Income tax act 1961

Presentation on Direct Taxation
Presented

BY:

Yogita Kandpal
Hemavati Shettigar
Sanat Sen
Roshan Bhusari
Benoy Shetty

Roll No: 65
Roll No: 15
Roll No: 48
Roll No: 44
Roll No: 66

Income Tax Act 1961
(As amended by Finance Act 2013)

Section 1 to Section 17

Overview
Section Number
1
2
3
4
5
5A
6
7
8
9
10

Section Heading
Short title, extent and commencement
Definitions
Previous year defined
Charge of Income tax
Scope of total Income
Apportionment of income between spouses governed by Portuguese Civil Code
Residence in India
Income deemed to be received
Dividend Income
Income deemed to accrue or arise in India
Incomes not included in total income

Overview
Section Number

Section Heading

10A

Special Provision in respect of newly established undertakings in free trade zone, etc

10AA

Special provisions in respect of newly established Units in Special Economic Zones

10B
10BA

Special provisions in respect of newly established hundred per cent export-oriented
undertakings
Special provisions in respect of export of certain articles or things

10BB

Meaning of Computer programmes in certain cases

10C

Special Provision in respect of certain industrial undertakings in North-Eastern Region

11

Income from property held for Charitable or Religious purposes

12

Income of trust or institutions from contributions

12A

Conditions for Applicability of Sections 11 and 12

12AA

Procedure for Registration

13

Section 11 not to apply in certain cases

Overview
Section Number
13A

Section Heading
Special provision relating to incomes of political parties

13B

Special provisions relating to voluntary contributions received by electoral trust

14
14A

Heads of Income
Expenditure incurred in relation to income not included in total Income

15

Salaries

16

Deductions from Salaries

17

"Salary", "perquisite” and "profits in lieu of salary" defined

NOTE: Section 18 to Section 21 has been Omitted by Finance Act 1988 W.E.F April 1, 1989

Some Background:
▪ Nationality and Citizenship

▪ Person
1.
2.
3.
4.
5.
6.
7.

An Individual
Hindu Undivided Family
Partnership Firm
AOP / BOA / LLP
Local Authorities
Artificial Judicial Entries
A Company

Section 6 : Residence in India
Section 6(1) : Residential Status of an Individual
Residential Status of an Individual

Resident

Ordinarily
Resident

Non Resident

Not
Ordinarily
Resident

Satisfied
Basic
Conditions?

Basic Condition No: 1
A stay of 182 days or more during the current
previous year 2012-13.
A stay of 60** days or more in the current previous
year 2012-13 and a total stay of 365 days or more in
the 4 years immediately preceding the current
previous year.

YES
Resident
and
Ordinary
Resident

NO

Non Resident

YES
Resident

Check
Additional
Conditions?

Satisfied – Additional Condition No: 1
He should be resident in India in at least 2 out of 10 years
immediately preceding the current previous year 2012-13.

NO

AND

YES

A stay of 730 days or more during the 7 years immediately
preceding the current previous year 2012-13.

NO

Resident but
Not
Ordinary
Resident

ADDITIONAL CRITERIA TO BASIC CONDITION NO: 2

A stay of 60** days or more in the current previous
year 2012-13 and a total stay of 365 days or more in
the 4 years immediately preceding the current
previous year.

1. In case an Indian citizen who goes abroad in the previous year for employment or as a
member of the crew of an Indian ship 60 days should be taken as 182 days.

2. In case an Indian citizen who stays abroad comes on a visit to India during the previous year
60 days should be taken as 182 days.

Section 6(2) : Residential Status of HUF (Hindu Undivided Family)
Residential Status of HUF

Resident

Ordinarily
Resident

Non Resident

Not
Ordinarily
Resident

Section 6(2) : Residential Status of Hindu Undivided Family (HUF)
Control &
Management of
the affairs of HUF
is wholly or partly
in India?

If the control and management of affairs of
HUF is Wholly or Partly In India : Resident.

Resident
and
Ordinary
Resident

Non Resident

YES
Resident

HUF is Wholly outside India : Non Resident.

YES

NO

Check
Additional
Conditions?

Karta should be resident in India in at least 2 out of 10 years

NO

AND

YES

Karta should stay for 730 days or more during the 7 years

NO

Resident but
Not
Ordinary
Resident

Section 6(4) : Residential Status of Firm/AOP/LLP/Every Other Person
(Other than An Individual, HUF & Company)

Residential Status of Firm / AOP/ LLP
or Every Other Person

Resident

Non Resident

Section 6(4) : Residential Status of Firm/AOP/LLP/Every Other Person
(Other than An Individual, HUF & Company)
Firm/ AOP/LLP/Every Other Person is Wholly
or Partly In India : Resident.
Firm/ AOP/ LLP/Every Other Person is Wholly
outside India : Non Resident.

Control &
Management of
the affairs of HUF
is wholly or partly
in India?

