Salary Taxation FAQs

Any compensation paid by an Employer to his Employee in consideration of service is called Salary.

Basic Salary
Allowances
Perquisites
Profits in lieu of Salary.

The Income Tax Act allows taxpayers to claim deductions from salary income, which is taxable under Income Tax Law.

i.) Standard deduction – Employees can claim a standard deduction of Rs. 50000 from the salary income, or the actual amount of income, whichever is less.
ii) Entertainment Allowance – Only government employees can claim up to a maximum of Rs.5000 maximum.
iii) Professional Tax – Employees can claim professional tax as deductions paid from salary.

Standard deductions of Rs50000/- available to pensioners also.

Salary of a MP is taxable under the Head “Income from other sources” instead of Salary.

Salary of a Partner is chargeable under head “Profits and gains from Business or Profession”.

Any Family Pension received by a member of a deceased employee is computed under “Income from Other Sources”.

i) Wages.
ii) Pension.
iii) Commission on sales

Apart from Salary if the employee receives any extra monetary benefit for running some specific expenditure is known as Allowances.

According to taxability, allowance can be divided into following parts.
1. Taxable Allowance.
2. Allowance Exempted to a certain limit.
3. Taxfree Allowance.

i.) Dearness Allowance.
ii.) City Compensatory Allowance.
iii.) Fixed Medical Allowance.
iv.) Tiffin Allowance.
v.) Servant Allowance.
vi.) Non Practicing Allowance.
vii.) Hill Allowance.
viii) Warden Allowance and Proctor Allowance.
ix) Deputation Allowance.
x) Overtime Allowance.
xi) Other Allowance.

i.) House Rent Allowance.(HRA)
ii) Entertainment Allowance.
iii) Special Allowance for meeting certain expenditure.

i.) Foreign Allowance.

ii) Sumptuary Allowance to High Court or Supreme Court Judges.
iii) Allowance from U.N.O.
iv) Per-diem Allowance.

House Rent Allowance is provided by an employer to his employee to meet rental expenditure of residential accommodation occupied by the employee. It is exempted upto a certain limit.

No. To get an exemption, employees need to have rental accommodation or full HRA becomes taxable allowance.

Least of the following
i.) HRA actually received.
ii.) Actual Rent Paid minus 10% of your basic salary.
iii.) If your rental accommodation is in Metro City(Only Delhi, Mumbai, Kolkata, Chennai) then 50% of Basic Salary or 40% for the rest of India.

Dearness allowance is paid to Govt. Employees in order to cope-up with rising price levels.

Apart from Salary any personal non cash benefit or advantage attached to an office or position, which is measured in terms of money.

i.) Value of any rent free accommodation or any concession in rent provided by the employer.
ii.) Any amount paid by the employer on behalf of his employee.
iii) Any amount paid by the employer indirectly towards any fund other phan PF, Superannuation fund, Deposit linked insurance Fund or Insurance on the life of the employee.
iv) Value of any Sweat Equity shares transferred free of cost or at a concessional rate.
v) Any contribution in the SuperAnnuation Fund eg NPS, exceeding 7.5 lakh in previous year.
vi) Value of any fringe benefit or facility.

i) Medical benefits provided to employees with some specific conditions.
ii.) Any food or snacks provided by the employer in the workplace.
iii.) Any residential accommodation provided at the workplace.
iv.) Expenses for Telephone including mobile phone.
v.) Contribution by employer towards staff group insurance scheme.
vi.) Any type of scholarship paid to employees or their children.
vii.) Conveyance facility provided to the employee for traveling between home to workspace.
viii.) Any refresher course fee paid by the employer towards employee betterment.
ix.) Tax paid by the employer towards various perquisites.
x.) Perquisites received by any Government Employees posted abroad.
xi.) Laptop provided by the employer for the use of the employee.
xii.) Interest free or concessional loan provided to employees upto Rs 20000/-.

xiii.) Transfer without consideration of any moveable asset other than computer/ electronics or a car after using it more than 10 years.
xiv.) Periodical and journals required for work.
xv.) Leave travel concession u/s 10(5).

i.) Facility of a car.
ii.) Cost of maid, driver or personal attendant.
iii.) Cost of Gas, electricity or water service.
iv.) Education facility.
v.) Any type of transport facility.

i) A Director – Employee.
ii) Employee having substantial interest in employer – company.
iii) Any other employee except above two conditions whose salary income exclusive of non-monetary benefits and amenities exceeds Rs. 50,000/-.

i) Amount or any compensation received by any employee from his employer or former employer in connection of termination of employment or modification of terms & conditions.

ii) Any amount received from an unrecognised provident fund or an unrecognised superannuation fund.

iii) Any payment due to or received by an employee, under a Keyman Insurance Policy.

iv) Any amounts due to or received by an employee before his joining employment or after cessation of his employment.

Superannuation is a retirement fund offered by an employer. You and your employer contribute to this fund to help you build a corpus to give annuities or lumpsum at retirement.

i.) Defined benefit plans. Eg Gratuity, Leave Encashment,
ii) Defined contribution plans. Eg NPS, PF.

i) Standard Deduction of Rs. 50,000 or the amount of salary, whichever is lower.
ii) Entertainment allowance, actual or at the rate of 1/5th of salary, whichever is less, limited to Rs. 5,000.
iii) Professional tax.

i.) In the case of Govt. & Semi Govt. Employees’ salary for a particular month becomes due on the first date of the next month.

ii.) In the case of Banks & Non Govt. Employees, salary of a particular month becomes due on the last date of the same month.

Leave Travel Allowance is an allowance provided by the employer to the employee for traveling while on leave. It applies to travel only within the country. Under Section 10(5) of the Income Tax Act, this is a part of salary and is exempted.