What is Bank rate?   Bank Rate is the rate at which central bank of the country  (in India it is RBI)  allows finance to commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate.  Thus any revision in the Bank rate indicates that it is likely that interest rates on your deposits are likely to either go up or go down, and it can also indicate an increase or decrease in your EMI.

           

What is CRR?    The Reserve Bank of India (Amendment) Bill, 2006 has been enacted and has come into force with its gazette notification. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate.  [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of total of their demand and time liabilities].
RBI uses CRR either to drain excess liquidity or to release funds needed for the growth of the economy from time to time. Increase in CRR means that banks have less funds available and money is sucked out of circulation. Thus we can say that this serves duel purposes i.e.(a)  ensures that  a portion of bank deposits is kept with RBI and is totally risk-free, (b) enables RBI to  control liquidity in the system, and thereby, inflation by tying the  hands of the banks in lending money.

What is SLR? Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR).  RBI is empowered to increase this ratio up to 40%.  An increase in SLR  also restrict the bank’s leverage position to pump more money into the economy.

What are Repo rate and Reverse Repo rate?

Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks against securities. When the repo rate increases borrowing from RBI becomes more expensive.  Therefore, we can say that in case,  RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate

Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI.  The banks use this tool when they feel that they are stuck with excess funds and are not able to invest anywhere for reasonable returns.     An increase in the reverse repo rate  means that the RBI is ready to borrow money from the banks at a higher rate  of interest. As a result, banks would prefer to keep more and more surplus funds with RBI.

Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI, whereas Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks

The policy announcements on 03/05/2011, indicates that now repo rate has become the only independent variable policy rate, marking a shift from earlier method of calibrating various policy rates separately. The reverse repo rate -- the rate at which RBI borrows – will be kept 100 basis points lower than the repo rate. On the other hand Marginal Standing Facility (MSF) rate will be kept 100 basis points higher than the repo rate.
 

 NEw 

Continuing with its anti-inflationary stance, the Reserve Bank of India (RBI) has raised the benchmark interest rates by quarter of a percent point on Friday, while keeping cash reserve ratio (CRR) rate unchanged.

The decision comes as the authorities struggle to control near double-digit inflation, which is uncomfortably high for more than two years.  

The repo rate now stands at 8.25%, while the reserve repo gets adjusted to 7.25%. The CRR remains unchanged at 6%.

The hike in rates was along expected lines. In a poll of bankers and economists by CNBC-TV18, 70% said the RBI will hike rates by 0.25% while only 20% believed that there will be no hike this time.

The RBI has been one of the most aggressive central banks in the world, however, price pressures still remain high, mainly due to strong demand pressures that have spread from food to other commodities.

The wholesale price index, India's main inflation gauge, rose 9.78% in August, higher than the median forecast for a 9.6% rise in a Reuters's poll and above the 9.22% recorded for July.

Inflation has been much above the comfort zone, the RBI official told reporters adding, "We will continue with the current anti-inflationary stance."

The RBI monetary tightening is impacting the country's economic growth, finance minister Pranab Mukherjee told reporters on Friday, after the central bank delivered its 12th rate hike in the last 18 months. "I am hopeful the measures taken will help control inflation," he said adding, "…headline inflation is a matter of concern."

He was also optimistic of growth picking up in the second half of the year.

When the repo rate increases, borrowing from RBI becomes more expensive. As a result, all loans -- personal and corporate -- are likely to become costlier and home loan EMIs will increase once banks hike their base rate - the rate to which most retail loans are pegged.

RBI believes the global economic environment has worsened and the recent developments in them a matter of "serious concern". It sees a downside risk to July growth projection.

"The pace of exports is unlikely to sustain on weak demand," RBI said.

GDP growth during the first quarter (April-June) of the 2011-12 financial year moderated to an 18-month low of 7.7% from 8.8% in the corresponding period year ago, following a slowdown in industrial output growth during July to 3.3%, the lowest in 21 months.

