Salary and House Property Flashcards
Difference between salary and wages
No difference
If an individual receives salary from more than one source durin gthe same PY?
Salary from each source taxable under the head salaries. Rumeneration received or due during the PY is chargeable to tax under the ehad salaries irrespective of the fact whether it is received from formar, present or prospective employer
What if salary is paid tax free at employer?
Employee has to include in his taxable income the salary recieved as well as the amount of tax paid by employer. Does not differ if such salary is paid by the employer voluntarily or under contract.
Salary given as a gift is taxable?
Yes, the act does not make a distinction between gratuitous payment and contractual payment of salary.
Importance of relationship between employer and employee?
There must exist one, the amount received will only be treated as salary if there exists such a relationship.
Is a judge’s income salary?
Yes, Justice Deoki Nandan Agarwal v. UOI, 1951. The Judges are constitutional functionaries, and the Constitution expressly states that what they receive is “salary.” Therefore, it was not possible to hold that what Judges receive is not salary or that such salaries are not taxable under the head of salary, even if there is no ‘employer-employee’ relationship with the State/Govt.
Ministers salary is taxable?
Yes, Lalu Prasad v. CIT. Pay and allowances received by the CM of a state are salary income and not income from other sources. Article 164 of the constitution states that ministers shall be paid salary.
are MP or Member of State Legislature salaries taxable?
No, they are not employees of the government. Salary and allowances received by them are chargable under income from other sources. 56.
When does salary from a sick industry become taxable?
For instance, for “sick industries” → if a company is facing financial difficulties and cannot afford to pay salaries to its employees, it might raise questions about whether taxes should still be paid on the unpaid salary. In this case, the term ‘due’ refers to the salary that is payable as long as the business is running. Therefore, if the employees are not receiving any salary, then they do not need to pay taxes on it. This is not considered a waiver, and taxes will need to be paid once the salary is received in the future.
What if someone foregoes salary? Is it still non-taxable?
No, s15 taxes salary that is due even if not received. therefore foregoing of salary does not result in non-taxability. This is not applicable to the surrender of salary to the central government under S.2 of the Voluntary surrender of salaries exemption of taxaition act.
Components of salary
- Basic Pay
- Allowances (including dearness allowance which takes into account inflation
- Other Pay (bonus)
- Perquisites
- Profits in lieu of salary, other kinds of payments (retirement benefits, joining bonus etc)
Allowance v perquisites
Allowance is in cash and is considered as salary. Perquisites are in kind are in the form of reimbursement.
Taxability of allowance is based on the nature and purpose of the allowance and not on the actual expenditure. There’s no TDS. TDS on actual expenditure in case of perquisites.
Basic Pay?
100% Taxable
mEDICAL ALLOWANCE?
100% Taxable, but certain kinds of medical services given as perquisites for free no tax on those
Allowances?
Presumed to be 100% taxable unless otherwise provided. Some allowances are granted 100% exemption from tax.
Retirement benefits?
As per 17(3), included in salary but not taxable as they are considered as a social benefit.
PF?
Earlier there was no bar but this made the employer contribute large amounts than the required 10-12%. Now, there’s an amendment that sets a ceiling on the total contribution of an employer to 7.5 lakhs to prevent undue benefits.
Is accommodation taxable?
Yes, 100% taxable. Basically, Free rent upto 50 days is not taxable but beyond that it is. Concessional rent falls under Section 17 2 (ii)
Is medical allowance taxable?
Medical Allowance is 100% taxable, but there are three types of medical perquisites that are tax free.
What is House Rent Allowance
The employer sometimes gives HRA instead of accomodation itself. The value of the HRA depends on the tier of the city.
How is HRA exempted?
HRA can not be fully tax free always. Basically, you calculate three different situations. First, the Actual HRA, Second, the Rent Paid minus 10% of your salary, or third, 40% or 50% of your salary in case of four mega metropolitans.
If the HRA is the lowest amount, then it is fully exempted. If the least is 0, then HRA is fully taxable. If the least is less than HRA, then the difference is partially exempt. Remember, you’re calculating what will be exempt! so the number you get is what will be exempt. when you get 0, nothing will be exempt.
Deduction is the least of?
The actual amount you calculate, or 20% of your basic salary, which is exclusive of allowance, or 5000 per annum.
What if the buyer of the property did not register the deed?
They may still be recognised as owner of the peorpty. M/S poddar v. CIT. Owner is the person who is entitled to receive property in his own right. Owner of the building, not the land.
Is income from subletting included?
no! Income from sub-letting is not included!
What if a lawyer is using a property as offices.
The owner should not use the property for his or her own business or profession. The profits of such business or profession to be chargable to income tax.
What if the primary object of the assessee’s business is letting out property?
Chennai properties and investment ltd, it will be taxed under the PGBP head.
Computation of Taxable Income
Step. 1: Gross Annual Value
Step 2: GAV - Municipal Taxes to get Net Annual Value
Gross annual value how calculated
Actual rent received, receivable, or the expected rent. If the building is not let out, then the expected rent as which the property may be let out needs to be taken into account.
How is expected rent calculated?
On the basis of Municipal Value, Fair Rental Value or the Standard Rent. it will be FR if it is lower than SR. if SR is higher than SR, it will be SR.
If the house is vacant, what is the GAV
The actual rent received by the owner will be taken into consideration.
Three situations.
First, no vacancy, we just look at the expected rent
Second, if vacancy after say four months. STILL expected rent we’ll look at as, if the tenant had stayed for 12 months, the actual rent would still be less than expected rent.
Third, if the owner of the property shows the intention to rent out property by making actual efforts, but the property remains empty for the entire year, then the actual rent will be considered as the lesser value or maybe even zero.
