Article explains what is Salary Income, What are allowance, TDS on Salary, Taxability of Reimbursement of Expenses, Salary from different employers and non-deduction of TDS by them, Issue of Form 16, Taxability of pension income/ Family pension / retirement benefits like PF and Gratuity / arrears of salary , leave encashment/ receipts from life insurance policies on maturity along with bonus / ex-gratia received from employer / House Rent allowance (HRA)/ Fixed Medical allowance/ Conveyance allowance / transport allowance, What is Form 12BB, When relief under section 89 of the Income Tax Act is available, standard deduction on Salary, effective date of enhancement of limit of gratuity from Rs 10 lakh to 20 lakh for purpose of tax exemption computation under section 10(10)(ii) etc.
A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis. From the point of view of running a business, salary can also be viewed as the cost of acquiring and retaining human resources for running operations, and is then termed personnel expense or salary expense. In accounting, salaries are recorded in payroll accounts.
Salary is a fixed amount of money or compensation paid to an employee by an employer in return for work performed. Salary is commonly paid in fixed intervals, for example, monthly payments of one-twelfth of the annual salary.
Here we have Considered Some of the Frequently asked Question on Taxability of Salary Income under the Income tax Act,1961
Ans: section 17 of the Income-tax Act defines the term ‘salary’. However, not going into the technical definition, generally whatever is received by an employee from an employer in cash, kind or as a facility [perquisite] is considered as salary.
Ans: Allowances are fixed periodic amounts, apart from salary, which are paid by an employer for the purpose of meeting some particular requirements of the employee. E.g., Tiffin allowance, transport allowance, uniform allowance, etc.
There are generally three types of allowances for the purpose of Income-tax Act – taxable allowances, fully exempted allowances and partially exempted allowances.
Perquisites are benefits received by a person as a result of his/her official position and are over and above the salary or wages. These fringe benefits or perquisites can be taxable or non-taxable depending upon their nature. . Uniform allowance is exempt to the extent of expenditure incurred for official purposes U/S 10(14).
Ans: Yes, these are in the nature of perquisites and should be valued as per the rules prescribed in this behalf.
During the year I had worked with three different employers and none of them deducted any tax from salary paid to me. If all these amounts are clubbed together, my income will exceed the basic exemption limit. Do I have to pay taxes on my own?
Ans: Yes, you will have to pay self-assessment tax and file the return of income.
Ans: Form-16 is a certificate of TDS. In your case it will not apply. However, your employer can issue a salary statement.
Ans: Yes. However, pension received from the United Nations Organisation is exempt.
Ans: No, it is taxable as income from other sources.
Ans: The bank.
Ans: In the hands of a Government employee Gratuity and PF receipts on retirement are exempt from tax. In the hands of non-Government employee, gratuity is exempt subject to the limits prescribed in this regard and PF receipts are exempt from tax, if the same are received from a recognised PF after rendering continuous service of not less than 5 years.
Ans: Yes. However, the benefit of spread over of income to the years to which it relates to can be availed for lower incidence of tax. This is called as relief u/s 89 of the Income-tax Act.
Ans: Yes, if you are a Government employee or an employee of a PSU or company or co-operative society or local authority or university or institution or association or body. In such a case you need to furnish Form No. 10E to your employer.
Ans: Yes but only to the extent of Rs. 2 lakh, however, losses other than losses under the head ‘Income from house property’ cannot be set-off while determining the TDS from salary.
Ans: It is taxable if received while in service. Leave encashment received at the time of retirement is exempt in the hands of the Government employee. In the hands of non-Government employee leave encashment will be exempt subject to the limit prescribed in this behalf under the Income-tax Law.
Ans: As per section 10(10D), any amount received under a life insurance policy, including bonus is exempt from tax. However, following receipts would be subject to tax:
1. Any sum received under sub-section (3) of section 80DD; or
2. Any sum received under Keyman insurance policy; or
3. Any sum received in respect of policies issued on or after April 1st, 2003, in respect of which the amount of premium paid on such policy in any financial year exceeds 20% (10% in respect of policy taken on or after 1st April, 2012) of the actual capital sum assured; or
4. Any sum received for insurance on life of *specified person (issued on or after April 1st 2013) in respect of which the amount of premium exceeds 15% of the actual capital sum assured.
* Any person who is –
i) A person with disability or severe disability specified under section 80U; or
ii) suffering from disease or ailment as specified in the rule made under section 80DDB.