NO

Non Resident

YES
Resident

Control & Management in respect to FIRM/AOP/LLP/EVERY OTHER PERSON:
ASSESSEE

CONTROL & MANAGEMENT VEST WITH

FIRM / LLP

PARTNERS

AOP

PRINCIPAL OFFICER

EVERY OTHER PERSON

PRINCIPAL OFFICER

Section 6(3) : Residential Status of A COMPANY.


Residential Status of A Company

Indian Company

Foreign Company

Business is Wholly
Controlled and Managed
in India
Always Resident in India

Resident in India

Business is Wholly or Partly
Controlled from Outside India

Non-Resident in India

Section 9:Income deemed to accrue or arise in India

Section 9 (1)(v):Interest Income
--Interest shall be deemed to accrue or arise in Indian if:

CONDITIONS

PAYER
Indian Government

No Condition

Resident in India

The borrowed amount must not be used for the purpose of business or
profession carried on by such person outside India or for the purpose of
making of earning an income from any source outside India.

Non Resident in India

The borrowed amount must be used for the purpose of business or
profession carried on by such person in India.


Section 9 (1)(vi):Royalty Income
--Royalty Income shall be deemed to accrue or arise in Indian if:

CONDITIONS

PAYER
Indian Government

No Condition

Resident in India

The Royalty amount must not be paid in respect of any right, property
or information used or services utilized for the purpose of business or
profession carried on by such person outside India or for the purpose of
making or earning an income from any other source outside India.


The Royalty amount must be paid in respect of any right, property or
information used or services utilized for the purpose of business or
profession carried on by such person in India or for the purpose of
making or earning an income from any source in India.


Section 9 (1)(vii):Taxability for Fees for Technical Services
-The fees for technical services shall be deemed to accrue or arise in
India if:

CONDITIONS

PAYER
Indian Government

No Condition

Resident in India

The fees for technical services amount must not be paid in respect of
any services utilized for the purpose of business or profession carried
on by such person outside India or for the purpose of making or earning
an Income from any source outside India.


The fees for technical services amount must be paid in respect of any
services utilized for the purpose of business or profession carried on by
such person in India or for the purpose of making or earning an Income
from any sources in India.

Section 10BB – Meaning of computer
programmes in certain cases.
▪ Section 10BB is inserted with retrospective effect from 1-4-94

▪ To indicate that for the purpose of section 10B the words
– ‘computer programmes or
– processing or
– management of electronic data’

▪ had been substituted for the words ‘computer programmes’.

Section 10AA – New Undertakings in
Special Economic Zones
▪ Eligible Assesses
– An entrepreneur who has begun or begins to manufacture or produce articles or
things or provides services in SEZ as defined under Special Economic Zones Act,
2005 are eligible for exemption.

▪ Conditions for claiming exemption
– In order to claim deduction under this section, the undertaking shall fulfill the
following conditions:
▪ Income Which Do Not Form Part of Total Income
– It has begun or begins to manufacture or produce articles or provide services in any Special Economic
Zone on or after 01.04.2006
– It is not formed by the splitting up, or the reconstruction, of a business already in existence (except as
referred to in Sec33B).
– It is not formed by transfer to a new business, of machinery or plant previously used for any purpose.
However, the value of the machinery or plant so transferred shall not exceed 20% of the total value of
machinery or plant.

▪ The deduction in respect of profits and gains derived from export of articles or things or
computer software, providing of services are as follows:
Period

Deduction

First 5 consecutive Assessment years

100% of the profits

Next 5 consecutive Assessment years

50% of the profits

Next 5 consecutive Assessment years

Any amount transferred to “Special Economic
Zone Re-investment Reserve Account” or 50%
of the profits, whichever is lower

▪ Conditions foe utilizing the Special Economic Zone Re-investment Reserve
Account
– The reserve account shall be utilized only for the following purposes:
▪ For acquiring machinery or plant which is first put to use before the expiry of a period of
three years following the previous year in which the reserve was created and
▪ Until the acquisition of the machinery or plant as afore said, for the purposes of the business
of the undertaking other than for distribution by way of dividends or profits or for
remittance outside India as profits or for the creation of any asset outside India.

– Assesse shall furnish the particulars of machinery along with the return of
income during the assessment year in which it was first put to use.

▪

▪ Withdrawal of exemption
– Incase of violation of the above conditions, the exemption under this sections
shall be withdrawn. The following shall be the consequences:
Violation of Condition

Tax Implications

In case special reserve is utilized for any
purpose other than the specified purpose.

The amount so utilized shall be chargeable to
tax in the year of such utilization.

In case the reserve is not utilized before the
expiry of 3 years from the end of the previous
year in which reserve is created

The amount of unutilized reserve shall be
deemed to be the profits in the year
immediately following the period of 3 years.

