Salary benefits available to Government employees :


Firstly, we will start with the salary benefits available to Government employees :

Dearness Allowance (DA):

 

The Indian government very well understands that Inflation is one factor which has its impact on everyday lives and needed to be shielded.Therefore, to curb the effect of inflation, Dearness Allowance (DA) is paid to Government employees, Public sector employees (PSE) and pensioners in India. However, in private sector, companies are not bound to give Dearness Allowance. It is at their own discretion and terms with the employee to provide for DA.Therefore,generally this allowance is not a part of pay structure of private sector employees.

In simple words, DA is a cost of living adjustment allowance. It is calculated on basic salary and is a fully taxable allowance. The amount of DA is governed by the guidelines issued by central government / other competent authorities and it varies according to location where one is employed.


Pay Commission:

Government of India sets up a Pay Commission in order to determine the salaries and improve the living standard of government employees.The recommendations of Pay Commission is applicable in every 10 years. It's report is based on market research, inflation, and various other factors for a particular time-frame.

The first pay commission submitted its report in May, 1947 to the interim government of India. Recently, seventh pay commission has been made applicable in India. Now, with it's implementation, the disposable income of government employees will increase. It will provide benefit to lakhs and lakhs of government employees. It is Similar to the Dearness Allowance in respect of the fact that this benefit is also based on inflation factor. Further, unfortunately there is no such provision like Pay commision in the private sector.


Increment :

Increment !! Well, who doesn’t likes it. Fortunately, it is provided to both the sectors (Private, Public) of employees. The increment of government employees is done on fixed basis every year i.e. it is almost sure to happen.The amount of Increment is computed as a percentage on an employee's overall basic pay.
Unlike government sector, the Salary increment can be based on fixed basis or performance basis in the private sector. In other words, the increments in private sector mainly depends upon the policy of the company.


Exemptions available from the salary available to Government employees :


Now, after discussing the benefits in the salary structure, we will move on to the exemptions available from the salary. Except RFA , the below exemptions are available specifically to the government employees.

Rent Free Accommodation (Unfurnished ) :

It is a perquisite given to the employee by an employer. Perquisite is nothing but a non-monetary benefit or benefit given in kind to the employee. These are taxable based on the provisions of the Act, in the hands of the employee.
So, if your employer provides you with a rent free accommodation, your taxability would be as under:

Government Employees Other Employees
House is owned by the Employer House is taken on lease or rent by the employer
The taxable value of the benefit shall be the License Fees as determined by the Government for allotment of houses.The  License fee is quite nominal. The following shall be the the taxable value of perquisite :
  1. If the Population exceeds 25 Lakhs, then 15% of salary.
  2. If the Population ranges between 10-25 Lakhs, then 10% of salary.
  3. In any other case, 7.5% of salary.
The taxable value of perquisite shall be irrespective of the number of population. it shall be :
  1. Actual Rent
  2. 15% of salary
whichever is lower .
NOTE:


It is to be noted that rent free accommodation provided to a judge of a high Court or Supreme court or an official of Parliament is exempt from tax.


Entertainment Allowance:

The deduction on this allowance is allowed only to a Government Employee.That means the non government employees shall not be eligible for deduction if entertainment allowance is received by them.

The deduction from gross salary of the government employees shall be minimum of the below three limits :

  • Actual entertainment allowance received
  • 1/5th of salary exclusive of any allowance, benefit or perquisite.
  • Rs. 5000

Foreign allowances :

Foreign Allowances or perquisites paid or allowed only to Government Employees posted outside India is fully exempt from tax.


Allowances to member of UPSC :

The serving Chairman or Member of UPSC is given following tax free allowances and perquisites:

  • Value of rent free official residence
  • Value of conveyance facilities including transport allowance
  • Sumptuary allowance (This allowance is provided to the members of honorary posts for daily expenditures.)
  • Leave travel concession

Further, if allowances are provided to Retired Chairman/Members of UPSC then the tax exemption shall be up to Rs.14,000 per month for offering services on contract basis.


Allowances by UNO :

Allowances paid by the UNO to its employees are also exempt.


Allowances to Judges :

Allowances paid to Judges of High Court or Supreme Court are exempt from tax. Eg - Compensatory Allowance is exempt.


Allowances to SAARC member state :

Salary, as well as allowances received by the professors from SAARC member state are also exempt.


Retirement benefits available to Government employees :


After going through the benefits related to salary, let have a walkthrough of the retirement benefits which the government employees get over and above the private employees.

GRATUITY :

It is a part of salary which you receive as an appreciation from your employer for the services offered to the company. You are eligible to receive gratuity only if you have rendered services for 5 continuous years or more to the organization.