Amendment in Service Tax under Union Budget 2011

A. Introduction of new taxable services under the tax net (to be applicable from the date of notification after passage of Finance Bill 2011)

• Services by air-conditioned restaurants having license to serve liquor with a 70% abatement on this service

• Short-term accommodation in hotels/inns/clubs/guest houses etc for a continuos period of less than 3 months  with declared tariff of Rs. 1,000 per day or higher by an exemption notification and an abatement of 50% on value of service.

B. Conversion from Cash Basis to accrual basis and Point of Taxation

The Finance bill proposes to revamp the entire service tax regime by conversion from cash basis to accrual. To effect the same, it is proposed by Notification No 3/2011 to amend Rule 6 of Service Tax Rules 1994 and substitute the words  “payments are received, towards the value of taxable services ”, with the words  “service is deemed to be provided as per the rules framed in this regard ”. Rules as mentioned, that how the calculation will be made will be released shortly.

Point of Taxation Rules, 2011 have been framed vide notification 18/2011-ST and made effective from 01.04.2011. These rules determine the point in time when the services shall be deemed to be provided. The general rule will be that the time of provision of service will be the earliest of the following dates:

1. Date on which service is provided or to be provided
2. Date of invoice
3. Date of payment

Consequential changes have also been made in the Service Tax Rules, 1994 to alter the payment of service tax from receipt of payment to provision of service and also to permit adjustment of tax when service is not finally provided.

C. Scope of few existing services has been extended / modified (to be applicable from the date of notification after passage of Finance Bill 2011)

1.  Authorized Service Station ’s Services [section 65 (105) (zo)] to include service by any person, i.e. whether authorized service station or otherwise, for All motor vehicles, other than vehicles used for goods transport and three-wheeler auto-rickshaws; and decoration services. 
2. Life Insurance business [section 65 (105) (zx)] to include portion of investment along with risk except portion of commission, mortality and handling charges. In case break up is not available 1.5% on value of premium. 
3. Commercial Training or Coaching Service [section 65 (105) (zzc)] to include service related to unrecognized course even by institute rendering services for recognized course as well. Suitable exemption for pre school etc will be issued.
4. Club or Association [section 65 (105) (zzze)] to include service to non-members. Chamber of commerce received one time exemption for the period 16.06.2005 to 31.03.2008.
5. Business Support Service [section 65 (105) (zzzq)] to include services of operational or administrative assistance of any kind.
6. Health services [section 65 (105) (zzzzo)] redefined to include services by clinical establishment having facility related to 25 beds for in-patient treatment at any time of the year. Service will include diagnostic services and service by doctor who is not employee of clinical establishment. Abatement of 50% will be issue in time being.
7. Services by legal professionals [section 65 (105) (zzzzm)]: 

The scope of the existing service is being expanded to include:

• Services of advice, consultancy or assistance provided by a business entity to individuals as well;

• Representational services provided by any person to a business entity; and

• Services provided by arbitrators to business entities.

• Services provided by individuals to other individual will remain outside the levy.

• Money changing services [section 65 (105) (zm and zzk)] through a new rule (2B) which has been introduced in the Service tax (Determination of Value) Rules, 2006 to levy service tax on a value of difference between the exchange price and rate prescribed by RBI. In case RBI referred rate is not available, then 1% of value of Indian currency provided or received. In case RBI reference rate is also not available as the currency exchange in not INR, then 1% of lowest of the currency, if exchanged in INR.

(Notification No. 02/2011-ST read with Notification No. 03/2011-STeffective from 01.04.2011 )

D. Amendments related to Compliances (to be applicable from the date of notification after passage of Finance Bill 2011)

• Increase in penalty for late filing of Service Tax Return under section 70 from INR 2000 to INR 20000/- with original slab to continue of Rs. 100/- per day.

• New sub section 73(4A) to replace section 73(1A) and 73(2) to done away the benefit of reduced penalty in case of fraud mis-statement, suppression, collusion etc. Now in audit etc if the certain short payment recovered the same need to be paid along with 1% per month of the tax amount for the duration of default, with an upper ceiling of 25% of the tax amount

• Interest rate for delayed payment of service tax is being increased to 18% per annum with a relief of 3% to assessee having turnover of less than INR 60 lakh.

• Penalty for failure to pay tax under section 76 is being halved from 100% to 50% with a change in INR 100 from INR 200 per day.

