarified that the above sub-rule shall also apply to loans outstanding as on 1 st April, 2001, (if the new rule is applied from that date) or 1 st October, 2001 (if the new rule is applied from that date).
The value of such perquisite shall be the expenditure incurred by the employer. This would also apply to official tours extended as a vacation and family members accompanying taxpayers on official tours. However leave travel as per Section 10(5) and enjoyment of holiday home facilities available uniformly to all classes of employees would remain exempt.
AS PER NEW RULES WHAT IS THE PERQUISITE IF EMPLOYEE IS PROVIDED WITH FREE MEALS? The scheme of free meals as a staff welfare measure had been recognized and was admissible upto Rs.35 for each meal. The new rule does not treat as perquisite free meals if the cost per meal does not exceed Rs.50 Where any amount is recovered from the employee, such amount shall be reduced from the value of perquisite. Such free or subsidised meal should, however, be provided at office premises or through non-transferable vouchers meant for only meals during working hours. Tea or similar non-alcoholic beverages and snacks - in the form of light refreshments during working hours are not charged as perquisite. Also, meals in, remote areas as prescribed and similar off-shore sites as specified, shall be exempt. However, provision of free meals by the employer in excess of Rs.50 would be treated as perquisite, as reduced by recoveries made from the employee.
AS PER NEW RULES WHAT WOULD BE THE PERQUISITE OF A BENEFIT OR AMENITY NOT INCLUDED IN THE RULES? A benefit or amenity not included in the rules shall be valued at the cost to the employer where the employer pays for the benefit or amenity. Otherwise, it would be valued at the amount the employee would pay to acquire such benefit or amenity from the market. But, the benefit of conveyance to and from residence to place of work, periodicals and journals required for discharge of work and expenses on telephones, including a mobile phone, shall not be perquisite.
No. While this Rule comes into force with effect from the 1 st day of April, 2001 it has been provided that the employee may, at his option, compute the value of perquisites made available to him or any member of his household for the period beginning on 1 st day of April, 2001 and ending on 30th day of September, 2001 in accordance with the Rules, as they stood prior to this amendment. Therefore, the employer has to obtain a declaration from each employee as to the option he wants to follow for purposes of tax deduction at source. However, administrative circulars and instructions relating to perquisites failing under the purview of Rule 3 issued before the adoption of the new rules, shall stand superseded or modified, as the case may be.
No. It should be noted that the option to the taxpayer of using the old or new rules for the period specified above shall be applied uniformly in respect of all perquisites, in case of a particular taxpayer. In other words, one cannot selectively value a particular perquisite by the old rule and another one by the new rule.
WHAT ARE THE CONDITIONS FOR MEDICAL FACILITIES TO QUALIFY AS TAX FREE PERQUISITES? Section 17 of the IT Act, exempts from tax :- (a) The value of any medical treatment provided to an employee or any member of his family, in any hospital maintained by the employer; (b) Any sum paid by the employer in respect of any expenditure actually incurred by employee on his medical treatment or of any member of his family:
(c) Premium paid by the employer in respect of approved medical insurance taken for his employees or reimbursement of insurance premium to employees for medical insurance for themselves/family members. (d) Reimbursement by the employer, of the amount spent by an employee in obtaining medical treatment for himself or any member of his family from any doctor, max. aggregate Rs. 15,000 in an year. (e) As regards medical treatment abroad, the actual expenditure on stay and treatment abroad of the employee or any member of his family, or, on stay abroad of one attendant who accompanies the patient, in connection with such treatment, will be excluded from perquisites to the extent permitted by the Reserve Bank of India. As regards the expenditure incurred on travel abroad by the patient/attendant, it shall be excluded from perquisites only if the employee's gross total income, as computed before including the said expenditure, does not exceed Rs.2 lakhs. An allowance is defined as a fixed amount of money given periodically in addition to the salary for the purpose of meeting some specific requirements connected with the service rendered by the employee or by way of compensation for some unusual conditions of employment. It is taxable on due/accrued basis whether it is paid in addition to the salary or in lieu thereon. The basic golden rule is that all such allowances are taxable as these are paid because of direct relationship between an employer and employee. However, there are exceptions to this rule. Some of them are given below :- Clause (14) of Section 10 provides for exemption of the following allowances: -
