Which allowance attracts tax? What is Central Board of Direct Taxes (CBDT)? | Types of taxes

Allowance is also Income

There is an unforeseen thunderbolt on the employees. The decision in the budget of this year which deleted the Fringe benefit Tax, showed its effect on the employees after five and half months. As the financial year is coming to an end, the employees having completing their savings and calculating the tax amount have submitted their tax returns to the companies, when all of a sudden there is a declaration by the centre that all their allowances come under the tax limit. All the employees have to pay tax for the allowances they take from the company for the car, car driver, attendants etc. This will be effective from this financial year only. That means this decision comes into effect from April 1, 2009. So in the coming 3 months there are more deductions in the salaries.

Central Board of Direct Taxes (CBDT) has notified that all the allowances that the employees get from the management come under the tax limit. It also specified the value of the different allowances. According to this, the allowances will be treated as income and will be added to the salaries. Tax is levied on this. Owing to this, there is a chance that the slabs of several employees will be changed.

Which allowance attracts tax…

Any of the allowances like car, HR, personal attendants, Educational concessions, Concessional traveling, Credit Card, Interest free loans, Gift vouchers, Stay at hotels for more than 15 days, Medical Facilities, Employees stock options given to the employee will be treated as income and will be added to the salary of that employee. Tax has to be paid on the total amount. But better part of it is that the government will decide the value for some of these allowances. Tax will be according to that value only. In fact, these were the values before the commencement of Fringe benefit Tax. All the values of allowances were kept the same excluding the cars and Food allowances.

Values decided by the CBDT

Food, Car allowances…

1. Rs. 50 for Food.
2. If the maintenance and running expenses are borne by the management..

• For small cars of capacity less than  1.6 ltrs, monthly Rs.1,800

• For cars of the capacity more than 1.6 ltrs monthly Rs.2, 400.
• That means……if the company gives small cars, the employee’s salary increases per year by Rs. 21, 600. And if the company gives big cars, salary per year will rise by Rs. 28, 800. They have to pay tax according their slabs.

1. In case the maintenance and running of the car is borne by the employee….

• Rs. 600 monthly for the cars of capacity below 1.6 liters. It will be Rs. 7,200 per year.
• Rs. 900 monthly for the cars of capacity above 1.6 liters. It will be Rs. 10,800 per year.

1. In case if driver is also provided, Rs. 900 per month is added to the list. That comes to Rs. 10,800.

There is a small concession in this. If the car is purely used for official purpose only, it attracts no tax.

Free accommodation

If the company is providing the employee with accommodation free of cost, it also comes under taxable income. This value is decided based on the population of that city. In cities which have more population than 25 lakhs it is 15%, it is 10% in the cities which have population between 10 to 25 lakhs and it is 7.5% in the cities which have population below 10 lakhs. In Hyderabad it will be 15% on basic salary.

Basic salary means

Basic + allowance + bonus. (DA will not be added)

Personal attendants

If the employees get services of company workers like personal attendants, sweepers, gardeners, watchman, it is considered as employee’s income.

Educational concession

If any family member of the employee gets economical assistance for the education by the company, tax is levied on that also. Interest free loans provided by the company also attract tax.  If the company provides gift vouchers more than Rs. 5,000 or pays club fees, it is also considered as income and tax is levied on it.

Credit cards

If the company provides credit cards to the employee, annual fee and membership fee of credit card it is also added to salary. Expenses made using that card is also considered as income. But if the company confirms that the expenses are made for the company, it is given exception.

Movable properties

Facilities like fax machine, printer, air conditioner if provided by the company, 10% of the value of it or the rent for it is considered as income. But laptop is given an exception.

E-stocks also….

According to finance act 2009-10, stock options (shares) offered by the company to its employees also comes under taxable amount. From the date of using these options, its total value is considered as income. If the pension funds offered by the company exceed one lakh, it also attracts tax.

A small relaxation

There was a controversy that telephones and tour-travel bills offered by the company are also added to this list. But they are given exception.