13 August 2009

Computation of Income from Employment under new Direct Tax Laws Code Bill, 2009

Scheme of taxing of 'Income form Employment' under DTC 2009 is similar as that of taxing 'Salaries' under Income Tax Act, 1961. 'Income from Employment' shall be Gross Salary received by individual after reducing deduction allowed under Section 22 of Direct Tax Laws Code Bill.

The gross salary shall be the amount of salary due or paid (including arrears or advance) to a person, by or on behalf of his employer or former employer, in the financial year.


Computation for 'Income from employment' shall be as under:

Gross Salary  
Less :  
1. Tax on Employment i.e. Profession Tax  
2. Conveyance allowance received subject to prescribed limit.  
3. Special Allowance to meet expenses incurred during performance of duty to the extend prescribed  
4. Amount received on voluntary retirement or such other scheme subject to guidelines and limits prescribed  
5. Gratuity received, subject to prescribed limit, by and employee on his retirement or by his family members on the death of employee  
6. Computed Pension  
Balance is amount included in Gross total income/total income  

Where computed pension is received, it will be allowed to extend of 1/3rd of the computed pension received where the employee is also in receipt of Gratuity. Where employee does not receive Gratuity, Computed pension will only be allowed to be deducted from Gross salary to the extend of 1/2 of the amount received.

The deduction for amount received as Voluntary Retirement or Gratuity or Computed Pension will be allowed where the amount received as such is deposited in Retirement Benefit Accounts and scheme as prescribed by the Government.

Sec.284(244).“salary” includes,-

(a) wages;

(b) remuneration;

(c) any allowance, concession or assistance;

(d) any fees or commissions;

(e) perquisites;

(f) profits in lieu of, or in addition to, any salary;

(g) any advance or arrear of salary;

(h) any allowance granted to the employee to-

(i) meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides; or

(ii) compensate him for the increased cost of living;

(i) any allowance or benefit, granted to the employee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit;

(j) any allowance in the nature of personal allowance granted to remunerate or compensate the assessee for performing duties of a special nature relating to his office or employment;

(k) any amount receivable, directly or indirectly, by an employee from his employer, in connection with his voluntary retirement or termination of service or voluntary separation;

(l) any payment received by an employee in respect of any period of leave not availed by him;

(m) the contribution made by the employer in the financial year, to the account of an employee maintained with the permitted savings intermediaries referred to in sub-section (2) of section 66;

(n) any contribution by the employer to any fund other than an approved fund or the interest, if any, on such contributions;

(o) any annuity, pension or any commutation thereof;

(p) any gratuity;


Sec.284(210). “perquisite” means the following amenity, facility, privilege or service, whether convertible into money or not, provided directly or indirectly to the assessee by his employer, whether by way of reimbursement or otherwise:-

(a) the value of any accommodation computed in the prescribed manner;

(b) any sum payable to effect an assurance on life or to effect a contract for an annuity;

(c) any sum payable to any permitted savings intermediaries;

(d) the value of any sweat equity share allotted or transferred, as on the date on which the option is exercised by the assessee;

(e) the value of any obligation which, but for payment by the employer, would have been payable by the assessee, computed in the prescribed manner; and

(f) the value of any other amenity, facility, privilege or service, computed in the prescribed manner;