However, the allowance referred to in (b) above should not be in the nature of a personal allowance granted to the assessee to remunerate or relating to his office or employment unless such allowance is related to his place of posting or residence. Earlier the exempt allowances were being specified through notifications issued by the Central Government. With effect from 1.7.95, the details of allowances exempt is given in the Income Tax Rules. The following allowances are exempt to the extent and subject to the conditions indicated in the Rules :-
Any allowance granted for encouraging academic research in educational and research institutions. Any allowance for Purchase or maintenance of uniform for wear during the performance of duties of an office/employment of profit. ARE THE ABOVE ALLOWANCES TO BE ACTUALLY SPENT TO AVAIL OF THE EXEMPTION? Yes, certainly. Any allowance (mentioned above) received but not actually spent will be taxable. If ARE THERE ANY ALLOWANCES, WHICH ARE ONLY : exempt when received at a particular place(s) ;pr area(s)? and do they have any upper ceilings : for exemption? For the new amended Rules contain other allowances also .which are exempt (subject to ceilings) in particular area(s) only. These special allowances are :-
It may be noted that the Dearness Allowance and City Compensatory Allowance granted to an employee are not covered by the Amended Rules. So, these allowances will clearly be part of income and will have to be taken into account in the computation of income for the purposes of deduction of tax at source. The reimbursement of tuition fee is also not exempt.The transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of duty is exempt to the extent of Rs. 800 per month vide Notification S.O.No. 395(E) dated 13.5.98.
The exemption from tax with regard to HRA is restricted to the least of the following amounts:- (i)
Actual amount of H.R.A. The amount by which actual rent paid by the employee exceeds 10% of his salary; and ii) 50% of salary if the rented house is situated at Delhi, Bombay, Kolkata or Chennai, or 40% of the salary in the case of other cities. In simpler terms, the whole of H.R.A. is exempt from tax only if it is not in excess of 50% in the 4 metropolitan cities, and 40% in the case of other cities, and further if the rent paid is more than the total of H.R.A and 10% of the "salary. Otherwise, the excess has to be added to the taxable income. IN THE CASE OF EMPLOYEE RESIDING IN HIS OWN HOUSE, IS THE H.R.A EXEMPT FROM TAX ? No. As he is not paying any rent, so exemption from tax with regard to H.R.A. is restricted to 'Nil'. IF AN EMPLOYEE IS RESIDING ALONG WITH HIS PARENTS IN A HOUSE FOR WHICH NO RENT IS PAID BY HIM, WILL H.R.A. RECEIVED BY HIM BE TAXABLE? Yes. The entire H.R.A. would be taxable f6r the same reason as given above. FOR THIS PURPOSE WHAT DOES "SALARY" MEAN? "Salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites. IS RENT RECEIPT COMPULSORILY GIVEN TO DDO? No. It has been decided as an administrative measure that salaried employees drawing house rent allowance upto Rs.3,000 pm will be exempted from giving rent receipt to DDO. But in the regular assessment of the employee, the Assessing Officer is free to make enquiry or request proof of payment of rent by assessee. ARE THERE ANY OTHER ALLOWANCES WHICH GET SPECIAL TREATMENT UNDER THE I.T. ACT ? Yes. There are other payments e.g. leave travel concession etc., made by the employer which get special tax treatment. WHAT ARE THE LIMITS OF EXEMPTION IN L.T.C. is granted to an employee in connection with the journey on leave by him or his family. It is exempt from income tax within certain limits as under : -
Exemption will, in no case exceed actual expenditure incurred in the performance of journey. Leave Travel Concession Rules have been amended on the recommendation of the Fifth Pay Commission to extend the facility of travel by air economy Y- Class to certain categories of employees of the Central Government with effect from 1st October, 1997. Consequently, where the journey is performed on or after 1st October, 1997 by air, an amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination. Also, where the entitlement was previously for air-conditioned Second Class Rail fare, it has been upgraded to air-conditioned First Class Rail fare. [l.T. (First Amendment) Rules 1998, O.O.I. Gazette Notification No. S.O. 34(E) dt. 12th Jan. 1998; CBDTF.No. 142/85/97-TPL No. 105021].
