Definition of Salary

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Significant points regarding Salary >>

Taxation Management FIN 623

MODULE 6

LESSON 6.22

SALARY AND ITS COMPUTATION

Salary as defined in Section 12(2)

· "Salary means any amount received by an employee from any employment, whether of a revenue or

capital nature, including-

Any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of

leave, overtime payment, bonus, commission, fees, gratuity or work condition supplements (such as for

unpleasant or dangerous working conditions)

· Any perquisite, whether convertible to money or not;

· The amount of any allowance provided by an employer to an employee including a cost of living,

subsistence, rent, utilities, education entertainment or travel allowance, but shall not include any

allowance solely expended in the performance of the employee's duties of employment;

▪ As consideration for a person's agreement to enter into an employment relationship;

▪ As consideration for an employee's agreement to any conditions of employment or any

changes to the employee's conditions of employments;

On termination of employment, whether paid voluntarily or under an agreement, including any

compensation for loss of employment and golden handshake payments;

From a provident or other fund, to the extent to which the amount is not a repayment of contributions

made by the employee to the fund in respect of which the employee was not entitled to a deduction; and

--as consideration for an employee's agreement to a restrictive covenant in respect of any past, present or

prospective employment;

· Any pension or annuity, or any supplement to a pension or annuity; and

· Any amount chargeable to tax as "Salary" under section 14."-- (Employee Share Schemes)

Sec. 13 Value of Perquisites:

Sub Sec (1) for the purpose of computing the income of an employee for a tax year, chargeable to tax

under the head "salary", the value of any perquisite provided by an employer to the employee in that

year that is included in the employee's salary under section 12 shall be determined in accordance with

this section.

Sub Sec. (2) this section shall not apply to any amount referred to in clause ( c) or (d) of sub section 12.

Sub Sec.(3) Where, in a tax year, a motor vehicle is provided by employer to an employee wholly or partly

for the private use of the employee the amount chargeable to tax to the employee under the head

"Salary" for that year shall include an amount computed as may be prescribed.

Sub Sec.(5) Where, in a tax year, the services of a housekeeper, driver, gardener or other domestic assistant

provided by an employer to an employee, the amount chargeable to tax to the employee under the head

" salary" for that year shall include the total salary paid to [such housekeeper, driver, gardener or other

domestic assistant] in that year for services rendered to the employee, as reduced by any payment made

by the employee [to the employer] for such services.

Sub Sec. (6) where, in a tax year, utilities are provided by an employer to an employee, the amount

chargeable to tax to the employee under the head "Salary" for that year shall include the fair market

value of the utilities provided, as reduced by any payment made by the employee for the utilities.

Sub Sec. (7) Where a loan is made, on or after the 1st day of July, 2002, by an employer to an employee and

either no profit on loan is payable by the employee or the rate of profit on loan is less than benchmark

rate, the amount chargeable to tax to the employee under the head "Salary' for a tax year shall include an

amount equal to-

Sub Sec. 7(a) the profit on loan computed at the benchmark rate, where no profit on loan is payable by the

employee, or

(b) the difference between the amount of profit on loan paid by the employee in that tax year and the

amount of profit on loan computed at the benchmark rate, as the case may be.

Sub Sec. (8) For the purpose of the Ordinance not including sub-section (7), where the employee uses a

loan refer to in sub Sec. (7) wholly or partly for acquisition of any asset or property producing income

chargeable to tax under any head of income, the employee shall be treated as having paid an amount as

profit equal to the bench mark rate on the loan or that part of the loan used to acquire any asset or

property

Taxation Management FIN 623

Sub Sec. (9) where, in a tax year, an obligation of an employee to pay or repay an amount owing by the

employee to the employer is waived by the employer that shall be included under the head Salary.

Sub Sec. (10) where, in a tax year an obligation of an employee to repay an amount owing by the employee

to an other person is paid by the employer that amount shall be included in salary income

Sub Sec. (11) where in a tax year property is transferred or services are provided by an employer to an

employee the fair market value of the property or services determined at the time the property is

transferred or services are provided shall be included in salary income for the year, as reduced by any

payment made by the employee for the property or services.

Sub Sec. (12) where, in the tax year, accommodation or housing is provided by an employer to an

employee, the amount chargeable to tax to the employee under the head "salary" for that year shall

included an amount computed as may be prescribed.

Sub Sec. (13) where, in a tax year an employer has provided an employee with a perquisites which is not

covered by sub section (3) through (12), the amount chargeable to tax to the employee under the head

"salary" for that year shall include the fair market value of the perquisites except where the rules, if any,

provide otherwise, determined at the time it is provided, as reduced by any payment made by the

employee for the perquisites.

Sub Sec. (14) in this section

"Benchmark rate" means:

For the tax year commencing on the first day of July 2002, a rate of 5% per annum; and

For the tax year next following the tax year refer to in sub clause (i), the rate for each successive year

taken as 1% above the rate applicable for the immediately preceding tax year but not exceeding such

rate, if any, as the federal Govt., may , by notification, specified in respect of any tax year.

"Services" includes the provision of any facility; and

"Utilities" includes electricity, gas, water, and telephone.

Employee Share Schemes sec 14:

The value of a right or option to acquire share under this scheme shall be not chargeable to tax.

Where shares issued are subject to a restriction on transfer of the shares-

a) no amount shall be chargeable to tax under the head Salary until the earlier of-

i. the time the employee has a free right to transfer the shares; or

ii. the time the employee disposes of the shares &

b) the amount chargeable to tax to the employee shall be fair market value of shares at the time

employee has free right to transfer as reduced be any amount given as consideration for the grant of a

right or option to acquire the shares.

Where in a tax year an employee disposes of a right or option to acquire shares under an employee share

scheme, the amount chargeable to tax shall include the amount of any gain made on the disposal

computed accordance with the following formula:

A-B

Where A is the consideration received from the disposal of the right or option.

B is the employee's cost in respect of the right or option.

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