Tax Treatment of Gratuity :

For the purposes of tax calculations, employees can be divided into 3 categories:

Government Employees Other Employees
Employees covered under the payment of Gratuity Act, 1972 Employees not covered under the payment of Gratuity Act, 1972
The amount of Gratuity received is fully exempt from tax The Exemption shall be minimum of the three :
  1. Actual Gratuity Received
  2. Rs. 1,00,000(Likely to increased to Rs. 20,00,000)
  3. 15/26*Last drawn salary* Completed year of service or part thereof
The Exemption shall be minimum of the three :
  1. Actual Gratuity Received
  2. Rs. 10,00,000 (Likely to increased to Rs. 20,00,000)
  3. ½*Average Salary*Completed year of service (No part thereof is considered)

Note: a. Last Drawn Salary: Basic Salary + Dearness Allowance + Commission (if fixed at % of sales turnover)
b. Average Salary: It is the average of salary of last 10 months immediately before the month of retirement. Salary will include Basic Salary, Dearness allowance and commission (if fixed at % of sales turnover).
c. Completed year of service or part thereof: It means where you have served for more than 6 months in a year, that would be counted as 1 complete year and for less than 6 months in a year would not be considered.
Say, You have served for 10 years and 8 months. So, for the purpose of calculations it be treated as if you have served for 11 years.
Similarly, if you have served for 10 years and 3 months, your completed year of service would only be 10 years. 3 months period would be ignored for the purpose of calculation.


PENSION :

With the passage of time, only you get retire but your tax does not!! Tax will always levied till the time a person earns Income irrespective of the age. Pension is a payment made by employer at the time of retirement as a reward of past of service.There can be two types of pension.The brief description is as under:

  • Un-commuted Pension: If the Pension is received periodically i.e. on monthly basis then it is fully taxable in the hands of both government as well as non-government employees.
  • Commuted Pension: It refers to a lump-sum pension payment received in lieu of periodic pension.The taxability has been defined under income tax act:

Tax Treatment of Commuted Pension :

For the purposes of understanding the taxability of Commuted Pension, let us divide the employees into 3 categories:

Government Employees Other Employees
Non- Government Employees in receipt of Gratuity Non-Government Employees not in receipt of Gratuity
Fully exempt Only 1/3rd of full value of commuted pension is exempt from tax.
So, technically you are required to pay tax on 2/3rd of the value of commuted pension.
Only 1/2nd of full value of commuted pension is exempt from tax.
Here, you are required to pay tax on half of the value of commuted pension.

LEAVE ENCASHMENT :

Every organization grants certain leaves to its employees and these leaves if unused can either be carried forward or is lapsed at the end of the year. You can encash the unused accumulated leaves, depending upon the policy of the company either during the time of employment or at the time of retirement.

Tax Treatment of Leaves encashment :

  • Received during employment: Where the leaves are encashed during the period of employment, it is fully taxable for government as well as non-government employees.
  • Received at the time of retirement:

    Government Employees Other Employees
    The amount shall be fully exempt The Least of the following shall be exempt -
    a. Actual amount received
    b. Unutilized earned leave * Avg. Monthly Salary
    c. Average Monthly Salary*10
    d. Rs. 3,00,000

    Note:

    1. Unutilized Earned Leave: It is important to note here, that the earned leave days cannot exceed 30 days for each completed year of service.
      Say, you have served for 15 years, leaves allowed to you is 45 days in a year and leaves encashed during employment is 200 days. So Unutilized earned leave here is, Completed year of service* Allowed earned leaves (30 days or actual no. of days, whichever is lower) – Leaves encashed
      = 15*30 (lower of 45 or 30 days for a year) – 200
      = 250 unutilized earned leave
    2. Average Monthly Salary: The salary drawn in 10 months
    3. Shall be averaged.
    4. Salary = Basic Salary + Dearness Allowance + Commission (if fixed % of turnover)

 

SUMMARY

For your reference, all these benefits have been summed up as below :

A. SALARY BENEFITS :
Basis of Difference Government Employees Non-government Employees
Dearness Allowance (DA) It is revised in every 6 months as per the inflation rate. No such benefit is available.
Pay Commision It is revised in every 10 years as per the inflation rate. No such benefit is available.
Increment It is done on a fixed basis every year. It can be on fixed basis or performance basis depending upon the policy of the company.
B. DEDUCTION FROM SALARY :
Basis of Difference Government Employees Non-government Employees
Entertainment Allowance Lower of below is allowed as deduction:
1/5th of salary, or,
Rs. 5000
Fullytaxable.No deduction is allowed
Rent free Accommodation (Unfurnished) Nominal License fee shall be taxable value. Certain Percentage of salary shall be taxable value.
Foreign allowances or perquisites Exempt Not Exempt
C. RETIREMENT BENEFITS :
Basis of Difference Government Employees Non-government Employees
Gratuity
Commuted Pension
Leave Encashment
Fully Exempt Partially Exempt

Conclusion : The numerous tax benefits enjoyed by the government employee could be one of the reason which gives them an edge over the non-government employee. However, the job content and job satisfaction should be equally evaluated before deciding upon the organisation you wish to work for.