• Maximum Penalty under Section 77 increased from INR 5000 to INR 10000.

• Penalty under section 78 reduced from 200% to maximum 100% (mandatory) subject to a further relief of 25% if tax paid together with interest and reduced penalty within one month. (Within 90 days for assessee having turnover of less than INR 60 lakh).

Situation	Position in Records	Penalty & Provision	Mitigation	Complete Waiver
No fraud, suppression etc. Under Section 76	Captured	1% of tax or Rs.100 per day upto 50% of tax amount:  Sec 76	Totally mitigated if tax and interest paid before issue of notice: Section 73(3)	On showing reasonable cause under section 80
Cases of fraud, suppression etc. under Section 78	Captured true & complete position in records	50% of tax amount: Proviso to Section 78	(a) 1% per month; max of 25% if all dues paid before notice: Sec 73(4A); (b) 25% of tax if all dues paid within 30 days (90 days for small assesses): Provisos to Section 78	-do-
	Not so Captured	Equal amount: Section 78	No mitigation at all	Not possible

•  
• Power to issue search warrant given at Joint commissioner level with execution authority to Superintendent.

• Provisions relating to prosecution are proposed in the event of (with permission of chief Commissioner):

• Provision of service without issue of invoice;

• Availment and utilization of CENVAT credit without actual receipt of inputs or input services;

• Maintaining false books of accounts or failure to supply any information or submitting false information;

• Non-payment of amount collected as service tax for a period of more than six months.

E. Changes in Service Tax Rules, 1994, (will come into effect from 01.04.2011)

• A new rule 5B has been introduced to provide that the applicable rate of tax shall be the rate prevailing at the time when the services are deemed to have been provided.

• Rule 6(3) amended to claim credit of earlier tax paid in case of reversal of invoice or money.

• Under Rule 6(4B) limit of adjustment for non-centralized registered assessee increase from INR 1 lakh to INR 2 lakh.

• A new sub-rule 6A has been introduced in rule 6 to provide that if an amount of service tax has been self-assessed but not paid, the same shall be recoverable alongwith interest under section 87 of the Act.

• The composition rate in sub-rule 7B of rule 6 applicable to in relation to purchase or sale of foreign currency, including money changing, has been reduced from 0.25% to 0.1% and the Proviso has been deleted.

F. Amendments to Export of Services Rules, 2005

• Service provided by builders [section 65(105)(zzzzu)] is being added to sub-rule 1(i) and will thus be considered as exported, subject to compliance with other conditions, if the immovable property is situated outside India.

• Rail travel agent [ 65(105)(zz)] and health check-up or preventive care [65(105)(zzzzo)] are being added to sub-rule 1(ii) and will thus be considered as exported, subject to compliance with other conditions, when they are performed outside India; and

• Services of credit rating agency [65(105)(x)], market research agency [65(105)(y)], technical testing and analysis [65(105)(zzh)], transport of goods by air [65(105)(zzn)], goods transport agency [65(105)(zzp)], opinion poll [65(105)(zzs)] and transport of goods by rail [65(105)(zzzp)] are being deleted from sub-rule 1(ii) and thus the additional condition of performance outside India will stand removed. Thus they will be considered as exported, subject to compliance with the relevant conditions, if the recipient is located abroad.

G. Amendments to Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, (Exemption for Air freight)

• Exemption has been granted vide notification 8/2011-ST to services of transportation of goods by air or road or rail provided to a person located in India when the goods are transported from a place outside India to a destination outside India.

• Vide notification 9/2011-ST to the transportation of goods by air service to the extent air freight is included in the customs value of goods in order to avoid taxing this service twice.

H. Amendments to Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007

• A new sub-rule (2A) is being added in rule 3 in the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 vide Notification 1/2011-ST so as to restrict the Cenvat credit to 40% of the tax paid on services relating to erection, commissioning & installation; commercial or industrial construction and construction of residential complex, in case tax has been paid on full value of the service after availing Cenvat credit on inputs i.e. without availing exemption notification 1/2006-ST dated 01.03.2006. This has been done to ensure that the credit on inputs is not availed of indirectly while availing of the composition scheme.

