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Taxation Managment

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Taxation Management ­ FIN 623
VU
MODULE 6
LESSON 6.22
SALARY AND ITS COMPUTATION
Salary as defined in Section 12(2)
"Salary means any amount received by an employee from any employment, whether of a revenue or
capital nature, including-
Any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of
leave, overtime payment, bonus, commission, fees, gratuity or work condition supplements (such as for
unpleasant or dangerous working conditions)
Any perquisite, whether convertible to money or not;
The amount of any allowance provided by an employer to an employee including a cost of living,
subsistence, rent, utilities, education entertainment or travel allowance, but shall not include any
allowance solely expended in the performance of the employee's duties of employment;
 As consideration for a person's agreement to enter into an employment relationship;
 As consideration for an employee's agreement to any conditions of employment or any
changes to the employee's conditions of employments;
On termination of employment, whether paid voluntarily or under an agreement, including any
compensation for loss of employment and golden handshake payments;
From a provident or other fund, to the extent to which the amount is not a repayment of contributions
made by the employee to the fund in respect of which the employee was not entitled to a deduction; and
--as consideration for an employee's agreement to a restrictive covenant in respect of any past, present or
prospective employment;
Any pension or annuity, or any supplement to a pension or annuity; and
Any amount chargeable to tax as "Salary" under section 14."-- (Employee Share Schemes)
Sec. 13 Value of Perquisites:
Sub Sec (1) for the purpose of computing the income of an employee for a tax year, chargeable to tax
under the head "salary", the value of any perquisite provided by an employer to the employee in that
year that is included in the employee's salary under section 12 shall be determined in accordance with
this section.
Sub Sec. (2) this section shall not apply to any amount referred to in clause ( c) or (d) of sub section 12.
Sub Sec.(3) Where, in a tax year, a motor vehicle is provided by employer to an employee wholly or partly
for the private use of the employee the amount chargeable to tax to the employee under the head
"Salary" for that year shall include an amount computed as may be prescribed.
Sub Sec.(5) Where, in a tax year, the services of a housekeeper, driver, gardener or other domestic assistant
provided by an employer to an employee, the amount chargeable to tax to the employee under the head
" salary" for that year shall include the total salary paid to [such housekeeper, driver, gardener or other
domestic assistant] in that year for services rendered to the employee, as reduced by any payment made
by the employee [to the employer] for such services.
Sub Sec. (6) where, in a tax year, utilities are provided by an employer to an employee, the amount
chargeable to tax to the employee under the head "Salary" for that year shall include the fair market
value of the utilities provided, as reduced by any payment made by the employee for the utilities.
Sub Sec. (7) Where a loan is made, on or after the 1st day of July, 2002, by an employer to an employee and
either no profit on loan is payable by the employee or the rate of profit on loan is less than benchmark
rate, the amount chargeable to tax to the employee under the head "Salary' for a tax year shall include an
amount equal to-
Sub Sec. 7(a) the profit on loan computed at the benchmark rate, where no profit on loan is payable by the
employee, or
(b) the difference between the amount of profit on loan paid by the employee in that tax year and the
amount of profit on loan computed at the benchmark rate, as the case may be.
Sub Sec. (8) For the purpose of the Ordinance not including sub-section (7), where the employee uses a
loan refer to in sub Sec. (7) wholly or partly for acquisition of any asset or property producing income
chargeable to tax under any head of income, the employee shall be treated as having paid an amount as
profit equal to the bench mark rate on the loan or that part of the loan used to acquire any asset or
property
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Taxation Management ­ FIN 623
VU
Sub Sec. (9) where, in a tax year, an obligation of an employee to pay or repay an amount owing by the
employee to the employer is waived by the employer that shall be included under the head Salary.
Sub Sec. (10) where, in a tax year an obligation of an employee to repay an amount owing by the employee
to an other person is paid by the employer that amount shall be included in salary income
Sub Sec. (11) where in a tax year property is transferred or services are provided by an employer to an
employee the fair market value of the property or services determined at the time the property is
transferred or services are provided shall be included in salary income for the year, as reduced by any
payment made by the employee for the property or services.