Following points should be noted in this regard:
Ans: If a person or his heir receives ex-gratia from Central govt/state govt/ local authority/Public Sector Undertaking due to injury to the person/death while on duty such ex-gratia payment will not be taxable.
Ans: If ITR-1 (Sahaj) or ITR-4 (Sugam) is applicable, exemption of HRA needs not to be reflect in income part.
a) Salary (excluding all allowances, perquisites and profit in lieu of salary exempt from tax) required to be disclosed in the sheet of Income details.
b) Allowances not exempt required to be disclosed in the sheet of Income details.
HRA exemption required to be shown in the column of Exempt income only for reporting purpose in others select section 10(13A)- House rent allowance from drop down.
a) Salary (excluding all allowances, perquisites and profit in lieu of salary exempt from tax) required to be disclosed in Salary sheet in ITR-2 and Schedule-S in ITR-3.
b) Allowances not exempt required to be disclosed in Salary sheet in ITR-2 and Schedule-S in ITR-3.
HRA exemption required to be shown in the column of Allowances to meet expenditure incurred on house rent [ section 10(13A))] under the heading Allowances exempt under section 10.
If tax payer is eligible for claiming exemption of HRA, but his employer not allowed such exemption, then he can claim the exemption at the time of filing his return of income.
Ans: Least/minimum of the following is exempt (Not taxable/deducted from total HRA received)
(a) Actual amount of HRA received
(b) Rent paid Less 10% of salary
(c) 50% of salary if house taken on rent is situated in Kolkata, Chennai, Mumbai and Delhi
40 % of salary if the house is taken on rent is NOT situated in Kolkata, Chennai, Mumbai and Delhi.
Ans: Medical allowance is a fixed allowance paid to the employees of a company on a monthly basis, irrespective of whether they submit the bills to substantiate the expenditure or not. It is fully taxable in the hands of employee.
Ans: As per section 10(14) read with Rule 2BB Conveyance allowance is exempt to the extent of amount received or amount spent, whichever is less. For e.g., If amount received is Rs. 100 and amount spent is Rs. 80, then only Rs. 20 is taxable. However, if amount actually spent is Rs. 100; then nothing is taxable.
Ans: As per Finance Act, 2018, new section 16(ia) has been inserted where the standard deduction is allowed while computing income chargeable under the head salaries. It is available to all class of employees irrespective of the nature of employer. Standard Deduction is also available to pensioners. Amount of Standard Deduction is Rs. 40,000 or amount of salary/pension, whichever is lower.
Ans: Exemption of transport allowance of Rs. 1600 p.m granted to an employee is discontinued from A.Y 2019-20.
However, exemption of transport allowance of Rs. 3200 p.m granted to an employee who is blind or deaf and dumb or orthopaedically handicapped is still available.
Ans: Section 16(ia) has been introduced by Finance Act, 2018 for class of person whose income is chargeable to tax under head salary. Family Pension is taxable under the head income from other sources. Hence standard deduction is not applicable in case of Family Pension.
Ans: Standard deduction is allowable to the extent of :
a) Rs. 40,000 or
b) Amount of Salary, whichever is lower
In this case standard deduction of Rs. 40,000 is allowable to Mr.X.
Ans: As per RULE LINK – Rule 26C of the Income Tax Rules – Form No. 12BB is required to be furnished by an employee to his employer for estimating his income or computing the tax deduction at source.
An assessee shall furnish evidence or particulars of the claims, such as House Rent Allowance, Leave Travel concession, Deduction of Interest under the head ” Income from house property” and deductions under Chapter-VIA in Form No. 12BB for estimating his income or computing the tax deduction at source.
Ans: Relief under section 89 is available to an individual if he has received
Salary or family pension in arrears or in advance [Rule 21A (2)]
Gratuity in excess of exemption under section 10(10)(ii)/(iii) [Rule 21A(3)]
Compensation on termination of employment [Rule 21A(4)]
Commuted pension in excess of exemption under section 10(10A)(i) [ Rule 21A(5)]
In case of payment received other than above CBDT can allow relief under section 89 after examining each individual case. [Rule 21A (6)]
Ans: The exemption limit under section 10(10)(ii) for the employees, who are covered under Payment of Gratuity Act, 1972, has been enhanced from Rs. 10,00,000 to Rs. 20,00,000 vide notification S.O.1420 (E) dated 29 March 2018 notified by Ministry of Labour and Employment. The exemption under section 10(10)(iii) for the employees, who are not covered under the Payment of Gratuity Act, 1972, is Rs. 10,00,000 as no notification has been issued so far to enhance this limit.