▪ Conversion of FTZ/EPZ to SEZ
– Where a unit initially located in any free trade zone or export processing zone is
subsequently located in a Special Economic Zone by reason of conversion of
such free trade zone or export processing zone into a Special Economic Zone,
the period of ten consecutive assessment years shall be reckoned from the
assessment year relevant to the previous year in which the unit began to
manufacture, or produce or process such articles or things or services in such
free trade zone or export processing zone.
– On the other hand, where a unit initially located in any free trade zone or export
processing zone and has completed the period of ten consecutive assessment
year is subsequently located in a Special Economic Zone by reason of conversion
of such free trade zone or export processing zone into a Special Economic Zone,
it shall not be eligible for any further deduction under sec 10AA.

▪ Carry forward of losses
– Any business loss u/s 72(1) or loss under the head ‘Capital Gains’ u/s 74 of the
undertaking shall be allowed to be carried forward and set off in subsequent
assessment years.

▪ Audit Report
– The Assesse shall furnish a report of a Chartered Accountant certifying that the
deduction claimed is correct along with the return of income.

▪ Other Points.
– In case of transfer of any asset or goods from eligible unit to any other business
which is carried on by the assesse or by any person closely connected with the
assesse, the assessing officer, if he feels necessary, may adopt the fair market
value of the goods.
– NO deduction shall be allowed u/s.80IA/ 80IB in respect of the profits exempted
under this section.
– For the purposes of computing depreciation u/s.32 the written down value shall
be considered as if the deprecation has been actually allowed during all the
previous years.
– Deductions and expenses as provided under sections 32 to 36 shall be deemed to
have been allowed to the eligible undertaking.

▪ Amalgamations / Demerger of units.
– Where any unit situated in a SEZ, which is claiming exemption, has been
transferred to a new unit by way of Amalgamation or Demerger, then:
– In case of amalgamation, the amalgamated unit shall be eligible for exemption.
However, the amalgamating unit ceases to claim exemption.
– In case of demerger, the resulting unit shall be eligible for exemption. However,
the Demerged unit shall not be eligible for exemption.

Section 11: Income from property held
for charitable or religious purposes
▪ Section 2(15) defines “ Charitable purpose” to include relief of the poor,
education, medical relief, preservation of environment (including
watersheds, forests and wildlife) and preservation of monuments or places
or objects of artistic or historic interest, and the advancement of any other
object of general public utility.
▪ However, the expression ‘advancement of any other object of general
public utility’ shall not be a charitable purpose, if it involves the carrying on
of– Any activity in the nature of trade, commerce or business: or
– Any activity of rendering any service in relation to any trade, commerce or business.

▪ For a CESS or fee or any other consideration, irrespective of the nature of
use or application, or retention, of the income from such activity – Provision
to sec 2 (15)

Section 12: Income of trust or
institutions from contributions
▪ Conditions for claiming exemption u/s.11
– The income derived from property held under trust wholly for charitable or
religious purposes is exempt from tax u/s.11 subject to fulfillment of certain
conditions. According to sec.12, any voluntary contributions received by a trust
or an institution (not being contributions made with a specific direction that they
shall form part of the corpus of the trust or institution) shall be deemed as
income for the purposes of Sec.11.
– The conditions to be fulfilled are as follows:
▪ The trust should be registered with the plus commissioner of Income-tax u/s.12A.
▪ The accounts of the trust for the previous year should be audited if the total income
exceeds Rs 160000.
▪ At least 85% of the income is required to be applied for the approved purposes.
▪ The unapplied income and the money accumulated or set apart should be invested or
deposited in the specified form or modes.

Section 12AA:

Registration of Trust

▪ Registration of Trust
– Every trust or institution shall submit an application for registration in the
prescribed form (Form 10 A) as required u/s.12A to the commissioner of incometax before the expiry of a period of one year from the date of the creation of the
trust or the establishment of the institution, whichever is later.
– On receipt of the application, according to the provisions of Sec.12AA, which
prescribe the procedure for registration, the Commissioner shall call for such
documents or information as considered necessary in order to satisfy about the
genuineness of activities of the trust or institution. Inquiries can also be made as
deemed necessary.

Section 12AA(3): Cancellation of
registration
▪ Where a trust or an Institution has been granted registration and
subsequently the Commissioner is satisfied that the activities of such
trust or institution are not genuine or in contravention of the objects,
then the Commissioner has the power to pass an order in writing
canceling the registration after giving a reasonable opportunity of
being heard.

Section 13A: Special provision relating
to incomes of political parties
Exempted income

The following categories of income derived by a political party are
exempt:
– Income from house property.
– Income from other sources.
– Income by way of voluntary contributions and
– Capital gains.

Section 13A: Special provision relating
to incomes of political parties
Conditions

The above exemption is available only if the following conditions are
fulfilled:
– The political party is registered u/s.29A of the Representation of the People Act,
1951
– Political party keeps and maintains such books of account and other documents
AS WOULLD ENABLE THE Assessing Officer to properly deduce its income there
form.
– The accounts of the political party should be audited.

Under the provision of sec.139(4B) of the incometax Act, a political
party is required to file a return of income if, before claiming exemption
u/s.13A, the party has taxable income.