Sub Sec. (12) where, in the tax year, accommodation or housing is provided by an employer to an
employee, the amount chargeable to tax to the employee under the head "salary" for that year shall
included an amount computed as may be prescribed.
Sub Sec. (13) where, in a tax year an employer has provided an employee with a perquisites which is not
covered by sub section (3) through (12), the amount chargeable to tax to the employee under the head
"salary" for that year shall include the fair market value of the perquisites except where the rules, if any,
provide otherwise, determined at the time it is provided, as reduced by any payment made by the
employee for the perquisites.
Sub Sec. (14) in this section
"Benchmark rate" means:
For the tax year commencing on the first day of July 2002, a rate of 5% per annum; and
For the tax year next following the tax year refer to in sub clause (i), the rate for each successive year
taken as 1% above the rate applicable for the immediately preceding tax year but not exceeding such
rate, if any, as the federal Govt., may , by notification, specified in respect of any tax year.
"Services" includes the provision of any facility; and
"Utilities" includes electricity, gas, water, and telephone.
Employee Share Schemes sec 14:
The value of a right or option to acquire share under this scheme shall be not chargeable to tax.
Where shares issued are subject to a restriction on transfer of the shares-
a) no amount shall be chargeable to tax under the head Salary until the earlier of-
i. the time the employee has a free right to transfer the shares; or
ii. the time the employee disposes of the shares &
b) the amount chargeable to tax to the employee shall be fair market value of shares at the time
employee has free right to transfer as reduced be any amount given as consideration for the grant of a
right or option to acquire the shares.
Where in a tax year an employee disposes of a right or option to acquire shares under an employee share
scheme, the amount chargeable to tax shall include the amount of any gain made on the disposal
computed accordance with the following formula:
A-B
Where A is the consideration received from the disposal of the right or option.
B is the employee's cost in respect of the right or option.
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Table of Contents:
  1. AN OVERVIEW OF TAXATION
  2. What is Fiscal Policy, Canons of Taxation
  3. Type of Taxes, Taxation Management
  4. BASIC FEATURES OF INCOME TAX
  5. STATUTORY DEFINITIONS
  6. IMPORTANT DEFINITIONS
  7. DETERMINATION OF LEGAL STATUS OF A PERSON
  8. HEADS OF INCOME
  9. Rules to Prevent Double Derivation of Income and Double Deductions
  10. Agricultural Income
  11. Computation of Income, partly Agricultural,
  12. Foreign Government Officials
  13. Exemptions and Tax Concessions
  14. RESIDENTIAL STATUS & TAXATION 1
  15. RESIDENTIAL STATUS & TAXATION 2
  16. Important Points Regarding Income
  17. Geographical Source of Income
  18. Taxation of Foreign-Source Income of Residents
  19. Exercises on Determination of Income 1
  20. Exercises on Determination of Income 2
  21. SALARY AND ITS COMPUTATION
  22. Definition of Salary
  23. Significant points regarding Salary
  24. Tax credits on Charitable Donations
  25. Investment in Shares
  26. SALARY AND ITS COMPUTATION EXERCISES 1
  27. SALARY AND ITS COMPUTATION EXERCISES 2
  28. SALARY AND ITS COMPUTATION EXERCISES 3
  29. Tax treatment of Gratuity
  30. Gratuity Exercise
  31. PROVIDENT FUND
  32. Exemptions on Business income, Treatment of Speculation Business
  33. Deductions Allowed & Not Allowed
  34. Deductions: Special Provisions, Depreciation
  35. Methods of Accounting
  36. Taxation of Resident Company
  37. Taxation of Companies: Exercises
  38. Computation of Capital Gain
  39. Disposals Not Chargeable To Tax
  40. TAX RETURNS & ASSESSMENT OF INCOME UNIVERSAL SELF ASSESSMENT SCHEME
  41. Normal Assessment, USAS, Provisional Assessment, Best Judgment Assessment
  42. ADVANCE TAX COLLECTION & RECOVERY OF TAX PENALTIES & PROSECUTION
  43. What is Value Added Tax (VAT)?
  44. SALES TAX
  45. SALES TAX RETURNS