Filing income tax return means to disclose your income. Income Tax Return is standard proof of your Income. If you do not file Income Tax annually, it means you are concealing your Income. Income Tax Return filing means, when your income which is ‘taxable’, you have to file it either online or manually. Filing Income Tax Return is mandatory if your gross total income is more than Rs.2.5 Lakh per annum (after allowing deduction under Section 80C to 80U). You can be exempted from filing ITR if you fall under the following categories-
- If you are above 60 years old and your annual salary is Rs. 3 Lakh per annum.
- If you are super senior citizen i.e., above 80 YO and your salary is Rs. 5 Lakh per annum.
Tax obligation is basically divided into two parts – Tax payment and quantification. Payment of tax is the first part and the second one is quantification, when your actual tax liabilities, after required adjustment of deduction and taxes paid, get quantified. Quantification happens when you file your Income Tax online.
Calculation of Income Tax in India
Accuracy in the computation of Income Tax is important. We’ll further discuss how taxable income is computed.
Meaning of Salary
Salary is defined under Section 17 (1) of the Income Tax Act, 1961. It includes –
- Any annuity or pension
- Any gratuity
- Any fees, commissions, Perquisites or profits in lieu of or in addition to any salary or wages.
- Any advance of salary
- Leave encashment
- The annual accretion to recognized provident fund to the extent of the following:
- Employers contribution in excess of 12% of salary
- Interest on the balance in the provident fund account credited in excess in excess of 9.5%
- The accumulated transferred balance from unrecognized provident fund account to a recognized provident fund account to the extent it is chargeable.
- The contribution made by the central government in the previous year to the account of an employee under a pension scheme referred to in Section 80CCD.
Important points to be considered for the purpose of calculation of salary for Income Tax Return in India:
- An income to be included under the head salaries must satisfy one condition i.e. there should be an employer and employee relationship between the payer and receiver.
- The following income is chargeable under head salaries-
- salary due from present or former or a prospective employer
- Arrears of salary
- Advance salary
- Salary is chargeable to tax either on Due or Receipt basis, whichever is earlier. It will be taxed even if it is not realisable due to the insolvency of the employer.
- Salary received from the former employer is taxable under this head only.
- Any amount received in the form of salary from two or more employers in the same financial year due to the change of employment is considered as salary income.
- If an employee transfers part of a salary, then the transferred income is regarded as the income of the employee, but if an employee, surrenders a portion of salary under the Voluntary Surrenders of salary Act 1961, then it is exempted.
Salary of an employee is calculated in accordance with provisions laid down in Section 15, 16 and 17 of the Income Tax Act, 1961. Computation of Salary in accordance with the said provisions is depicted below-
|Income under the head of Salary = Salary + Allowance + Perquisite + Profit in lieu of Salary – Entertainment Allowance + Tax on Employment.|
Following are examples of Salary-
- Basic Pay
- A contribution made by the Central Government and State Government under the new pension scheme
- Interest on employers Contribution to R.P.F. over 12% of salary
- Interest on R.P.F.
- Transferred balance (Balance transferred from U.R. P.F. to R.P.F.)
- Advance salary
- Arrears of salary (If not taxed earlier)
- Surrender of leave or leave encashment
- Income tax of the employee paid by the employer.
- Remuneration for extra duties
Allowance For Income Tax
Allowance is a fixed monetary benefit given by the employer to its employee to meet a specific type of expenditures or loss of employees. It is of three types-
- Fully taxable allowance.
- Partly taxable allowance
- Fully Tax-free allowance.
Fully Taxable Allowances
- Dearness Allowances(D.A.) or High cost of living Allowances
- Additional D.A.
- City Compensatory Allowances (C.C.A.)
- Marriage Allowances v. Family Allowances
- Meals Allowances
- Servants Allowances
- Project Allowances
- Non-practising Allowances
- Warden Allowances
- Over time Allowances
- Lunch Allowances
- Medical Allowances
- Interim Allowances
Partially Taxable Allowances
- Children Education Allowance
- Hostel Allowance
- Transport Allowance.
Fully Tax-Free Allowances
- Foreign Allowance to government employees.
- Any Allowance paid to high court and Supreme Court judges.
- Allowances received by an employee of U.N.O / Diplomatic and Consular staff of Foreign Government working in India from his employer
It means extra benefit in addition to the amount paid for service rendered by an employer to employee. It is any kind of benefit provided by the employer to an employee on his family members either in cash or in kind.
Perquisites For Income Tax
Perquisites are included in salary income irrespective of whether they are received by an employee from his present or former employer. In the present time, the salary package generally includes monitory salary plus Perquisites like housing, car etc.
Perquisites taxable to all employees
The following Perquisites are taxable to all the employees without any specifications.
- Rent free accommodation.
- Concession in rent of the accommodation
- The insurance premium paid by the employer
- Fringe benefits which are given by the employer
- Personal monetary obligations of the employee met by the employer
Profit in Lieu of Salary
If the employer pays any amount instead of salary it is known as Profits in lieu of Salary. Generally, these amounts are paid where the salary ceases to be a regular payment. Profit in lieu of salary includes the following:
- Any compensation due or received in connection with the termination of the service or modification of the service conditions.
- Any payment received from the present or former employer in appreciation for services rendered (other than personal gifts).
- Refund from unrecognized Provident fund (Employers contribution and interest on the same).
- Amount received under Keyman insurance of L.I.C.