1. Gross Salary:

This includes all the income tax you receive from your employer, including:

• Basic salary
• Dearness allowance
• House rent allowance
• Leave travel allowance
• Special allowance
• Performance bonus
• Any other monetary benefit received in relation to your employment

2. Deductions:

Certain deductions are allowed from your gross salary to arrive at your taxable income. These deductions can be divided into two categories:

1. Standard Deduction:

A standard deduction of Rs. 50,000 is allowed to all salaried individuals.

1. Chapter VI-A Deductions:

These are deductions available under various sections of Chapter VI-A of the Income Tax Act. Some of the common deductions include:

• Contribution to Public Provident Fund (PPF)
• Contribution to Employees’ Provident Fund (EPF)
• Life insurance premium
• Mediclaim premium
• Tuition fees for children’s education
• Interest on housing loan
• Donations to eligible charitable institutions
• Investments in specified tax-saving instruments

3. Taxable income:

Your taxable income is calculated as:

Gross Salary – Deductions = Taxable Income

4. Tax Slabs:

The income tax payable is determined based on the tax slabs applicable for the relevant financial year. For individuals whoincome taxdo not have any other income sources and are opting for the new tax regime, the current tax slabs are:

5. Cess:

A 4% cess is levied on the total income tax payable.

6. Tax Computation:

Your income tax is calculated as:

Taxable Income x Applicable Tax Rate + Cess = Income Tax Payable

7. Tax Deducted at Source (TDS):

Your employer will deduct TDS from your salary throughout the year based on your estimated tax liability. This TDS will be adjusted against your final tax liability at the time of filing your income tax return.

8. Filing Income Tax Return:

It is mandatory for all salaried individuals to file their income tax returns if their taxable income exceeds the basic exemption limit. The deadline for filing income tax returns is generally July 31st of the following financial year.

Additional Points:

• The income tax computation process can be complex and subject to frequent changes in tax laws and regulations.
• It is recommended to consult a tax professional for accurate advice and guidance on your specific situation.
• Several online income tax calculators are available that can help you estimate your income tax liability.

Here are some useful resources to help you with income tax computation:

                               EXAMPLE

This is just an example and the actual tax calculation may varyincome tax depending on your individual circumstances. It is always advisable to consult a tax professional for personalized advice.

Assumptions:

• Employee’s name: John Doe
• State: Karnataka
• Basic salary: INR 50,000 per month
• House Rent Allowance (HRA): INR 10,000 per month
• Dearness Allowance (DA): INR 5,000 per month
• Leave Travel Allowance (LTA): INR 12,000 per year
• Provident Fund (PF): INR 6,000 per month (employee contribution)
• Professional tax: INR 200 per month

Step 1: Calculate Gross Salary

Gross Salary = Basic Salary + HRA + DA + Other Allowances

Gross Salary = INR 50,000 + INR 10,000 + INR 5,000 + INR 0 = INR 65,000

Step 2: Calculate Exempt Income

Exempt Income = HRA Exemption + LTA Exemption + PF Contribution

1. a) HRA Exemption:

• Actual HRA received: INR 10,000 per month
• Rent paid: INR 15,000 per month
• 50% of Basic Salary: INR 25,000 per month

HRA Exemption = Minimum ofincome tax (Actual HRA received, Rent paid – 10% of Basic Salary, 50% of Basic Salary) HRA Exemption = Minimum of (INR 10,000, INR 15,000 – INR 5,000, INR 25,000) HRA Exemption = INR 10,000

1. b) LTA Exemption:

LTA Exemption = Minimum of (Actual LTA spent, LTA entitlement) LTA Exemption = Minimum of (INR 12,000, INR 12,000) LTA Exemption = INR 12,000

1. c) PF Contribution:

PF Exemption = Employee’s contribution to PF PF Exemption = INR 6,000 per month

Total Exempt Income:

Exempt Income = HRA Exemption + LTA Exemption + PF Contribution Exempt Income = INR 10,000 + INR 12,000 + INR 6,000 Exempt Income = INR 28,000

Step 3: Calculate Taxable Salary

Taxable Salary = Gross Salary – Exempt Income

Taxable Salary = INR 65,000 – INR 28,000 Taxable Salary = INR 37,000

Step 4: Calculate Professional Tax

Professional Tax = INR 200 per month Professional Tax = INR 200 x 12 months Professional Tax = INR 2,400

Step 5: Calculate Total Taxable Income

Total Taxable Income = Taxable Salary + Professional Tax Total Taxable Income = INR 37,000 + INR 2,400 Total Taxable Income = INR 39,400

Step 6: Calculate Income Tax

Income Tax can be calculated using the income tax slab rates applicable for the current financial year.