Section 14: Heads of Income
Classification of Heads of Income:

All income shall be classified under the following categories:
A. Salaries
B. Interest on Securities – omitted with effect from 1-4-89

C. Income from House property.
D. Profits and gains of business operation.
E. Capital gains

F. Income from other sources.

Section 17: "Salary", "perquisite and "profits in
lieu of salary" defined.
Section 17 (1) – States the term “Salary” includes:
Wages
Any Annuity or Pension
Any Gratuity
Any Fees, Commission, Perquisite or profits in lieu of or in addition to any salary or wages
Any Advance Salary

Encashment of leave-not-availed
Interest earned in excess of 9.5% on Recognized Provident Fund (RPF)
Amount transferred in excess of 12% of Salary to RPF
Contribution made by Central Government or any other employer (w.e.f. A.Y. 2008-09) in the
Previous Year to the Account of an employee under Pension Scheme u/s 80CCD
Money embezzled by an employee constitutes his income.

Item wise applicability of “Salary”:
PARTICULARS

TREATMENT

Salary Received by a Partner
of a Firm

The same would be treated as “Salary” and would be taxable accordingly. There
arises no difference between wages and salary.
Such Remuneration would be treated as “Business Income” since the partner is not
an employee of the entity.

Salary Received by a
Proprietor

Proprietor is not an employee and hence any amount received by him would not
be treated as Salary.

Director Fees

Sitting fees paid to Directors for attending Board Meeting is not a salary but
taxable as “Other Income”.

Director Remuneration

Any amount payable to any whole time Directors who are also an employee of the
company would be treated as Salary. In any other case, the same would be treated
as “Other Income”

Wages for Workers

Item wise applicability of “Salary”:
Continued…
PARTICULARS

TREATMENT

Pension to Retired Employee

Pension paid in pursuance to the term od employment. Hence any amount
received as pension would be considered as “Salary” in the hand of the recipient.

Pension to legal heir of the
deceased employee

Amount received by legal heir of the deceased employee, who is not an employee
of the organization, would be considered as “Income from other sources” and not
as “Income from Salary”.

Remuneration paid to teacher
of any University / College

Any Such remuneration would be treated as “Salary” if the terms of employment
provide a condition for checking such any paper. However, in any other case, such
income shall be considered as “Other Income”.

Voluntary Retirement
payment by employer to
employee

Since the employment would get the amount in accordance with the terms of
employment obligation, the same would be considered as “Salary”

Remuneration to the MP/MLA

Such income shall be considered as “Income from Other Sources” as there exist no
employer / employee relationship.

Basic Items:
1. Basic Salary / Wages/ Remuneration / Pay
2. Special Pay
3. Bonus
4. Fees
5. Commission
6. Advance Salary
7. Arrear Salary
Allowances
1. Fully Taxable Allowance
2. Partly Taxable /Partly Exempted Allowance
3. Fully Exempted Allowance

Simple
Format
to
Compute
Salary
Income:

xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx

Perquisites
1. Taxable for all [Specified and Unspecified]
2. Taxable for specified employees only
3. Exempted for all [Specified and Unspecified]

xxx
xxx
xxx

Special Items
1. Gratuity
2. Pension
3. Leave Encashment
4. Provident Fund

xxx
xxx
xxx
xxx
GROSS SALARY

Deduction u/s 16
1. Standard deduction – [Not Applicable from A.Y. 2006-07]
2. Entertainment Allowance
3. Professional / Employment Tax

XXXX

xxx
xxx
INCOEM FROM SALARY

XXXX

Fully Taxable Components of “Salary”.
Sr. No.

PARTICULARS

Sr. No.

PARTICULARS

1

Basic Salary

10

Fees

2

Dearness Allowance

11

Lunch / Tiffin Allowance

3

Advance Salary

12

Overtime Allowance

4

Arrears of Salary

13

Servant Allowance

5

City Compensatory Allowance

14

Warden Allowance

6

Bonus

15

Non-Practicing Allowance

7

Commission as a Percentage of
Turnover

16

Family Allowance

8

Fixed Medical Allowance

17

Leave Encashment during service

9

Project Allowance

18

Holiday Allowance

Allowances:





Fixed monetary amount paid by employer to employee.
For meeting some particular expenses whether personal or to perform his duties.
These allowances are generally taxable and are to be included in Gross salary.
Unless Specified exemptions has been provided in respect of any such allowances.

Allowances

Fully Taxable without
any exemptions

Specific allowances
that are fully
exempted in the
hands of Employees

Taxable in excess of
amount exempted

Fully Taxable Allowances without any
exemptions.
Sr. No.

PARTICULARS

Sr. No.

PARTICULARS

1

City Compensatory Allowances

10

2

Dearness Allowance / Pay

11

Leave encashment during
service
Lunch / Tiffin Allowance

3

Fixed Medical Allowance

12

Overtime Allowance

4

City Compensatory Allowance

13

Servant Allowance

5

Deputation Allowance

14

Warden Allowance

6

Family Allowance

15

Non-Practicing Allowance

7

Project Allowance

16

Holiday Allowance

Specific Allowances that are fully exempt in the
hands of Employee.
Sr. No.

