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Hi Everybody ,
I have prepared some FAQ's for the payroll and IncomeTax .
What does Salary Income means?
Salary normally includes wages, annuity, pension, gratuity, commission, perquisites, etc. and any other payment received by an employee from the employer during the year. These are paid and tax deducted at source by your current employer. An annual statement of earning and deductions (Form 16) is given to each employee at the end of each financial year (April March).
What do Allowances means?
Allowances are fixed sums of money paid regularly in addition to salary for the purpose of meeting some particular requirement. There are 3 types of allowances
Taxable allowances
Partially-exempted allowances
Fully-exempted allowances
Most allowances are either full taxable while some are partially taxable like House Rent Allowance, City Compensatory allowance. A table giving details of taxability is enclosed as under:
Fully Taxable Allowances Partially Exempted Allowances
Dearness Allowance Medical Allowance Servant Allowance Hill Allowance Deputation Allowance Over-time Allowance Other Allowances Entertainment Allowance House Rent Allowance Children Education Allowance Children Hostel Allowance Transport Allowance
What is a Permanent Account Number (PAN)?
Permanent Account Number is a unique identification number by which the Assessing Officer of the Income Tax Department can identify any assessee. PAN consists of ten alphanumeric characters, and has to be taken by each employee of the company. This is a mandatory requirement before Annual Income Statements can be submitted to the department.
What are the current Income Tax slabs?
For General Category
Income Slab Tax Rate
0 to 100,000 Nil Tax
100,001 to 150,000 10%
150,001 to 250,000 20%
250,001 and above 30%
For working women
Income Slab Tax Rate
0 to 135,000 Nil Tax
135,001 to 150,000 10%
150,001 to 250,000 20%
250,001 and above 30%
For Senior Citizen (Age above 65 years)
Income Slab Tax Rate
0 to 185,000 Nil Tax
185,001 to 250,000 20%
250,001 and above 30%
Surcharge at 10% in case taxable income exceeds Rs. 1,000,000
Education Cess is computed at 2% of total tax payable, including surcharge, and is payable all levels of income.
Whether can I get working women rebate?
Working women rebate of Rs. 5000 has been removed from financial year 2005-2006. To accommodate this benefit, separate income tax slab rate has been introduced as above.
What is Form 16?
Form 16 is a certificate issued by the employer to its employees under section 203 of Income Tax Act for Tax Deducted at Source from the Income chargeable under the head salaries This is issued yearly and the original Form 16 is required to file Individual Tax Returns
How do I Account my Salary from More Than One Employer?
The employee is required to furnish details of the income, under the head "Salaries" due or received from the former/ other employer, to the present/current employer, and also tax deducted at source, in writing and duly verified by him and by the former/other employer in Form 12B (The present/current employer will deduct tax at source based on the aggregate amount of salary (including salary received from the former or other employer), though it is not shown on the Form 16 of the current employer.
How do I calculate my House Rent Allowance (HRO) and exemption thereon?
From the House Rent Allowance (HRA) received as part of salary during the year, least of the following three amounts are exempt from tax (or not included in income):
Amount equal to 50% of annual salary for persons staying in metros (Mumbai, Chennai, Calcutta or Delhi) and 40%, for other cities
Actual amount of HRA received
Amount of rent actually paid in excess of 10% of annual salary
For HRA exemption purposes, Salary is defined as basic salary, dearness allowance, and commission on fixed percentage, but not other allowances.
Example:
1. Salary for the entire year Rs. 300,000/- (Basic + Dearness Allowance)
2. Actual HRA received Rs. 72,000/-
3. Rent paid for the entire year Rs. 60,000/- (5000 pm * 12 months)
HRA exemption for this case is:
a) Actual HRA received = Rs. 72,000
b) Rent paid less 10% of Salary = Rs. 30,000 (60,000 minus 30,000 (10% of 300,000))
c) 40% of Salary (300,000) = Rs. 120,000
Least of the above, Rs. 30,000, is exempt from tax
How is the exemption on Leave Travel allowance calculated? (Refer your HR policy also along with this note. Enclosed is a best practice interpretation)
Allowance to meet the cost of travel incurred by employee:
Leave Travel Expenses exempt for 2 domestic journeys in a block of 4 years (Current block is 2002 2005, and next block is 2006 2009)
One un-availed journey for previous block can be availed in the 1st year of next block
Assessee should be part of the travel throughout
Boarding and lodging are not exempt
Leave should be availed during the period of travel
Only fare cost is exempt, which is restricted to
Particulars Exempt Amount
Journey performed by air Economy fare by the shortest route or actual amount spent, whichever is the least.