                           FAQ QUESTIONS

1. What is considered as salary income? Salary income tax includes basic salary, dearness allowance, house rent allowance (HRA), leave travel allowance (LTA), and any other allowances paid regularly by the employer. Certain other allowances are exempted from tax up to certain limits.
2. What are allowances? Allowances are reimbursementsincome tax of certain expenses incurred by the employee in the performance of his or her duties. Some common allowances include HRA, LTA, conveyance allowance, children’s education allowance, and medical allowance.
3. My employer reimburses to me all my expenses on grocery and children’s education. Is it taxable? Yes, any reimbursements received from the employer for expenses like grocery and children’s education are taxable. However, there are certain exemptions available for reimbursement of medical expenses and children’s education allowance up to certain limits.
4. During the year I had worked with three different employers and none of them deducted any tax from salary paid to me. What should I do? If no tax was deducted at source (TDS) income taxby your employers, you are required to pay advance tax or self-assessment tax on your total income. You can file your income tax return (ITR) and calculate the tax payable.
5. What is Form No. 16? Form No. 16 is a certificate issued by your employer to you, which shows the details of your salaryincome tax paid, allowances received, tax deducted at source (TDS), and other relevant information.
6. What is the difference between Form No. 16 and I-T Return? Form No. 16 is a statement provided by the employer, whereas the I-T Return is a form to be filled and submitted by the taxpayer to the Income Tax Department.
7. Can I compute my tax at a lesser amount than shown in Form 16? Yes, if you have missed on certain tax-savingincome tax options in Form 16, you can claim them while filing your ITR and reduce your tax liability.
8. What will happen if I do not share my PAN or share the wrong PAN with my employer? Your employerincome tax is responsible for deducting and depositing your tax. If you don’t share your PAN or share the wrong PAN, your employer may deduct tax at the highest rate of 20% on your salary and pay it to the Government.
9. Besides my salary income, do I need to inform my employer about my other income? Yes, it is advisableincome tax that you inform your employer about your other income sources so that they can correctly calculate the tax to be deducted from your salary.
10. What is Part A and Part B of Form No. 16? Form No. 16 has two parts:

• Part A: Contains basic information about the employer and employee, PAN/TAN details, and salary details.
• Part B: Provides details of deductions claimed by the employee, tax deducted at source, and the net amount of tax payable.

                               CASE LAWS

• CIT vs. G. Venkataswamy Naidu (1996): Held that any income taxallowance granted to an employee to meet the expenses incurred wholly, necessarily, and exclusively in the performance of his duties is exempt from tax under Section 10(14).
• CIT vs. B. Venkatramana (1988): Held that the valueincome tax of free meals provided by the employer to the employee is taxable as perquisite under Section 17(2).
• CIT vs. K.P. Varghese (1995): Held that the value ofincome tax free accommodation provided by the employer to the employee is taxable as perquisite under Section 17(2).
• CIT vs. M.K. Raju (1997): Held that theincome tax contribution made by the employer to the employee’s provident fund is exempt from tax under Section 80C.
• CIT vs. Smt. Anandibai (1990): Held that the standard deduction allowed under Section 16 is available to all salaried employees, regardless of their actual expenses.

Computation of Total Income:

• Commissioner of Income Tax vs. B.C. Srinivas (1992): Held that theincome taxarrear salary received in a single year is to be taxed in that year itself and not spread over previous years.
• CIT vs. Dr. N. Chandra Sekhar (2001): Held that theincome tax commutation of pension received by an employee on retirement is taxable as salary under Section 15.
• CIT vs. M.K. Raju (1999): Held that the income from house property received by an employee is to beincome tax included under the head “Income from House Property” and not under the head “Salary.”
• CIT vs. P.N. Sundaram (1986): Held that the bonus received by an employee is taxable as salary under Section 17(1).
• CIT vs. V.S. Ramamurthy (1975): Held that the income taxleave salary received by an employee is taxable as salary under Section 17(1).

Tax Slabs and Rates:

• CIT vs. H.P. Modi (1997): Held that the income taxtax slab rates applicable for a particular year are to be applied to the total income of that year.
• CIT vs. R.K. Jain (1987): Held that the income taxsurcharge and cess are to be calculated on the tax payable before applying the rebate under Section 87A.
• CIT vs. G. Venkataswamy Naidu (1996): Held that income taxthe tax liability of an employee is to be determined individually, even if he is employed by a family-owned business.

Other Important Case Laws:

• CIT vs. K.C.P. Ltd. (1982): Held that the employer is liable to deduct tax at source from the salary paid to its employees.
• CIT vs. M.P. State Warehousing Corporation (1982): Held that the employer is liable to pay interest on delayed payment of tax deducted at source.
• CIT vs. Hindustan Shipyard Ltd. (1980): Held that the employer is liable to pay penalty for non-compliance with the provisions of the Income Tax Act.

It is important to note that these are just a few examples of the many case laws that deal with the computation of salary and tax thereon under the Income Tax Act. The specific law applicable to your situation will depend on the facts and circumstances of your case. It is best to consult with a tax professional for guidance on how to apply these laws to your specific situation.