Dr.D.Y.
Patil Institute of Management and Entrepreneur Development
MBA - Semester III -
Income under the Head “Salaries” (new amendments of Finance Act 2020 & changes
in perquisite) & “Income from House Property”
Subject Name /Code- SE FIN - 06: Direct Taxation 309 FIN (DT609ME)
1. Meaning of Salary
Salary is the remuneration received by an individual from an employer for services rendered
under an employer–employee relationship.
Includes:
Wages
Pension
Gratuity
Fees, commissions
Perquisites
Allowances
Advance salary
Arrears of salary
👉 Salary is taxable on due or receipt basis, whichever is earlier.
2. Basis of Charge of Salary Income (Section 15)
Salary is charged to tax when:
1. Salary is due from employer (even if not received), or
2. Salary is received (even if not due), or
3. Arrears of salary received during the year (if not taxed earlier).
3. Different Forms of Salar
1. Basic Salary
2. Dearness Allowance (DA)
3. Bonus
4. Commission
5. Fees
6. Advance Salary
7. Arrears of Salary
8. Pension
o Uncommuted pension → Fully taxable
o Commuted pension → Partly/fully exempt (subject to conditions)
4. Different Forms of Allowances
Allowances are fixed periodic payments made in addition to salary.
(A) Fully Taxable Allowances
Dearness Allowance (DA)
City Compensatory Allowance
Overtime Allowance
Entertainment Allowance (taxable but deduction allowed to Govt employees)
(B) Partly Exempt Allowances (Section 10)
House Rent Allowance (HRA)
Leave Travel Allowance (LTA)
Children Education Allowance
Transport Allowance (for disabled employees)
(C) Fully Exempt Allowances
Allowance to High Court & Supreme Court judges
Allowances to UNO employees
5. Perquisites
Perquisites are benefits provided by the employer in addition to salary.
Types of Perquisites:
1. Taxable for all employees
o Rent-free accommodation
o Motor car facility
o Sweeper, gardener, watchman
2. Taxable only for specified employees
o Gas, electricity, water supply
o Free educational facilities
3. Tax-free perquisites
o Medical facilities in govt hospitals
o Employer’s contribution to medical insurance
o Refreshments during working hours
6. Permissible Deductions from Salary Income (Section 16)
1. Standard Deduction – ₹50,000 or salary amount whichever is less
2. Entertainment Allowance – Only for Government employees
3. Professional Tax – Paid during the year
7. Tax Treatment of Provident Fund
Types of Provident Fund:
Employee Employer
Type Interest
Contribution Contribution
Statutory PF (SPF) Deduction u/s 80C Exempt Exempt
Recognised PF (RPF) Deduction u/s 80C Exempt up to 12% Exempt up to 9.5%
Unrecognised PF Taxable on
No deduction Not taxable
(URPF) withdrawal
Public PF (PPF) Deduction u/s 80C — Fully exempt
INCOME FROM HOUSE PROPERTY
8. Basis of Charge (Section 22)
Income from house property is taxable if:
Assessee is owner of the property
Property is building or land appurtenant
Property is not used for own business or profession
9. Property Income Not Charged to Tax
House property used for own business
Property owned by local authority
One self-occupied house
Palace of ex-ruler
Farm house attached to agricultural land
10. Computation of Income from Let-Out House Property
Steps:
1. Gross Annual Value (GAV)
o Higher of Expected Rent or Actual Rent
2. Less: Municipal Taxes (paid by owner)
3. Net Annual Value (NAV)
4. Less Deductions u/s 24
o 30% of NAV (Standard deduction)
o Interest on borrowed capital
5. Income from House Property
11. Computation of Income from Self-Occupied Property
Annual Value = Nil
Deduction u/s 24:
o Interest on borrowed capital:
Up to ₹2,00,000 (if loan taken for construction/purchase)
₹30,000 otherwise
Maximum two self-occupied houses allowed.