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Important Income Tax FAQs on Salary Income

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Income Tax FAQs on Salary Income

What is Considered as Salary Income?

Generally whatever is received by an employee from an employer in cash, kind, or as a facility [perquisite] is considered as salary. ​​​​​​​​​ Section 17​​ of the Income-tax Act defines the term ‘Salary’.

What are allowances?

​​Allowances are fixed periodic amounts, apart from salary, which are paid by an employer for the purpose of meeting some particular requirements of the employee.  E.g., Tiffin allowance, transport allowance, uniform allowance, etc.

There are generally three types of allowances for the purpose of Income-tax Act:

  1. Taxable allowances,
  2. Fully exempted allowances and
  3. Partially exempted allowances.​ 

Perquisites are benefits received by a person as a result of his/her official position and are over and above the salary or wages. These perquisites can be taxable or non-taxable depending upon their nature. . Uniform allowance is exempt to the extent of expenditure incurred for official purposes u/s​ 10​(14).

Is Pension Income is Taxed as Salary Income?

​​Yes. However, pension received from the United Nations Organisation is exempt.​​

Is Family Pension Taxed as Salary Income?

​​​No, it is taxable as income from other sources.​

Is Family Pension Taxed as Salary Income?

​​​No, it is taxable as income from other sources.​

Some Other FAQs

If I receive my pension through a bank who will issue Form -16 or pension statement to me – the bank or former employer?

The bank.

Are retirement benefits Like PF and Gratuity are taxable?

In the hands of a Government employee Gratuity and PF receipts on retirement are exempt from tax. In the hands of non-Government employee, gratuity is exempt subject to the limits prescribed in this regard and PF receipts are exempt from tax, if the same are received from a recognised PF after rendering continuous service of not less than 5 years.​

W.e.f. Assessment Year 2022-23, no exemption shall be available for the interest income accrued during the previous year in the recognised and statutory provident fund to the extent it relates to the contribution made by the employees over Rs. 2,50,000 in the previous year.
However, if an employee is contributing to the fund but there is no contribution to such fund by the employer, then the interest income accrued during the previous year shall be taxable to the extent it relates to the contribution made by the employee to that fund in excess of Rs. 5,00,000 in a financial year.

Are arrears of Salary Taxable ?

​​​​​​​​Yes. However, the benefit of spread over of income to the years to which it relates to can be availed for lower incidence of tax. This is called as relief ​ u/s 89​ of the Income-tax Act.​​

My Income from let-out house property is negative. Can I ask my employer to consider this loss against my salary income while computing TDS on my salary?

​​​Yes but only to the extent of Rs. 2 lakh, however, losses other than losses under the head ‘Income from house property’ cannot be set-off while determining the TDS from salary.​​

Is leave encashment taxable as salary?

​​​It is taxable if received while in service. Leave encashment received at the time of retirement is exempt in the hands of the Government employee. In the hands of non-Government employee leave encashment will be exempt subject to the limit prescribed in this behalf under the Income-tax Law.​

Where is House Rent allowance (HRA) to be reflected while filing income-tax return (ITR)?

​​​The amount of HRA is required to be disclosed in the ITR under the column allowances to the extent exempt under section 10. section 10(3A) is the relevant section under which the amount of exempt HRA to be shown.

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 received or amount spent, whichever is less. For e.g., If amount received is Rs. 100 and amount spent is Rs. 80, then only Rs. 20 is taxable. However, if amount actually spent is Rs. 100; then nothing is taxable.

Is standard deduction applicable to all the salaried person whether he is an employee of Central or State Government?

W.e.f. Assessment year 2019-20, the standard deduction is allowed while computing income chargeable under the head salaries. It is available to all class of employees irrespective of the nature of employer. Standard Deduction is also available to pensioners. Amount of Standard Deduction is Rs. 40,000 or amount of salary/pension, whichever is lower.

However, the Finance Act, 2019 has increased the maximum amount of standard deduction from Rs. 40,000 to Rs. 50,000.

Note: The standard deduction under section 16(ia) is available only for Pension Chargeable under the head “Income under the head Salaries” and not for Pension chargeable under “Income from Other Sources”.

What is Form 12BB?​​​​

As per RULE LINK – Rule 26C of the Income Tax Rules – Form No. 12BB is required to be furnished by an employ​ee to his employer for estimating his income or computing the tax deduction at source.
An assessee shall furnish evidence or particulars of the claims, such as House Rent Allowance, Leave Travel concession, Deduction of Interest under the head ” Income from house property” and deductions under Chapter-VIA in Form No. 12BB​ for estimating his income or computing the tax deduction at source.

When relief under section 89 of the Income Tax Act is available?

​​​Relief under section 89 is available to an individual if he has received 

1. Salary or family pension in arrears  or in advance [Rule 21A (2)]
2. Gratuity in excess of  exemption under section 10(10)(ii)/(iii) [Rule 21A(3)]
3. Compensation on termination of employment [Rule 21A(4)]
4. Commuted pension in excess of exemption under section 10(10A)(i) [ Rule 21A(5)]

In case of payment received other than above CBDT can allow relief under section 89​ after examining each individual case.  [Rule 21A (6)]

Source: Income Tax India

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