Income from Salary

UNIVERSITY OF MUMBAI RAYAT SHIKSHAN SANTHA’S KARMAVEER BHAURAO PATIL COLLAGE VASHI, NAVI MUMBAI PROJECT REPORT ON INCOME FROM SALARY

SUBMITTED BY HARSHAD M. NAGARKAR ROLL NO. PROJECT GUIDE

PROF.MR. VIVEK H. BOHIR IN PARTIAL FULFILMENT FOR THE COURSE OF MASTERS IN COMMERCE (DIRECT AND INDIRECT TAX) M.Com. Semester - III ACADEMIC YEAR 2014-2015

[1]

ACKNOWLEDGEMENT

I, would take this opportunity to thank the University of Mumbai for providing me an opportunity to study on a project on Income from salary. This has been a huge learning experience for me. With great pleasure I take this opportunity to acknowledge people who have made this project work possible. First of all I would sincerely like to express my gratitude towards my project Guide Prof. VIVEK BOHIR for having shown so much flexibility, guidance as well as supporting me in all possible ways whenever I needed help. I am thankful for the motivation provided by my project guide throughout and helped me to understand the topic in a very effective and easy manner. I would like to thank Principal Dr. V. S. Shivankar, and the coordinator of the course Prof. K.G.Tapase for their indirect support throughout. Aniket Patil. Without their support and conviction this project would not have been possible. I acknowledge my indebtedness and express my great appreciation to all people behind this work. Signature

Harshad Nagarkar [2]

DECLARATION

I, Harshad Milind Nagarkar student of KARMAVEER BHAURAO PATIL, COLLEGE, VASHI Studying in M.com.Sem.-III hereby declare that I have completed this project on Income from Salary as per the requirements of University of Mumbai as a part of the curriculum of M.com. Sem.-III course and this project has not been submitted to any other University or institute for the award of any degree, diploma etc. the information is submitted by me is true and original to the best of my knowledge.

Date: - ---------------------

-----------------------

Place: Vashi, Navi Mumbai.

[3]

RAYAT SHIKSHAN SANTHA’S KARMAVEER BHAURAO PATIL COLLEGE VASHI, NAVI MUMBAI – 400703

CERTIFICATE

This is to certify Harshad Milind Nagarkar Student of M.com. Sem. - III has completed this project on “Income from salary” and has submitted a satisfactory report under the guidance of Prof. in the partial fulfillment of M.com.Sem.-III course of University of Mumbai in the academic year 20142015 -------------------Project Guide

-------------------Coordinator

--------------------------External

[4]

------------------principal

OBJECTIVES After reading this lesson, you should be able to understand: • Classification of income into various heads. • Concept of salary income • Incomes forming part of salary • The computation of basic salary in grade system [5]

• Types of commission an employee can get • The concept of allowances • Various income tax provisions for computing taxable value of allowances • Computation of taxable value of allowances

RESEARCH METHODOLOGY

SECONDARY DATA

The secondary data has been collected from books, internet and research engine. There has been immense and valuable data which put forth for the compulsion of my project.

Index

Sr.

Title

[6]

page no.

1

Introduction to salary

1-9

2

Allowances under salary

10-16

3

Perquisites under salary

7-20

4

Deductions under salary

21-22

5

Exemption under salary

23-29

7

Computation of salary

30-37

8

Conclusion

38

Biligophy

[7]

39

Chaper1

INCOME FROM SALART (U/S 1517)

INCOME FROM HOUSE PROPERTY U/S 22-27

PROFIT AND AGAIN FROM BUSINESS PROFESSINTON

HEADS OF INCOME

U/S (28-44)

[8]

CAPTIAL GAINS U/S (45-55)

INCOME FROM OTHER SOURCE S U/S (56-59)

[9]

Meaning of salary

The term salary usually refers to a payment for services. It means remuneration for services rendered to another person.

Basic elements of salary

 Payer and payee must have employer and employee relationship.

 Any payment received by an individual from a person other than his employer cannot be termed as salary.