The change applies to all employees.
HOW MANY TIMES CAN EXEMPTION BE CLAIMED ? The assessee can claim exemption in respect of two such journey(s) in a block of 4 years. For this purpose, the first block of 4 years was calendar year 1986-89. For a block of 4 years, the journey performed in the first year following that block year is also eligible for exemption. Also, such journey will not be taken into account for determining the tax exemption for the succeeding block.
TO QUALIFY FOR EXEMPTION IS IT NECESSARY TO PERFORM ACTUAL JOURNEY ? Yes, certainty. In case the L.T.C. is encashed without actually performing the journey the entire amount received by the employee would be taxed in his hands. WHAT IS THE DEFINITION OF FAMILY FOR THIS PURPOSE? For this purpose "family" means:-
HAS ANY CHANGE BEEN MADE IN RULES FOR EXEMPTION OF L.T.C. TO DENY THIS BENEFIT TO LARGE FAMILIES? Yes. Exemption of L.T.C. shall not be available to more than two surviving children of an individual after 1 st October 1998. However, this shall not apply in respect of children born before 1.10.98 and also in case of multiple births after one child. If an employee has before 1.10.98 even five children or more, exemption would still be available to all children. However, if an employee begets a third child after 1.10.1998, the L.T.C. for the third child will not be exempt. The definition of PROFIT-IN-LIEU OF SALARY is an inclusive one and includes the following:-
TAXATION OF AMOUNTS RECEIVED UNDER V.R.S.
IS COMPENSATION RECEIVER IN CONNECTION WITH THE TERMINATION OF EMPLOYMENT TAXABLE ? Normally, it is taxable as profit-in-lieu-of-salary. However, Under the existing provisions contained in clause (IOC) of section 10, any amount received by an employee of a public sector company- any other company or an authority established under a Central, State or Provincial Act or a local authority or a co-operative society or a university or an Indian Institute of Technology or a notified institute of management, at the time of his voluntary retirement is not included in computing his total income. The exemption is available for amounts upto rupees five lakhs but only if the payment is in accordance with a voluntary retirement or separation scheme as per the prescribed guidelines.
IS COMPENSATION RECEIVED BY A DIRECTOR UNDER INDUSTRIAL DISPUTE ACT, EXEMPT? Retrenchment compensation received by the Director under the Industrial Dispute Act or under such similar Acts, Laws, Rules etc. to the extent the compensation does not exceed, the amount payable u/s 25F(b) of the Industrial Disputes Act, 1947. It, therefore, means that the compensation should not exceed the amount calculated @15 days wages for every completed year of continuous service, subject to a max of Rs. 50,000 . The Central Government has the powers to enhance the ceiling/limit of such compensation or to relax the limit in deserving cases.
DOES NOT THIS EXEMPTION EXTEND TO COMPENSATION PAID BY NEW MANAGEMENT? This exemption also is extended to the compensation paid at the time of transfer of the Undertaking by the new owner or management resulting in interruption of service or modification in the terms of service. The exemption also extends to the compensation paid at time of closing down of an industrial undertaking.
Yes. The exemption of amount received under V.R.S. is extended to employees of the Central Government w.e.f. Assessment Year 2002-2003 and State Government employees w.e.f. Assessment Year 2001-2002.
