NTA UGC NET 2019 Commerce full free notes for income tax and corporate planning

Unit 10 - Income tax and corporate tax planning

Computation of taxable income under various heads:

Income from salaries

• Basic salary: fully taxable.
• Dearness allowance: fully taxable.
• Advance salary: taxable (only in the year of receipt).
• Bonus: fully taxable.
• Fees and commission: fully taxable.

• Overtime allowance: fully taxable
• Salary in lieu of notice period: taxable (only in the year of receipt)

• Annuity: taxable under the head salaries if it received from present employer and taxable under the head ‘Income from other sources’, if it is received from the former employer.
• House rent allowance (HRA): taxable upto certain extent.
• Special allowances: taxable upto certain extent.
• Entertainment allowance: fully taxable for private employees and taxable upto certain extent for govt employees.
• Leave travel concession (LTC)
• Retirement benefits like PF, gratuity, pension, and leave encashment: exempt upto certain extent.
• Perquisites: exempt upto certain extent.

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Types of perquisites:

• Rent free furnished and unfurnished accommodation.

• Accommodation in a hotel
• Monetary obligations of the employee fulfilled by the employer.
• Fringe benefits such as interest free or concessional loans, travelling and touring facilities, free food and non alcoholic beverages, gift or voucher or token, credit cards, club membership, use of moveable assets, sale of moveable assets, services like gardener, sweeper, watchman and other servants, car facility, gas or electricity facility, facility and free or concessional educational facility.

Important exemptions under the head salaries:

House rent allowance: 

If the house is situated in metro cities (chennai, mumbai, kolkata, and delhi), actual allowance received or 50% of salary or rent paid in excess of 10% of salary, which ever is least, will be exempt from tax. 

If the house is situated in other cities, actual allowance received or 40% of salary or rent paid in excess of 10% of salary, which ever is least, will be exempt from tax.

Amount of exemption based on actual expenditure of allowance:

Actual allowance received or actual amount spent, whichever is least, will be exempt from tax in case of

• Travelling allowance
• Conveyance allowance
• Daily allowance
• Helper allowance
• Academic allowance
• Uniform allowance.

Fixed or specified exemption:

• Children education allowance: Rs 100 pm per child, upto 2 children.
• Hostel allowance: Rs 300 pm per child, upto 2 children.
• Transport allowance: Rs 3,200 pm only for handicapped employees.
• Allowance to transport employees: 70% of the allowance, upto Rs 10,000 pm.
• Underground allowance: Rs 800 pm
• Border area and remote area allowance: Rs 200 pm to Rs 1300 pm.
• Compensatory field area allowance: Rs 2,600 pm
• Compensatory modified field area allowance: Rs 1000 pm
• Special compensatory allowance: Rs 200 pm
• Special compensatory hilly area allowance: Rs 300 pm to Rs 7000 pm.

Taxable value of perquisites:

• Unfurnished accommodation:

 15% of salary is taxable for accommodation in a city more than 25 lakhs population; 

10% of salary is taxable for the accommodation in a city having population between 10-25 lakhs; and 

7.5% of salary is taxable for the accommodation in a city with less than 10 lakhs population.

• Furnished accommodation: taxable value of unfurnished accommodation + 10% of cost of furniture or hire charges.
• Accommodation in a hotel: taxable upto a minimum of actual charges or 24% of salary.
• Petty loans upto Rs 20,000 is exempt from tax
• Tea and snacks during working hours: exempt from tax.
• Free food and non-alcoholic beverages in a remote or offshore area: exempt from tax
• Gift upto Rs 5,000: exempt from tax

Maximum exemption limit for:

• Medical treatment outside India: Rs 2,00,000
• Gratuity: Rs 20,00,000 for employees covered under the gratuity act and Rs 10,00,000 for other employees.
• Leave encashment: Rs 3,00,000
• Compensation on voluntary retirement: Rs 5,00,000
• Retrenchment compensation: Rs 5,00,000
• Contribution of an employer to approved superannuation fund: Rs 1,50,000 every year.

Other important points:

• Gratuity, Commuted pension, and leave encashment is fully exempted from tax for govt employees.
• Leave encashment received in service is fully taxable.
• Relief under sec 89 available for advance or arrears of salary.

Deductions from salary (sec 16):

• Standard deduction: Rs 40,000 or actual salary whichever is less.
• Entertainment allowance: Only for govt employees upto minimum of actual allowance or 20% of salary or Rs 5,000.
• Professional tax or tax on employment.