I. Amendments to Cenvat Credit Rules, 2004
Changes made in Cenvat Credit Rules, 2004 are as under.
Input:-

•  “Input ” has been defined to include, inter-alia, all goods used in a factory by the manufacturer and goods used for providing any output service;

• Goods that shall not constitute input have been specifically excluded. These shall include, besides petroleum items, any goods used for construction of a civil structure (by a manufacturer as well as a service provider) excepting when they are used in the provision of any of the specified construction services. Thus, goods used by a sub-contractor for rendering services of construction to the main contractor shall constitute input.

• Exclusions also cover goods such as food items, goods used in a guesthouse, residential colony, club or a recreational facility or a clinical establishment which are primarily meant for the personal use or consumption of the employees. When any of these goods are used directly in the manufacture of final products or provision of a service they will constitute input.

• Goods which have no relationship whatsoever with the manufacture have also been excluded.

Input Service:-

• The distinction between goods and services is diminishing and many goods can be received as services. Accordingly the definition of  “input service ” has been aligned with the definition of  “input ” such that goods that do not constitute  “input ” do not qualify as  “input service ”. Thus a service relating to construction of civil structure will not constitute  “input service ” unless it is provided by a sub-contractor to the main contractor.

• Similarly services relating to motor vehicle i.e. rent-a-cab, use of tangible goods, insurance or repair of vehicle shall not constitute an  “input service except in respect of output services where credit on motor vehicle is permitted as  “capital goods ”.

• On the same lines, a service meant primarily for the personal use or consumption of employees will not constitute an input service. A list of specific services has also been given by way of example in the definition. Most of these services constitute a part of the cost-to-company package of the employee and are provided either free of charge or on concessional basis to company employees.

• Expression  “activities relating to business ” has been deleted and Business exhibition and legal services added in the list of services.

Obligation of manufacturer and provider of services
Definition of exempted goods shall include such excisable goods as are covered by the notification relating to concessional duty with the condition that no credit of input and input service shall be availed. This amendment shall come into effect on 01.03.2011.
Similarly the definition of exempted services shall include taxable services which are partially exempted with the condition that no credit of input and input service shall be availed. Moreover it has been clarified that exempted service will include trading service.

Option to maintain separate accounts only in respect of inputs (and not together with input services) has also been given so that allocation as per formula given in rule 6(3A) is done only in so far as credits on input services are concerned.


The amount payable under rule 6(3)(i) in respect of services has been reduced from 6% to 5%. Moreover in the case of exempted services (that are partially taxed with no facility of credits) this amount shall be 5% of the exempted value of the service.

Thus if the exemption on a certain service is 60%, the amount required to be paid shall be 3% (60X5%) of the full value of the service. In case of exempt goods, amount payable will be reduced by the amount paid at the concessional rate.


For the purpose of applying the formula under rule 6(3A) the value of trading service as well as value of services covered by composition schemes has been defined. The value of trading service shall be the difference between the sale price and purchase price of goods. The value in respect of services covered by a composition scheme will be tax amount divided by the rate of service tax applicable under section 66 read with any general exemption. As the prevalent rate is 10% the value shall be ten times the amount of service paid or payable.


A substantial part of the income of a bank or a life insurance company is from investments or by way of interest in which a number of inputs and input services are used. There have been difficulties in ascertaining the amount of credit flowing into earning these amounts. Thus a banking company or a financial institution, including NBFC, providing banking and financial services are being obligated to pay an amount equal to 50% of the credit availed. In case of services relating to life insurance or management of ULIPs such amount will be equal to 20% of credit availed. Other options of payment of amount under Rule 6 shall not be available for these taxpayers.


Consequent to the introduction of the proportionate allocation and its rationalization now, Rule 6(5) that allows full credit of 17 specified services has been deleted.


New sub-rule (6A) has been added to allow provision of services without payment of service tax to a unit in SEZ or to a developer in SEZ for their authorized operations, without requirement of reversal of any CENVAT credit on this account. This will help in tax-free receipt of services by units and developers in SEZs.


Most of the Cenvat changes will come into effect from 01.04.2011 except a few that will be effective from 01.03.2011.