No. It shall be allowed to him only once in a life time. The guidelines for bestowing the exemption from tax on the Golden Handshake are given herein below:-
The above guidelines are to be strictly followed, and in case, the payment on account of voluntary retirements are not strictly made as per the prescribed guidelines, the payment will not be exempt.
Only the amount representing the excess and above the limit of Rs. 5 lacs is to be subjected to Income-tax.
No. The scheme is applicable to the employees who have completed 10 years of service with a company, so it will not be exempt.
CAN SUCH SCHEME ONLY BE DRAWN BY LOSS MAKING COMPANIES? The guidelines require that the scheme should result in overall reduction in the existing strength of the employees of the company. Therefore, the Scheme can be drawn even by the profit making companies.
Yes. The provisions governing exemption of Golden Handshake are separate from the provisions which govern taxation of provident Fund, Gratuity, Pension etc.
WHETHER ANY TDS HAS TO BE MADE FROM GOLDEN HANDSHAKE? No. If all specified conditions are satisfied the employer need not deduct the TDS from the Golden Handshake. HAS THERE BEEN ANY REGENT CHANGE IN THE GOLDEN HANDSHAKE SCHEME? Yes, w.e.f. 1.4.2001, the words "termination of his service" have been added to the word Voluntary retirement' and in the case of a public sector company 'a scheme of voluntary separation' have been added.
As the name suggests, it is the amount received by the employee for the leave period not availed by him.
IS ENCASHMENT OF EARNED LEAVE EXEMPT AT THE TIME OF RETIREMENT? Yes, subject to certain limits, if it relates to a Government employee his retirement from service on superannuation or otherwise, it is fully exempt. In the case of other employees, the exemption from Income-tax is in respect of encashment of upto the maximum of 8 months earned leave calculated at the average of Jast 10 month's salary. There is also maximum monetary limit which is Rs. 1,35,360 for a person retiring on or after 1.7.95. This limit is applied on the aggregate amount of such payments received from, two or more employers, whether received in the same year or in different years.
IS ENCASHMENT OF LEAVE DURING THE EMPLOYMENT ALSO EXEMPT? No. Encashment of leave at any time during the employment is taxable in full. TAXATION OF COMMUTATION OF PENSION WHAT IS THE AMOUNT OF EXEMPTION OF COMMUTATION OF PENSION? In the case of Government employees the entire amount is exempt from tax. However, in the case of non-Government employees the maximum amount exempt from tax is restricted to the commuted value of I/3rd of pension where the employee also received gratuity. Commuted value of 50% of pension is, however, exempt.
TAXATION OF GRATUITY AT RETIREMENT WHAT IS THE AMOUNT OF EXEMPTION OF GRATUITY RECEIVED AT THE TIME OF RETIREMENT? Gratuity is a payment in return of service and it is taxable as contractual salary. However, the I. T. Act exempts gratuity from Income-tax, subject to limits. In case of Government employees, the whole of the death-cum-retirement gratuity is exempt from tax. In the case of Industrial Workers, any gratuity received by an employee drawing monthly salary (not exceeding Rs.2,500) only the feast is exempt:-
In other cases, the exemption is available in respect of amount of gratuity actually received.
IF GRATUITY IS RECEIVED FROM MORE THAN ONE EMPLOYER IN THE SAME YEAR, WHAT WILL BE THE CEILING? The Ceiling of Rs.3,50,000 would apply to aggregate of gratuity from one or more employers in the same year in case of retirement or death etc. occurring after 24.9.97 Prior to that date, ceiling was Rs.2,50,000. No. The ceiling will still be Rs,3.5 lakhs or Rs.2.5 lakhs as specified in the preceding paragraph.
