What is Salary?
‘Salary’ is a fixed and regular remuneration made by an employer to an employee on a periodic basis.
The actual receipt of salary in the previous year is not material as far as its taxability is concerned.
The existence of employer – employee relationship is absolutely essential for taxing a particular receipt under the head “salaries.”
The term ‘salary’ includes both monetary payments (e.g. basic salary, DA, bonus, commission, allowances etc.) as well as non-monetary facilities (e.g. housing accommodation, medical facility, interest free loans etc.).
Salaries also include
(ii) Annuity or pension
(iv) Fees, Commission, perquisites or profits in lieu of salary
(v) Advance of Salary
(vi) Amount transferred from unrecognized provident fund to recognized provident fund
(vii) Contribution of employer to a Recognised Provident Fund in excess of the prescribed limit
(viii) Leave Encashment
(ix) Compensation as a result of variation in Service contract etc.
(x) Contribution made by the Central Government to the account of an employee under a notified pension scheme etc.
“Perquisite” refers to any casual emolument or benefit attached to an office or position in addition to salary or wages including:
a) Value of rent-free/concessional rent accommodation provided by the employer.
b) Any sum paid by an employer in respect of an obligation which was actually payable by the assessee.
c) Value of any benefit/amenity granted free or at concessional rate to specified employees etc.
d) The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.
e) The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and
f) The value of any other fringe benefit or amenity as may be prescribed.
DEDUCTIONS FROM SALARY INCOME
a) Professional/Employment tax levied by the State Govt.
b) Standard Deduction of Rs.50,000
c) Entertainment Allowance- Deduction in respect of this is available to a government employee to the extent of Rs.5,000; or 20% of his salary; or actual received, whichever is less.
VALUATION OF PERQUISITE
As a general rule, the taxable value of perquisite in the hands of the employees is its cost to the employer. However, specific rules for valuation of certain perquisites have been laid down in the Rule 3 of the Income Tax Rules.
PERQUISITES EXEMPT FROM INCOME TAX
Some instances of perquisites exempt from tax are given below:
* Provision of medical facilities: Value of medical treatment in any hospital maintained by the Government or any local authority or approved by the Chief Commissioner of Income-tax. Besides, any sum paid by the employer towards medical reimbursement other than as discussed above is exempt upto Rs. 15,000/-.
* Perquisites allowed outside India by the Government to a citizen of India for rendering services outside India.
* Rent free official residence provided to a Judge of High Court or Supreme Court or an official of Parliament, Union Minister or Leader of Opposition in Parliament.
* No perquisites shall arise of interest free/concessional loans made available for medical treatment of specified diseases or where the loan is petty and not exceeding in aggregate Rs. 20,000/-.
* No perquisite shall arise in relation to expenses on telephones, including a mobile phone, incurred on behalf of the employee by the employer.
Allowance is defined as fixed monetary benefit given regularly by an employee, in addition to salary, for meeting specific requirements of the employees. As a general rule, all allowances are to be included in the total income unless specifically exempted. Exemption in respect of following allowances is allowable to the extent mentioned against each:-
(a) House Rent Allowance (H RA) :-Provided that expenditure on rent is actually incurred, exemption available shall be the least of the following:
(i) HRA received.
(ii) Rent paid minus10% of salary.
(iii) 40%of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi) Salary here means Basic + Dearness Allowance, if dearness allowance is provided by the terms of employment.
(b) Leave Travel Allowance (LTA): The amount actually incurred on performance of travel on leave to any place in India by the shortest route to that place is exempt. This is dependent upon the entitlement of an employee and the upper limit of LTA allocated by the employer for an employee, provided that the exemption shall be available only in respect of two journeys performed in a block of 4 calendar years.
Certain allowances given by the employer to the employee are exempt u/s 10(14). All these exempt allowances are detailed in Rule 2 BB of Income-tax Rules and reference may be made to the same for details.
|Fully Taxable||Partly Taxable||Fully Exempt|
|(i) Entertainment Allowance
(ii) Dearness Allowance
(iii) Overtime Allowance
(iv) Fixed Medical Allowance
(v) City Compensatory Allowance (to meet increased cost of living in cities)
(vi) Interim Allowance
(vii) Servant Allowance
(viii) Project Allowance
(ix) Tiffin/Lunch/ Dinner Allowance
(x) Any other cash allowance
(xi) Warden Allowance
(xii) Non-practicing Allowance
|(i) House Rent Allowance [u/s 10(13A)]
(ii) Special Allowances [u/s 10(14)]
|(i) Allowance granted to Government employees outside India.
(ii) Allowance granted to High Court Judges
(iii) Sumptuary allowance granted to High Court or Supreme Court Judges
(iv) Allowance paid by the United Nations Organization
(v) Compensatory Allowance received by a judge
Relief u/s 89(1) of the Income Tax Act :
Where by reason of any portion of an assessee’s salary being paid in arrears or in advance or by reason of his having received in any one financial year, salary for more than twelve months or a payment of profit in lieu of salary under section 17(3), his income is assessed at a rate higher than that at which it would otherwise have been assessed, the Assessing Officer shall, on an application made to him in this behalf, grant such relief as prescribed. The procedure for computing the relief is given in Rule 21A.
COMPUTATION OF GROSS TOTAL INCOME/TOTAL INCOME:
Gross total income of an individual is determined after considering income from all the heads, such as Salaries, Income from House property, Capital Gains, Income for other sources etc. from the sum total of which certain deductions may be allowed.
The total income from all the above heads of income is calculated in accordance with the provisions of the Income Tax Act as they stand on the first day of April of any assessment year.
Some popular deductions of the Income Tax Act available against salary income are listed below. The net figure of income so arrived is called total income and is subjected to taxation as per the rates in force.
