PROCESOS Y/O PROYECTOS

(a) Employees living in hired (rented) houses: Some times the employer does not provide rent free accommodation but instead makes provision to pay some amount in cash, so that the employee may be compensated to some extent as far as rent is concerned. The amount of cash paid is known as HRA. Out of total HRA received an amount equal to the minimum of the following three items is exempted from tax u/s 10(13A): The three items are:

(i) 50% of salary in case of Metropolitan cities and 40% of salary in case of all other cities

(ii) Actual HRA received

(iii) The amount by which the actual rent paid by the employee exceeds 10% of his salary

This exemption shall be available even is employee is living in a rented house at a place other than the place of employment.

(b) Employees living in their own house or in such houses for which they are not paying any rent: House rent allowance received is fully taxable and no portion of it is exempted under any provision of law.

(c) House rent allowance received by Judges of High court and supreme court: Any amount received by them is fully exempted under High Court Judges Act 1954 and Supreme court judges act 1958.

PROBLEM:

MR.Yogesh is employed at Amritsar on salary of Rs.3,000 p.m. the employer is paying HRA of Rs.350 PM but the actual rent paid by Yogesh is Rs.500 PM. He is also getting 2% commission on turn over achieved by him and turnover is Rs.1,50,000.

COMPUTATION OF GROSS SALARY:

Salary @ Rs.3,000 PM 36,000 Commission @ 2% of turn over 3,000 HRA RECEIVED: 4,200

Less: Exempted u/s 10(13A) (note 1) 2,100 2,100 Gross salary 41,100 NOTE 1: EXEMPTION OF HRA U/S 10(13A)

(i) Actual HRA received 4,200 (ii) Excess if rent paid over 10% of salary 2,100 (iii) 40% of salary 15,600 Exempted HRA IS 2,100.

ALLOWANCES COVERED U/S 10(14)

Following are the prescribed allowances for the purpose of section 10(14) and their respective treatment in computing the income under the head salaries:

(i) Helper allowance: It is exempted up to actual amount spent on engaging a helper required to perform the official duties.

(ii) Uniform allowance: It is also exempted up to actual expenditure incurred on acquiring or maintaining of the official uniform. Excess, if any will be taxable.

(iii) Academic research allowance: It is exempted up to actual expenditure incurred for research. Excess if any is taxable.

(iv) Conveyance allowance: It is exempted up to actual expenditure incurred in performance of official duties. In case amount received is more than actual expenditure, excess if any will be taxable.

(vi) Any special allowance in the nature of composite hill compensatory allowance/High altitude allowance/Unrecongenial climate allowance/snow bound area allowance: Exemption allowed up to Rs.300 PM

(vii) Compensatory field area allowance: Exemption allowed up to Rs.2,600 PM. (viii) Compensatory modified field area allowance: Exemption allowed up to

Rs.1,000 PM

(ix) Highly active field area allowance: Exemption allowed up to Rs.4,200 PM (x) Under ground allowance given to coal mine workers: Exemption allowed up

to Rs.800 PM

(xi) Tribal area allowance: This allowance is exempted upto Rs.200PM in the states of Madhya Pradesh, Tamil Nadu, Uttar Pradesh, Karnataka, Tripura, Assam, West Bengal. Bihar and Orissa.

(xii) Any running flight allowance: Granted to an employee of transport system to meet his personal expenditure during the duty performed in the course of running of such transport from one place to another provided that such employee is not is receipt of daily allowance, it exempted up to 70% of such allowance or Rs.6,000 PM which ever is less.

(xiii) Children education allowance: If any amount is given by employer to employee as education allowance for the education of own children in India, it shall be exempted up to Rs.100 PM per child for two children only.

(xiv) Hostel expenditure allowance; Any allowance granted by employer to meet the hostel expenditure of employees children it shall be exempted up to Rs.300 pm per child maximum for two children only.

(xv) Any special allowance: In the nature of counter insurgency allowance given to the members of the armed forces operating in areas away from their permanent locations for a period of more than 30 days shall be exempted up to Rs.1,300 PM.

Mr. Karthik is employed at Hyderabad at a Basic salary of Rs.25,000 PM and he is also getting following allowances:

a. Dearness allowance 2,000 PM b. Lunch allowance 1,000 PM c. Servant allowance 1,000 PM d. Transport “ 1,000 PM

e. Education “ 200 PM per child for three children f. Hostel “ to one child 500 PM

g. Conveyance “ 800 PM h. Overtime “ 24,000 PM i. Officiating “ 2,000 PM j. Cash allowance 1,200 PM k. Entertainment “ 2,000 PM l. Medical “ 800 PM m. CCA 600 PM n. HRA 5,000 PM

He is having a family house at the place of his posting but he is living in a rented house and in paying a rent of Rs.7,000 pm find out his gross salary.

COMPUTATION OF GROSS SALARY OF MR.KARTHIK

Basic salary @ Rs.25,000 pm 3,00,000 Dearness allowance 24,000 Lunch allowance 12,000 Servant allowance 12,000 Transport allowance 12,000 Less: Exemption 9,600 2,400 Education allowance 7,200 Less: Exemption 2,400 4,800 Hostel allowance 6,000 Less: Exemption 3,600 2,400 Conveyance allowance 9,600

Officiating allowance 24,000 Cash allowance 14,400 Entertainment allowance 24,000 Medical allowance 9,600 CCA 7,200 HRA

Less: Least of the following: Received Rs.60,000

40% of salary Rs.1,20,000

Rent paid—10% of salary Rs.54,000

(60,000—54,000) 6,000 GROSS SALARY 4,76,400

PERQUISITES [SECTION 17(2)]

U/S 17(1) “Salary” includes the value of any perquisite allowed or amenity provided by employer to employee. The word perquisite has not been defined under Income tax act 1961. Perquisite simply means any casual emolument attached to an office. Oxford English Dictionary also defines perquisite as “any casual emolument, fee or profit attached to an office or position, in addition to salary or wages”. Perquisites may be given in a variety of forms. If the perquisite does not accrue to the employee it will not be taxable. They may be received in cash or in kind. For income tax purposes it is immaterial whether the perquisites are paid voluntarily or under a contractual obligation. Where goods are presented to an employee, the value to be taxed is not their cost to the employer but their value to the employee.

Value of perquisites is chargeable to tax under the head salary only if these perks are received by an employee from his or her employer and employer may be a present, past or prospective one. In case any perks has been received from a person other than employer, then also the value of perk is taxable but either under the head business or profession or Income from other sources.

Any benefit derived by an employee from his employer whether received in lump sum of is being received every month and if such benefit comes out of employment agreement and it is providing a personal benefit to the employee or his family members, value of such a benefit is chargeable to tax under the head salary.