Frequently Asked Questions and Answers on Taxation of Salary Income by Income Tax Department
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.
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 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).
Yes, these are in the nature of perquisites and should be valued as per the rules prescribed in this behalf.
Yes, you will have to pay self-assessment tax and file the return of income.
Form-16 is a certificate of TDS. In your case it will not apply. However, your employer can issue a salary statement.
Yes. However, pension received from the United Nations Organisation is exempt.
No, it is taxable as income from other sources.
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.
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.
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.
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.
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.
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:
– Exemption is available only in respect of amount received from life insurance policy.
– Exemption under section 10(10D) is unconditionally available in respect of sum received for a policy which is issued on or before March 31, 2003.
– Amount received on the death of the person will continue to be exempt without any condition.
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.
The amount of HRA is required to be disclosed in the ITR under the column allowances to the extent exempt under section 10. section 10(3A) is the relevant section under which the amount of exempt HRA to be shown.
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.
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.
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.
W.e.f. Assessment year 2019-20, 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.
However, the Finance Act, 2019 has increased the maximum amount of standard deduction from Rs. 40,000 to Rs. 50,000.
Note: The standard deduction under section 16(ia) is available only for Pension Chargeable under the head “Income under the head Salaries” and not for Pension chargeable under “Income from Other Sources”.
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.
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.
Standard deduction is allowable to the extent of :
a) Rs. 50,000 or
b) Amount of Salary, whichever is lower
In this case standard deduction of Rs. 50,000 is allowable to Mr.X.
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.
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)]
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 limit under section 10(10)(iii) for the employees, who are not covered under the Payment of Gratuity Act, 1972, is Rs. 20,00,000 as enhanced by Notification No. SO 1213(E), dated 08-03-2019.