J. Exemptions
Notification 26/2010-ST dated 22-6-2010 is being amended by Notification 4/2011- ST and the service tax applicable in respect of  “Transport of passengers by air service ” is being revised as follows:

a.  Domestic (economy) : From Rs. 100 to Rs. 150

b. International (economy) : From Rs. 500 to Rs. 750

c.  Domestic (other than economy) : Standard rate of 10%

Exemption is being given to services rendered to an exhibitor participating in an exhibition held outside India (Notification No. 5/ST-2011).


Exemption from service tax is being provided to  “Works contract service ” when rendered for the construction of residential complexes or completion and finishing services of a new complex under Jawaharlal Nehru Urban Renewable Mission (JNURM) and  “Rajiv Awaas Yojana ” (Notifications No. 6/ST-2011).


Exemption has been given to the taxable service of general insurance when provided under  “Rashtriya Swashya Bima Yojna ” (Notifications No. 7/ST-2011).


Exemption from service tax is being provided to works contract service rendered within a port, or other port or airport in specified areas (Notifications No. 10&11/ST-2011).


An exemption of 25% from the taxable value is being provided in respect of services rendered in relation to  “transport of coastal goods ” and goods transported through  “national waterways ” or  “inland water ” (Notification No.16/ST-2011).

Exemptions with retrospective effect have been given by the Finance Bill:

• To an association or chamber representing commerce or industry in respect of membership fee under the  “Club or Association Service ” for the period from 16.06.2005 to 31.03.2008; and

• To inter-state or intra-state transportation of passengers, in a vehicle bearing contract carriage and tourist vehicle permit for the period from 01.04.2000 to 06.07.2009

These changes will come into effect on the dates mentioned in the respective notifications or when the bill is enacted and notified, as the case may be.

K. Small scale sector
Finance minister has announced in his budget speech that individual and sole proprietor assessees with a turnover upto Rs. 60 lakhs shall not be subject to audit.

Interest rate for all assessees (including firms and corporate) upto a turnover of Rs. 60 lakhs shall be 3% less than the prescribed rate.

The period for making the payment in order to avail the benefit of reduced penalty under the second proviso to Section 78 shall be 90 days for assessees mentioned at paragraph 13.2.

L. SEZ Refunds
Notification No. 17/2011-ST has been issued superseding notification 9/2009-ST dated 03.03.2009. The new notification has the following unique features:

• Criteria for the determination of  “wholly consumed ” services have been laid down in the notification, borrowing from the Export of Services Rules, 2005. It has also been specified that all services received by an entity in a SEZ, which does not have any other DTA operations, will constitute  “wholly consumed ” services.

• No service tax is required to be paid ab-initio if the same are meant to be  “wholly consumed ” within SEZ, including services liable to tax on reverse charge basis under section 66A.

• Refund of the remaining services i.e. which are not wholly consumed shall be available on pro rata basis i.e. ratio of SEZ turnover to total turnover.

• Suitable rule has been introduced in Cenvat Credit Rules, 2004 to waive the requirements of rule 6 in case of services provided, without payment of tax, to a SEZ unit for its authorized operations.

COMPUTATION OF “SALARY” INCOME

CHART SHOWING COMPUTATION  OF  “SALARY”  INCOME

I. Important Points :

1.   Relationship of employer and employee must exist to create salary income.

2.   Only receipts from employer are taxable under this head. Receipt  from a person other than employer are taxable under “Other Source”.

3.   In case Salary is received after deduction of following items... these are added back to get fully Salary :

      (i)   Own Contribution to Provident Fund.

      (ii)  Tax Deducted at Source (TDS)

      (iii)  Repayment of Loan etc.

      (iv)  LIC Premium, if deducted from salary.

      (v)   Group Insurance Scheme.

      (vi)  Rent of House provided by employer.

1. Previous Year in case of Salaries is always Financial Year i.e. for the Assessment Year 2009-2010 it is 1-4-2010 to 31-3-2011.

II. Salary U/s 17(1) :

1.Wages. Fully Taxable.

2.Annuity or Pension. Fully Taxable

3.Gratuity. It has been treated separately.

