The Central Board of Direct Taxation (CBDT) issued norms regarding computation of income which is chargeable under the head’ Salaries’.
The Income shall be chargeable to income-tax under the head “Salaries” :
(a) Any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;
(b) Any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him.
(c) Any arrears of salaries paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.
It is clarified by CBDT that where any salaries paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due. Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “Salary”.
Salary includes wages, fees, commissions, perquisites, profits in lieu of, or, in addition to salaries, advance of salary, annuity or pension, gratuity, payments in respect of encashment of leave and the portion of the annual accretion to the balance at the credit of the employee participating in a recognized provident fund also the contribution made by the Central Government or any other employer to the account of the employee under the New Pension Scheme.
Salaries includes pension, tax at source would have to be deducted from pension also, However, no tax is required to be deducted from the commuted portion of pension to the extent exempt also clarifies that Family Pension is chargeable to tax under the head ―Income from other sources‖ and not under the head ―Salaries.
Perquisites are extra benefits in addition to the normal salaries provided to the employees. These may be provided free of cost or at concessional rates to the employees. Some examples of perquisites are rent-free accommodation, provision of a motor car for personal use, use of health club, refreshment during office hours, etc.
Residential includes a house, flat, farmhouse or part thereof, hotel accommodation motel, service apartment, guest house, a caravan, mobile home, ship or other floating structure. Valuation of residential accommodation is based on unfurnished accommodation, furnished accommodation, furnished accommodation in hotels.
Perquisite on Motor car provided by the Employer to his employee is not liable to pay fringe benefits tax, the value of such perquisite shall be Nil if the motor car is used by the employee wholly and exclusively in the performance of his official duties.
In case the motor car is exclusively for private or personal purposes of the employee or any member of his household Actual expenditure incurred by the employer on the running and maintenance of motor car, including remuneration to chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use
In case the motor car is used partly in the performance of duties and partly for private or personal purposes of the employee or any member of his household if the expenses on maintenance and running of the motor car are met or reimbursed by the employer Rs. 1800 plus Rs. 900-, if chauffeur is also provided per month.
In case the motor car is used partly in the performance of duties and partly for private or personal purposes of the employee or any member of his household if the expenses on maintenance and running of motor car for such private or personal use are fully met by the employee Rs. 600 plus Rs. 900-, if chauffeur is also provided per month.
If the motor car or any other automotive conveyance is owned by the employee but the actual running and maintenance charges are met or reimbursed by the employer, the method of valuation of perquisite value is different.
Personal attendants etc. : The value of free service of all personal attendants including a sweeper, gardener and a watchman is to be taken at actual cost to the employer. Where the attendant is provided at the residence of the employee, full cost will be taxed as perquisite in the hands of the employee.
Gas, electricity & water for household consumption: The value of perquisite in the nature of gas, electricity, and water shall be the amount paid by the employer. Where the supply is made from the employer’s own resources, the manufacturing cost per unit incurred by the employer would be taken for the valuation of perquisite. Any amount paid by the employee for such facilities or services shall be reduced.
Perquisite on account of free or concessional education: on account of free or concessional education for any member of the employee‘s household shall be determined as the sum equal to the amount of expenditure incurred by the employer in that behalf.
Carriage of Passenger Goods: The value of any benefit or amenity resulting from the provision by an employer, who is engaged in the carriage of passengers or goods, to any employee or to any member of his household for personal or private journey free of cost or at concessional fare, in any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity. This will not apply to the employees of any airline or the railways.
Interest-free or concessional loans: In financial institutions, to provide interest-free or concessional loans to employees or any member of his household. Perquisite value would be calculated on the basis of the maximum outstanding monthly balance method. However, small loans up to Rs. 20,000/- in the aggregate are exempt. Loans for medical treatment are also exempted.
Perquisite on account of travelling, touring, accommodation and any other expense:
The value of perquisite on account of travelling, touring, accommodation and any other expenses paid for or reimbursed by the employer for any holiday availed of by the employee or any member of his household, other than leaving travel concession. Where such facility is maintained by the employer and is not available uniformly to all employees, the value of benefit shall be taken to be the value at which such facilities are offered by other agencies to the public. If a holiday facility is maintained by the employer and is available uniformly to all employees, the value of such benefit would be exempt.
The value of any gift or vouchers or token in lieu of which such gift may be received, given by the employer to the employee or member of his household, is taxable as a prerequisite. However gift, etc less than Rs. 5,000 in aggregate per annum would be exempt.
Value of Subsidized / Free food / non-alcoholic beverages provided by the employer to
An exemption is given in the following situations when Tea/snacks provided in working hours. Food & non-alcoholic beverages provided in working hours in a remote area or in an offshore installation.
Use of assets
This prerequisite is to be charged at the rate of 10% of the original cost of the asset as reduced by any charges recovered from the employee for such use. However, the use of Computers and Laptops would not give rise to any perquisite.
Transfer of assets:
Transfer of assets 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. Owing to a higher degree of obsolescence, in the case of computers and electronic gadgets, however, 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, mean data storage and handling devices like computers, digital diaries, and printers. They do not include household appliances.
Medical Reimbursement by the employer:
It is clarified that the method regarding the valuation of perquisites is given the deductors may look into the above provisions carefully before they determine the perquisite value for deduction purposes.
Profit in lieu of salary:
Profits in lieu of salaries are payments received by an employee in lieu of or in addition to salaries or wages. Profits in lieu of salaries are taxable under the Income Tax Act and must be declared while filing the income tax return.