Basis of charge

 Salary is chargeable to tax on due or on receipt basis whichever is earlier;  Salary received in advance is taxable in the year of receipt. Such salary not be included again in the total income when it become due;  Outstanding salary is taxable on due basis i.e. salary is taxable in the year in which it falls due.  Arrear salary is taxable on receipt basis. [10]

Definition of salary

As per section 17 (1) of the Income Tax, Salary includes: i) wages; (ii) Any annuity or pension (iii) Any gratuity; (iv) Any fees, commissions, perquisites or profits in lieu of or in addition any salary or wages;

to

(v) Any advance of salary (vi) Any payment received by an employee in respect of any period of leave not availed of by him; (vi) The annual accretion to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule; and (vii) The aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; (viii) The contribution made by the Central Government [or any other employer] in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD;

Characteristics of Salary [11]

1. The relationship of payer and payee must be of employer and employee for an income to be categorized as salary income. For example: Salary income of a Member of Parliament cannot be specified as salary, since it is received from Government of India which is not his employer. 2. The Act makes no distinction between salary and wages, though generally salary is paid for non-manual work and wages are paid for manual work. 3. Salary received from employer, whether one or more than one is included in this head. 4. Salary is taxable either on due basis or receipt basis which ever matures earlier: I) Due basis – when it is earned even if it is not received in the previous year. ii) Receipt basis – when it is received even if it is not earned in the previous year. iii) Arrears of salary- which were not due and received earlier are taxable when due or received, whichever is earlier.

Chapter 2

Allowances Extra compensation paid by the employer, apart from salary, due to presence of some unusual conditions in rendering the service is called allowance. [12]

Allowances by whatever name called is taxable. However following allowance are exempt to certain extent.

Some common allowance, which are exempt to the extent of amount received or the received other limit specified, whichever is less;

sr no 1

limit specified (amount up to which exempt)

Nature of Allowance

Children Education Allowance

2

Hostel Expenditure Allowance for the children

3

Transport Allowance to meet the expenditure for the purpose of commuting between the place of residence and the place of work

Maximum of Rs. 100 p.m. per child up to maximum of 2 children Maximum of Rs. 300 p.m. per month per up to maximum of 2 children Maximum of Rs. 800 p.m. (Rs. 1600 p.m. if the employment is blind or orthopedically handicapped).

Fully Exempt from tax Fully Taxable Allowance 1. Allowances to Govt. employees outside India 1. Dearness Allowance 2. Allowances to high court 2. City Compensatory &Supreme Court judges. Allowance 3. Allowance from United Nations Organizations. 3. Rural Allowance 4. Special allowance 4. Proctorship Allowance 5. Warden ship Allowance 6. Project Allowance 7. Deputation Allowance 8. overtime Allowance 9. Interim Allowance 10.Tiffin Allowance 11.Fixed Medical Allowance 12.Servant Allowance [13]

Other Special Allowances        

Children Education Allowance Tribal Area Allowance Hostel Expenditure Allowance Remote Area Allowance Compensatory Field Area Allowance Counter Insurgency Allowance Border Area Allowance Hilly Area Allowance

Entertainment Allowance It is the amount paid by employer for availing entertainment services. Under section 16(ii) of Income Tax Act, 1961 it is entitled to deduction in tax from is salary. But in this case deduction is given to his gross salary which also includes entertainment allowance. Deduction in tax against this allowance can be divided into two parts : In case of Government employee entitled to minimum deduction of       

Entertainment allowance received 20% of basic salary excluding any other allowance Rs. 5000 In case of other employee entitled to minimum deduction of (a) Entertainment allowance received 20% of basic salary excluding any other allowance Rs. 7500 Entertainment allowance received during 1954-1955

[14]

Specific allowances that are fully exempt in the hands of employees Allowance Travelling allowance

Conditions to claim full exemption 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

Daily Allowance

effects. Should be spent by the employee for meeting the daily charges incurred on

Conveyance allowance

a tour or transfer. Should be used by the employee to meet the expenditure on conveyance in performance of official

Helper allowance

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

Academic allowance

official duties Should be used by the employee for his academic research and training

Uniform allowance

pursuits. Should be spent by the employee for purchasing/maintaining office uniform for official duties. [15]

HOUSE RENT ALLOWANCE [Sec. 10(13A) Rule 2A] Conditions for claiming exemption: • Assessed is in receipt of HRA • Pays rent • 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.

