All about taxability of salary income and Income Tax Return (ITR) Filing for Salaried Individuals:
The provisions pertaining to salary are contained in sections 15, 16 and 17 of the Income Tax Act, 1961.
Salary income refers to the compensation received by an employee from a current or former employer for the execution of services in connection with employment. Thus, income is taxable as salary under Section 15 only if an employer-employee relationship exists between the payer and payee.
The salary for the purpose of calculation of income from salary includes:
The term salary includes various allowances and perquisites provided by the employer which are taxable at normal Income Tax Rates. However various exemptions u/s 10 of the Income Tax Act, 1961 are provided while taxing these allowances and perquisites which are further discussed in detail:
|Allowances are fixed amounts, apart from salary, which are paid by an employer for the purpose of meeting some particular requirements of the employee. There are generally three types of allowances for the purpose of income tax- taxable, fully exempted and partially exempted.||Perquisites are those payments which are received by an employee from the employer over and above the salary.|
Fully Taxable Allowances:
Partly Taxable Allowances:
The exemptions and deductions pertaining to such allowances are covered under the provisions of section 10(13A) and section 10(14) of the Income Tax Act, 1961 which is further elaborated vide Rule 2A and Rule 2BB of the Income Tax Rules. Various allowances covered under this part are:
1. House Rent Allowance:
It is the allowance that an employer pays to his employee for accommodation.
Exemption: The lower of the following is allowed as exemption:
i) Actual Amount Received or
ii) the amount by which the expenditure actually incurred by the assessee in payment of rent in respect of residential accommodation occupied by him exceeds one-tenth of the amount of salary due to the assessee in respect of the relevant period; or
iii) an amount equal to—
2. Entertainment Allowance:
This is an allowance that is provided to the employees to reimburse the expenses which are incurred on the hospitality.
Deduction: a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less;
3. Children Education and Hostel Allowance:
This is the allowance that is provided to the employees to meet the expenses pertaining to education of children and hostel expenditure.
Exemption: Rs. 100 per month per child maximum for two children in respect of children education and Rs. 300 per month per child maximum for two children in respect of hostel expenditure.
Also there are various kind of special allowances which are covered in table below:
|Any special allowance in the nature of counter-insurgency allowance granted to the members of armed forces operating in areas away from their permanent locations||Rs 3900 per month|
|Transport allowance granted to an employee, who is blind [or deaf and dumb] or orthopedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty||Rs 3200 per month|
|Underground Allowance granted to an employee who is working in uncongenial, unnatural climate in underground mines||Rs 800 per month|
|Any special allowance granted to the members of the armed forces in the nature of special compensatory highly active field area allowance||Rs 4200 per month|
Non Taxable allowances:
i. Perquisites that are taxable for all the employees:
ii. Perquisites that are exempt from tax:
Who all are required to file ITR :
In accordance with the provisions of Section 139(1) every person whose total income exceeds the maximum amount chargeable to tax i.e. Rs. 2,50,000 or Rs. 3,00,000 or Rs. 5,00,000 whichever applicable is required to furnish its return of Income.
This Return Form is for a resident individual whose total income for the AY 2021-22 includes:
ITR 2 is for the use of an individual or a Hindu Undivided Family (HUF) whose total income for the AY 2021-22 includes:
The current ITR 4 applies to individuals and HUFs, Partnership firms (other than LLPs), which are residents and whose total income include:
The return can be filed through new offline utility (ITD e filing) or online through new income tax website i.e. http://www.incometax.gov.in.