Income from salary is the income or remuneration received by an individual for services he is rendering or a contract undertaken by him. This clause essentially assimilates the remuneration received by a person for the services provided by him under the contract of employment.
This amount of remuneration will be considered as income for the purposes of Income Tax Act only if there is an Employer and employee relationship between the person who is making the payment and the person who is receiving the payment.
Employer and Employee Relationship – Any payment that is received by a person will be treated as Income under Income Tax Act if there exist an Employer and employee relationship between the payer and payee. For the purpose of qualifying income as income from salary, their relationship should be that of a master and servant.Where a master is a person who directs his employee that what is to be done and how it is to be done and servant is the person who is liable to conduct that work in the manner told by his employer.
- 1 Meaning of Salary
- 2 What is CTC?
- 3 Calculation of Income from salary
- 4 Allowances
- 5 Perquisites
- 6 FORM 16
- 7 FORM 26AS
Meaning of Salary
The salary for the purpose of calculation of income from salary includes:
- Advance Salary paid;
- Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages;
- Annual accretion to the balance of Recognized Provident Fund;
- Leave Encashment;
- Transferred balance in Recognized Provident Fund;
- Contribution by Central Govt. or any other employer to Employees Pension A/c as referred in Sec. 80CCD.
What is CTC?
CTC is one of the generic term when a person talks about salary. CTC stands for Cost To Company. It is the amount that the company in spending on hiring and sustaining an employee.
CTC includes the salary as well as the other benefits provided to an employee which can be meal coupons, office space rent, Provident Fund, Medical Insurance, House Rent Allowance(HRA) and any other element that cost to the company.
It may be noted that CTC varies from the actual income from salary that a person receives as CTC also includes variables over and above the actual salary that a person is receiving.
Calculation of Income from salary
|1. Fees, Commission and Bonus||—|
|4. Retirement Benefits||—|
|5. Fees, Commission and Bonus||—|
|Less: Deductions from Salary||—|
|1. Entertainment Allowance u/s 16||—|
|2. Professional Tax u/s 16||—|
Fully Taxable allowances:
- Dearness Allowance: The allowance is paid to the employees to cope with inflation.
- Entertainment Allowance: This is an allowance that is provided to the employees to reimburse the expenses which are incurred on the hospitality.
- Overtime Allowance: Overtime allowance is the allowance which is paid to the employees for working above the regular work hours.
- City Compensatory Allowance: This allowance is paid to those employees who move to urban cities.
- Project Allowance: When an employer provides an allowance to the employees to meet the project expenses.
- Tiffin/Meals Allowance: Employees may be provided with meal allowances in some cases.
- Cash Allowance: Employer may also provide cash allowance in some cases like for marriage or holiday purposes.
Partly Taxable allowances:
- House Rent Allowance: It is the allowance that an employer pays to his employee for accommodation.
- Entertainment allowance
- Special allowances like allowance for travel, uniform, research allowance etc.
- Special allowance to meet personal expenses like children’s education allowance, children hostel allowance etc.
Non Taxable allowances:
- Allowances that is paid to the Govt. servants abroad: When the government employee of India are paid allowances when they are serving abroad.
- Sumptuary allowances: Sumptuary allowances which are paid to the judges of HC and SC are not taxed.
- Allowance paid by UNO: Allowances which is received by the employees of UNO are fully exempt from tax.
- Compensatory allowance paid to judges: When a judge receives a compensatory allowance, it is also not taxable.
It may be noted that a person can save tax on income from salary by getting the Tax Saving Allowances.
Perquisites are those payments which are received by an employee from the employer over and above the salary.
Perquisites that are taxable for all the employees:
- Rent free accommodation
- Club fee payments
- Movable assets
- Concession in accommodation rent
- Interest-free loans
- Educational expenses
- Insurance premium paid on behalf of employees
Perquisites that are taxable only to specified employees:
- Free gas, electricity etc. for domestic purpose
- Concessional transport facility
- Concessional educational expenses
- Payment made to gardener, sweeper and attendant.
Perquisites that are exempt from tax:
- Medical benefits
- Health Insurance Premium
- Leave travel concession
- Staff Welfare Scheme
- Car, laptop etc. for personal use.
Form 16 is a certificate, in which employer certifies the details about the salary and the tax deducted at source from the salary during the year. Form 16 is issued once in a financial year, on or before 31st May of the next year immediately following the financial year in which tax is deducted.Form 16 has two parts:
Part A- It contains the information of the employer & employee, like name & address, PAN and TAN details, a period of employment, details of TDS deducted & deposited with the government.
Part B- It contains the details of salary paid, other incomes, deductions allowed, tax payable etc.
Form 26AS is required to be issued Under Section 203AA of the Income-tax Act. It is a consolidated tax credit statement issued to a taxpayer and shows the Income tax that has been deposited with the government with respect to the taxpayer and Form 26AS
Form 26AS Contains all the details of the taxes paid and deposited with the Income Tax Department.
All the details uploaded on the form help an individual to check your tax liabilities and rectify any error before it is too late.
For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business Return, Bulk Return or Revised Return Filing.