ALLOWANCE

CONDITIONS TO CLAIM FULL EXEMPTION

1

Travelling Allowance

Should be provided by the employer and spent by the employee to meet the
cost of official tour OR transfer expenses. Cost of travel OR transfer includes
payments for transfer, packing and transportation of personal effects.

2

Daily Allowance

Should be spent by the employee for meeting the daily charges incurred on a
tour OR transfer.

3

Conveyance Allowance

Should be used by the employee to meet the expenditure on conveyance in
performance of official duties.

4

Helper Allowance

Should be used by the employee to meet the expenditure on a helper who
assists him in the performance of official duties.

5

Academic Allowance

Should be used by the employee for his academic research and training
pursuits.

6

Uniform Allowance

Should be spent by the employee for purchasing / maintaining office uniform
for official duties.

7

Allowance and perks paid by
Government of India to an
Indian Citizen outside India

Fully exempted.

When Exemption Does Not Depend upon Expenditure:
In this case the amount of exemption does not depend upon expenditure
incurred by the employee.
The allowance given below are exempt to the extent of:
a) The amount of Allowance. OR
b) The amount specified in rule 2BB,
Whichever is lower.

NOTE: The amount of actual expenditure is not taken into consideration.

Sr. No.

Allowance

Nature of Allowance

Exemption as specified in Rule 2BB

1

Special Compensatory (Hill
Areas) Allowance

It includes any special compensatory Amount exempt from tax varies from
allowance in the nature of special
Rs. 300 per month to Rs. 7000 per
compensatory allowance OR high
month.
altitude allowance.

2

Border Area Allowance

It includes any special compensatory The amount of exemption varies from
allowance in the nature of border
Rs. 200 per month to Rs. 1300 per
area allowance OR remote locality
month.
allowance OR difficult area
allowance.

3

Tribal Areas / Scheduled
Areas Allowance

Tribal areas allowance is given in 1)
Madhya Pradesh 2) Tamil Nadu 3)
Uttar Pradesh 4) Karnataka 5)
Tripura 6) Assam 7) West Bengal 8)
Bihar 9) Odisha.

Rs. 200 per month.

4

Allowance for Transport
Employees

It is an allowance granted to an
employee working in any transport
system to meet his personal
expenditure.

The amount of exemption is:
1. 70% of such allowance; OR
2. Rs. 10000 per month.
Whichever is lower.

Sr. No.

Allowance

Nature of Allowance


5

Children Education
Allowance

This allowance is given for Children
education.

The amount exempt is limited to Rs.
100 per month per child up to a
maximum of two children.

6

Hostel Expenditure
Allowance

This amount is granted to an
employee to meet the hostel
expenditure on is child.

It is exempt from the tax to the extent
of Rs. 300 per month per child up to a
maximum of two child.

7

Compensatory Field Area
Allowance

If this exemption is taken, the
employee can not claim any
exemption in respect of border area
allowance mentioned above.

Expemtion is limited to Rs. 2600 per
month.

8

Transport Allowance

It is granted to an employee to meet
his expenditure for the purpose of
commuting between the place of his
residence and the place of his city.

It is exempt up to Rs. 800 per month.

Sr. No.

Allowance

Nature of Allowance


9

Underground Allowance

Underground allowance is granted
to an employee who is working in
uncongenial, unnatural climate in
underground mines.

Exemption is limited to Rs. 800 per
Month.

10

High Altitude Allowance

It is granted to the member of
armed forces operating in high
altitude areas.

It is exempt from tax up to Rs. 1060
per month (for altitude of 9000 to
15000 feet) or Rs. 1600 per month.

Various items of Salary for which exemptions are
available subject to limitations:
1. Leave Travel Assistance (LTA) u/s 10 (5) 10(5) Rule 2B

Conditions for Claiming the Benefit:
a) An Individual can avail the benefit of LTA offered by his employer, twice in a block of 4 years
b) The present block of 4 years applicable for A.Y 2013-14 is calendar years 2011-14.
c) LTA may be provided by the employer to the employee and his family:
(i) In connection with his proceeding on leave on leave to any place in India, while in service;
(ii) Proceeding to any place in India after retirement or termination from service.

When Taxable :
LTA encashed without performing journey is fully taxable.
Expenses reimbursed other than the fare like boarding or loading is fully taxable.
Amount received from employer in excess of the cost of traveling on the shortest route.

IMPORTANT NOTE
Family of an Individual means:
Spouse and children of the individual, and
Parents, brothers and sisters of the individual or any of them, wholly or mainly dependent
on the Individual.

SALARY for HRA :
Basic Pay +
DA (Considered for retirement benefits) +
Commission (if received as a fixed percentage on turnover as per terms of employment)

2.

House Rent Allowance (HRA) u/s 10 (13A) Rule 2A

Conditions for Claiming Exemption:
1. Assesse is in Receipt of HRA
2. Pays Rent
3. Rent paid is more than 10% of salary.

