PGDM Seniors: Tax Planning and Financial Management

PGDM Seniors
Tax Planning and Financial

Management
Provident Fund
1) Recognised Provident Fund (RPF): Recognised provident fund means a
provident fund recognised by the Commissioner of Income-tax for the
purposes of income-tax.
2) Unrecognised Provident Fund (URPF): A fund not recognised by the
Commissioner of Income-tax is Unrecognised Provident Fund.
3) Statutory Provident Fund (SPF): The SPF is governed by Provident
Funds Act, 1925. It applies to employees of government, railways, semi-
government institutions, local bodies, universities and all recognised
educational institutions.
(4) Public Provident Fund (PPF): Public provident fund is operated under
the Public Provident Fund Act, 1968. A membership of the fund is open to
every individual though it is ideally suited to self-employed people. A
salaried employee may also contribute to PPF in
addition to the fund operated by his employer.
Provident Fund- Taxability
Unrecognized
Particular Recognized PF Statutory PF Public PF
PF
Not applicable
Amount in
as there is
excess
Employer’s Not taxable only
of 12% of Fully exempt
Contribution yearly assessee’s
salary
own
is taxable
contribution
Eligible for Eligible for

Employee’s Not eligible for Eligible for
deduction u/s deduction u/s
Contribution deduction deduction u/s 80C
80C 80C
Amount in
Interest excess Not taxable
Fully exempt Fully exempt
Credited of 9.5% p.a. is yearly
taxable
Allowances
Fully Taxable
(i) Entertainment Allowance ( will be covered in deduction from salary)
(ii) Dearness Allowance
(iii) Overtime Allowance
(iv) Fixed Medical Allowance
(v) City Compensatory allowance
(vi) Interim Allowance (to meet increased cost of living in cities)
(vii) Servant Allowance
(viii) Project Allowance
(ix) Tiffin/Lunch/Dinner Allowance
(x) Any other cash allowance
(xi) Warden Allowance
(xii) Non-practicing Allowance
Partially taxable:
(1) House rent allowance [Section 10(13A) and rule 2A]
(2) Special allowances [Section 10(14)]
Special Allowances( Section 10(14))
Special allowances to meet expenses relating to duties or personal expenses
[Section 10(14)] -
(i) Special allowances or benefit not being in the nature of a perquisite,
specifically granted to meet expenses incurred in the performance of the
duties of office .For the allowances under this category, there is no limit on
the amount which the employee can receive from the employer, but
whatever amount is received should be fully utilized for the purpose for
which it was given to him.
(ii) Special allowances granted to the assessee either to meet his personal
expenses at the place where the duties of his office are performed by him
or at the place where he resides or to compensate him for the increased cost
of living. For the allowances under this category, there is a limit on the
amount which the employee can receive from the employer. Any amount
received by the employee in excess of these specified limits will be taxable
as income from salary . It does not matter whether the amount which is
received is actually spent or not by the employee for the purpose for which
it was given to him.
Special Allowances( Section 10(14)) as per subclause 1
(a)Any allowance granted to meet the cost of travel on tour or on transfer
(Traveling Allowance);
(b) any allowance, whether granted on tour or for the period of journey in
connection with transfer
(c)Conveyance Allowance
(d)Helper Allowance
(e)Uniform Allowance
(f) Any allowance to encourage the research or training in educational
institutions
As per sub clause 2
1) Any Special Compensatory Allowance in the nature of Special
Compensatory (Hilly Areas) ARs.800 or Rs.7,000 or Rs.300 per month
depending upon the specified locations.
2. Any Special Compensatory Allowance in the nature of border area
allowance -Rs.1,300 or Rs.1,100 or Rs.1,050 or Rs.750 or Rs.300 or Rs.200
per month depending upon the specified locations.
3. Special Compensatory (Tribal Areas / Schedule Areas / Agency Areas)
Allowance - Rs.200 per month.
Special Allowances( Section 10(14))
4. Any allowance granted to an employee working in any transport system
to meet his personal expenditure during his duty performed in the course of
running such transport from one place to another, provided that such
employee is not in receipt of daily allowance – 70% of such allowance upto
a maximum of Rs.6,000 per month
5. Children Education Allowance - Rs. 100 per month per child upto a
maximum of two children.
6.Any allowance granted to an employee to meet the hostel expenditure on
his child Rs.300 per month per child upto a maximum of two children.
7. Compensatory Field Area Allowance - Rs. 1,300 per month in specified
areas.
8. Any transport allowance granted to an employee to meet his expenditure
for the purpose of commuting between the place of his residence and the
place of his duty - Rs.800 per month.
Allowances
Fully Exempt
Allowance to High Court Judges: Any allowance paid to a Judge of a High
Court under section 22A(2) of the High Court Judges (Conditions of
Service) Act, 1954 is not taxable.
(2) Allowance received from United Nations Organisation (UNO):
Allowance paid by the UNO to its employees is not taxable by virtue of
section 2 of the United Nations (Privileges and Immunities) Act, 1974.
(3) Compensatory allowance under Article 222(2) of the Constitution:
Compensatory allowance received by judge under Article 222(2) of the
Constitution is not taxable since it is neither salary not perquisite
(4) Sumptuary allowance : Sumptuary allowance given to High Court
Judges under section 22C of the High Court Judges (Conditions of Service)
Act, 1954 and Supreme Court Judges under section 23B of the Supreme
Court Judges (Conditions of Service) Act, 1958 is not chargeable to tax.
Perquisites
The term ‘perquisite’ indicates some extra benefit in addition to the amount
that may be legally due by way of contract for services rendered. In modern
times, the salary package of an employee normally includes monetary salary
and perquisite like housing, car etc
Types of perquisites: Perquisites may be divided into three broad categories:

