Income from salary is the remuneration that is received by an individual who is rendering services under any contract which is taken by him. The contract should be under employment.
The amount received by an individual shall be considered as income from salary only if there is an employer employee relationship between those peoples who entered into the contract. One will be the person who pay the amount and one will be the person who receive the amount.
WHAT IS SALARY?
The salary for the purpose of income tax act includes the following part:
- Wages;
- Pension;
- Annuity;
- Gratuity;
- Advance Salary paid;
- Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages;
- Annual accumulation to the balance of Recognized Provident Fund;
- Leave Encashment;
- Transferred balance in Recognized Provident Fund;
- Contribution which is made under Sec. 80CCD.
HOW TO CALCULATE INCOME FROM SALARY
PARTICULARS |
AMOUNT |
Basic Salary |
- |
Add: |
- |
1. Fees, Commission and Bonus |
- |
2. Allowances |
- |
3. Perquisites |
- |
4. Retirement Benefits |
- |
5. Fees, Commission and Bonus |
- |
Gross Salary |
- |
Less: Deductions from Salary |
- |
1. Entertainment Allowance u/s 16 |
- |
2. Professional Tax u/s 16 |
- |
Net Salary |
- |
ALLOWANCES
ALLOWANCES WHICH ARE FULLY TAXABLE
- Dearness Allowances:
- Entertainment Allowances:
- Overtime Allowances:
- City Compensatory Allowances:
- Project Allowances:
- Tiffin Allowances:
- Cash Allowances:
ALLOWANCES WHICH ARE PARTLY TAXABLE
- House rent Allowances:
- Entertainment Allowances:
- Special allowances:
- Special Allowances (for meeting personal expenses):
ALLOWANCES WHICH ARE NON-TAXABLE
- Allowances which are being paid to government:
- Sumptuary Allowances:
Allowances which are paid by UNO
- Compensatory Allowances which are being paid to judges:
The person can also save tax by getting the Tax Saving Allowances under Income from Salary.
PERQUISITES
Perquisites are the payments which are received by an employees by the employer above the salary.
PERQUISITES WHICH ARE TAXABLE TO ALL EMPLOYEES
- Rent free accommodation;
- Payments for Club fee;
- Movable assets;
- Concession in accommodation rent;
- Interest-free loans;
- Expenses for Education;
- Insurance premium paid by employer on behalf of employees.
PERQUISITES WHICH ARE TAXABLE TO SPECIFIC EMPLOYEES
- Domestic purpose Free gas, electricity etc.;
- Concessional transport facility;
- Expenses for Concessional education;
- Payment which are made to gardener, sweeper and attendant.
PERQUISITES WHICH ARE EXEMPTED FROM TAX
- Medical benefits;
- Health Insurance Premium;
- Leave travel concession;
- Staff Welfare Scheme;
- Car, laptop etc. (personal use).
FORM 16
Form 16 is a form where employer gives details about the salary which is being received by the employee and also the details of tax deducted at source throughout the year. Form 16 is issued once in a year, it is issued on or before 31st May of the next financial year.
Form 16 contains two parts which is as followed:
Part A: This part of the Form contains all the information about employer and employee.
Part B: This part of the Form contains the information about salary which is paid, tax payable etc.
FORM 26AS
Section 203AA of the Income Tax Act makes required to issue Form 26AS. This form contains all the information about tax which is paid or deposited to tax department. This form help an individual to know the tax liability.
Authored by Adv Shivam Kumar