Very Important:
The exemption shall be calculated on the basis of where the accommodation is situated.
If the place of employment is the same for the whole year, then exemption shall be calculated for the whole year.
If there is a change in place during the Previous Year, then it will be calculated on a monthly basis.
Exemption should be calculated in respect of the period during which rental accommodation is occupied by the
employee during the Previous Year.
Salary for the period during which rental accommodation is not occupied shall not be considered.

2.

House Rent Allowance (HRA) u/s 10 (13A) Rule 2A
Computation of Taxable House Rent Allowance (HRA)
PARTICULARS

AMOUNT (Rs)

Amount received during the financial year for HRA
LESS: Exemption u/s 10(13A0 Rule 2A
Least of the following:
a) Actual Amount received.
b) 50% (for Metro cities) / 40% (for non-metro cities) of Salary
c) Rent Paid less 10% of Salary
Taxable HRA

AMOUNT (Rs)
xxx

xxx
xxx
xxx

xxx
xxx

DEATH-CUM-RETIREMENT BENEFITS
A. Gratuity u/s 10(10)
Gratuity

Received by Government
Employee
On
Continuation
of Service
Fully Taxable

Received a Non-Government
Employee

On Termination of
Service / After
Death

On Continuation of
Service

Fully Exempted

Fully Taxable

On Termination of
Service / After Death

Covered by Payment of
Gratuity Act, 1972

Not Covered by
Payment of Gratuity
Act, 1972

Taxable u/s
10(10)(ii)

Taxable u/s
10(10)(iii)

Computation of Gratuity
For Non-Government Employee – Covered by Payment of Gratuity Act, 1972
PARTICULARS

AMOUNT (Rs)

Amount received as Gratuity
LESS: Exemption u/s 10(10)(ii)
Least of the followings:
(i) Actual amount received
(ii) 15/26 x Last drawn salary x Number of years of completed service
or part thereof in excess of 6 months
(iii) Maximum limit
TAXABLE GRATUITY

AMOUNT (Rs)
xxxx

xxx
xxx
10,00,000

xxxx
XXXX

NOTE: Salary – Basic Pay + Dearness Allowance
In case of seasonal employment, instead of 15 days, 7 days shall be considered.

Computation of Gratuity
For Non-Government Employee : Not - Covered by Payment of Gratuity Act, 1972
PARTICULARS

AMOUNT (Rs)

Amount received as Gratuity
LESS: Exemption u/s 10(10)(iii)
(ii) ½ x Average salary x Number of fully completed years of Service
(iii) Maximum limit

TAXABLE GRATUITY

AMOUNT (Rs)
xxxx

xxx
xxx
10,00,000

xxxx

XXXX

NOTE: Salary = 10 months average salary preceding the month of retirement.
= Basic Pay + Dearness Allowance considered for Retirement Benefits
+ Commission (If received as a fixed percentage on turnover)

Gratuity received while in Service
▪ Any gratuity paid to an employee while he continues to remain in
service (whether or not after he has put in minimum specified period
of service) is not exempted from tax.
▪ Tax exemption will be available only if gratuity is paid on:
1.
2.
3.
4.
5.

Retirement
Becoming incapacitated prior to such retirement.
Termination of employment.
Resignation
Death.

Gratuity received under other circumstances would not be exempt from tax,
though the assesse can claim relief under section 89.

Gratuity [Some Important Points]
▪ When an individual receives retirement gratuity from more than one
employer, he can claim exemption in respect of both of them.
▪ However, the maximum amount of exemption should not exceed
Rs. 10,00,000.
▪ When gratuity is received from more than one employer during
different periods of time, the maximum exemption claimed by an
assesse during his entire life should not exceed Rs. 10,00,0000.

PENSION

Pension Received

By Retired Employee

Tax Liability determined on the basic of
certain conditions

By Family Members of Deceased Employee

Taxable as a
“Family Pession”

PENSION
B. Pension u/s 10(10A)
Pension

Employee

Employee

Uncommuted value of
Pension or Monthly Pension

Fully Taxable

Commuted Value of
Pension / Received in
Lumpsum

Fully Exempted
u/s 10(10A)(i)

Uncommuted value of
Pension

Commuted value of
Pension

Fully Taxable
When Gratuity Received

1/3rd of Full Value of Commuted Pension
exempted, Balance Taxable u/s 10(10A)(ii)

When Gratuity not
Received

½ of Full value of Commuted Pension
exempted, Balance Taxable u/s
10(10A)(iii)

Taxability of Uncommuted Pension or
Monthly Pension
a) Pension is received periodically by the retired employee.

b) It my be received by Government or Non-Government employees.
c) Amount received shall be fully taxable under the head “Salaries”

Taxability of Commuted Pension.
a) Pension is received in lumpsum as per the terms of the employment on retirement
or superannuation.
b) Full Value of Commuted Pension = Amount received on commutation/percentage of
commutation.
c) Taxability.