Journey performed by rail Air-conditioned first class rail fare by the shortest route or actual amount spent, whichever is the least.
Journey performed by any other mode but the origin and destination are covered by Rail Air-conditioned first class rail fare by the shortest route or actual amount spent, whichever is the least.
Where the origin and destination are not connected by rail, and Where a organized public transport exists Where no organized public transport exists First class or deluxe class fare by shortest route or amount actually spent, whichever is least Air-conditioned first class rail fare by shortest route or actual amount spent whichever is least
Example:
1. LTA received for the entire year = Rs. 40,000
2. Air tickets for the travel undertaken = Rs. 35,000
Rs. 35,000 is exempt from tax
Transport allowance / Conveyance Allowance
Transport allowance for traveling from residence to office is exempt up to Rs 800 per month, if provided as part of your compensation structure
Children Education Allowance
Rs.100 per month per child up to a maximum of two children, if provided as part of your compensation structure
What is Perquisite and how it is taxed?
Perquisites are emoluments or benefits received from an employer, in addition to salary, bonus, allowances, gratuity, etc. They include rent-free accommodation, free electricity, gas, or water supply, free domestic servant, etc. provided / paid for by the employer. These perquisites are added to the Salary Income for arriving at the tax liability as per the applicable slabs. Examples of few perquisites are:
1. Rent Free (commonly called Company Lease) Accommodation
The valuation of perquisite in respect of accommodation is as under:
a. Where employer owns the accommodation provided to the employee - 20% of 'salary' in cities having population exceeding four lakh as per the 2001 census. For other places, the perquisite value is 15% of salary.
b. Where accommodation provided is taken on lease/ rent by the employer, 20% of the salary or the actual amount of lease rental payable by the employer, whichever is lower, as reduced by any amount of rent paid by the employee.
For furnished accommodation, the value of perquisite as determined by the above method will be increased by-
a. 10% of the cost of furniture, appliances and equipments, or
b. Where the furniture, appliances and equipments have been taken on hire, by the amount of actual hire charges payable as reduced by any charges paid by the employee himself.
Salary for purposes of CLA is defined as all Taxable earnings (excluding perquisites) less section 10 exemption, if any.
Example:
1. Salary for the entire year is Rs. 500,000
2. CLA (Lease Rent) is Rs. 20,000 pm (taken on lease)
3. Cost of Furniture is Rs. 40,000
Rent for the entire year (Rs.20, 000* 12 Months) = Rs. 240,000
20 % of Salary (Rs. 500,000 * 20%) = Rs. 100,000
Least of the above is Rs. 100,000
Add 10% of Furniture (Rs.40, 000 *10%) = Rs. 4,000/-
Total perquisite on Rent Free Accommodation with furniture is Rs. 104,000
2. Motor Car
Car perquisite has been removed from FY 2005-2006
3. Gas, Electricity and Water
Value of perquisite is the amount paid by the employer to the agency supplying the amenity (free supply of gas, electricity and water) for household consumption. Any amount paid by the employee for such facilities or services shall be reduced from the above amount.
4. Interest free or concessional loans
Value of perquisite is the excess of interest payable at prescribed interest rate over interest actually paid by the employee, or any member of his household. The prescribed interest rate is the rate charged by the State Bank of India as on the 1st day of the relevant financial year.
The aggregate of loan amounts (from Personal, Vehicle & Housing) should be more than Rs.20000/- for this perquisite to apply.