Perquisites taxable in the case of all employees
Perquisites exempt from tax in the case of all employees
Perquisites taxable only in the hands of specified employees.
Perquisites taxable in the case of all employee


Value of rent-free accommodation provided to the assessee by his
employee ( Exception : High court judge)

Value of concession in rent in respect of accommodation provided to the
assessee by his employer

Amount paid by an employer in respect of any obligation which otherwise
would have been payable by the employe e ( Eg Servant)

Amount payable by an employer directly to effect an assurance on the life
of the assessee (Employer taking a LIC policy of the employee).
Perquisites
Perquisites exempt from tax in all cases: The following perquisites are
exempt from tax in all cases -
(1) Telephone provided by an employer to an employee at his residence;
(2) Goods sold by an employer to his employees at concessional rates;
(3) Transport facility provided by an employer engaged in the business of
carrying of passengers or goods to his employees either free of charge or at
concessional rate;
(4) Privilege passes and privilege ticket orders granted by Indian Railways
to its employees;
(5) Perquisites allowed outside India by the Government to a citizen of India
for rendering services outside India;
(6) Sum payable by an employer to a RPF or an approved superannuation
fund
(7) Employer’s contribution to staff group insurance scheme;
(8) Leave travel concession;
(9) Payment of annual premium by employer on personal accident policy
effected by him on the life of the employee;
Perquisites
(10) Refreshment provided to all employees during working hours in office
premises;
(11) Subsidized lunch or dinner provided to an employee;
(12) Recreational facilities, including club facilities, extended to employees
in general i.e., not restricted to a few select employees;
(13) Amount spent by the employer on training of employees or amount
paid for refresher management course including expenses on boarding and
lodging;
(14) Rent-free official residence provided to a Judge of a High Court or the
Supreme Court;
(15 Rent-free furnished residence including maintenance provided to an
Officer of Parliament, Union Minister and a Leader of Opposition in
Parliament;
(3)Perquisites taxable only in the hands of specified employees

The value of any benefit or amenity granted or provided free of cost or at
concessional rate which have not been included in 1 & 2 above will be
taxable in the hands of specified employees:
Thank you

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PGDM Seniors

Tax Planning and Financial

Eligible for Eligible for

Types of perquisites: Perquisites may be divided into three broad categories:

Perquisites taxable in the case of all employee

(3)Perquisites taxable only in the hands of specified employees

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