4. (a)  Any Fees -- Fully Taxable

   (b)  Commission -- Fully Taxable

   (c)  Bonus -- Fully Taxable

   (d)  Perquisites -- (Perks) These are treated separately u/s 17(2)

   (e) Profit in lieu of Salary -- These are treated separately u/s17(3)

5.Salary in lieu of Leave / Leave Encashment. Fully Taxable.

6.Advance Salary. Fully Taxable

7.Arrears of Salary. Fully Taxable.

8.Refund of Provident Fund (PF)

  (a)  If SPF -- Fully exempted

  (b)  If RPF -- Fully exempted if service is more than 5 years.

  (c)  If URPF -- Taxable portion is added in salary income. Taxable portion is equal to employer’s contribution + interest on this part. Interest on own contribution to URPF is taxable under the head “ Income from Other Sources.”

III. Allowances :

A. Fully Exempted Allowances:

Foreign Allowance given by Govt. to its employees posted abroad. HRA given to Judges of High Court & Supreme Court.

B. Fully Taxable Allowances:

(i)    Dearness Allowance / Additional D.A. / High Cost of Living Allowance -- Fully Taxable.

(ii)   City Compensation Allowances (CCA).

(iii)   Capital Compensatory Allowance

(iv)  Lunch Allowance

(v)   Tiffin Allowance

(vi)  Marriage / Family Allowance

(vii)  Overtime Allowance

(viii) Fixed Medical Allowance.

(ix)  Electricity and Water Allowance

(x)   Entertainment Allowance. It is fully added in employee’s Salary. 

In case of Government employees a deduction is allowed u/s 16(ii) at the rate of least of following :

       (a)  Statutory Limit Rs. 5,000 p.a.

       (b)  1/5 (20%) th of Basic Salary ; or

       (c)  Actual Entertainment Allowance received.

C.        Partly Taxable Allowances:

1.    House Rent Allowance ( HRA)

       (a) Fully Exempted, if received by the Judges of High Court and Supreme Court.

(b) Fully Taxable, if received by an employee who is living in his own house or in a house for which no rent is paid.

(c)  Exempted upto least of following for those employees who are living in rented houses:

            (i)   Actual HRA received by the employee.

            (ii)  Rent paid - 10% of Salary ; or

(iii) 40% of Salary in ordinary town  ; 50% of Salary in Mumbai, Kolkata, Chennai or Delhi.

Ø Taxable HRA = HRA Received - Least of Above.

Ø Salary = Pay + D.A. which enters into Pay for Service or Retirement Benefits + Commission on Turnover Achieved by Him.

Following Allowances are Exempted upto actual expenditure incurred for employment. Excess, if any, shall be taxable...

2.    Uniform Allowance

3.    Conveyance Allowance

4.    Traveling Allowance

Following Allowance are Exempted up to amount so notified..

5.    Special Compensatory Allowance

6.    Border Area Allowance

7.    Tribal  Area  Allowance -- Exempted upto Rs. 200 p.m. if received in the States of M.P., Tamil Nadu, U.P., Karnataka, Tripura, Assam, West Bengal, Bihar, or Orissa.

8.    Children’s Education Allowance -- Exempted up to Rs.100 p.m. per child for education in India of own  two children only.

9.  Hostel Expenditure Allowance -- Exempted up to Rs. 300 p.m. per child for Hostel  expenditure on own  two children only.

IV. Perquisites :

A. Exempted  Perquisites:

1.    Leave Travel Concession subject to conditions & actual spent only for travels.

2.    Computer/ Laptop provided for official / personal use.

3.    Initial Fees paid for corporate membership of a club.

4.    Refreshment provided by the Employer during working hours in office premises.

5.    Payment of annual premium on Personal Accident Policy.

6.    Subscription to periodicals and journal required for discharge of work.

7.    Provision of Medical Facilities.

8.    Gift not exceeding Rs. 5,000 p.a.

9.    Use of Health Club, Sports facility.

10.  Free telephones whether fixed or mobile phones.

11.  Interest Free / concessional loan of an amount not exceeding Rs.20,000 (limit not application in the case of medical  treatment)

12.  Contribution to recognised Provident Fund / approved super annuation fund, pension or deferred annuity scheme & staff group insurance scheme.

