# Profit in Lieu of or in addition to Salary

Profit in Lieu of or in addition to Salary

“In lieu of” means "instead of"

It includes the followings:

1)         Any consideration for a person's agreement to enter into an employment    relationship.

2)         Any consideration received due to change in terms and conditions of         employment.

3)         Any amount received on termination of employment or compensation for    redundancy or loss of employment and golden handshake payment.

4)         Any amount received from any fund constituted by employer (excluding the            employee's contribution in such fund)

Loan to Employee

Where a loan is given by employer to employee, it may have the following situations:

i)          Interest free loan is given to an employee:

Interest calculated at the Bench Mark Rate shall be taxable. Benchmark rate for the tax year 2009 is 11%.

Illustration:

Mr. Ahsan has received following amounts from his employer during the tax year, 2009:

Basic salary                                                                                                200,000

Interest free loan provided by employer                                                      300,000

Qualifications pay                                                                                         50,000

Required: Compute his total income for the tax year, 2009.

Solution:

Basic salary                                                                                                200,000

Interest on interest free loan (300,000 @ 11%)                                            33,000

Qualifications pay                                                                                         50,000

Total income                                                                                               283,000

ii)         Interest rate is less than Bench Mark Rate:

Where, actual rate of interest is less than bench mark rate, difference between bench mark rate and actual rate of interest shall be included in total income as interest on loan received from employer.

Illustration:

Mr. Ahsan has received following amounts from his employer during the tax year 2009:

Basic salary                                                                                                200,000

Special allowance                                                                                         75,000

Loan received from employer @ 6%                                                          300,000

Required: Compute his total income for the tax year 2009.

Solution:

Basic salary                                                                                                200,000

Special allowance (Fully exempt)                                                                        Nil

Interest on loan (11%–6%=5%) 300,000 @ 5%

(Difference between bench mark rate and actual rate)                                15,000

Total income                                                                                               215,000

Note:   Bench mark rate for the tax year 2009 is 11%. So, actual rate of interest is            less than bench mark rate, difference between bench mark rate and actual rate     of interest shall be included in total income as interest on loan received from             employer.

iii)        Interest rate is equal to Bench Mark Rate:

Where loan is given by an employer to an employee @ 11%. In other words,          interest rate is equal to Bench Mark Rate, nothing shall be included in respect of   interest on loan in the total income of an employee.

Illustration:

Mr. Ahsan has received following amounts from his employer during the tax year, 2009:

Basic salary                                                                                                200,000

Loan received from employer @ 11%                                                        300,000

Efficiency honorarium                                                                                   90,000

Required: Compute his total income for the tax year 2009.

Solution:

Basic salary                                                                                                200,000

Interest on loan received from employer @ 11%                                                Nil

Efficiency honorarium                                                                                   90,000

Total income                                                                                               290,000

Note:   Benchmark rate for the tax year 2009 is 11%, if actual rate of interest is equal to bench mark rate, nothing shall be included in the total income in respect of interest on loan received from employer.

iv)        Interest rate is higher than Bench Mark Rate:

There is no tax treatment of such loan.

Illustration:

Mr. Ahsan has received following amounts from his employer during the tax year 2009:

Basic salary                                                                                                200,000

Interest on loan received from employer @ 12%                                       300,000

Overseas allowance                                                                                   100,000

Required: Compute his total income for the tax year 2009.

Solution:

Basic salary                                                                                                200,000

Interest on loan received from employer @ 12% (N-1)                                       Nil

Overseas allowance                                                                                   100,000

Total income                                                                                               300,000

Note:   Benchmark rate for the tax year 2009 is 11%. So, actual rate of interest is greater than benchmark rate, nothing shall be included in the total income as interest on loan received from employer.

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keira7 7 years ago

Thanks for the info, nice hub. Take care.

success79 7 years ago

Informative article. Lots of good tips.

loveofnight 6 years ago from Baltimore, Maryland

all i can say is it looks good on paper

Sun-Girl 5 years ago from Nigeria

Awesome and very informative article you actually shared in here which i enjoyed reading from.

raju 4 years ago

whoever wrote this ... I take my hats off to you. This is the right way to write an article on finance.