Salary for HRA= Basic Pay + DA(considered for retirement benefits) + Commission ( if received as a fixed percentage on turnover as per terms of employment)

[16]

CALCULATION OF TAXABLE HRA PARTICULAR

AMOUN

AMOUN

T

T XXX

Amount received during the financial year for HRA Less: Exemption u/s 10(13A) Rule 2A Least of the followings:

xxx

(a) Actual amount received

xxx

(b) 50% of the salary if house is placed at Delhi, Mumbai, Kolkata, and Chennai OR 40% of the salary in it is placed in any other city

xxx

(c) Rent paid less 10% of Salary TAXABLE HRA

XXX

[17]

GRATUITY 1. Government Employee: Fully exempted from tax u/s 10(10)(i). 2. Non-Govt. Employee: (a) Employee covered by Payment of Gratuity Act,1972

Computation of Taxable Gratuity: PARTICULAR

AMOUN

AMOUN

T

T XXX

Amount received as Gratuity Less: Exemption u/s 10(10)(ii) Least of the followings: (i) Actual amount received

xxx

(ii) 15/26 × Last drawn salary × No. of years of completed

xxx

service or part thereof in excess of 6 months 10,00,000

(iii) Maximum Limit Taxable Gratuity

XXX

PENSION [18]

Taxability of Commuted Pension: (a) Pension is received in lump sum as per the terms of the employment on retirement or superannuation. (b) Full Value of Commuted Pension = Amount received on commutation / percentage of commutation. Recipient Government employee

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

( Central/State/Local Authority or Statutory Corporation) Non-Govt. employee who has also

Amount Received

received

Less: 1/3 of Full Value of Commuted

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

Pension Amount Received

received

Less:1/2 of Full Value of Commuted

Gratuity u/s 10(10A)(iii)

Pension

Chapter 3

[19]

Perquisite Under section 17(2) of Income Tax Act, 1961 perquisite is defined as:  Amount paid for the rent-free accommodation provided to the assessed by his employer  Any concession in the matter of rent respecting any accommodation provided to the assesses by his employer  Any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:

1. Employer may provide accommodation facility to the employee with or with furniture. Such accommodation may be rent free at a concessional rent.

[20]

a) For Rent free Accommodation The amount taxable for such perquisite is as follows:

Type of Taxable amt employee unfurnished accommodation (1)

for Taxable amt to be added if furniture is provided (2)

Taxable amt furnished accommodation (3)

for

a. Government employees

Amt payable as per 10% per annum (1) Plus (2) Govt. rules of cost of furniture or rent payable b. Non - Government employees: If house is owned by the employer

 15% of salary if population exceeds 25 lakhs.

10% per annum of cost of furniture or rent payable.

(1) Plus (2)

 10% of salary if population is between 10 to 25 lakhs.  7.5% of salary if population is below 10 lakhs. If house is 10% per annum (1) Plus (2) not owned 15% of salary or lease of cost of by the rent, whichever is furniture or rent employed lower payable Note: Salary for the purpose of above includes basis, D.A, bonus, commission, free and all taxable allowance by whatever name called, but doesn’t include allowance which are exempt or doesn’t form part of salary for the calculation of retirement benefit and also does not include the employer’s contribution to PF. 2. Car Facility Motor car facility provided by an employer is taxable in the hands of the employee on the following basis. [21]

Car is owned by

Car is maintained by

Employer

Employer

Employee

Used by employees for

Person chargeable

Official purpose

Not a Perquisite

Not applicable

Personal Purpose

Maintenance + 10% Depreciation

Specified Employee

Both Purpose

Rs. 1,800 /Rs. 2,400 p.m

Official purpose

Not a Perquisite

Personal Purpose Both Purpose Official purpose Personal Purpose

Employee

Taxable Value

Employer Both Purpose

Hire charges of the car /10% depreciation Rs.600/900 p.m Not a Perquisite

Not applicable Specified Employee Not applicable

Maintenance Actual expenditure incurred - Rs 1,800 /2,400+ (Rs 900p.m. for driver, if any)

Specified Employee

Not applicable # depends on the cubic capacity of the car whether it exceeds 1.6 liters or not. Employee

Any Purpose

Not a Perquisite

3. Gas, Electricity or Water Supply Employer may also provide gas, electricity or water supply to the employee either free of cost or at concessional price.

