What is Salary Income under Income Tax Act, 1961?
For the purpose of Income Tax Act, 1961 the term salary defined under Section 17. Generally, it includes monetary as well as non-monetary items.
Whatever is received whether in cash, kind or as a facility [i.e. perquisite] by an employee from employer is considered as salary.
What are allowances?
Allowances are fixed periodic amount which are paid by employer to employee to meet some particular requirements (for official or personal expenses). Example, house rent allowance, tiffin/lunch/dinner allowance, uniform allowance , conveyance allowance etc.
Generally, there are three types of allowances under the Income Tax Act, 1961 and allowances are taxable on due or receipt basis, whichever is earlier.
- Taxable Allowances- E.g., Dearness Allowance, Entertainment Allowance, Overtime Allowance, Fixed Medical Allowance etc.
- Exempt Allowances– E.g., Allowances to High Court Judges, Compensatory Allowance received by a judge.
- Partial Exempt ( partial taxable)– E.g., House Rent Allowance, Special Allowances [u/s 10(14)].
What deductions are applicable to salaried person in computing salary income?
- Standard deduction [Section 16(ia)]- 50000/- OR the amount of salary, whichever is lower.
- Entertainment allowance [Section 16(ii)]- allowed to Government Employee. Least of the following:-
- 20% of basic salary or
- Rs.5000 or
- Actual Entertainment allowance received
3. Professional tax [Section 16(iii)]- tax on employment levied by a State under article 276 (max. 2500/- per annum) of the Constitution of India . Deduction is allowed only if it is actually paid by the employee during the previous year.
What is the taxability of conveyance allowance?
As per Section 10(14) read with Rule 2BB conveyance allowance is exempt to the extent of amount spent or amount received whichever is less.
Note: This is given by employer to employee in order to meet the expenditure incurred on conveyance for official purpose.
What is form 12BB?
It is a form in which employee furnishes evidence or particulars of the claims. Such as House Rent Allowance, Leave Travel concession, Deduction of Interest, and deductions under Chapter-VIA.
Can standard deduction be taken from family pension?
No, family pension is taxable under the head income from other sources.
What is Form-16?
It is a certificate of TDS, if no taxes have been deducted by employer from salary then employer can issue salary statement only.
Is Transport Allowance can be claimed as exemption?
Generally , it is fully taxable ,exemption upto Rs. 3200/- p.m. is allowed in case of blind/deaf and dumb/orthopedically handicapped employees.