Income Tax: Treatment of Income under the head Salaries [As amended by Finance Act, 2018]

a) Actual HRA Received

b) 40% of Salary (50%, if house situated in Mumbai,
Calcutta, Delhi or Chennai)

c) Rent paid minus 10% of salary

* Salary = Basic + DA (if part of retirement benefit) +
Turnover based Commission

Note
:

i. Fully taxable, if HRA is received by an employee who is
living in his own house or if he does not pay any rent

ii. It is mandatory for employee to report PAN of the
landlord to the employer if rent paid is more than Rs.
1,00,000 [Circular No. 08 /2013 dated 10-10-2013].

a) 70% of such allowance; or

b) Rs. 10,000 per month.

a) Value of rent free official residence

b) Value of conveyance facilities including transport
allowance

c) Sumptuary allowance

d) Leave travel concession

b) Up to Rs. 1,600 per month (for altitude above 15,000
feet) is exempt

read with

Rule 3(1)

read with

Rule 3(1)

i. If house property is owned by the employer, the taxable
value of perquisite shall be:

A. 15% of salary, if population of city where accommodation
is provided exceeds 25 lakhs

B. 10% of salary, if population of city where accommodation
is provided exceeds 10 lakhs but does not exceed 25 lakhs

C. 7.5% of salary, if accommodation is provided in any
other city

ii. If house property is taken on lease or rent by the
employer, the taxable value of perquisite shall be:

i. Lease rent paid or payable by the employer or 15% of the
salary, whichever is lower

*Salary includes:

a) Basic Pay

b) Dearness Allowance (only to the extent it forms part of
retirement benefit salary)

c) Bonus

d) Commission

e) All other allowances (only taxable portion)

f) Any monetary payment which is chargeable to tax

But does not include

i. Value of any perquisite

ii. Employer’s contribution to PF

iii. Benefits received at the time of retirement like
gratuity, pension etc.

Note:

1) Rent free accommodation is not chargeable to tax if
provided in remote area.

2) Rent free accommodation provided to High Court or
Supreme Court Judges, Union Ministers, Leader of Opposition
in Parliament, an official in Parliament and Serving
Chairman and members of UPSC is tax free perquisite.

3) The value so determined shall be reduced by the amount
of rent, if any, recovered from the employee.

4) If employee is transferred and retain property at both
the places, the taxable value of perquisites for initial
period of 90 days shall be determined with reference to
only one accommodation (at the option of the assessee). The
other one will be tax free. However after 90 days, taxable
value of perquisites shall be charged with reference to
both the accommodations.

read with

Rule 3(1)

a) Taxable value of perquisite assuming accommodation to be
provided to the employee is unfurnished

b) Add: 10% of original cost of furniture and
fixtures (if these are owned by the employer) or actual
higher charges paid or payable (if these are taken on rent
by the employer).

c) Less: The value so determined shall be reduced by
the amount of rent, if any, recovered from the employee

read with

Rule 3(1)

Hotel accommodation will not be chargeable to tax if :

a) It is provided for a total period not exceeding in
aggregate 15 days in the financial year; and

b) Such accommodation in hotel is provided on employee’s
transfer from one place to another place.

a) Actual charges paid or payable by the employer to such
hotel; or

b) 24% of salary

read with Rule 3(2)

read with Rule 3(3)

read with Rule 3(4)

➢ Manufacturing cost per unit incurred by the employer., if
provided from resources owned by the employer;

➢ Amount paid by the employer, if purchased by the employer
from outside agency

Note:

1. Any amount recovered from the employee shall be deducted
from the taxable value of perquisite.

2. Taxable in case of specified employees only [ See note 4]

read with Rule 3(5)

read with Rule 3(6)

Fair Market Value shall be determined as follows:

a) In case of listed Shares: Average of opening and closing
price as on date of exercise of option (Subject to certain
conditions and circumstances)

b) In case of unlisted shares/ security other than equity
shares: Value determined by a Merchant Banker as on date of
exercise of option or an earlier date, not being a date
which is more than 180 days earlier than the date of
exercise of the option.

1) Find out the “maximum outstanding monthly balance” (i.e.
the aggregate outstanding balance for each loan as on the
last day of each month);

2) Find out rate of interest charged by the SBI as on the
first day of relevant previous year in respect of loan for
the same purpose advanced by it;

3) Calculate interest for each month of the previous year
on the outstanding amount (mentioned in Step 1) at the rate
of interest given in Step 2

4) From the total interest calculated for the entire
previous year (step 3), deduct interest actually recovered,
if any, from employee

5) The balance amount (Step 3-Step 4) is taxable value of
perquisite

Nothing is taxable if:

a) Loan in aggregate does not exceed Rs. 20,000; or

b) Loan is provided for treatment of specified diseases
(Rule 3A) like neurological diseases, Cancer, AIDS, Chronic
renal failure, Hemophilia (specified diseases). However,
exemption is not applicable to so much of the loan as has
been reimbursed to the employee under any medical insurance
scheme.

b) 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.

