1. The document discusses various types of salaries, allowances, and perquisites received by government and non-government employees and their tax treatment. 2. It provides details on tax exemption limits and calculations for leave encashment, gratuity, pension received during employment or post-retirement, voluntary retirement compensation, and retrenchment compensation. 3. The document also summarizes different types of allowances received by employees, specifying which allowances are fully or partially tax exempt and which allowances are fully taxable. Exemption limits are provided for various allowances. 4. Finally, it lists various common perquisites provided to employees and whether they are taxable or non-taxable. Exceptions

1. 1 LEAVE SALARY
SALARIES
Leave Encashment
During continuity At the time of
Of employement Retirement or
Leavig the job
Government Non-govt
Employee employee CGE/SGE NGE/LA/PSU
Exempt U/S Exempt
Taxable
10(10AA) Least of
(a) Cash equivalent of Leave salary
(b) [10m(Basic P.M +DA for Retirement) +
fixed % Comm in T.O] / 10 x leave to the credit<_ 30 days P.A
(c) Amount Specified by govt =300000
(d) Actual leave encashment
1

2. NOTES:
(1) Leave to the credit should be for each completed year of service.
(2) Leave salary paid to the legal Heirs of deceased employee is not Taxable
as “salary” but taxable as “IFOS”
(3) Leave salary received by family of govt employee who died in harness is not taxable
(4) Average salary should be calculated on the basic of salary for immediately preceding
10 months of the retirement
GRATUITY: [Sec10(10) It is a death cum retirement benefit payable on the basic of
duration of services
(2)
CGE/SGE/LA Exempt U/S10(10)(i)
Covered by payment of Gratuity Act 1972
GRATUITY
Exempt Least of
(a) 15 day’s salary for every completed
Not covered by ACT 1972 year of service or part there of in
excess of 6 months
Exempt least of =BASIC + DA (P.M) x15/26 x N
(a) Maximum 10,00,000 NOTE -> In case of seasonal employees
(b) Half month’s avg salary for each =BASIC + DA (P>M) x 7/26 x N
completed year of service (b) Maximum 10,00,000
=10(BASIC + DA for ret)+ comm on T.O/10 x ½ x N (c) Actual gratuity received 2
(c) Actual gratuity received

3. (3) PENSION (Sec 17(1)(ii) Pension is a perodical payment received by an employee after his
retirement
Uncommuted Perodical payment
= GE/NGE Fully Taxable
Pension Of pension
CGE/SGE/LA/STATE CROP/SCJ/HCJ
EXEMPTED U/S10((10A)(i)
PENSION
(a) Uncommuted pension
Lumpsum payment =(Pension P.M x M) xxx
Commuted (b) Uncommuted part of full
pension = In lieu of perodical pension
payment
=(FPPM x(100/c%) x bal of months
from commuted date) xxx
----- xxx
NGE (c) Commuted pension commuted
Taxable pension
value received xxx
CALCULATION
(-) exempt
(i) if grautity is received
CV x 100/c% x 1/3 xxx
OR
(ii) if grautity is not received
CV x 100/c% x ½ xxx ___
3
Total taxable pension xxx

4. NOTE:
(1) pension received from united nations organisation ->Exempted
(2) Family pension received by family members of an employee after his
death-> not taxable as salary but taxable as GFOS U/S 56
(4) VRS Compensation[Sec 10(10)] -> Max exemption 5,00,000
-> Exemption allowed only once.
Conditions/Guideline to be satisfied as per rule 2 B.A of IT Rules
(a) Applicable if employee has completed 10 years of service or
age of 40 years exepct for employee of public sector co
(b) Applicable to all employees
(c) VRS should caused due to VRS should not be filled up nor the
retiring employee br employed in another concern of same management
(d) Amount under VRS should be-
Less than or = to 3 months’s salary for every completed year of service
OR
( Salary less or = at the time of retirement) x Balance months of service
left before the date of retirement
Where, salary = salary last drawn P.M
= Basic + DA for retirement + fixed% comm on TO
4
NOTE: ->Relief can be claimed U/S 89

