Frequently Asked Question on Salary Income by
incometaxindia.gov.in
What is considered as salary income?
Section 17 of the Income-tax Act defines the term ‘salary’.
However, not going into the technical definition, generally whatever is
received by an employee from an employer in cash, kind or as a facility
[perquisite] is considered as salary.
What are allowances? Are all allowances taxable?
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 – taxable allowances, fully exempted allowances and partially
exempted allowances.
My employer reimburses to me all my expenses on grocery and
children’s education. Would these be considered as my income?
Yes, these are in the nature of perquisites and should be valued
as per the rules prescribed in this behalf.
During the year I had worked with three different employers and
none of them deducted any tax from salary paid to me. If all these amounts are
clubbed together, my income will exceed the basic exemption limit. Do I have to
pay taxes on my own?
Yes, you will have to pay self-assessment tax and file the return
of income.
Even if no taxes have been deducted from salary, is there any
need for my employer to issue Form-16 to me?
Form-16 is a certificate of TDS. In your case it will not apply.
However, your employer can issue a salary statement.
Is pension income 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.
If I receive my pension through a bank who will issue Form-16 or
pension statement to me- the bank or my former employer?
The bank.
Are retirement benefits like PF and Gratuity 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.
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.
Can my employer consider relief u/s 89 for the purposes of
calculating the TDS from salary?
Yes, if you are a Government employee or an employee of a PSU or
company or co-operative society or local authority or university or institution
or association or body. In such a case you need to furnish Form No. 10E to your
employer.
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?
Yes, 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.
Are receipts from life insurance policies on maturity along with
bonus taxable?
As per section 10(10D), any amount received under a life insurance
policy, including bonus is exempt from tax. However, following receipts would
be subject to tax:
Any sum received under sub-section (3) of section 80DD; or
Any sum received under Keyman insurance policy; or
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
Any sum received for insurance on life of *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.
* Any person who is –
i) A person with disability or severe disability specified under
section 80U; or
ii) suffering from disease or ailment as specified in the rule
made under section 80DDB.
Following points should be noted in this regard:
Exemption is available only in respect of amount received from
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.
Amount received on the death of the person will continue to be
exempt without any condition.
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