2) Exempt from tax: Following free meals shall be exempt
from tax:

a) Food and non-alcoholic beverages provided during working
hours in remote area or in an offshore installation;

b) Tea, Coffee or Non-Alcoholic beverages and Snacks during
working hours are tax free perquisites;

c) Food in office premises or through non-transferable paid
vouchers usable only at eating joints provided by an
employer is not taxable, if cost to the employer is Rs.
50(or less) per meal.

b) Gift in kind up to Rs.5,000 in aggregate per annum would
be exempt, beyond which it would be taxable.

b) Expenses incurred for official purposes shall not be a
taxable perquisite provided complete details in respect of
such expenditure are maintained by the employer

b) Expenses incurred on club facilities for the official
purposes are exempt from tax.

c) Use of health club, sports and similar facilities
provided uniformly to all employees shall be exempt from
tax.

a) Use of Laptops and Computers: Nil

b) Movable asset other than Laptops, computers and Motor
Car*: 10% of original cost of the asset (if asset is owned
by the employer) or actual higher charges incurred by the
employer (if asset is taken on rent) less amount
recovered from employee.

*See Note 1 for computation of perquisite value in
case of use of the Motor Car

a) Computers, Laptop and Electronics items: Actual cost of
asset less depreciation at 50% (using reducing
balance method) for each completed year of usage by
employer less amount recovered from the employee

b) Motor Car: Actual cost of asset less depreciation
at 20% (using reducing balance method) for each completed
year of usage by employer less amount recovered from
the employee

c) Other movable assets: Actual cost of asset less
depreciation at 10% (on SLM basis) for each completed year
of usage by employer less amount recovered from the
employee.

However, expenses on telephones including a mobile phone
incurred by the employer on behalf of employee shall not be
treated as taxable perquisite.

*Family includes spouse, children and dependent
brother/sister/parents. However, family doesn’t include
more than 2 children of an Individual born on or after
01-10-1998.

(Subject to certain conditions)

• Where journey is performed by Air – Exemption up to Air
fare of economy class in the National Carrier by the
shortest route

• Where journey is performed by Rail – Exemption up to
air-conditioned first class rail fare by the shortest route

• If places of origin of journey and destination are
connected by rail but the journey is performed by any other
mode of transport – Exemption up to air-conditioned first
class rail fare by the shortest route.

• Where the places of origin of journey and destination are
not connected by rail:

* Where a recognized public transport system exists –
Exemption up to first Class or deluxe class fare by the
shortest route

* Where no recognized public transport system exists –
Exemption up to air conditioned first class rail fare by
shortest route.

Notes
:

i. Two journeys in a block of 4 calendar years is exempt

ii. Taxable only in case of Specified Employees [ See note 4]

i. Hospital maintained by the employer.

ii. Hospital maintained by the Government or Local
Authority or any other hospital approved by Central
Government

iii. Hospital approved by the Chief Commissioner having
regard to the prescribed guidelines for treatment of the
prescribed diseases.

b) Medical insurance premium paid or reimbursed by the
employer is not chargeable to tax.

a. Expenses on medical treatment – exempt to the extent
permitted by RBI.

b. Expenses on stay abroad for patient and one attendant –
exempt to the extent permitted by RBI.

c. Expenditure incurred on travelling of patient and one
attendant- exempt, if Gross Total Income (before including
the travel expenditure) of the employee, does not exceed
Rs. 2,00,000.

a) Rs 5,000

b) 1/5th of salary (excluding any allowance, benefits or
other perquisite)

c) Actual entertainment allowance received

a) Amount actually received

b) Unutilized earned leave* X Average monthly salary

c) 10 months Average Salary**

d) Rs. 3,00,000

* While computing unutilized earned leave, earned leave
entitlements cannot exceed 30 days for each completed year
of service rendered to the current employer

** Average salary = Average Salary*** of last 10 months
immediately preceding the retirement

***Salary = Basic Pay + DA (to the extent it forms part of
retirement benefits)+ turnover based commission

a) Amount calculated as per section 25F(b)of the Industrial
Disputes Act, 1947;

b) Rs. 5,00,000; or

c) Amount actually received

Note:

i. Relief under Section 89(1) is available

ii. 15 days average pay for each completed year of
continuous service or any part thereof in excess of 6
months is to be adopted under section 25F(b) of the
Industrial Disputes Act,1947

1. (*15/26) X Last drawn salary** X completed year of
service or part thereof in excess of 6 months.

2. Rs. 20,00,000

3. Gratuity actually received.

*7 days in case of employee of seasonal establishment.

** Salary = Last drawn salary including DA but excluding
any bonus, commission, HRA, overtime and any other
allowance, benefits or perquisite

1. Half month’s Average Salary* X Completed years of
service

2. Rs. 10,00,000

3. Gratuity actually received.

*Average salary = Average Salary of last 10 months
immediately preceding the month of retirement

** Salary = Basic Pay + DA (to the extent it forms part of
retirement benefits)+ turnover based commission

1) Actual amount received as per the guidelines i.e. least
of the following

a) 3 months salary for each completed year of services

b) Salary at the time of retirement X No. of months of
services left for retirement; or

2) Rs. 5,00,000

Note:
Partial withdrawal from NPS shall be exempt to the extent
of 25% of amount of contributions made by the employee.

a) Foreign enterprise is not engaged in any trade or
business in India

b) His stay in India does not exceed in aggregate a period
of 90 days in such previous year

c) Such remuneration is not liable to deducted from the
income of employer chargeable under this Act