Taxable income for salaried employees is calculated by subtracting tax-deductible allowances and expenses from their total taxable salary. This taxable salary is calculated by adding basic salary, any dearness allowances, house rent allowances, and any other taxable allowances, and subtracting any exemptions available under section 10 of the Income Tax Act, 1961. The final taxable income is then used to determine the applicable tax bracket, and tax is calculated as per the income tax slab rates prescribed by the government for that financial year.
Here is the list of Salaried Employee Taxable Income Calculation FAQs
1. What is considered salary income under the Income-tax Act?
Salary income is generally defined as any payment received in cash, kind, or as a facility by an employee from their employer. Section 17 of the Income-tax Act provides the technical definition of the term ‘salary’.
2. What are allowances in terms of the Income-tax Act?
Allowances are fixed periodic amounts, apart from salary, paid by an employer to meet specific employee needs, such as tiffin allowance, transport allowance, uniform allowance, etc. There are three types of allowances: taxable, fully exempt, and partially exempt.
3. What are perquisites and how are they taxed?
Perquisites are benefits received as a result of an official position and are over and above salary or wages. They can be taxable or non-taxable based on their nature, and uniform allowances are exempt up to the extent of official expenses incurred under section 10(14) of the Income-tax Act.
4. Is my employer’s reimbursement of expenses considered as income?
Yes, these expenses are in the nature of perquisites and should be valued as per the prescribed rules.
5. What happens if no tax is deducted from salary by different employers?
If the combined salary income exceeds the basic exemption limit, the individual is responsible for paying self-assessment tax and filing an Income tax return.
6. Is Form-16 necessary if no tax is deducted from salary?
Form-16 is a certificate of TDS, which will not be applicable in this case. However, the employer can issue a salary statement.
7. Is pension income taxed as salary income?
Yes, pension income is taxed as salary income, except for pension received from the United Nations Organization.
8. Is family pension taxed as salary income?
No, family pension is taxed as income from other sources.
9. Who will issue Form-16 or a pension statement for my pension income?
The bank will issue Form-16 or a pension statement.
10. Is retirement income from PF and Gratuity taxable?
For government employees, Gratuity and PF receipts on retirement are exempt from tax. For non-government employees, gratuity is exempt subject to prescribed limits, and PF receipts are exempt after 5 years of continuous service. However, the interest income accrued in a recognised and statutory provident fund is taxable over a certain limit.
11. Are arrears of salary taxable?
Yes, arrears of salary are taxable. However, the taxpayer can avail of the relief under section 89 of the Income-tax Act to spread the income over the years it relates to for lower tax incidence.
12. Can my employer consider relief under section 89 while calculating TDS from salary?
Yes, if the taxpayer is an employee of a government, PSU, company, co-operative society, local authority, university, institution, association, or body, they need to furnish Form 10E to their employer.
13. Can I offset my negative house property income against my salary income for TDS calculation?
Yes, but only up to Rs. 2 lahks. Losses other than those under the head “Income from house property” cannot be set off while determining TDS from salary.
14. Is leave encashment taxable as salary?
It is taxable if received while in service. Leave encashment received at retirement is exempt for government employees, and exempt subject to prescribed limits for non-government employees.
15. Is receipt from life insurance policies on maturity taxable?
Receipts from life insurance policies including bonuses are exempt from tax under section 10(10D) of the Income-tax Act. However, certain exceptions apply for receipts under sub-section (3) of section 80
16. What is the taxability of ex-gratia received from an employer?
Ex-gratia received from Central/State Government, Local Authority, or Public Sector Undertaking due to injury or death while on duty is not taxable.
17. Where should House Rent Allowance (HRA) be reflected in the income tax return (ITR)?
HRA should be disclosed in the ITR under the column “Allowances” to the extent exempt under section 10(13A).
18. What is the taxability of House Rent Allowance (HRA)?
The least of the following is exempt from taxation: (a) Actual HRA received, (b) Rent paid minus 10% of salary, (c) 50% of salary if the house is rented in Kolkata, Chennai, Mumbai, or Delhi or 40% of salary if the house is rented elsewhere.
19. What is the taxability of Fixed Medical Allowance?
Fixed Medical Allowance is fully taxable.
20. What is the taxability of Conveyance Allowance?
Conveyance Allowance is exempt to the extent of the amount received or spent, whichever is less.
21. Is standard deduction applicable to all salaried individuals, regardless of their employer?
Standard deduction is applicable to all classes of employees and pensioners and is available while computing income chargeable under the head “Salaries.” The amount is Rs. 50,000 or the amount of salary/pension, whichever is lower.
22. Is transport allowance exempt from tax?
Exemption for transport allowance of Rs. 1600 p.m was discontinued from A.Y. 2019-20. However, an exemption of Rs. 3200 p.m is still available for blind, deaf, dumb, or orthopedically handicapped employees.
23. Is standard deduction applicable to family pensioners?
No, standard deduction is not applicable to family pensioners as it is taxable under the head “Income from Other Sources.”
24. How much standard deduction is allowable to Mr. X with a Gross Salary of Rs. 7,00,000 in the previous year 2021-22?
The standard deduction is Rs. 50,000 or the amount of salary, whichever is lower. In this case, the standard deduction is Rs. 50,000.
25. What is Form 12BB?
Form 12BB is a form required to be submitted by an employee to their employer for estimating income or computing tax deduction at source. It provides evidence or particulars of claims such as HRA, Leave Travel Concession, Deduction of Interest under “Income from House Property”, and Chapter-VIA deductions.
26. When is relief under section 89 of the Income Tax Act available?
Relief under section 89 is available for salary or family pension in arrears or advance, gratuity in excess of the exemption under section 10(10)(ii)/(iii), compensation on termination of employment, and commuted pension in excess of exemption under section 10(10A)(i). CBDT can also allow relief in individual cases.
27. When was the limit of gratuity for tax exemption computation under section 10(10)(ii) increased from Rs. 10 lakh to Rs. 20 lakh?
The limit was increased from Rs. 10,00,000 to Rs. 20,00,000 on March 29, 2018, by the Ministry of Labour and Employment through notification S.O. 1420 (E).