5. (5) RETRENCHMENT COMPENSATION [Sec 10(10B)]
Exempt -> least of
(a) Amt calculated as per Industrial Disputes act 1972
=15 days avg pay for each completed year of service or part
there of in excess of 6 months
(b) Amt notified by Govt = 5,00,000
(c) Actual Retrenchment compensation received
NOTE: No limit if compensation paid under govt approved scheme
Different forms of Allowances
(1) City compensatory allowance Taxable
(2) House rent allowanse [sec 10(13A)]
Exempt least of
If Resedential house is in Bombay , Delhi , Calcutta , Madras
(a) =50% of BASIC + DA for ret +fixed % comm on TO
If at any other place =40% of (BASIC+DA for ret +fixed %comm onTO)
(b) Actual HRA received for period of occupation
(c) Excess of rent paid over 10% of salary on due basis
=Rent paid (-) 10% of (BASIC + DA for ret +fixed %comm on TO)
NOTE: No exemption if employee lives in his own house or in a house where 5
he does not pay any rent

6. (3) Allowance where exemption depends upon actual exependiture by the
employee (Sec10(14)) of allowance
->In case of following Amount
exemption=lower of or
Actual exp by employee
(1) Travelling allowance or transfer allowance
(2) Conveyance allowance
(3) Daily allowance
(4) Helper allowance
(5) Research allowance-granted for encouraging academic or professional research
(6) Uniform allowance-granted to meet exependiture on purchase or maintenance of uniform
(4) Allowance where exemption does not depends on actual exependiture of
employee [sec 10(14)]
In case of following allowance Amount of allowance
Exemption = lower of or
Amount specified in rule2 BB
(1) Special compensatory (Hill area) allowance  Exemption 800 P.M
(2) Boarder area allowance/remote area/disturbed area allowance
 Exemption 200P.M to 1300 P.M
6

7. (3) Tribal area/Scheduledd area allowance Max Exemption =200 P.M
(4) Allowance for transport employee
i e an employee engaged in a transport co.
Exemption = least of
(a) 70% of allowance
(b) 10,000 P.M
(5) Children Education Allowance
Max exemption 100 P.M per child to MAX of 2 children
(6) Hostel expenditure allowance
Max exemption 300 P.M per child to MAX of 2 children
(7) Compensatory field area allowance
Max exemption = 2600 P.M
NOTE: If this exemption is taken, no exemption allowed for border
area allowance
(8) Compensatory modified area allowance
Max exemption 1000 P.M
NOTE: If this exemption is taken, no exemption allowed for border area allowance 7

8. (9) Counter insurgency allowance
Max exemption =3900 P.M
Exemption allowed to member of armed forces
Available if employee is away from permenant location for more than 30 days
(10) Transport allowance
Granted for going from place of residence to place of duty
Max exemption
--For normal employee 800 P.M
--For blind or orthopardically handicapped employee 1600 P.M
(11) Underground allowance
For example –Employee in caol mines
Max exemption =800 P.M
(12) High altitude allowance
Granted to employee of armed forces
Altitude of Altitude above
9000-15000ft 15000 ft
8
1060 P.M 1600 P.M

9. (13) Highly active field area allowance
For member of armed forces
Max exemption=4200 P.M
(14) Island duty allowance
For members of armed forces
In Andaman Nicobar & Lakshdeep
Max exemption =3250 P.M
(5) Allowance to govt employees outside india[Sec 10(7)]
Totally exempt for an indian citizen
(6) Tiffin allowance Taxable
(7) Fixed medical allowance Taxable
(8) Servant allowance Taxable
(9) Allowance to high court and supreme court judges Exempt
(10) Allowance received from united nations organization(UNO) Exempt
9

10. Deduction U/S 16
(i) Standard deduction  Not available now
(ii) Entertainment allowance NGE = No deduction
CGE/SGE
Deduct =least of the following
(a) Rs 5000
(b) 20% of basic salary
(c) Entertainment allowance granted during PY
NOTES:
E A  should be added in Gross salary
(i) Profesional tax  (Tax on employment)
It should br added to gross salary only if it is paid by Employer on behalf of employee
10