13.  Free meal provided during working hours or through paid non transferable vouchers not exceeding Rs. 50 per meal or free meal provided during working hours in a remote area.

The value of any benefit provided free or at a concessional rate (including goods sold at concessional rate) by a company to the Employees by way of allotment of shares etc., under the Employees stock  option plan as per Central Government Guidelines.

B. Taxable Perquisites:

1.   Rent Free Accommodation

2.   Provision of Motor Car or any other Conveyance for personal use of Employee.

3.   Provision of Free or Concessional Education Facilities.

4.   Reimbursement of Medical Expenditure.

5.   Expenditure on Foreign Travel and stay during medical expenditure.

6.   Supply of Gas, Electricity & Water.

7.   Sale of an Asset to the Employee at concessioanal price including sale of Share in the Employer Company;

V. Profits in Lieu of Salary :

Receipts which are included under the head ‘Salary’ but Exempted u/s 10.

1.   Leave Travel Concession (LTC) - Exempt upto rules.

2.   Any Foreign Allowance or perks - If given by Govt. to its employees posted abroad are fully exempted.

3.   Gratuity :  A Govt. Employee or semi-Govt. employee where Govt. rules are applicable -- Fully Exempted.

      A.  For employees covered under Payment of Gratuity Act.--

           Exempt up to least of  following :

           (a)  Notified limit = Rs. 3,50,000

           (b)  15 days Average Salary for every one completed year of
service (period exceeding 6 months =1 year)

           1/2 month’s salary = (Average monthly salary or wages x 15/26

           (c)  Actual amount received.

B.  Other Employees -- Exempted up to least of following provided service is more than 5 years or employee has not left service of his own :

      (a)  Notified limit = Rs. 3,50,000

(b)  1/2 month’s average salary for every one year of completed service (months to be ignored.)

      (c)  Actual amount received.

>> Average Salary = Salary for 10 months preceding the month of retirement divided by  10.

4. Commutation of Pension :

In case commuted value of pension is received --

(a) If Govt. employee -- is Fully Exempted.

(b) If other employee who receive gratuity also -Lump sum amount is exempted upto commuted value of 1/3rd of Pension.

If other employee who does not get gratuity -- Lump sum amount is exempted upto commuted value of 1/2 of pension.

5. Leave Encashment u/s 10(10AA)

    (a)  If received at the time of retirement by a Govt. employee---Fully Exempted

    (b) If received during service---Fully taxable for all employees

    (c) If received by a private sector employee at the time of retirement exempted upto :

    (i)  Notified limit Rs. 3,00,000

    (ii)  Average salary x 10 months

    (iii) Actual amount received.

    (iv) Average Salary x No. of months leave due.

6. Any Tax on perks paid by employer. It is fully Exempted.

7. Any payment received out of SPF . Any payment received out of SPF is Fully Exempted.

8. Any payment received out of RPF . Any payment received out of RPF is Fully Exempted, If service exceeds 5 years.

9. Any payment received out of an approved superannuation fund . is Fully Exempted

Vi.     Deduction Out Of Gross Salary [ Sec. 16]

1.         Entertainment Allowance [ U/s 16(ii)]

Deduction u/s 16(ii) admission to govt. employee shall be an amount equal to least of following :

1. Statutory Limit of Rs.5,000 p.a.
2. 1/5 th of Basic Salary
3. Actual amount of entertainment allowance received during the previous year.

2.         Tax on Employment u/s 16(iii)

In case any amount of professional tax is paid by the employee or by his employer on his behalf it is fully allowed as deduction.

Vii.    Deduction U/S 80C Out Of Gross Total Income (GTI)

The following are the main provisions of the newly inserted Section 80C. :

1. Under Section 80C , deduction would be available from Gross Total Income.
2. Deduction under section 80C is available only to individual or HUF.
3. Deduction is available on the basis of specified qualifying investments / contributions / deposits / payments made by the taxpayer during the previous year.
4. The maximum amount deduction under section 80C , 80CCC, and 80CCD can not exceed  Rs.1 lakh.

Deduction u/s 80C shall be allowed only to the following assessee :

1. An Individual
2. A Hindu Undivided Family (HUF)