Taxes in India divided in two types, one is direct and another one is indirect tax. Income tax is comes under direct tax category. Income tax you pay on your income directly to the government end of the year.
Income tax is a tax Government impose on individuals or organisation for their annual income. All individuals and organizations must compulsorily pay a percentage of the revenue set by the Government. Income Tax can be categorized as Income Tax and Corporate Tax.
Government has classified the sources of income under five separate income tax heads, It will help to taxpayers to compute their income for paying tax to the Government.
1. Income from Salary: Income from Salary and Pension
2. Income from House Property: Rental Income from House Property or Land
3. Income from Business or Profession: Income received from Profession or Business
4. Income from Capital Gain: Income from sale of a Capital Asset (Property, Investment)
5. Income from Other Source: Income received by Other Source (Interest, Commission)
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Computation of Income from Salary or Pension
If a person received income from employer his income comes under salary or pension head, before going to compute income from salary, we need to know salary meaning in Income tax.
Salary means: Basic Salary, Allowances, Bonus, perquisites, gratuity, pension
Basic Salary: Basic salary received from company or Organisation set by the employer.
Here Basic Salary is fully taxable.
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Allowances: Allowances given by employer with basic salary, Here allowances can be categorizes fully exempt fully taxable and partial taxable.
House Rent Allowances
Least of the following is exempt:
a) Actual HRA Received
b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Madras)
c) Rent paid minus 10% of salary
* Salary= Basic + DA
Note:
Fully Taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent.
It is mandatory for employee to report PAN of the landlord to the employer if rent paid is more than Rs. 1,00,000 [Circular No. 08 /2013 dated 10th October, 2013].
Children Education Allowance: Up to Rs. 1200 per Annum per child up to a maximum of 2 children is exempt.
Hostel Expenditure Allowance: Up to Rs. 3600 per Annum per child up to a maximum of 2 children is exempt.
Transport Allowance : (Transport Allowance granted to an employee to meet expenditure for the purpose of commuting between place of residence and place of duty)
Rs. 3,200 per month granted to an employee, who is blind or deaf and dumb or orthopedically handicapped with disability of lower extremities.
Conveyance Allowance: Exempt to the extent of expenditure incurred.
Daily Allowance:Exempt to the extent of expenditure incurred.
Uniform Allowance: Exempt to the extent of expenditure incurred.
Helper/Assistant Allowance: Exempt to the extent of expenditure incurred.
Research Allowance: Exempt to the extent of expenditure incurred.
Foreign allowances: Fully Exempt.
Allowances to Judges of High Court/Supreme Court: Fully Exempt.
Special compensatory Allowance: Amount exempt from tax varies from Rs. 300 per month to Rs. 7,000 per month.
Border area allowances: Remote Locality allowance or Disturbed Area allowance or Difficult Area Allowance) - Amount exempt from tax varies from Rs. 200 per month to Rs. 1,300 per month.
Tribal area allowance: Amount exempt from tax varies from Rs. 200 per month to Rs. 1,300 per month. Rs. 2400 per Annum.
Compensatory Field Area Allowance: Rs. 31200 per Annum.
Compensatory Modified Area Allowance: Rs. 12,000 per Annum.
Underground Allowance: (Underground Allowance is granted to employees working in uncongenial, unnatural climate in underground mines)
Up to Rs. 9,200 per month.
High Altitude Allowance: (High Altitude Allowance is granted to armed forces operating in high altitude areas (Subject to certain conditions and locations)
Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet) Up to Rs. 1,600 per month (for altitude above 15,000 feet).
Highly active field area allowance: (Highly active field area allowance granted to members of armed forces (Subject to certain conditions and locations)
Tribunal Allowances: Rs.200 per Month.
Island Duty Allowance: (Island Duty Allowance granted to members of armed forces in Andaman and Nicobar and Laksha weep group of Island (Subject to certain conditions and locations)
Up to Rs. 3,250 per month.
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Bonus(Click for More)
Bonus is a additional payment given by employer to his employees for special reason such as employee achieve target goals, company anniversary, festivals, or company performance more than expected. Bonus will provide for attract for his employees motivate in an organisation.
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Perquisite(Click for More)
Perquisite meaning company or employer is additional benefit provided to his employee with salary or wages. If a employee receive below given benefits from his employer called as perquisites.
Rent free accommodation,
Motor vehicle.
Personnel worker provided by employer.
Interest free Loan.
Gas, Electricity supplied by employer.
Any Gift Voucher received from employer etc.
Any movable asset of the employer used by the employee.
Under Income Tax 17(2) Section Perquisite is taxable income. If a employee received perquisite from his employer, its comes under income from salary head, so employees need to show its in Income tax return.
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Gratuity
Gratuity means employee receive payment from his employer in after his retirement. when he completed 5 years an organisation.
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