Chapter VII
Computation of income from employment
7.1 "Income from employment" will be the gross salary as reduced by the aggregate amount of permissible deductions.
7.2 Gross salary will form part of the tax base on due or receipt basis, whichever is earlier. It will include the value of perquisites and profits in lieu of salary.
7.3 The permissible deductions will be the following :—
(a) amount of professional tax paid ;
(b) transport allowance to the extent prescribed ;
(c) prescribed special allowance or benefit to meet expenses wholly and exclusively incurred in the performance of duties, to the extent actually incurred ;
(d) compensation under voluntary retirement scheme ;
(e) amount of gratuity received on retirement or death ;
(f) amount received on commutation of pension ; and
(g) pension received by gallantry awardees.
7.4 The deductions in respect of the amounts referred to in items (d), (e) and (f) would be available to the extent the amounts are paid to, or deposited in a retirement benefits account. The amounts received from an approved superannuation fund, hitherto exempt from income-tax, will henceforth also be treated in the same manner.
7.5 This account will be required to be maintained with any permitted savings intermediary in accordance with the scheme framed and prescribed by the Central Government in this behalf. The permitted savings intermediaries will be approved provident funds, approved superannuation funds, life insurer and New Pension System Trust. The accretions to the deposits will remain untaxed till such time as they are allowed to accumulate in the account.
7.6 Any withdrawal made, or amount received, under whatever circumstances, from this account will be included in the income of the assessee for the year in which the withdrawal is made or the amount is received. Accordingly, it will be subject to tax at the appropriate personal marginal rate.
7.7 Under the Code, the salary will now include, inter alia, the following :—
(a) the value of rent free, or concessional, accommodation provided by the employer irrespective of whether the employer is a Government or any other person ;
(b) the value of any leave travel concession ;
(c) the amount received on encashment of unavailed earned leave on retirement or otherwise ;
(d) medical reiumbursement ; and
(e) the value of free or concessional medical treatment paid for, or provided by, the employer.
7.8 The value of rent-free accommodation will be determined for all employees in the same manner as is presently determined in the case of employees in the private sector. The new regime of comprehensive taxation of perquisites across employees in all sectors of the economy will improve both the horizontal and vertical equity of the tax system.
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