EMPLOYER'S CONTRIBUTION TO PROVIDENT FUND The annual contribution of employer to the balance in a employees' account in a recognised fund is exempt to the extent it does not exceed the limit as given below: ~
HAS THERE BEEN A CHANGE IN RATE OF EMPLOYEE'S CONTRIBUTION TO HIS PROVIDENT FUND? Yes. After 22nd September 1997 it has been raised upto 12% (previously 10%) by the Employee's Provident Fund 85 Misc. Provisions [Amendment Ordinance, 1997 (17 of 1997)]. EMPLOYER'S CONTRIBUTION TO SUPERANNUATION FUND Yes. Upto 21st Sept. 1997 the tax deductible contribution by an employer was upto 25% of the annual salary of the employees. Now this limit has been increased to 27% of the employee's salary for each year. [I.T. (Second Amendment) Rules 1998, G.O.I. Gazette Notification No. S.O. 50(E) dt. 16th Jan. 1998; CBDT F.No. 142/79/97-IPL No. 105071.
HAS THERE BEEN A CHANGE IN RATE OF ANNUAL CONTRIBUTION TO A PROVIDENT FUND BY EMPLOYEE AND EMPLOYER? Yes. After 22 nd September 1997, the annual contribution by an employer and employee (taken together) to a superannuation fund in respect of any particular employee shall not exceed 27% (previously 25%) of his salary, for each year. ESOPs or SWEAT EQUITY is the stuff that has made crorepatis of even car-drivers in Company(s) like Infosys. These are relatively new in India but gradually becoming the most favoured portion of remuneration in private Company (s).
ESOPs or "Employees Stock Options Plans" is the generic term for a basket of instruments and incentive schemes that find favour with the new upward mobile salary class and which are used to motivate, reward, remunerate and hold on to achievers. ESOPs are generally granted in the from of directly allotted shares, debentures or warrants, stock options etc. These ESOPs can have numerous variations/ alternative options.The characteristic facet of these ESOPs is that the compensation gets linked with the increase in the price of the shares of the Employer Company or rather the net worth of Company.
First variety of ESOPs is the scheme under which the employee is directly allotted shares by the Company either at market price or at a concessional price. Source of purchase may be own funds of the employee or loan(s) from the Company / Banks / Financial Institutions. Second Variety is when the employee has the 'option' to acquire the shares, debentures or warrants of the Company at a price that may be the market price or lower than that. After that there is a waiting period or Vesting Period when the employee has to wait to exercise his option. After this is the 'Exercise-Period' during which the employee can exercise the option to seek allotment of shares. There may also be a 'Lock-in Period' during which the employee can not sell these shares. Third Variety may be 'Stock Appreciation Rights'. A specified number of shares are notionally allotted to him at a certain price. At the end of a specified period, the price of the shares is noted and if the price has increased then the difference is paid to him by the Company. Another Variety may be 'staggered options' available to the employee over a period of time.
It is a right, but not compulsion. The option-holder may or may not acquire the shares of the Company during a Specified period at pre-determined price, irrespective of the market-price at the time of giving the Stock option by the Company or at the time of exercise of the option by the employee. There are so many factors to determine the employee's decision. The employee ultimately may not exercise his option.
'Sweat Equity' means equity shares issued by the company to employees or directors at a discount or for consideration other than cash for making available know how in the nature of intellectual property rights or value additions, by whatever name called. All Company(s), whether private, public, listed or not-listed can issue Sweat Equity Shares,
WHAT IS THE DIFFERENCE BETWEEN 'SWEAT EQUITY' AND 'ESOPs? There may be no difference as the objective of both is to remunerate the employee. Sweat Equity is only for issue-of shares, debentures or warrants at a discount or even nil consideration. ESOPs are incentive scheme(s) to motivate and retain productive employees. CAN 'SWEAT EQUITY' BE ISSUED FOR FREE? The Law has not set any limit on the rate of discontent for issue of shares to employees. WOULD THE BENEFIT TO THE EMPLOYEE ON ACCOUNT OF FREE OR CONCESSIONAL ALLOTMENT OR SHARES, DEBENTURES OR WARRANTS BE NOT TAXED AS PERQUISITES? Yes and no, both! For A.Y. 2000-01, the difference between the market value and the cost of acquisition of such shares, debentures or warrants was taxable as perquisites. However, for A.Y.2001-02 and subsequent year(s), the Law stands modified and such benefit(s) are not to be taxed as perquisites. Mere grant of stock options or even exercise of such stock options whereby shares are in fact allotted does not attract tax as perquisite(s). They are to be taxed only once when sold, as capital gains.