11. PERQUISITIES
“Perquisities may be defined as any casual emolument/benefit attached
to an office or position in addition to salary”
Perquisities are taxable under the head “Salaries” only if they are:
(a) Allowed by an employer to his employee,
(b) Allowed during continunance of employment
(c) Directly dependent upon service,
(d) Resulting in the nature of personal advantages to the employee,
(e) Derived by virtue of employee’s authority i.e. employee is
authorized to enjoy such perquisite.
Specified employee
A speceified employee means
A director employee : An employee who is a director in the employer
company for any time during the PY OR
 An employee : Who has a substantial interest in the employer
company i.e. an employee who is benefical owner of equity
shares carrying greater then 20% voting power in such company
 An employee : Drawing in excess od Rs 50000
i.e. Gross salary xxx
(-) all non monetary benefits xxx
(-) all monetary benefits exempt U/S16 xxx 11
(-) deduction U/S16 greater then 50000 xxx

12. Following perquisities are not taxable for any type of employee:-
T
Empolyer’s hospital
(1) Provision of Medical facilities O
T Hospital maintained/approved by
Medical facilities provide to Employee A Govt/local Authority whether
OR any member of his family L reimbursed or paid by employer.
L
Y Treatement of prescribed disease in a
Hospital approved by Chief Commissionor
E Whether reimbursed or paid by employer
X
E Payment or reimbursement of group
Partially Exempted M Insurance or Mediclaim insurance
P by the employer
T
 Medical facilities in a private clinic Max exempt RS 15000 p.a
 Medical facilities outside india:
 Medical treatment—exemption=exependiture permitted by R.B.I
 Cost on travel--- exempt it G.T.I. ≤200000
 Cost of stay abroad---exemption=exependiture permitted by R.B.I
12

13. (2) Refreshment provided by employer to all employees during
working hours in office permises. It includes
-tea or snacks during office hours;
-free meals during working hours in a remote area or in an
offshore installation;
-free meals during working hours through paid non-transferable
voucher not exceeding Rs 50 per meal
-Taxable if employee of NON FBT EMPLOYEE
(3) Amount spent on training of employee of fees paid for refresher
management course
(4) Goods manufactured by the employer and sold to the employee at
the concessional rates
(5) Perquisities allowed outside india by govt to a citizen of india for
rendering service outside india
(6) Employer’s contribution to staff group insurance scheme
13

14. (7) Leave Travel Concession:
- Available to indian as well as foreign citizen
- Journey may be performed while in service or after retirement;
- Available for employee and his family( family means individual
spouse and children, and his/her parents, brother and sister
wholly dependent on him)
Condition Prescribed Amount of exemption
Journey performed by air Lower or air economy fair of National
carrier by shortest Route or amount spend
Journey performed by rail Lower of A.C First Class rail
Fair by shortest route or amount spent
Where rail transport is available but Lower of A.C First Class rail
JourneyIs performed by any other mode Fair by shortest route or amount spent
When no rail transport is available but
(a) Recoginized public transport exist First class deluxe class fair on shortest route
Or amount spent
(b) Where no public transport exists Lower of A,C First class rail fair as if journey
Is performed by rail or amount spend
 Exemption is available only in respect of two journey performed in a block of 4
calendar years commencing from 1986
If exemption is not availed in relevant 4 year block ,it can be claimed in the first 14
calendar year of next block

15. (8) Free telephone including mobile phone  exempted
(9) Transport facility to railway employee or employees of airlines Exempt
But if facility is provided by private transport undertaking its employees,then
Taxable perquisities = Value of benefit (-) Amt received from the employee
[NOTE; Taxable for employee of NON FBT employer]
(10) Payment of annual premium by employer on personal accident policy effected by him
on his employee
(11) Free educational facility provided in an institute owned/maintained by employer
to children of employeeMax exemption 1000 per month
(12) Gift in kind upto Rs 5000 per year Exempt
but gift in cash and cheque  Taxable
(13) Computer/laptop given(not transferred) to an employee for official/personal purpose
(which is owned or hired by employer) Not taxable
(14) Transfer of movable asset(other than computer,electronic item,car) by employer to
an employee after using it for 10 years or more without considerationNot Taxable
(15) Interest free loan for medical treatment specified in rule 3A  Not taxable
(16) Initial fees paid by employer for acquiring corporate membership of clubNot taxable
(17) Use of health club etc. provided uniformally to all employees by the employer->Not Taxable
(18) Perodicals and journals provided for dis charge of workNot taxable
(19) Conveyance facility provided to high court and supreme courtNot taxable
(20) Conveyance facility provided to an employee to cover the journey between office
and residence Not taxable
(21) The value of any benefit provided free of cost or at concessional rate by a company to
its employees by the way of allotment of shares debentures or warrents under employee
15
stock plan Not taxable

