FAQ Salary

18 Jan


1. What is the meaning of Salary?
For Income Tax purposes, Salary includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment which may be called by any name from one or more employers.
2. What are the components of Salary?
Some of the inclusions in the salary are:
a. Wages;
b. Any annuity or pension;
c. Any gratuity;
d. Any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
e. Any advance salary;
f. Leave Encashment
g. Any other monetary payment by the employer
3. Are allowances given by the employer to be actually spent to avail exemption?
Yes, allowance given by the employer has to be actually spent to avail exemption
4. In case of an employee residing in his own house, is the HRA exempt from tax?
No, since he is not paying any rent the entire HRA is taxable. HRA exemption is based on a formula and if rent paid is NIL, full HRA is taxable.
5. Is the Transport/Conveyance Allowance taxable?
Transport/Conveyance allowance is exempt upto Rs. 800 per month subject to actual spend for official purpose. Amount spent on traveling between home to office and vice versa is also considered to be official purpose.
6. When can I claim LTA and when is this taxable?
You may claim LTA as per your company/employer’s policy. The LTA is not taxable twice in a block of four calendar years (Jan-Dec, currently the block is 2006-2009) based on actual spend. The journey can be performed to any place within India through road, rail or air (economy class only). Any claim more than twice in the block of 4 years is taxable.
7. I get reimbursement of medical expenses incurred by me from my employer. Is it taxable? What if I get a medical allowance?
Medical allowance or reimbursement is not taxable upto Rs. 15,000 in a financial year subject to actual spend. If it is given as an allowance, then it will not be taxable upto the amount incurred by you on medical expenses/treatment for your dependents, subject to a limit of Rs. 15,000 per annum. Any amount over and above Rs. 15,000 is taxable.
8. What is the treatment of bonus and commissions?
These are fully taxable.
9. My employer contributes towards EPF as a part of my salary. Is it taxable?
Contribution to EPF upto 12% by employer is not taxable. You may contribute any amount without any limit for which you will get a deduction. If you withdraw EPF during the continuance of employment or before expiry of 5 years from becoming a member even in case of cessation of employment (leaving the service/job), it will be fully taxable in the year of withdrawal.
10. Is Education allowance taxable?
Education allowance is not taxable upto Rs. 100 per month per child subject to a maximum of two kids.
11. What about Other allowances?
All other allowances by whatever name called are taxable. Some special allowances to Government employees may be exempt.
12. Is foregone salary taxable?
The voluntary foregoing of salary due to an Assessee is only an application of income. Hence that foregone salary is taxable.
13. Is pension to be taxed as salary?
Yes, they are to be taxed under the head ‘salaries’. In some cases, commuted pension may not be taxable.
14. Can an employee receive gratuity from more than one employer during any previous year? What are the tax implications?
Yes, he can receive gratuity from more than one employer, but the maximum amount exempt from tax cannot exceed least of (i) Rs 3,50,000/-
(ii) Half-months salary for each completed year of service
(iii) Gratuity actually received.
15. Is Leave Encashment taxable?

Leave encashment during the continuance of job is fully taxable. However, if one gets leave encashment on cessation of employment (leaving the service/job), it is not taxable subject to certain limits as under:
1. Notified Amount (Currently Rs. 2,40,000)
2. 10 months average salary
3. Leave encashment salary received on termination
4. (Leave Entitlement – Leave Availed) * Average Monthly Salary
In case of Government employees, leave encashment on retirement is not taxable.

16. Are gifts made in kind by the employer a taxable perquisite?
Yes, the perquisite value would be the market price of the gifted article. However, if the value of such gifts up to Rs.5,000 in the aggregate per annum would be exempt, beyond which it would be taxed as a perquisite. Gifts, which are made in cash or convertible into money (eg. Gift cheques) are not exempted.
17) Is the amount spent on membership fee by the employer on the membership of the employee in a professional institution a taxable perquisite?
Yes, it is taxable.



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Posted by on January 18, 2013 in Job Descriptions


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