[22]

Following will be the taxable amount.

Situations (1)

If employer provides the above free of cost (2)

If employer provides the above at a concessional rate (3)

If the employer purchases it from outside:

Cost incurred by the employer to provide the same

Column (2) - amount recovered from the employee.

if the employer provides it from its own source:

Manufacturing cost per unit

Column (2) - amount recovered from the employee.

Insurance paid by the employer Any premium borne by the employer to run an assurance on the life of the employees’ taxable in the hands of the employee.

Chapter 4 DEDUCTION FROM SALARY The following two deductions from Gross salary are allowed vide section 16

[23]

(1) Entertainment allowance (2) Professional tax ENTERTAINMENT ALLOWANCE    ONLY TO GOVERNMENT EMPLOYEE It is initially included in gross taxable salary. Thereafter, section 16(ii) allows a deduction from Salaries only to the Government employees to the least of the following: a. 1/5th of the Basic Salary. b. Rs. 5000 c. Amount of entertainment allowances actually received.  NON GOVERNMENT EMPLOYEE It is not entitled to any deduction for entertainment allowances. BASIC SALARY above would include Dearness Allowance if it forms part of salary but exclude bonus, allowances, benefits and perquisites. PROFESSIONAL TAX Section 16(iii) allows a deduction from salaries of the amount of tax on employment imposed by or under any law by the State Government under Article 276 of the constitution. COMPUTING DEDUCTIONS UNDER CHAPTER VI A ASSESSEE: PREEVIOUS YEAR: ASSESSMENT YEAR: PARTICULARS Rs.

[24]

DEDUCTIONS UNDER CHAPTER VI A 1. SECTION 80C  Life insurance premium  Deferred annuity  Deferred annuity by government  Contribution to statutory P.F  Contribution to P.P.F  Contribution to recognized P.F  National saving scheme  National savings certificates  Unit linked insurance plan  P.O cumulative time deposits  Pension fund of UTI  Housing finance deposits  New house  Tuition fees  Infrastructure debentures  Bank fixed deposits  NABARD bonds P.O. 5 year time deposit____________________ 2. Section 80D : medical insurance  Self, spouse, dependent children  Parents Additional ( senior citizen)

15000 15000 5000______

3. Section 80DD maintenance of handicapped ( Rs. 50000 to Rs. 100000) 4. Section 80DDB medical treatment (40000 to 60000) 5. Section 80E interest on higher education loan 6. Section 80U blind/handicapped/retarded ( lump sum) ( 50000 or 100000) TOTAL DEDUCTIONS

Chapter 5 [25]

xxxxx

xxxxx xxxxx xxxxx xxxxx XXXXX

Exemption from salary LEAVE ENCASHMENT 1. Leave encashment while in service is fully taxable as income of previous year in which it is enchased. 2. Leave encashment on retirement: if (a) an individual receives leave encashment on his retirement, then the amount received will be eligible for exemption. The amount of exemption is based on his employment: (b) Government employee: fully exempted from tax (c) 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. 3. Computation of exemption from Leave Encashment: Step 1 : Computation of Salary = 10 months average salary preceeding the month of retirement. Step 2 : Salary = Basic Pay + Dearness Allowance (forming a part of salary for retirement benefits) + Commission (if received as a fixed percentage on turnover)

[26]

Step3 : 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

Amount

(i) Leave credit available on the date xxx of retirement xxx Less: Excess leave sanctioned by the employer (Leave sanctioned by the employer per year – 30 days per year) × No. of completed years of service)

Leave credit on the basis of 30 days credit for completed years of service (ii) Leave salary on the basis of 30 days credit = Step 3(i) x Step 1

xxx xxx

[27]

Taxable Leave Salary on Retirement: Particulars Amount Received on Leave Encashment

Amount

Amount xxx

Less: Exemption u/s 10(10AA) Least of the followings: (i) Actual amount of Leave encashment received

xxx

(ii) Average salary of the individual for the past 10 months ×10 months

xxx

(iii) Maximum Limit

xxx

(iv) Leave at credit at the rate of 30 days p.a. for every Completed

xxx

year of service as calculated in Step 3(ii) Taxable Value of Leave Encashment

PROVIDENT FUND [28]

xxx xxx

Provident fund scheme provides for monthly contributions from the employees as well as the employer to a Provident fund account. The balance to the credit of such accounts also earns interest. The entire balance is paid to an employee on his retirement. The taxability of employer’s contribution, interest credited annually and balance paid on retirement depends upon the type of Provident fund. There are different types of provident fund such as 1. Statutory provident fund 2. Recognizes provident fund 3. Unrecognized provident fund.

