What is Salary?
As defined u/s 17(1) of the Income-tax Act, Salary income is the amount received by an employee from a current or former employer for the execution of services in connection with employment. It includes wages, annuity, pension, advance salary, contribution to funds etc.
Salary income is chargeable to tax on a “due basis” or “receipt basis” whichever is earlier.
What are perquisites u/s 17(2)?
Perquisites are non-monetary benefits provided by an employer to an employee in the form of any casual emolument, facilities or profit attached to an office or position.
Ex Rent free accommodation, Car Facility, Education facility etc.
What is profit in lieu of salary u/s 17(3)?
The amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;
Any payment due to or received by an assessee from an employer or a former employer or from a provident or other funds, to the extent to which it does not consist of contributions by the assessee or interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.
Any amount due to or received, whether in a lump sum or otherwise, by any assessee from any person—
(A) before his joining any employment with that person; or
(B) after cessation of his employment with that person.
Your Total Salary is the aggregate of salary, allowances & perquisites from which you are entitled to get the deduction for the allowances exempt u/s 10. For eg. the HRA allowance and children's education allowance.
What are allowances and extent of exemption u/s 10?
Allowances are monetary benefits provided by an employer to an employee and it forms part of the pay package of the employee. All allowances are to be included in the total income unless specifically exempted. For eg House rent allowance, children's education allowance, transport allowance etc.
Some allowances are exempt to a prescribed limit (For eg Children's education allowance), some to the extent of expenditure incurred (For Ex Uniform allowance) and some are fully exempt (For Ex Allowances to Judges of High Court). Certain allowance has no exemption that is they are fully taxed by adding that to your salary ( Ex Servant Allowance)
List of most commonly provided allowances:
House rent allowance
The least of the following is exempt:
a) Actual HRA Received
b) 40% of Salary (50%, if the house is situated in Mumbai, Calcutta, Delhi or Chennai)
c) Rent paid minus 10% of salary
* Salary = Basic + DA (if part of retirement benefit) + Turnover based Commission
Note: Fully Taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent
Up to Rs. 100 per month per child up to a maximum of 2 children is exempt
Hostel expenditure allowance
Up to Rs. 300 per month per child up to a maximum of 2 children is exempt
Conveyance allowance is granted to meet the expenditure on conveyance in the performance of duties of an office
Exempt to the extent of expenditure incurred for official purposes
Tiffin, Lunch, Dinner or Refreshment Allowance
What are the deductions from salary?
The income chargeable under the head "Salaries" shall be computed after making the following deductions :
- Standard Deduction u/s 16(ia): Finance Act 2018 has reintroduced standard deduction which was abolished in 2005. The amount of deduction provided is Rs 40000/- or the amount of salary, whichever is less. This deduction has been increased to Rs 50000/- by Finance Act 2019.
- Entertainment Allowance u/s 16(ii): Deduction in respect of any allowance in the nature of an entertainment allowance specifically granted to a government employee. The amount of deduction provided is one-fifth of his salary (exclusive of any allowance, benefit or other perquisites) or Rs 5000/-, whichever is less.
- Employment Tax/Professional Tax u/s 16(iii): Deduction of any sum paid by the employee on account of tax on employment, However, if professional tax is paid by the employer on behalf of its employee then it is first included in the salary of the employee as a perquisite and then the same amount is allowed as deduction.
How to add salary details?
Steps to add salary details:
Step 1: Salary
Click on "Salary" to add Salary details as well as the employer details.
Step 2: Add the employer details
Please update the details of your employer as well as the income from salary and click on the "SAVE" Or you can also use the "Save details" in order to save the details which you have filled.
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