SalariesTying up the loose ends…

Types of PFs• Statutory

– PF Act,1925• RPF

– EPFMPA 1952• UPF• PPF

– Nationalized bank– Rs 500-70000 pa– 8% pa– 15 year lock in

Xs salary is 10k pm. A contributes 15% salary to PF Company matches it

PROVIDENT FUND

Particulars Statutory P.F Recognized P.F. Unrecognized P.F. Public PF

Employer’s contribution to P.F.

Exempt from tax

Not treated as income up to 12 per cent of salary- excess of employers contribution over 12 per cent of salary is taxable

Not treated as income of the year in which contribution is made

Employer does not contribute

Deduction under section 80C on employee’s contribution

Available Available Not Available   Available  

Interest credited to P.F. Exempt from tax

Exempt if rate of interest is LT notified rate(i.e. 9.5 per cent), excess of interest over the notified rate is, however, taxable

Exempt from tax Exempt from tax

Lump sum payment at the time of retirement or termination of service

Exempt from tax

Exempt from tax in some cases. When not exempt P.F. will be treated as an unrecognized fund from the beginning.

Only employees contrib is exempt—bal taxable (Int under Other inc and employers contrib under Salaries)

Exempt from tax

PROVIDENT FUND

Particulars

SPF RPF UPF PPF

Employer’s contribution to P.F.

Exempt from tax

Not treated as income up to 12% of salary- excess of employers contribution over 12 per cent of salary is taxable

Not treated as income of the year in which contribution is made

Employer does not contribute

Deduction U/S 80C on employee’s contribution

Available

Available Not Available

  Available  

Particulars

SPF RPF UPF PPF

Interest credited to P.F.

Exempt from tax

Exempt if rate of interest is LT notified rate(i.e. 9.5 per cent), excess of interest over the notified rate is, however, taxable

Exempt from tax

Exempt from tax

Lump sum payment at the time of retirement or termination of service

Exempt from tax

Exempt from tax in some cases. When not exempt P.F. will be treated as an unrecognized fund from the beginning.

Only employees contrib is exempt—bal taxable (Int under Other inc and employers contrib under Salaries)

Exempt from tax

RPFExemption at time of retirement/termination of

service only if : Continuous service for 5 yrs or more

Include service to former employers (if PF bal incl transfered bal)

Unavoidable discontinuity in service Termination/ill health/liquidation

Transfer to another RPF

Sec 8O CPersons Covered: Individual /HUF only

DEDUCTION IN RESPECT OF : LIFE INSURANCE PREMIA, DEFERRED ANNUITY, CONTRIBUTIONS TO PROVIDENT

FUND, SUBSCRIPTION TO CERTAIN EQUITY

SHARES OR DEBENTURES, ETC. ETC.

Any sums paid or deposited in the previous year by the assessee — As Life Insurance premium to effect or keep in force insurance on

life of :

i. Self, spouse and any child in case of individual; and

ii. Any member, in case of HUF; Insurance premium should not exceed 20% of the actual capital sum assured.

To effect or keep in force a deferred annuity contract on life of self, spouse and any child in case of individual (not applicable for HUF); Such contract should not contain a provision for cash payment option in lieu of

payment of annuity.

By way of deduction from salary payable by or on behalf of the Government to any individual for the purpose of securing to him a deferred annuity or making provision for his spouse or children; The sum so deducted should not exceed 1/5th of the salary.

Any contribution (not being repayment of loan) by an individual to Statutory Provident Fund/ Recognized Provident Fund;

Any contribution to Public Provident Fund scheme, 1968;

Any contribution by an employee to an approved superannuation fund.

Any contribution to Unit-linked Insurance Plan (ULIP) of UTI/ LIC

To effect or to keep in force a contract of notified annuity plan of the LIC/ any other Insurer.

Any subscription to any notified security/ notified deposit scheme/ National Savings scheme’ 1992;

Any subscription to National Savings Certificates (VIII issue). .

Subscription to units of any Mutual Fund referred u/s 10(23D) (Equity Linked Saving Schemes).

Contribution by an individual to a notified pension fund set up by any Mutual Fund referred u/s 10(23D).

As subscription to any such deposit scheme of National Housing Bank (NHB), or as a contribution to any such pension fund set up by NHB as notified by Central Government.

As subscription to notified deposit schemes of: i. Public sector Company providing long-term finance for purchase/construction of residential houses in India; or ii. Any authority constituted in India for the purposes of housing or planning, development or improvement of

cities, towns and villages. As Tuition fees (excluding any payment towards any development fees or donation or payment of similar nature),

to any university, college, school or other educational institution situated within India for the purpose of full-time education of any two children of an individual.

Principal amount towards the cost of purchase or construction of a residential house. The income from such house property should be chargeable to tax under the head "Income from house property". 