5. Use of Movable assets
If an asset owned by the employer is used by the employee, perquisite is charged at the rate of 10% of the original cost of the asset, as reduced by any charges recovered from the employee for such use. These include house-hold furniture, white goods, though computers and laptops are not covered under this perquisite.
What amount gets deducted under section 16?
(a) Standard Deduction
Standard deduction has been abolished from Financial Year 2005 2006
(b) Tax on Employment / Professional Tax
Professional tax or tax on employment levied by the state is allowed as a deduction
How do I account for my loss on House Property?
For Self Occupied property
House that is constructed or acquired after April 1999 by using borrowed capital, interest on such borrowed capital up to an amount of Rs.150, 000 can be claimed as deduction. In case, the house was acquired / constructed prior to April 1999, the amount of deduction is Rs. 30,000
For Let Out property
Rent received for let out property less Interest on borrowed capital plus 30% of the net annual value for repair and maintenance is taken as loss / profit.
For both the above, assessee has to provide a certificate from the lender specifying the interest payable towards the capital borrowed for construction or acquisition of a house. Only interest paid post completion of house is entitled / eligible for deduction and Pre-EMI interest is amortized over a period of 5 years.
Example:
1. Interest payable on housing loan (Loan taken after 01.04.1999): 160,000
2. Pre-EMI paid is Rs. 30,000
3. Annual Value of the property (in case of Let Out Property) Rs. 250,000
4. Rent received (in case of Let Out Property) Rs. 60000/- pa
For Self Occupied property
Interest on housing loan (loan post 1/4/99) is Rs. 160,000
Pre EMI at 20% on Rs. 30,000/- (Amortized over 5 years) is Rs. 6,000/-
Total loss is Rs. 166,000 though maximum allowed is restricted to Rs. 150,000/-
For Let out Property
Interest on borrowed capital is Rs. 160,000/-
Pre EMI at 20% (Amortized over 5 years) is Rs. 6,000/-
30% of annual value (250,000) is 75,000 (for repairs and maintenance)
Total of 241,000 is reduced by Rs. 60,000 (rent received) = 181,000
Total loss eligible for deduction is Rs.181,000
What are the various deductions allowed under Chapter VI A?
Under 80C, an employee is entitled to deductions for the amounts paid or deposited in the current financial year in the following schemes, subject to a limit of Rs.100, 000/-:
Life Insurance Premium
Contributions to recognized Provident Fund / V P F / P P F
Contributions to approved Superannuation Fund
Cumulative Time Deposit A/c with P O
Contribution to U L I P, 1971 of Unit Trust of India
Contribution to U L I P of LIC Mutual Funds
Annuity with Insurance Company
Subscription to Mutual Fund
Subscription to deposit schemes of National Housing Bank
Subscription to NSC & Interest accrued on NSC subscription
Subscription to deposit schemes of a public sector company engaged in providing long-term finance for construction / purchase of houses in India for residential purposes.
Repayment of Housing Loan principal
Infrastructure Bonds
Children Tuition Fees (education)
Term Deposits Scheduled Bank (5 years and more)
Investments of up to Rs.100,000 under erstwhile section 80 CCC
80D Medical Insurance
Deduction up to Rs. 10,000 for general category and Rs. 15000 in case of Senior Citizen
80DD Medical Treatment for Handicapped Dependent
Deduction on medical treatment and maintenance of handicapped dependant up to Rs. 50,000 for disability below 80% and Rs. 75,000 for disability above 80%
80DDB Medical Treatment for Specified Illness/Diseases
Deduction on medical treatment of specified illness/diseases is up to Rs. 40,000 for general category and Rs. 60,000 in case of senior citizen
80E Interest on Education Loan
Repayment of interest paid in the current year on loan taken for higher education is eligible for deduction, if the loan availed was for pursuing employees own higher education. There is no limit on the deduction.
