What constitutes income from a salary?
Salary is defined as follows under Section 17 of the Income Tax Act. Without becoming too technical, however, generally speaking, anything that an employee receives from an employer in cash, kind, or as a facility [perquisite] is regarded to be salary.
How do allowances work?
In addition to salary, allowances are set amounts paid on a regular basis by an employer to an employee to satisfy some specific needs. For instance, a tiffin allowance, a transportation allowance, a uniform allowance, etc.
For the purposes of the Income-tax Act, there are typically three different categories of allowances: taxable allowances, fully exempted allowances, and partially exempted allowances.
Benefits that an individual receives that are extra to their income or compensation and are related to their official job are known as perquisites. Depending on their nature, these benefits may or may not be taxable. According to Section 10, uniform allowance is exempt up to the amount spent for official business (14).
My company reimburses me for all of my food and child care costs. Would these be regarded as my earnings?
These do fit the definition of perquisites and should be valued in accordance with the guidelines established in this regard.
I had three separate employment over the year, and none of them withheld any taxes from my salary. If these sums are added together, my income will be higher than the basic exemption threshold. Do I have to make my own tax payments?
Yes, you must submit an income tax return and pay self-assessment tax.
Does my employer still need to give me a Form 16 even if no taxes have been withheld from my pay?
A certificate of TDS is Form-16. It won’t apply in your situation. Your company can, however, provide a wage statement.
Does pension income have to pay taxes like salary?
Yes. The United Nations Organization’s pension, however, is excluded.
Are family pensions subject to taxation as wages?
It is taxed as income from other sources, therefore no.
Who will provide me a Form-16 or pension statement if I receive my pension through a bank—the bank or my old employer?
That is the bank.
Are PF and gratuity payouts from retirement taxable?
Gratuities and pension fund receipts received at retirement are tax-free in the hands of a government employee. When received from a recognised PF after providing continuous service for at least five years, PF receipts are tax-free in the hands of non-government employees, subject to the limits set forth in this respect.
Any interest income accrued in the recognised and statutory provident fund during the prior year that relates to an employee contribution of more than Rs. 2,50,000 during the prior year shall not be excused from payment.
However, if an employee contributes to the fund but the employer does not, the interest income earned during the prior year will be taxable to the extent that it pertains to the employee contribution to the fund that exceeds Rs. 5,00,000 in a fiscal year.
By notice no. 95/2021 dated August 31, 2021, the CBDT has announced Rule 9D for the calculation of taxable interest related to contributions to recognised provident funds or provident funds that exceed the stipulated maximum.
Salary arrears: are they taxable?
Yes. To minimise the incidence of tax, it is possible to take use of the benefit of spreading out income throughout the years to which it corresponds. This is referred to as a relief under Section 89 of the Income Tax Act.
Can my employer take the relief under Section 89 into account when deducting TDS from my pay?
Yes, if you work for the government, a PSU, a business, a cooperative society, a municipal government, a university, an institution, an association, or another body. You must submit Form No. 10E to your employer in this situation.
My rental house property generates no cash for me. Can I request that my employer take this loss into account when calculating the TDS on my salary?
Yes, but only up to Rs. 2 lakh. Losses that do not fall within the category of “Income from House Property” cannot be offset when calculating TDS taken from wages.
Is salary taxed on leave encashment?
If received while in service, it is taxed. The Government employee is exempt from paying taxes on any leave encashment they earned at retirement. The limit outlined in this regard by the Income-tax Law will apply to leave encashment in the hands of non-government employees.
Are payments from life insurance contracts that mature with bonuses included taxable income?
Any payment made under a life insurance policy, including bonuses, is excluded from taxation under section 10(10D). The following receipts, though, would be taxed:
Any amount received under subsection (3) of section 80DD; Any amount received under a Keyman insurance policy; Any amount received with respect to policies issued on or after April 1, 2003, where the amount of premium paid on such policy during any financial year exceeds twenty percent (20%) of the actual capital sum assured; Any amount received with respect to policies taken out on or after April 1, 2012; Any amount received with respect to insurance on the life of *specified person (issued on or after April 1, 2013);
- Any individual who is
I An individual with a significant impairment as defined by section 80U; or
ii) having a condition included in the rule created in accordance with section 80DDB.
In this regard, the following points should be noted:
Only the amount received from a life insurance policy is eligible for exemption.
A policy issued on or before March 31, 2003 is unconditionally eligible for the exemption under section 10(10D) with respect to the money received for the policy.
Amounts received upon a person’s death shall remain exempt with no restrictions.
What tax treatment does an employer’s ex-gratia have?
