Minimum Time Scale (MTS)
MTS is the amount from where the salary scale of the particular employee starts.
Basic salary means initial pay of any scale as well as annual increment received by an employee during his service.
Basic Salary = Initial pay of any scale + Annual increment
Mr. Akmal is working in the pay scale of 10,000-500-13,000 in a public company. For the tax year 2009, he received the following amounts:
Pay Rs. 11,500 per month
Bonus Rs. 20,000 for the year
Commission Rs. 10,000 for the year
Dearness allowance Rs. 20,000 for the year
Compute his MTS and basic salary.
1) Minimum Time Scale (MTS)
MTS = 10,000 × 12
2) Basic Salary
= 11,500 × 12
There are following definitions of salary under the Income Tax Ordinance, 2001.
Definition of Salary Applicable to the Sixth Schedule:
This definition has been given under; the rule-14 clause (h) of the part-1 of the Sixth Schedule.
"Salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
Basic Salary XXX
Add: Dearness Allowance XXX
Salary for valuation of approved provident fund/Approved
Superannuation fund/Approved gratuity fund XXX
Note:With examination point of view, if dearness allowance is not given in question, basic salary is also called salary for valuation of approved/ recognized provident fund etc.
In other words, in the absence of dearness allowance, basic salary shall represent salary for approved provident fund etc.
General Definition of Salary:
Salary means any amount received by an employee from an employment, whether such amount is, of a revenue or capital nature.
It includes the followings:
1) Pay, wages, leave pay, overtime, bonus, commission, fee, gratuity, work condition supplement.
2) Any perquisite, whether convertible into money or not.
4) Profit in lieu of or in addition to salary.
5) Pension, annuity or any supplement to pension or annuity.
6) Any amount chargeable to tax on account of Employee Share Option Scheme (u/s 14)
According to Black's Law Dictionary:
"Perquisites" means emoluments, fringe benefits or other incidental profits or benefits attaching to an office or position.
In other words, a something to which employee has a special right because of his / her employment position.
Incidental profit or benefit attaching to an office or position means any special facility which is provided by employer to employee due to such position.
Commissioner's house is provided to Commissioner by the Government due to his Commissioner's position.
In other words, Mr. Ali is a Commissioner; Government has provided him Commissioner's House.
Remember: House is affiliated with Commissionership. If Mr. Ali is transferred etc. such house is vested to the next Commissioner. In brief, such facility is attached with Commissionership rather Ali.
Under the Income Tax Law, "Perquisites" includes:
1) The value of rent free accommodation.
2) The value of any concession in rent of accommodation.
3) Value of any conveyance facility.
4) Any payment by employer for the benefit of employee, his / her spouse or dependent's of employee.
5) The value of any benefit provided free of cost.
6) The value of any benefit provided at a concessional rate.
7) Any sum paid by an employer in respect of any obligation of an employee.
8) Employee's children educational expenses paid by employer.
Allowances include cost of living allowance, dearness allowance, overseas allowance, house rent allowance, utilities allowance, entertainment allowance etc.