Recipient

Amount Taxable

Government employee (Central / State / Local
Authority or Statutory Corporation )

Fully exempted u/s 10(10A)(i)

Non-Govt. employee who has also received
Gratuity u/s 10(10A)(ii)

Amount Received
LESS: 1/3 of Full Value of Commuted Pension.

Non-Govt. employee who has not received
Gratuity u/s 10(10A)(iii)

Amount Received
LESS: ½ of Full Value of Commuted Pension

LEAVE ENCASHMENT
C. Leave Encashment
u/s 10(10A)
Employee

On Continuation of Service

On Termination of
Service / after Death

Fully Taxable
Fully Exempted

Leave Encashment

Employee

On Continuation of
Service

On Termination of
Service / After Death

Fully Taxable
Taxable beyond
exemption limit

LEAVE ENCASHMENT u/s 10 (10AA)

1. Leave encashment while in service is fully taxable as income of Previous Year
in which it is enchased.
2. Leave encashment on retirement:
a) If an individual receives leave encashment on his retirement, then the
amount received will be eligible for exemption.
b) The amount of exemption is based on his employment:
i. Government employee: fully exempted from tax
ii. Non-Govt. employee: An individual who is not a Government
employee is also entitled for exemption in respect of leave
encashment compensation received by him.

Computation of Exemption from
Leave Encashment:
STEP 1: Computation of Salary = 10 months average salary preceding the month of
retirement.
STEP 2: Salary = Basic Pay + Dearness Allowance + Commission
STEP 3: This calculation is only applicable where the employer has sanctioned leave to the
employee in excess of 30 days for every completed year of service.
PARTICULARS

No. of Days

(i) Leave credit available on the date of retirement.

xxx

LESS: Excess leave sanctioned by the employer

(xxx)

(Leave sanctioned by the employer per year – leave @ 30 days per year) X Number of
completed years of service.
Leave credit on the basis of 30 days credit for completed years of service

xxx

(ii) Leave salary on the basis of 30 days credit = Step 3(i) X Step 1 (Amount in Rs.)

Rs. xxxx

NOTE: In case the employer sanctioned leave of 30 days or less for completed year of service
then the salary for actual leave balance shall be considered and step 3(i) shall not apply..

Computation of Taxable Leave Salary/
Encashment on Retirement:
PARTICULARS

AMOUNT (Rs)

Amount received on Leave Salary / Encashment
LESS: Exemption u/s 10(10AA)
(i) Actual amount of Leave encashment received
(ii) Average salary of the individual x 10 months
(iii) Maximum limit
TAXABLE Value of Leave Salary / Encashment

AMOUNT (Rs)
xxxx

xxx
xxx
3,00,000

xxxx
XXXX

NOTE: (a) If the individual receives leave encashment from more than one employer,
will be computed independently in respect of each employer.
(b) The total amount of exemption should not exceed Rs. 3,00,000 during his
life time.

D. RETRENCHMENT COMPENSATION u/s 10 (10B)
Compensation is received by a workman at the time of:
i.

Closing down of the undertaking.

ii. Transfer (irrespective of by agreement/compulsory acquisition) if the following
conditions are satisfied:
i.

Service of workmen interrupted by transfer.

ii. Terms and conditions of employment after transfer are less favorable.
iii. New employer is not under a legal obligation whether under the terms of
transfer or otherwise to pay compensation on the basis that the
employee’s service has been continuous and has not been interrupted by
transfer.

D. RETRENCHMENT COMPENSATION u/s 10 (10B)

Retrenchment Compensation

Received under any Scheme approved
by the Government

Fully Exempted

Received under any other Scheme

Taxable subject to exemption
u/s 10(10B)

NOTE:
(a) Retrenchment compensation received in accordance with any scheme, which is
approved by the Central Government, is fully exempt from tax.
(b) An individual who receives retrenchment compensation is entitled for
exemption u/s 10(0B).

E. Voluntary Retirement Compensation u/s 10(10C)
Voluntary Compensation Received

By a Government Employee

Taxable beyond Specified Exemption limit

By a Non Government Employee

Taxable beyond specified exemption limit

Conditions for claiming exemption:
i. An individual, who has retired under the Voluntary Scheme, should not be
employed in another company of the same management.
ii. He should not have received any other Voluntary retirement Compensation before
from any other employer and claimed exemption.
iii. Exemption u/s 10(10C) in respect of Compensation under VRS can be availed by an
Individual only once in his lifetime.

Computation of Exemption of VRS:
STEP 1: Salary = Last drawn salary = Basic Pay + D.A.
STEP 2: Computation of Taxable VRS compensation
PARTICULARS

AMOUNT (Rs)

Amount Received as VES Compensation
LESS: Exemption u/s 10(10C)
(ii) Maximum limit
(iii) The Highest of the Following:
(a) Last drawn salary X 3 X Number of fully completed ears of Service xxxx
(b) Last drawn salary X Balance number of months of Service left
xxxx

TAXABLE Value of Leave Salary / Encashment

AMOUNT (Rs)
xxxx

xxxx
xxxx
5,00,000

xxxx

xxxx

XXXX

E. PROFITS IN LIEU OF SALARY [SECTION 17(3)]
a)

Compensation for loss of employment or modification of the employment terms.
a)
b)

It is generally treated as a capital receipt.
But by virtue of Sec 17(3)(i) it is taxable as a profit in lieu of Salary.

b) Payment from unrecognized provident or superannuation fund.
a)
b)

c)

Employer Contribution
Interest on employer contribution is taxable under the following condition
a)
It is an unapproved fund.
b)
These are taxable at the time of payment to the assesse.