In case where tax has been levied as perquisite at the time of the exercise of the option by the employees, its fair market value at the time of exercise of option shall be the cost of the share for working out the capital gain. This amendment is w.e.f. 1.4.01 and, applies in relation to the A.Y. 2001-2002 and subsequent years. No. Now w.e.f. 1.4.2001 i.e. for A.Y. 2001-02 and subsequent year(s), even when such share(s), debenture(s) or warrant(s) (received as ESOPs/Sweat Equity) are transferred under a gift or an irrevocable trust, the transaction will be a taxable transfer. The transfer consideration will be the market value of such assets minus the cost paid by the employee, if any.
AT WHAT RATE IS THE LONG TERM CAPITAL GAINS IN RESPECT TO GDRs ISSUED TO EMPLOYEES UNDER ESOPQ TAXABLE? On Income by way of dividends or long term capital gains Global Depository Receipts (GDRs) of an Indian company purchased by a resident employee of such company engaged in information technology software and/or services, as per a notified ESOP, is taxable @ 10% u/s 115 ACA.
DO THESE PROVISIONS EXTEND TO SUBSIDIARY COMPANIES, OTHER KNOWLEDGE BASED INDUSTRIES? Yes. With effect from 1.4.02, i.e, in relation to the A.Y. 2002-2003 and subsequent years, this concessional rate of taxation now extends to income in respect of GDRs purchased by employees of companies engaged in other knowledge based sectors also, viz., entertainment service Pharmaceuticals, bio-technology industry or service as may be notified. The concessional rate of taxation also applies to income from the GDRs purchased by employees of subsidiary companies, whether domestic or foreign, of the above companies. When w.e.f 1.4.01 the Income Tax Act, 1961 does not consider concessional allotment of share(s), debenture(s) or warrant(s) be treated as perquisites so the question of deducting TDS is extraneous for A.Y, 2001-02 and subsequent year(s). The following deductions are available from salary income:-
For A.Y. 1998-99, Standard deduction of a sum equal to 33-1/3% of the salary or Rs.20,000 whichever is less, was allowed to an individual having income from salary. Then w.e.f. 1-4-99 this limit of Standard deduction for assessees having salary income upto Rs. 1,00,000 was increased from Rs.20,000 to Rs.25,000, However, the benefit of standard deduction to assessees having salary income of more than Rs. 5,00,000 was withdrawn. This implies that an assessee earning salary income between Rs. 1 lac and Rs.5 lacs will only be entitled to a Standard deduction of a sum equal to 33-1/3% of the salary or Rs.20,000 whichever is less.
Yes. The standard deduction is also allowable to pensioners. DEDUCTION FOR PROFESSIONAL OR EMPLOYMENT TAX Professional tax or employment tax, levied by a State Government is eligible as a deduction. The amount so paid can be deducted from the taxable salary.
Upto A.Y. 2001-02 Entertainment allowance is first , included in the employee's salary and then exemption is allowed as given here-in-below:-
HAS THERE BEEN A CHANGE IN ALLOWABILITY OF ENTERTAINMENT ALLOWANCE? Yes. With effect from 1 st April, 2002, i.e. in relation to the assessment year 2002-2003 and subsequent years, this provision relating to deduction of entertainment allowance stands omitted in the case of employees in continuous employment since the 1 st April, 1955 under section 16. IS THERE A RELIEF AGAINST HIGHER TAX RATES WHEN SALARY IS PAID IN ARREARS OR IN ADVANCE? Yes. If because of Payment of salary in arrears or in advance, or payment of compensation or provident Fund or gratuity etc., an assessee's income becomes assessable at a higher, rate in a particular year than at which it would otherwise have been assessed, the Assessing Officer is bound by Section 89(1) to grant relief as prescribed. This enables the assessee to pay the tax at lower rates.