If a person or his heir gets ex-gratia from the federal, state, local, or public sector organisations as a result of an accident or death while performing official duties, the ex-gratia payment will not be taxable.
Where should House Rent Allowance (HRA) information appear on an income tax return (ITR)?
To the extent that it is exempt under Section 10, the amount of HRA must be declared in the ITR under the column allowances. Section 10(3A) is the pertinent section under which the amount of exempt HRA must be shown.
What is the House Rent Allowance’s (HRA) taxability?
The least or minimum of the following is exempt (not taxable/not taken into account when calculating total HRA received)
(a) The actual HRA amount received
(a) Rent paid at 10% of salary less than
(c) 50% of salary if the rental home is located one of the following cities: Kolkata, Chennai, Mumbai, or Delhi.
or
If the house is rented, the 40% of wage is NOT in Kolkata, Chennai, Mumbai, or Delhi.
To determine the taxability of the house rent allowance, click here.
How much of the fixed medical allowance is taxable?
Medical benefits are a set compensation paid to employees of a company each month, regardless of whether they produce receipts to support their claims or not. It is entirely taxable in the employee’s hands.
What is the conveyance allowance’s taxability?
Conveyance allowance is exempt to the extent of the amount received or the amount spent, whichever is smaller, in accordance with Section 10(14) read with Rule 2BB. For instance, if Rs. 100 is received and Rs. 80 is spent, just Rs. 20 is taxable. However, nothing is taxable if the actual amount paid is less than Rs. 100.
Is the standard deduction available to everyone who receives a salary, regardless of whether they work for the federal or state governments?
While calculating the amount of income that must be deducted from head salary, the standard deduction is permitted. No matter the type of company, it is available to all classes of employees. Pensioners can also use Standard Deduction. The amount of the standard deduction is Rs. 50,000, or the lesser of your salary or pension.
Note that only pension charges under the heading “Income under the Head of Salaries” are eligible for the standard deduction under section 16(ia), not pension charges under the heading “Income from Other Sources”.
Does an employee have the right to claim transportation allowance as an exemption?
A transport allowance of Rs. 1600 per month paid to an employee is no longer exempt with effect from the 2019–20 fiscal year.
However, there is still a possibility for an employee who is blind, deaf and dumb, or orthopedically disabled to be excluded from paying the transport payment of Rs. 3200 per month.
Does the family pensioner qualify for the standard deduction?
The Finance Act of 2018 added Section 16(ia) for the group of people whose income is subject to head salary tax. Family Pension is subject to taxation under the other sources of income heading. Therefore, Family Pension is not subject to the standard deduction.
Mr. X made a gross salary of 7,00,000 rupees in the fiscal year 2021–2022. Calculate his standard deduction allowance.
Standard deductions are permitted up to the lesser of: a) Rs. 50,000 or b) the amount of your salary.
Mr. X is entitled to a standard deduction of Rs. 50,000 in this instance.
What is the 12BB Form?
According to RULE – Rule 26C of the Income Tax Rules – an employee must provide Form No. 12BB to his employer in order to estimate his income or calculate the tax deduction at source.
In order to estimate his income or determine the tax deduction at source, an assessee must submit evidence or specifics of claims, such as House Rent Allowance, Leave Travel Concession, Interest Deduction Under the Head “Income from House Property,” and Deductions Under Chapter-VIA, in Form No. 12BB.
When is relief possible under Section 89 of the Income Tax Act?
An individual may be eligible for relief under section 89 if he has obtained
Arrears or advances in pay or family pension [Rule 21A (2)]
Overpayment of a gratuity exempt under section 10(10)(ii) (iii) [Rule 21A(3)]
Employment termination benefits [Rule 21A(4)]
Overpayment of commutated pension under section 10(10A)(i) [Rule 21A(5)]
If a payment is received that is not listed above, the CBDT may grant relief under section 89 after carefully reviewing each unique circumstance. [Rule 21A (6)]
When did the limit on gratuities increase from Rs. 10 lakh to Rs. 20 lakh for the purposes of computing tax exemption under section 10(10)(ii)?
According to notification S.O. 1420 (E) dated March 29, 2018, issued by the Ministry of Labour and Employment, the exemption limit under section 10(10)(ii) for employees who are covered by the Payment of Gratuity Act, 1972 has increased from Rs. 10,00,000 to Rs. 20,00,000 for those employees. According to an amendment made by Notification No. SO 1213(E), dated March 8, 2019, the exemption limit under section 10(10)(iii) for workers who are not covered by the Paym ent of Gratuity Act, 1972, is now Rs. 20,00,000.