Particulars Contribution by Assessor’s contribution Employer’s contribution

Statutory Employers and employees Deduction u/s 80c Not taxable

Interest credited

Fully exempted

Recognized Employers and employees Deduction u/s 80c Amount exceeding 12% of salary is taxable Exempt up to 9.5% p.a. any excess is taxable.

Unrecognized Employers and employees No income tax benefit Not taxable at the time of contribution On Employee’s contribution taxable under the head “Other Sources” On Employer’s contribution not taxable at the time of credit.

NORMAL RATE OF TAXES FOR THE ASSESSMENT YEAR 2013-14 AND PREVIOUS YEAR 2012-13 [29]

SR NO. 1.

TOTAL INCOME Where the total income

RATE OF TAX Nil

does not exceed Rs. 2.

3.

4.

200000 Where the total income

10 % of the amount by

exceeds Rs. 200000 but

which the total income

does not exceed Rs.

exceeds Rs. 200000

500000 Where the total income

Rs. 30000 plus 20% of

exceeds Rs. 500000 but

the amount by which the

does not exceed Rs.

total income exceeds Rs.

1000000. Where the total income

500000 Rs. 130000 plus 30% of

exceeds Rs. 1000000

the amount by which the total income exceeds Rs. 1000000.

Rates of tax for every individual, resident in India, who is of the age of sixty years or more but less than eighty years at any time during the financial year. SR NO. 1.

TOTAL INCOME Where the total income does not exceed Rs. 250000 [30]

RATE OF TAX Nil

2.

3.

4.

Where the total income

10 % of the amount by

exceeds Rs. 250000 but

which the total income

does not exceed Rs.

exceeds Rs. 250000

500000 Where the total income

Rs. 25000 plus 20% of

exceeds Rs. 500000 but

the amount by which the

does not exceed Rs.

total income exceeds Rs.

1000000. Where the total income

500000 Rs. 125000 plus 30% of

exceeds Rs. 1000000

the amount by which the total income exceeds Rs. 1000000.

In case of every individual being a resident in India, who is of the age of eighty years or more at any time during the financial year. SR NO. TOTAL INCOME RATE OF TAX 1. Where the total income Nil does not exceed Rs. 2.

3.

500000 Where the total income

20 % of the amount by

exceeds Rs. 500000 but

which the total income

does not exceed Rs.

exceeds Rs. 500000

1000000 Where the total income

Rs. 100000 plus 30% of

[31]

exceed Rs. 1000000.

the amount by which the total income exceeds Rs. 1000000

COMPUTATION OF INCOME FROM SALARY. Name of assesses Previous year 1-4-2012 to 31-3-2013 [32]

Assessment year 2013-14 Particular Income from salary

Amount

1. salary  gross- net + deductions  due/ deemed to accrue in India  advance/ arrears received  voluntary payments less:- exempt u/s 10 2. allowances  dearness allowances  entertainment allowances  leave travel allowances( less exempt u/s10(10) )  house rent allowances ( less

XXXXX

exempt u/s 10(13) )  expenses allowances ( less exempt u/s 10(14) ) 3. Annuity ( less : exempt u/s 10(13)) 4. Pension  uncommented (monthly)  commuted less:- commuter pension exempt u/s 10(10A)  govt employee – fully exempt  non govt :a. gratuity, 1/3 of full XXXXX

commuted value [33]

b. otherwise, ½ of full

XXXXX

commuted value 5. Gratuity (gross loss: exempt u\s 10(10) govt employee – fully exempt employee under payment of gratuity act – least of a) Salary p.m x 15/26 x completed year of service. b) Rs. 10,00,000 c) Gratuity actually received. Other employee:- lower of a. Average salary of last 10 months x 3/2 x no. of years of service b. Rs. 10,00,000 c. Gratuity actually received. 6. Fees and Commissions 7. Perquisites  Perquisites taxable for all

XXXXX

employees  Perquisites not taxable at all.

