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How to Save Taxes on Salary and Perquisites

 
It is a misconception that unlike businessmen or a self-employed professionals, salaried employees have little scope of saving taxes. The scope of obtaining benefits in the form of various exemptions and deductions house property, dividends and other sources for salaried person is the same as in the case with any other assessee. We will consider some special methods by which salaried employees can, within the framework of the Income Tax Act and Rules, plan their perquisites in a manner such that they can save income tax. Here we demonstrate certain specific types of such cases of tax planning by which a salaried employee can save taxes.
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As per new rule 3(9) (vi) “salary” includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called from one or more employers, as the case may be, but does not include the following, namely:
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The most significant changes made by the Finance Act, 2007 in respect of valuation of perquisites relate to the valuation of rent-free residential accommodation provided to the employees of the private sector. Presently the rent-free residential accommodation (owned by the employer) ...

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Under the Income Tax Act the maximum amount of house rent allowance permitted to be enjoyed by an employee tax-free is ..

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In the case of ordinary employees who are not directors of the company or who are not substantial shareholders, a special benefit is available in the matter of valuation of the perquisite.

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On and from the financial year 2009-20 10 the Fringe Benefit Tax has been abolished and therefore addition would be made on account of this perquisite.

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The specific deduction for house rent under Section 8OGG is available @ 25% of the salary subject to maximum of 2,000 per month, subject to the requirement of filing a Form No. 1OBA with the employer.

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A director of a limited company is able to plan his tax affairs like any other individual so far as his income from dividends, house property, capital gains, etc. is concerned. In respect of income from salary also a director is able to plan his tax affairs in the same manner as any other ordinary employee.

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In accordance Rule 2BB of in IT Rules, 1962, any allowance (by whatever name called) granted to meet the cost of travel or tour or on transfer is completely exempted from tax in the employee’s hands.

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In exercise of the powers conferred by Section 10(14)(ii) of the Income Tax Act the Rule 2BB specifies various allowances which would be completely exempted from tax subject to the limit mentioned therein.

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As per Rule 2BB in Income Tax Rules, 1962 various other allowances have also been made completely exempt from tax. Some of such allowances are described below:

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Rule 2BB provides that any allowance granted to meet the expenditure incurred on conveyance in the performance of the duties of an office of employment or profit for the purposes of Section 10 (14) (i) of the Income Tax Act. This would be completely exempted from income tax in case free conveyance is not provided by the employer.

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As per Rule 2BB the following allowances, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of offices of employment or profit, for the purposes of Section 10 (14) (i) would be considered as completely exempt from tax, namely:

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As per proviso to Section 17(2) exemption is available from income tax, on medical facilities for the employee and his family. This exemption would now be available in respect of

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An employee should also take tax-free advantage of the value of any travel concession or assistance received by or due to the employee concerned:

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The contribution of an employer in excess of 12% of the salary of the employee alone will be considered as taxable benefit to the employee. This would mean higher tax exempt income in the hands of the employee.

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As per rule 3(4) inserted by the Notification No. 940 (E) dated 25.9.2001 the perquisite value shall be..

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The value of benefit to the employee or any member of his household in the form of provision by the employer of services of a sweeper, a gardener, a watchman or a personal attendant, as per new rule 3(3) would be the actual cost to the employer, i.e., the total amount of salary paid or payable for such services.

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The value of the benefit to the employee resulting from the supply of gas, electric energy or water for his household consumption as per the new rule 3(4) would be equal to ...

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The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household would be equal to the amount of expenditure incurred by the employer as per new rule 3(5).

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The value of benefit or amenity resulting from the provision by any undertaking engaged in the carriage of passengers or goods to any employee or to any member

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The value of benefit to the employee in the form of interest-free loan or concessional loan would be calculated at l0% per annum in respect of loans for house and conveyance as per Rule 3(7)(i).

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Similarly, travel benefit (other than by an airline or railway) to any employee or family members for personal or private journey free of cost or at concessional fare,

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The value of free meals provided to any employee by the employer would be the amount of expenditure incurred by the employer. However, this would not apply to free meals upto Rs. 50 per meal provided by the employer during ...

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As per Section 192 an option is given to the employer to pay tax on the whole or part value of perquisite (not provided for by way of monetary payments), on behalf of any employee, without making any deduction from the income of the employee.

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As per the Finance (No. 2) Act, 2009 w.e.f. the financial year 2010- 2011 the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly by the employer, or former employer,

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