16. (22)Tax on perquisities-in-kind paid by the employer Not taxable
(23) Rent free accomodation
Provided in a remote area to an employee working at a mining site or oil
exploration site etc Not taxable
provided on transfer of an employee in a hotel for not exceeding 15 daysNot taxable
provided to high court judge,supreme court judge,official of parliament,union minister,
leader of opposition Not taxable
Following Perquisities are TAXABLE in hands of both SPECIFIED as well as
NON-SPECIFIED EMPLOYEES:
(1) Rent free Accomodation
Accomodation includes house ,flat,farm house or part there of
accomodation in hotel ,motel service apartment,guest house
carvan, mobile home, ship or any other floating structure
Rent free accomodation may be UNFURNISHED or FURNISHED
16

17. (A) Valuation of rent free UNFURNISHED accomodation:-
(i) CGE/SGETaxable value = liscense fee determined by Central State Govt
(ii) NGE 
Population in Accomodation owned by Accomodation taken on lease or
City Employer Rent by the Employer
Having population 7.5% of salary for period of
0 to 10 lakh occupation of accomodation Which ever is lower is
taken
Having population 10% of salary for period of
10 to 25 lakh occupation of accomodation Amount of lease rent paid
or
Having population 15% of salary for period of 15% of salary
25 lakh and above occupation of accomodation
 For the purpose of valuation of rent free unfrunished accomodation,
Salary includes= (BABC SALARY) Basic+DA(for ret)+Bonus+comm+all taxable allowances
and all taxable monetary payments but does
not include employer’s contribution to PF all
Allowances which are exempt from tax value of perquisities
salary shall be determined accrual basis
salary from one or more employers for period of occupation shall br taken
into account 17

18. (B) Valation of rent free FURNISHED accomodation:-
Taxable value is calculated as under
Taxable value of rent free unfurnished accomodation xxxx
Add: 10% of original cost furniture, if furniture is
owned by the employer xxxx
OR
Actual hire charges of furniture is hired by the
Employer xxxx
Taxable value of rent free furnished accomodation xxxx
Note: (a) Furniture includes radio sets, television sets, refrigerators, air-
conditioner and other housrhold appliances.
(c) Valuation of perquisities if accomodation is provided in a hotel for more than 15 days:-
Taxable value=24% of salary or actual charge of hotal which ever is less
Note: If hostel accomodation is provided on employees transfer nothing is taxable
18

19. (d) Valuation of perquisitie if accomodation is provided at concessional rent:-
Taxable value=Taxable value of rent free
Unfurnished/Furnished house xxxxxx
LESS : Rent payable by the employee xxxxxx
Taxable value of accomodation. At concessional rent xxxxxx
(2) Gas, electricity or water supply provided free of cost to an employee
 Purchased by employer from outside agency
Taxable value= Amount paid by employer to such agency
(-) Any amount recovered from the employee
 If supplied out of own sources
Taxable value = Manufacturing cost per unit incurred by the employer
Important note: If gas electricity or water supply connection is taken in the
name of employer and the employer also bears expenditure thereon
perquisities is taxable only in the hands of specified employees
19

20. (3) Perquisities in respect of credit card provided to the employee
Taxable for employee of NON FBT employer
(a) Taxable value = Amount paid or remibursed by employer (-) Amount recovered from employee
(b) Running & maintenance expenses met by EMPLOYER
 Used wholly for official purpose Nil if employer maintains complete
details of journey and gives certificate
for official use
 Used wholly for private purpose Taxable value =Actual exependiture of
• Owned by employer employer(+) 10% of cost of car
(+)salary of chauffeur
• Hired by employer Taxable value =
Hire charges (+) Chauffeur’s salary
Taxable value=
1800 p.m if cc ≤ 1.6 litres
 Used partly for official and
OR
partly for private purpose
2400 p.m if cc ≥1.6 litres
(+)
900 p.m if chauffer is provided 20

