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Question 1. What is considered as salary income?
Answer: In general term, whatever received by an employee from an employer in cash, kind or as a perquisite is considered as salary. Whereas, the detailed definition of Salary is defined under section 17 of the Income-tax Act, 1961.
Question 2. What are allowances and perquisite?
Answer: Definition of allowances and perquisites are as follows:
• Allowances are fixed periodic amounts, apart from salary, which is paid by an employer for the purpose of meeting some particular requirements of the employee.
• For example Tiffin allowance, transport allowance, uniform allowance, etc.
• There are generally three types of allowances for the purpose of the Income-tax Act:
a) taxable allowances;
b) fully exempted allowances; and
c) 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.
• Perquisites can be taxable or non-taxable depending upon their nature.
• Uniform allowance is exempt to the extent of expenditure incurred for official purposes.
Question 3. Whether reimbursement of expenses by the employer will be considered as income?
Answer: Yes, these are in the nature of perquisites and should be valued as per the rules prescribed on this behalf in the Income Tax Act, 1961.
Question 4. During the year if an individual had worked with more than one employer and none of them deducted any tax from salary paid to the individual and total of income received exceed the basic exemption limit. Then, what will be the manner of payment of taxes?
Answer: The individual will pay self-assessment tax and file the return of income.
Question 5. Even if no taxes have been deducted from salary, is there any need for the employer to issue Form-16 to the individual?
Answer: Form-16 is a certificate of TDS and will be issued in case of submission of TDS by an employer. Whereas, if no taxes have been deducted then it will not apply.
Question 6. Is pension income taxed as salary income?
Answer: Yes. However, the pension received from the United Nations Organisation is exempt.
Question 7. If an individual receives the pension through a bank who will issue Form-16 or pension statement to the individual - the bank or the former employer?
Answer: The bank will issue the Form-16.
Question 8. Are retirement benefits like PF and Gratuity taxable?
Answer: There are two provisions with reference to the taxability of PF and Gratuity:
a) Government Employee: In the hands of a Government employee Gratuity and PF receipts on retirement are exempt from tax.
b) Non-Government Employee: In the hands of a 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.
Question 9. Are arrears of salary taxable?
Answer: Yes. However, the benefit of spread over of income to the years to which it relates to can be availed for a lower incidence of tax. This is called relief under Section 89 of the Income-tax Act.
Question 10. My income from let out house property is negative. Can I ask my employer to consider this loss against my salary income while computing the TDS on my salary?
Answer: 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.
Question 11. Is leave encashment taxable as salary?
Answer: Provision pertaining to the leave encashment taxability is depend upon the receipt of the leave encashment.
a) It is taxable if received while in service.
b) Leave encashment received at the time of retirement is exempt in the hands of the Government employee. In the hands of the non-Government employee, leave encashment will be exempt subject to the limit prescribed on this behalf under the Income-tax Law.
Question 12. Are receipts from life insurance policies on maturity along with bonus taxable?
Answer: Any amount received under a life insurance policy, including bonus is exempt from tax.
However, the following receipts would be subject to tax:
a) Any sum received under sub-section (3) of section 80DD; or
b) Any sum received under Keyman insurance policy; or
c) Any sum received in respect of policies issued on or after April 1st, 2003, in respect of which the amount of premium paid on such policy in any financial year exceeds 20% (10% in respect of policy taken on or after 1st April 2012) of the actual capital sum assured; or
d) Any sum received for insurance on the life of the specified person (issued on or after April 1st 2013) in respect of which the amount of premium exceeds 15% of the actual capital sum assured.
Notes:
a) Specified Person: Any person who is –
i) A person with a disability or severe disability specified under section 80U; or
ii) suffering from disease or ailment as specified in the rule made under section 80DDB.
b) Following points should be noted in this regard:
An exemption is available only in respect of the amount received from the life insurance policy.
Exemption under section 10(10D) is unconditionally available in respect of sum received for a policy which is issued on or before March 31, 2003.
The amount received on the death of the person will continue to be exempt without any condition.
Question 13. What is the taxability of ex-gratia received from the employer?
Answer: If a person or his heir receives ex-gratia from Central govt/state govt/ local authority/Public Sector Undertaking due to injury to the person/death while on duty such ex-gratia payment will not be taxable.
Question 14. What is the taxability of House Rent Allowance (HRA)?
Answer: Least/minimum of the following is exempt (Not taxable/deducted from total HRA received)
(a) Actual amount of HRA received
(b) Rent paid Less 10% of salary
(c) 50% of salary if house taken on rent is situated in Kolkata, Chennai, Mumbai and Delhi
or
40 % of salary if the house is taken on rent is NOT situated in Kolkata, Chennai, Mumbai and Delhi.
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.
Question 15. What is the taxability of allowance?
a) Fixed Medical allowance: Medical allowance is a fixed allowance paid to the employees of a company on a monthly basis, irrespective of whether they submit the bills to substantiate the expenditure or not. It is fully taxable in the hands of an employee.
b) Conveyance allowance: Conveyance allowance is exempt to the extent of the amount received or amount spent, whichever is less.
Question 16. Is standard deduction applicable to all the salaried person whether he/she is an employee of Central or State Government?
Answer: 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 the 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".
Question 17. Is transport allowance can be claimed as an exemption by an employee from A.Y 2020-21 onwards?
Answer: Exemption of transport allowance of Rs. 1600 p.m granted to an employee is discontinued from A.Y 2019-20.
However, exemption of transport allowance of Rs. 3200 p.m granted to an employee who is blind or deaf and dumb or orthopaedically handicapped is still available.
Question 18. Is standard deduction applicable to family pensioners?
Answer: For a class of person whose income is chargeable to tax under the head salary. Family Pension is taxable under the head income from other sources. Hence standard deduction is not applicable in case of Family Pension.
For Example Mr A having Gross Salary of Rs. 7,00,000 during the previous year 2020-21. What will be the standard deduction allowable to him?
The standard deduction is allowable to the extent of:
a) Rs. 50,000 or
b) Amount of Salary, whichever is lower
In this case standard deduction of Rs. 50,000 is allowable to Mr A.
Question 19. What is Form 12BB?
Answer: Form No. 12BB is required to be furnished by an employee 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 in Form No. 12BB for estimating his income or computing the tax deduction at source.
Question 20. What is the effective date of enhancement of limit of gratuity from Rs 10 lakh to 20 lakh for purpose of tax exemption computation?
Answer: The exemption limit under section 10(10)(ii) for the employees, who are covered under the Payment of Gratuity Act, 1972, has been enhanced from Rs. 10,00,000 to Rs. 20,00,000 vide notification S.O.1420 (E) dated 29 March 2018 notified by Ministry of Labour and Employment. The exemption limit under section 10(10)(iii) for the employees, who are not covered under the Payment of Gratuity Act, 1972, is Rs. 20,00,000 as enhanced by Notification No. SO 1213(E), dated 08-03-2019.
Article By: Ms Bhavya Sharma, a Practising Company Secretary from Delhi. In order to know more about the filing of return of income or any related queries thereto, you can contact us at legal@bhavyasharmaandassociates.com or for more details you can visit: www.bhavyasharmaandassociates.com
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Footnotes: [1] Income Tax Act, 1961
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