Tax implication on Salary Income

1. Tax implication on Salary Income Presented by: Sachin Gujar Chartered Accountant

2. “Salary” Salary is a periodical payment for Services rendered by an employee to an employer. However under sec.17(1) of the Income Tax Act, following items are also included : • Wages • Any annuity or pension • Any Gratuity • Any Fees, commission, perquisites or profits in lieu of or in addition to any salary or wages. • Any advance for Salary. • Any payment received by an employee while in service in respect of any period of leave not availed of by him. ( i.e. leave encashment) Sachin Gujar, C.A

3. Other items included under Salary • Dearness Allowance : It is an additional payment over & above the basic Salary for meting the high cost of living. • Bonus : It is a payment made under a service agreement between the employer & employee, which may be in the form of Diwali Bonus, Performance Bonus etc. • Commission / Incentive : If an employee is appointed on a fixed monthly salary plus commission as a percentage of revenue or sales then the said commission shall also be included in his Salary. Sachin Gujar, C.A

4. Exemptions under Sec.10(14) Sachin Gujar, C.A

5. Exemption towards reimbursement of Medical expenses The reimbursement by employer of actual expenditure incurred by an employee for Medical treatment of himself or any of his family members is exempt subject to a maximum ceiling of Rs.15000/-p.a. “Family” in relation to an employee means : • The Spouse and children of the employee • Parents, brothers and sisters of the employee who are wholly or mainly dependent on him Sachin Gujar, C.A

6. Exemption towards House rent Allowance An employee is entitled to claim the exemption towards HRA U/s.10(13A) when all thefollowing conditions are fulfilled: • The allowance from the employer must be specific to meet expenditure on payment of rent. • The residential accommodation occupied by the employee is not owned by him. • The actual payment of rent should exceed 10% of his salary. Sachin Gujar, C.A

7. Exemption towards House rent Allowance (contd...) If all these conditions are satisfied then HRA is exempt subject to least of the following: • Actual HRA received • Rent paid in excess of 10% of Salary • 40% of Salary For the purpose of this section Salary means Basic + D.A Sachin Gujar, C.A

8. Let us see an example for HRA Rs.(p.a) Rs.(p.a) Rs.(p.a) Annual salary 1,44,000 House rent allowance received 86,400 Less: Exemption u/s. 10(13A)read with Rule2A: (a)House rent allowance recd... 86,400 Rs. (b)Actual rent paid 93,600 Less: 10% of Salary 14,400 79,200 (c) 40% of salary 57,600 Least of (a), (b) & (c) is exempt 57,600 28,800 Salary income subject to deduction... 1,72,800 Sachin Gujar, C.A

9. Exemption towards Leave Travel concession Leave travel concession / allowance received by an employee for himself and his family in connection with his proceeding on leave to any place in India is exempt U/s.10(5) subject to the following conditions framed under Rule 2B: • Where the journey is performed by Air an amount not exceeding the economy air fare of the National carrier and where the journey is performed by Rail or any other mode of transport an amount not exceeding the First Class A.C rail fare by the shortest route to the place of destination. • The said exemption is available in respect of two journeys performed in a block of 4 calendar years. • It is important to understand that the LTA is exempted only towards the expenses incurred for the mode of transport and excluding hotel, food, entertainment expenses etc. Sachin Gujar, C.A

10. Deductions available from Salary (Way to save your TAX ) After computing the net salary as mentioned in the previous provisions an individual is entitled to claim deductions under various other sections of the Income Tax Act, which are mentioned here under: • Deduction U/s.80C: Amount invested in specified savings like Life Insurance Premium, PF, PPF, NSC, ELSS Mutual Fund & Housing Loan principal repayment. • Deduction U/s.80CCC: Contribution towards pension plans subject to a maximum payment of Rs.10000/- It may however be noted that the overall ceiling for investment U/s.80C & 80CCC is restricted to Rs.1.00 Lac p.a. • Deduction U/s.80D: Medical insurance premium paid for the health of the individual and spouse or dependent parents or dependent children subject to a maximum of Rs.10000/-p.a. Sachin Gujar, C.A

11. Deductions available from Salary (Way to save your TAX ) contd… 4. Deduction U/s.80DD: Expenditure incurred for maintenance and medical treatment of a dependent who is a person with disability subject to deduction of Rs.50000/- p.a. or Rs.75000/-p.a. if such person has severe disability as mentioned in the provision. 5. Deduction U/s.80E: Expenditure incurred on interest on loan (and not repayment of principal amount) taken from any financial institution for the purpose of higher education.100% of interest repayment is allowed as a deduction for 8 successive years beginning from the year in which the repayment starts. Sachin Gujar, C.A

12. Deductions available from Salary (Way to save your TAX ) contd… • Deduction U/s.80G: Donations to approved funds, Institutions & Trusts qualify for 50% or 100% deduction as applicable, U/s.80G. It may however be noted that the total deduction U/s.80G should not exceed 10% of gross total income. • Deduction U/s.80GG: Where a individual is not entitled to HRA and who is paying rent in excess of 10% of his total income and who files a declaration in form no.10BA is eligible for deduction under this section subject to the following conditions:- a. The Assessee does not own any other residential accommodation at the place / city where he performs his duties for employment and b. Subject to max. of 25% of total income or Rs.2000/- per month whichever is less Sachin Gujar, C.A

13. Deduction for Housing Loan Repayment One of the important deduction available under the Income Tax Act is repayment of your housing loan. • The Interest component is exempt with a upper limit of Rs.1.50 Lacs p.a. U/s.24 • The principal component is deductible with a upper limit of Rs.1.00 Lac p.a. (together with other specified savings) U/s.80C Sachin Gujar, C.A

14. Income Tax Rates Sachin Gujar, C.A

15. Income Tax rates for Women Sachin Gujar, C.A

16. Illustration No.1 Tax payable by an individual having total income of Rs.2.00 lacs Sachin Gujar, C.A

17. Illustration No.2 Tax payable by a Women having total income of Rs.2.00 lacs Sachin Gujar, C.A

18. Due Date For Filing your Tax Return • The Due date for filing your Tax Return is 31st July • Non Filing of your Return in time can attract Interest / Penalty • You have to file your Tax Return in Form No.2D ( Saral ). Sachin Gujar, C.A

19. Budget Implications for F.Y 2007-08 • Basic exemption increased from Rs.1.00 Lac p.a. to Rs.1.10 Lacs p.a. and from Rs.1.35 Lacs p.a. to Rs.1.45 Lacs p.a. for women. • Deduction U/s.80D for medical insurance premium increased from Rs.10000/-p.a. to Rs.15000/-p.a. • Education cess increased from 2% to 3%. Sachin Gujar, C.A

20. Thank You……..!!! Sachin Gujar, C.A

21. Contact Us: Sachin Gujar Chartered Accountant 1040, Sadashiv Peth, Bahar Apts, Near Nagnath Par, Pune – 411 030 : 020-24477990 Email : gujar_sachin@hotmail.com Sachin Gujar, C.A