21. (C) When employee uses any automative conveyance other than car & expenses met by employer
Used wholly for official purpose Nil if employer maintains complete details of
Journey and gives certificate of official use
Used partly for official and partly Taxable value=
for private purpose Actual expense by employer (-) 600 p.m
Important Notes:
 Month means each completed month as per english calander and part of
the month should be left out
 No amount recovered from employee is deductible in case of car owned
or hired by employer and used for official as well as private purpose .In
other cases however amount so recovered is deductible from value of perqusities
 If more than one car is given value of first car should br calculated in usual maner
and for the remaining car it is demend to have been used for personal as well as official
purpose & the car is owned & Hier by employer and the Govt, Huf ,Charitable institution
whose income is exempt
21

22. (4) Valuation of perquisities in respect of Motor car
(i) Where car is owned by Employee:- (ii) Where car is owned or hired by employer:-
Situation Value of perquisities from 1/4/01 (a) Running & maintaince
(a) Car expenses met by expense
Not a Perquisities-Not taxable Not a Perquisitie-Not taxable
employee  Used wholly for
official purpose
(b) Running & maintaince
expense
Used wholly for
Used wholly for Nil if employer maintains complete Private purpose
Taxable value=10% p.a of
official purpose details of journey and gives Owned by employer
cost of car(+)driver’s salary
Certificate for official use
Used wholly for
Taxable value= Hired by employer Taxable value=Hire charges
private purpose
Actual exependiture of employer (+) driver’s salary
Used partly for official Taxable value=
Used partly for official Taxable value=
600 p.m if cc ≤ 1.6 litres OR and partly for private 1800 p.m if cc ≤ 1.6 litres OR
and partly for private 2400 p.m if cc ≥1.6 litrres (+)
900 p.m if cc ≥1.6 litrres (+) purpose
purpose 900 p.m if chauffer is provided
900 p.m if chauffer is provided
22

23. (5) Valuation of perquisities in respect of free education facilities:
Free education or training to employee – Not taxable
In the following cases if bills are issued in the name of employee and paid by the
employer then the perquisities is taxable in the hands of both specified and
non specified employee BUT otherwise it is taxable in the hands of specified
employees only:
(a) School fees of family members of the employee paid by the employer
directly to the school-TAXABLE
(b) Reimbrusement of school fees or any other exependiture on education
of family members of the employee-TAXABLE
(c) Education facilities provided in employer’s institute or in any institute due
to employee’s employment with the employer
Provided to employee’s children
• Cost of education or value of
benefit ≤ Rs 1000 p.m. Not Taxable
• Per child > Rs 1000 p.m. Taxable value= Cost of education in similar institute
(-)1000 p.m per child
(-) Amount paid or recovered from employee
Provided to any other member of
Cost of education in similar institute
employee’s household ….including
(-)amount paid or recovered from employee
grand children
(d) Amt of scolarship given by employer company to the children of its employees-NOT TAXABLE
23

24. (6) Interest free loan at concessional rate of interest provided
to the employee –(or any member of his household)
Taxable for both specified and non specified employees.
Taxable value=
If loan is for house and conveyance Simple interest @ 8% p.a on maximum outstanding
and not for repairs balance sheet of each loan as on last day of each
month (-) interest actually paid by employee
If loan is for any other purpose Simple interest @ 16% p.a on maximum
outstanding monthly balance of each loan(-)
Interest actually paid employee
Note: If loan Amt ≤ Rs 20000 Nothing is taxable
(7) Perquisitie in respect of use of movable asset by the employee&any member of his household
Taxable for both specified and non specified employee
Assets owned by employer Taxable value= 10% p.a of actual cost to the employer
(-) amount paid/recovered from employee
Assets hired by employer Taxable value= Rent paid or payable by employer(-)
Amount paid/recovered from employee
24