Payment from Keyman insurance Policy.

d) Profits in lieu of salary will include amount received in lump sum or otherwise,
prior to employment or after cessation of employment for the purpose of
taxation.

e) Any other payments due to or received by an assesse from his employer or
former employer is treated as “Profit in Lieu in salary”.

DEDUCTIONS AGAINST SALARY
1. Entertainment Allowance: Applicable only for Government
Employees [Sec 16(ii)]
Least of the following will be allowed as a deduction:
i.
ii.
iii.

Actual amount of entertainment allowance received.
20% of basic salary of the individual.
Rs. 5,000.

1. Professional Tax [Sec 16(iii)]
i.

Professional tax or tax on employment paid by an employee,
levied under a State Act shall be allowed as deduction,
ii. Such deduction is available only on actual payment,
iii. If an employer pays professional tax on behalf of his employee,
then it will first be included in the salary as a perquisite and then,
allowed as a deduction.

DEDUCTIONS AGAINST SALARY
3. Deductions u/s 80C
– Section 80C was introduced in AY 2006-07.
– Deductions are available for Tax Payer for his Investment.
– To the maximum limit of Rs. 1,00,000 from his gross total Income.
When and whom:
1.
2.
3.

Individual and HUF (Hindu Undivided Family)
It is available only from Gross total Income and not from Salary Income.
Rs. 1,00,000 ceiling is inclusive of 80C, 80CCC and 80CCD.

Deductions Under Section 80C
Sr. No

Particulars

1

Employees Contribution to SPF (Statutory Provident Fund)

2

Employees contribution to RPF (Recognized Provident Fund)

3

Employees Contribution to PPF [15 year PPF]

4

Life Insurance Premium paid on own life, spouse or any children

5

Contribution towards non-commutable deferred annuity

6

Premium in respect to Unit Linked Insurance Plan

7

Purchase of National Saving Certificate

8

Deposit in National Housing Bank

9

Payment of Premium in any notified annuity plan of the LIC

10

Payment made towards the cost of purchase or construction of a new residential
house property

11

Contribution to any units of mutual fund of UTI

Deduction Under Section 80C
Sr. No

Particulars

12

Sum paid as tuition fees at the time of admission or otherwise to any university,
college, educational institution in India for Full Time Education.

13

Subscription to equity shares or debentures of a company engaged in infrastructure
including power sector or units of mutual fund proceeds of which are utilized for
developing maintaining etc., of a new infrastructure facility

14

Money deposited as term deposit for a period of 5 years or more in accordance with
Government Scheme.

15

Subscription towards notified bonds of NABARD.

16

Deposits in Senior citizens savings scheme

17

Five year Post Office Time Deposit Account.

PERQUISITES

▪ It means any benefit attached to an office or position in addition to salary or
wages.
▪ It denotes a personal advantage.
▪ Perquisites may be in cash or in kind.
▪ Any perquisite given in kind should be in a position to be measured in terms
of money.
Specified Employee:
– A Director – Employee (full time or part time)
– Employees who’s monetary salary exceeds Rs. 50,000 per annum.
– Employees who is having a substantial interest in the company.
▪ 20% of paid up capital
▪ 20% voting power or more.

Perquisites Chart
Taxable for All
(Specified and Unspecified)

Taxable for Specified Employees
Only

1. Rent free house
a) Furnished House
b) Unfurnished House

1. Motor Car

2. House at concessional rent

2. Domestic Servants
Watchman
Gardner
Sweeper
Any Personal Attendant
Cook

Exempted for all
(with certain limits)
1. Medical Facilities
a) Free Medical Facility – Full
Exemption
b) Reimbursement
i. Approved Government Employers
Hospital – Full Exemption
ii. Private Hospital – upto Rs 15000
c) Medical Facility outside India – as
permitted by RBI.

2. Interest free concessional loan
-Loan amount not
exceeding Rs 20,000.

Perquisites Chart
Taxable for All
(Specified and Unspecified)

Taxable for Specified Employees Only

3. Any obligation of employee paid by
employer

3. Supply of Gas

4. Any amount paid by employer to effect
an assurance on the life of employee

4. Education Facility

5. Free Meal

5. Transport Facilities (other than railways
and airlines)

6. Gift
7. Club Facility
8. Credit Card and add on Card
9. Use of movable assets except
computers and laptops
10. Interest Free Loan

Exempted for all
(with certain limits)
3. Interest Free loan for medical treatment
of the nature given in rule 3A – full amount
id exempted.

Income tax act 1961

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