As Term Deposit (Fixed Deposit) for 5 years or more with Scheduled Bank in accordance with a scheme framed and notified by the Central Government

As subscription to any notified bonds of National Bank for Agriculture and Rural Development (NABARD); Investment in Term Deposit: i. For a fixed period of not less than five years with a scheduled bank; and ii. That is in accordance with a scheme framed and notified, by the Central Government, in the Official Gazette for

the purposes of this clause. Any subscription to Equity shares/ Debentures forming part of any eligible issue of capital by a Public company/

Public Financial Institution, wherein.

i) Eligible issue of capital means capital issued by a public co./ Public financial institution for utilizing the proceeds wholly& exclusively towards purposes of any business referred in Sec. 80IA(4).

In addition to the existing list of various categories of investments eligible for deduction under Section 80C, further two additions have been introduced thereby increasing the scope of exercisable options, the additions being:- [Amendment AY 2009-10]

i) Five year time deposit in an account under Post Office Time Deposit Rules, 1981; and   ii) Deposit in an account under the Senior Citizens Savings Scheme Rules, 2004. 

 However the above amounts are to be kept for a minimum of 5 years from the date of its deposit, so as to escape the adverse provision of taxing premature withdrawal of deposits along with interest accrued on same.

Quantum of deductionExtent of Deduction :

1. 100% of the amount invested or Rs. 1, 00,000/- whichever is less.

2. However, as per Section 80CCE, the total deduction the assessee can claim u/s. 80C, 80CCC and 80CCD shall be restricted in aggregate to Rs. 1,00,000/-.

LEAVE TRAVEL CONCESSION 

Any amount received by employee from his employer in connection of his proceeding on leave to any place in/ outside India is exempted under this head subject to following:

Journey done by Air: Economy class national carrier via shortest route.

Journey done by Railways: AC 1st Class fare via shortest route.

Journey done by any other mode of transport: If recognized Public transport exists then 1st Class deluxe fare else amount equivalent to AC 1st class Rail fare.

LTC

In case of situation 3 above where journey performed by any other mode of transport, where in the place of origin of journey and destination are connected by railways. The amount of air condition first class rail fare by the shortest

route OR the amount actually spent, whichever is less shall be exempted.  

Maximum exemption claimable is to the extent of Actual Expenditure subject to amount of L.T.C received.

Exemption can be claimed in respect of TWO journeys in a BLOCK of FOUR calendar years. 1st Jan,2002-31st Dec 2005, 1st Jan,2006-31st Dec 2009 1st Jan,2010-31st Dec 2013

Exemption is available only in respect of TWO Children.

LTC

In case L.T.C is encashed without performing the journey, entire L.T.C becomes taxable.

Family for this purpose includes- Spouse & Children of the Employee; Parents, brothers, sisters of the employee wholly/ mainly dependent on the employee.

It is not necessary that family members should perform journey along with the Employee only.

Only Travel Fare incurred for the shortest route is exempted and no other expenses.

Valuation of medical facilities to employee

Medical facility in a Hospital maintained by the employer

Medical expenses incurred in this instance is not chargeable in the hands of the employee, but is chargeable as Fringe Benefit Tax in the hands of the employer

Medical Treatment in India

Expenditure tax exempted up to Rs. 15,000/- in case of treatment taken at any Hospital/ Clinic etc. However it is fully tax free in the following cases:-

Expenditure incurred by an employee/ his family members at any Hospital maintained by Govt./ Local authority/ approved by govt.

Expenditure incurred by an employee/ his family members in respect of treatment of diseases specified in Rule 3A of Income Tax Rules’ 1962/ Hospital approved by Chief commissioner of Income tax.

Any portion of Insurance premium either paid by the employer or reimbursed to the employee for the Health Insurance of his employee under a scheme approved by central Govt./ IRDA.

Medical Treatment outside India

Following expenditure incurred will be treated tax free in the hands of the employee:

Expenditure incurred on medical treatment on himself/ family members to the extent permitted by RBI.

Expenses on staying abroad of the employee/ any member of his family along with one attendant to the patient to the extent permitted by RBI.

If the Gross total income of the employee before including the taxable medical perquisite for travel expenditure exceeds Rs. 2,00,000/-, then whole of such expenditure on treatment becomes taxable.

Medical-misc issues

MEDICAL ALLOWANCE received by an Employee in any case is fully chargeable to tax, no exemptions as stated above are applicable for such allowance received.

Any medical facilities provided to an Employee other than the ones stated exempt above are fully chargeable to tax in the hands of Specified as well as Non Specified Employees both.

In case where the Medical bills in excess of Rs. 15,000/- per Assessment year are in the name of the Employer and same are paid/ reimbursed by the Employer it is chargeable to tax only in the hands of Specified Employees.

In case where the Medical bills in excess of Rs. 15,000/- per Assessment year are in the name of the Employee and same are paid/ reimbursed by the Employer it is chargeable to tax in the hands of Specified as well as Non- Specified Employees both.