Tax Treatment

2nd July 2021 0 By indiafreenotes

a) Salary income is chargeable to tax on “due basis” or “receipt basis” whichever is earlier.

b) Existence of relationship of employer and employee is must between the payer and payee to tax the income under this head.

Tax treatment in respect of contributions made to and payment from various provident funds are summarized in the table given below:

Particulars Statutory provident fund Recognized provident fund Unrecognized provident fund Public provident fund
Employers contribution to provident fund Fully Exempt Exempt only to the extent of 12% of salary* Fully Exempt
Deduction under section 80C on employees contribution Available Available Not Available Available
Interest credited to provident fund
See Note
Fully Exempt Exempt only to the extent rate of interest does not exceed 9.5% Fully Exempt Fully Exempt
Payment received at the time of retirement or termination of service Fully Exempt Fully Exempt (Subject to certain conditions and circumstances) Fully Taxable (except employee’s contribution) Fully Exempt

Specified Employee

The following employees are deemed as specified employees:

1) A director-employee

2) An employee who has substantial interest (i.e. beneficial owner of equity shares carrying 20% or more voting power) in the employer-company

3) An employee whose monetary income* under the salary exceeds Rs.50,000