Salary And Perquisites In Indian Tax System
Salary is a different story. Tax is required to be paid on salary due from an employer whether paid or not, received in advance though not due and also on arrears of salary paid.
Salary includes wages, fees, commissions, perquisites, profites in lieu of, or, in respect of encashment of leave etc. It also includes the annual accrection to the employee's account recognized provident fund in excess of 12% of the salary of the employee, along with interest applicable, shall be included in the income of the employee.
Profits in lieu of salary includes amount received in lump sum or otherwise, prior to employment (temptation to switch jobs) or after cessation of employment (do not join a competitor or divulge sensitive information). It will not include interests on contributions or any sum received, including bonus, under keyman insurance.
Salary can be any of the following forms:
- Wages;
- Any annuity or pension;
- Any gratuity;
- Any fees/commissions, profits/perquisites in lieu of any salary or wages;
- Any salary advance;
- Any payment that employee receives for a period of leave not taken by him;
- Any annual accreditation to provident fund balance at the credit of an employee
- The total of all sums that are comprised in the transferred balance
Tax on Pension
U/s 9(1)(iii), the pension is taxable in India only if it is earned in India. For pensioners residing in India but receiving pension for past services done abroad will be considered as income accruing to the pensioners abroad, and hence will not be liable to tax in India on basis of accrual. Pension would become taxable in India on receipt basis only when pension is directly received by the pensioner in India as per an agreement with employer/former employer.
Tax upon bonus, fees & commissions
The bonus received in the gross salary in a year is taxable on receipt basis.
Any fees/commission received/receivable by an employee is fully taxable & it's included in the gross salary.
Tax on Gratuity
Employee receives gratuity at the time of retirement or his legal heir receives gratuity incase the employee dies. The gratuity that employee receives on retirement and legal heir receives on death of employee; both are taxable under the heads "Salary" and "Income from other sources" respectively.
Tax on Annuity
The annual grant that an employee receives from the employer is called annuity and comes under salary. It may be paid by the employer either voluntarily or on contractual agreement. Deferred annuity is not taxed unless right to receive it arises. Annuities given in a will or given by life insurance companies and annuities arising due to a contract come under "Income from other sources" and are taxable.
Tax upon profits in lieu of or in addition to salary
This includes any compensation received by an assessee from his employer/former employer on termination of employment or changes in terms & conditions relating thereto. It also includes any amount received by an assessee from any person before joining employment with this person or after termination of employment with this person.
Tax upon advance salary and perquisites
This includes value of rent free accommodation given to assessee by employer, value of any amenity granted free of cost/at concessional rate to an employee being the director or an employee having substantial interest in Company and value of any other fringe benefits.
PERQUISITES FOR SALARIED WILL BE TAXED FROM APRIL 2009
Perquisites given by employer like residential accommodation, conveyance facility as well as other benefits for employee's family could soon be added to the salary for income tax purposes and the Government may give a notification soon on valuation of such perks.
Initially, tax on such perks was paid by employer in the form of the Fringe Benefit Tax (FBT) which was done away with in the Budget 2009-10 by Pranab Mukherjee, the Finance Minister.
The perquisites that are included in taxable salary include residential accommodation given by the employer, motor car expenses for official/personal use, driver's salaries, salaries of gardener and sweeper if paid by employer and concessional education given
to the employee's children.
Under the FBT regime, tax burden of perquisites that was on the employer, will now be on the employee.
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