WHO WOULD GRANT RELIEF TO PENSIONERS U/S. 16, 88, 88B AND 88C? The deductions from the amount of pension of standard deduction under section 16 and the tax rebate U/S 88B will be allowed by the DDO/Bank, before making payment to pensioner. For rebate under section 88 on account of contribution to Life Insurance, Provident Fund, NSC etc., if the pensioner furnishes the relevant details to the banks, the tax rebate will also be allowed. Necessary instructions were issued by the Reserve Bank of India to the Banks vide RBFs Pension Circular (Central Series) No. 7/C. D. R./ 1992 (Ref. Co. DGBA: GA (NBS) No. 60/GA. 64 (11 CVL)-91/92) dated the 27th April, 1992, and, they must be followed by all the Banks, which have been entrusted with the task of payment of pensions. WHICH FORM IS SPECIFIED FOR CLAIMING RELIEF u/s 89 (1)? Yes, it is Form No. 10E
WHICH RULE IS RELEVANT FOR DETERMINATION OF RELIEF U/S 89(1)? The relevant rule for determination of relief u/s 89(1) is Rule 21A of the I.T. Rules 1962. HOW IS THE RELIEF U/S 89(1) COMPUTED? It is computed as per following steps; -
Yes. Even in such a case, as per Rule 21A(6), the CBDT may, having regard to the circumstances of the case, allow such relief as it deems fit. Aggregate salary of the employee who is or has been in receipt of salary from more than one employer. The employee furnishes to the chosen employer details of the income under the head 'Salary' due/received from the former/other employer and also tax deducted at source there from in writing and duly verified by him and by the former/other employer. Then the present employer will deduct tax at source on the both salary(s).
Yes. Absolutely. It is to be strictly noted that deductions rebates under Chapter VI-A of the IT Act, 1961 are allowed only if the investments/payments are made out of the income chargeable to tax of the financial year relevant to the assessment year under consideration. Not necessarily. An option to be is given U/S 192(2B) which enables a tax payer to furnish details of income under any head other than Salaries and to get TDS thereon. The employer shall take such other income and tax, if any, deducted at source from such income, into account for the purpose of computing tax deductible under section 192 of the Income-tax Act. From 1.8.98 the DDO's have been empowered to take into account the loss if any under the head "Income from House Property" for making deduction of Income-Tax U/S 192(1).
IF THE SALARY IS BEING PAID IN FOREIGN CURRENCY WHAT WOULD BE ITS TAXABLE VALUE? For the purpose of TDS on salary payable in foreign currency, the value in rupees shall be calculated at the prescribed rate of exchange, for each such payment. CAN TDS BE MADE AT A LOWER RATE OR NO DEDUCTION BE MADE ALTOGETHER? Yes. Section 197 enables the tax payer to make an application in Form No. 13 to his Assessing officer. In the absence of such a certificate from employee, the employer should deduct income tax on the salary payable at normal rates (Circular No. 147 dated 28-10-1974).
IF THE EMPLOYER DOES NOT ISSUE A TDS CERTIFICATE, IS THERE A REMEDY? Yes. .As per Section 203, every person responsible for TDS must furnish a certificate to the payee that tax has been deducted and to specify the amount so deducted. This TDS certificate, must be furnished within one month from the end of the relevant financial year. Even the banks deducting tax at the time of payment of pension or bank-interest are required to issue such certificates. This certificate is to be issued on the tax deductor's own stationary. If he fails to issue the TDS certificate to the tax payer concerned, he will be liable to pay, by way of penalty, under section 272A, a sum @ Rs.100 for every day during which the failure continues. However, the penalty shall not exceed the amount of tax deductible.
Yes. Such liability is absolute and any failure would attract interest liability as well as other penal provisions. (CBDT F. No. 237/4/75-A/ PAC 11/23.11.76.]
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