8. Profit in lieu of salary  Compensation for termination of employment  Compensation for modification of terms of

[34]

employment  Employer’s contribution to PF + interest thereon Less:-

XXXXX

 Compensation to

XXXXX

workman/ VRS  Payment from statutory P.F  Payment from superannuation fund. 9. Leave encashment ( gross less

XXXXX

exempt u/s 10(10AA) Government employees , fully exempt Non govt employee – least of  Encashment of earned leave  10 x average salary for last 10 months  Rs. 300000  Amount actually received

GROSS TAXABLE SALARY Less :- deduction under section 16  Entertainment allowances Govt.Empolyee – least of a. 1/5th of Basic salary b. Rs.5,000 c. Actual allowance [35]

 Professional tax

XXXXX

NET TAXABLE SALARY ( GROSS LESS DEDUCTION)

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX [36]

IIIustration 1(Retiring Employee) Mr. X retired from the services of M/s Y ltd. On 31.01.2013 after completing service of 30 years and one month. He had joined the company in 1982 at the age of 30 years and received the following on his retirement: 1) Gratuity Rs.6, 00,000. He was covered under the payment of gratuity act, 1972. 2) Leave encashment of Rs. 3, 30,000 for 330 day leave balance in his account. He was credited 30 days leave for each completed year of service. 3) As per the scheme of the company, he was offered a car which was purchased on 01.02.2010 by the company for Rs. 5, 00,000. Company has recovered 2,00,000 from him for the car. Company depreciated vehicles at the rate of15% on straight line method. 4) An amount of Rs. 3, 00,000 as commutation of 2/3 of his pension. 5) Company presented him a gift voucher worth Rs.6,000 on his retirement. 6) His colleagues also gifted him a television ( LCD) worth 50,000 form their own contribution. [37]

Following are the other particulars; 1) He has drawn a Basis salary of Rs. 20,000 and 50% Dearness allowance per allowance per month for the period from 01.04.2012 to 31.01.2013. 2) Received pension of 5,000 per month for the period 01.02.2013 to 31.03.2013 after commutation of pension. Compute his total income from the above for Assessment Year 2013-14.

Solution:

Computation of Gross total Income Particular Basic Salary (20,000 *10) DA (2,00,000*50%) Gift voucher (6000-5000) Motor car ( WN) Uncommitted Pension (Sec 17(1)( (5,000*2) Commuted pension (Sec10(10A)) Gratuity (Sec10(10)) Leave salary ( Sec 10(10A))

Rs. 2,00,000 1,00,000 1000 56,000 10,000 1,50,000 80,789 1,30,000

Gross Salary

7,27,769

Working notes: 1. [38]

Motor car ( 17(2)(viii)rule3(7)(viii) cost Less: Depreciation @20% 01.02.2010-31.01.2011 01.02.2011-31.01.2012 01.022013-31.01.2013 WDV Less: Amount Recovered Perquisite value of Car

5,00,0000 1,00,000 80,000 64,000 2,56,000 2,00,000 56,000

2. commuted pension {Sec 10(10)} Amount received (Less) Exempted (3,00,000*3/2*1/3) Taxable

3,00,000 1,50,000 1,50,000

3. Gratuity {Sec10 (10)} Least of the following is exempt 1. Gratuity received-Rs.6, 00,000 2. Rs. 10, 00,000 3. 15/26*30,000*30=5, 19,231 Received =6, 00,000 Exempt =5, 19,231 Taxable = 80,769

4. Leave Salary {Sec 10(10A)} Least of the following is exempt 1. 2. 3. 4.

Rs.3,30,000 Rs. 10*20,0000 =2,20,000 Rs.3,00,000 330/30*20,000 =2,20,000 [39]

Received Exempt Taxable

= Rs. 3, 30,000 = Rs. 2, 00,000 = Rs. 1, 30,000

CONCLUSION

1. The employee or individual who earn salary has to pay tax on income of previous year in the assessment year. 2. They can also get benefits of deduction which help them to reduce tax liability. 3. The individual has to pay tax in advance if his tax liability is more than Rs. 10000 in previous year through assumption .

[40]

Bibliography

www.google.com

[41]