SOME POPULAR DEDUCTIONS FROM
SALARY (AND PENSION) INCOME
|SECTION||NATURE OF EXPENSES||AMOUNT|
|80C||LIC / PPF / KVP / EPF / SSY / NSC / HOME LOAN PRINCIPAL / SCHOOL FEES/ ELSS/STAMP DUTY||1,50,000|
|80DD||Expenses of disabled dependent (40% / 80% disability)||75,000 / 1,25,000|
|80U||Own physical disability(40% / 80% disability)||75,000 / 1,25,000|
|8OTTA||Interest on Savings Account. Only available to Persons other than Senior citizen / Very senior citizen||10,000|
|8OTTB||Interest on Savings Account. and Interest on deposits with Post Offices, Banks, Cooperative bank. Only available to senior citizen & Very senior Citizen||50,000|
|80G||Donation/Contributions made to certain relief funds and charitable institutions Contributions made to certain relief funds and charitable institutions (Only if paid by cheque/Bank Mode)||50% of Donation or 10% of Total Income, whichever is higher.|
|80GG||Deduction for the rent paid (available to all Individuals except to those who gets HRA from Employment). Eligibility will be least amount of the following :
1) Rent paid minus 10 percent the adjusted total income.
2) Rs 5,000 per month
3) 25 percent of the adjusted total income
|80D||Health Insurance policy contribution for self, spouse and dependent children (only if paid by cheque/bank Mode).||25,000 / 50,000 (for senior citizen)|
|80E||Interest on loan taken for higher education of Spouse, Children or Student for whom the individual is the legal guardian|
|80EE||INTEREST FOR HOME LOAN
1. Sale Deed value of Rs.50 lakhs or less
2. Loan sanction in FY 201617
3. The individual should not own any house before
4. Loan < Rs. 35 lakhs
5. Maximum Rs. 50,000 over Section 24 – i.e. Rs. 2,00,000
|80DDB||Medical treatment of Specified Ailments for dependents||40,000 / 1,00,000 (for senior citizen)|
|80CCD(1)*||Employee’s contribution to NPS||10% of salary or 20% of Gross Total income|
*The maximum deduction available for aggregate contributions under section 80C, 80CCC and 80CCD(1) is Rs. 1.5 lakh.
Rebate u/s 87A: The rebate is available to a resident individual if his total income does not exceed Rs.5,00,000. The amount of rebate shall be 100% of income-tax or Rs.12,500 whichever is less.
The rates for charging income tax for
financial year 2019-20 i.e. A. Y. 2020-21
|Other than Senior
Citizen and Super
(60 years or more
but below the age of
|Super Senior Citizen
(80 years and
|Income Slabs (Rs)||Tax Rate||Income Slabs (Rs)||Tax Rate||Income Slabs (Rs)||Tax Rate|
|Upto 2,50,000||Nil||Upto 3,00,000||Nil||Upto 5,00,000||Nil|
|2,50,001 to 5,00,000||5%||3,00,001 to 5,00,000||5%||5,00,001 to 10,00,000||20%|
|5,00,001 to 10,00,000||20%||5,00,001 to 10,00,000||20%||Above 10,00,000||30%|
|Above 10,00,000||30%||Above 10,00,000||30%|
Surcharge: The amount of Income-Tax computed as above, shall be increased by:
> Surcharge @ 10% of such Income-Tax if total income > Rs. 50 Lacs < Rs. 1 Crore.
> Surcharge @ 15% of such Income-Tax if total income > Rs. 1 Crore < Rs. 2Crore.
> Surcharge @ 25% of such Income-Tax if total income > Rs.2 Crore < Rs. 5 Crore
> Surcharge @ 37% of such Income-Tax if total income >Rs. 5Crores
Cess: “Health and Education Cess” is payable @ 4% on the amount of tax computed, inclusive of surcharge (wherever applicable), in all cases. No marginal relief shall be available in respect of such cess.
> The due-date for filing of Income Tax Return for financial year 2019-20 or assessment year 2020-21 is December 31, 2020
> The government has also reduced the TDS rates applicable for non-salaried payments by 25%, which will remain valid till March 31st, 2021 and will also be applicable on fixed deposits, dividend payments from mutual funds and companies.
> The date for linking Aadhar with PAN has been extended to March 31, 2021.
FORMS FOR FILING INCOME TAX RETURN
An individual may have other sources of Income other than Salary/Pension. Other heads of income like ‘income from house property’, ‘income from capital gains’, ‘income from business or profession’ and ‘income from other sources’ are all taken together for computation of ‘total income’. These sources of income together determine the type of Income Tax Return Form (ITR) to be filled up.
ITR-1 : An individual whose total income is less than Rs.50 lakh and the sources of income are from salaries, one house property, other sources like interest from bank deposit and agricultural income upto Rs. 5000/-. If there are any capital gains, then the individual cannot file ITR-1.
ITR-2 : Individuals having income from capital gains and not having business income and not eligible for ITR-1(Sahaj).
ITR-3 : Individuals having business income apart from other heads of income but not eligible for ITR-4(Sugam).
ITR-4 : Individuals having incomeupto Rs.50 lakh and includes business income under presumptive taxation scheme. However, not applicable for an Individual who is either a Director of a company or has invested in unlisted shares of a company.
As a result of the extension of the tax-saving deadline, the ITR forms have been revised and taxpayers can claim the deductions in respect of tax saving investments made between April 1 and June 30, 2020 for FY 2019-20. The tax-payer will have to mention the details in Schedule-DL.
Verification from Form 26AS
Form 26AS is an annual consolidated tax credit statement that taxpayers can access, view or download from the income tax department’s e-filing website. It is one of the most important documents taxpayers should verify before filing their ITR.