25. (8) Perquisitie in respect of movable assets sold by an employer to its employee at a nominal price
Taxable for both specified and non specified employees
Taxable value is calculated as under-
Actual cost of such assets to the employer xxxxxx
LESS:
Depreciation for each completed year which asset was put
to use by the employer by RBM on MOTORCAR 20%(RBM) xxxxxx
Electronic items @ 50%p.a and computer xxxxxx
By SLM on any other assets @ 10% p.a xxxxxx
Taxable value xxxxxx
Note: Electronic items include data storage and handling devices like computer , digital
diaries and printer but do not include household appliances like washing machines,
microwave ,ovens , mixers, hot plates , ovens etc
25

26. (9) Valuation of perquisities in respect of free domestic servants:
Domestic servants include sweeper, gardener , watchman , personal attendant.
• Engaged by employerTaxable for specified employees
• Engaged by employee & salary paid/reimbursed by employerTaxable for specified employees
Taxable value =Salary paid or payable by employer to the servant (-) any amount
paid for specified employees for such service
Note:
• If rent free accomodation is provided , gradner’s salary is not separetaly taxable
• Domestic servant allowance or allowance for engaging domestic servant
is always chargeable to tax for all
(10) Valuation for holiday home facilities i.e expenses met by employer for travelling ,touring
and accomodation of employee
Taxable value= Amount of expenditure by employer(-) amount paid/recovered from employee
(11) Issue of right shares to an employee who is a shareholder –Not taxable
(12) Any other perquisities
Bills issued in the name of employee but paid by employer taxable for all
26
Otherwise – taxable for only specified employees

27. PROVIDENT FUND
Provident fund is retirement benefit. A certain amount is deducted from employee’s salary
regularly as his contribution to P.F Employer also generally contributes the same amount to
the fund . Interest is received on both these amounts and credited to the fund account . Whole
Amount is paid to the employee at the time of his leaving the job or on retirement.
There are four kinds of provident funds:-
(1) STATUTORY PROVIDENT FUND – It is act under the provisions of the provident funds Act 1925.
it is maintained by govt and semi govt organizations, local authorities , railways ,universities
and recognized educational institutions
(2) RECOGNISED PROVIDENT FUND- It is set up under the employee’s provident fund and
Miscellaneous provision Act 1952. it is applicable to the establishments 20 or more
employees can also join RPF
(3) UNRECOGNISED PROVIDENT FUND- If the provident fund is not recognized by the
commissioner of Income Tax as Recognized Provident fund ,it is known as Unrecognized
provident fund
(4) PUBLIC PROVIDEN FUND- This fund is developed by the central Govt for the benefit of
general public. Both Salaried employees as well as self employed person can join this scheme.
However no interest @ 8% p.a is credited to this fund at present. The accumulated sum
Is payable after 15 years. 27

28. Tax treatment of Provident Fund
Particulars S .P .F R .P .F U .P .F P .P .F
Employer’s Contribution Exempt Exempt upto 12% of salary Exempt
Taxable value =Employer’s Employer does not
Contribution(-)12% of contribute
(Basis(+)DA for ret(+)Fixed%
comm on TO)
Deduction on Employee’s
Available Available Not Available Available
contribution U/S 80C
Interest credited to P. F Exempt Taxable value =Interest Exempt Exempt
credited (-) Interest @
8.5%
Lumpsum payment on
retirement
• Employee’s contribution Exempt Exempt if some condition Exempt Exempt
are fulfilled (*)otherwise
treated as UPF
• Interest on employee’s cont Exempt Taxable as income Exempt
(II)
from other sources
• Employer’s contribution Exempt (II) Exempt
Taxable as salary
• Interest on employer’s cont Exempt (II) Taxable as salary
Exempt
Condition: Accumulated balance under RPF is exempt if employee renders a continuous service of 5 years or more with one
or more employers. (2) If he could not complete 5 years due to reason beyond his control E.G Ill-health is continuance of
employer’s business etc (3)If he joins another employment and accumulated balance is transferred to the RPF maintained 28
by such other employer. If the above condition are not fulfilled all the calculation are to be made as if fund is UPF