80U Permanent Physical Disability
Assessee certified by the medical authority to be a person with permanent physical disability is allowed a deduction of a sum of Rs. 50,000, and in case the assessee is certified as one with (severe) permanent physical disability, deduction is Rs. 75,000
80L Interest for Securities
Deduction under this section has been removed from financial year 2005-2006
80G Donations
For deduction in respect of donations to certain funds, charitable institutions etc, the employee can claim the deduction while filing individual returns
Regards
shubha
I have prepared some FAQ's for the payroll and IncomeTax .
What does Salary Income means?
Salary normally includes wages, annuity, pension, gratuity, commission, perquisites, etc. and any other payment received by an employee from the employer during the year. These are paid and tax deducted at source by your current employer. An annual statement of earning and deductions (Form 16) is given to each employee at the end of each financial year (April March).
What do Allowances means?
Allowances are fixed sums of money paid regularly in addition to salary for the purpose of meeting some particular requirement. There are 3 types of allowances
Taxable allowances
Partially-exempted allowances
Fully-exempted allowances
Most allowances are either full taxable while some are partially taxable like House Rent Allowance, City Compensatory allowance. A table giving details of taxability is enclosed as under:
Fully Taxable Allowances Partially Exempted Allowances
Dearness Allowance Medical Allowance Servant Allowance Hill Allowance Deputation Allowance Over-time Allowance Other Allowances Entertainment Allowance House Rent Allowance Children Education Allowance Children Hostel Allowance Transport Allowance
What is a Permanent Account Number (PAN)?
Permanent Account Number is a unique identification number by which the Assessing Officer of the Income Tax Department can identify any assessee. PAN consists of ten alphanumeric characters, and has to be taken by each employee of the company. This is a mandatory requirement before Annual Income Statements can be submitted to the department.
What are the current Income Tax slabs?
For General Category
Income Slab Tax Rate
0 to 100,000 Nil Tax
100,001 to 150,000 10%
150,001 to 250,000 20%
250,001 and above 30%
For working women
Income Slab Tax Rate
0 to 135,000 Nil Tax
135,001 to 150,000 10%
150,001 to 250,000 20%
250,001 and above 30%
For Senior Citizen (Age above 65 years)
Income Slab Tax Rate
0 to 185,000 Nil Tax
185,001 to 250,000 20%
250,001 and above 30%
Surcharge at 10% in case taxable income exceeds Rs. 1,000,000
Education Cess is computed at 2% of total tax payable, including surcharge, and is payable all levels of income.
Whether can I get working women rebate?
Working women rebate of Rs. 5000 has been removed from financial year 2005-2006. To accommodate this benefit, separate income tax slab rate has been introduced as above.
What is Form 16?
Form 16 is a certificate issued by the employer to its employees under section 203 of Income Tax Act for Tax Deducted at Source from the Income chargeable under the head salaries This is issued yearly and the original Form 16 is required to file Individual Tax Returns
How do I Account my Salary from More Than One Employer?
The employee is required to furnish details of the income, under the head "Salaries" due or received from the former/ other employer, to the present/current employer, and also tax deducted at source, in writing and duly verified by him and by the former/other employer in Form 12B (The present/current employer will deduct tax at source based on the aggregate amount of salary (including salary received from the former or other employer), though it is not shown on the Form 16 of the current employer.
How do I calculate my House Rent Allowance (HRO) and exemption thereon?
From the House Rent Allowance (HRA) received as part of salary during the year, least of the following three amounts are exempt from tax (or not included in income):
Amount equal to 50% of annual salary for persons staying in metros (Mumbai, Chennai, Calcutta or Delhi) and 40%, for other cities
Actual amount of HRA received
Amount of rent actually paid in excess of 10% of annual salary
For HRA exemption purposes, Salary is defined as basic salary, dearness allowance, and commission on fixed percentage, but not other allowances.
Example:
1. Salary for the entire year Rs. 300,000/- (Basic + Dearness Allowance)
2. Actual HRA received Rs. 72,000/-
3. Rent paid for the entire year Rs. 60,000/- (5000 pm * 12 months)
HRA exemption for this case is:
a) Actual HRA received = Rs. 72,000
b) Rent paid less 10% of Salary = Rs. 30,000 (60,000 minus 30,000 (10% of 300,000))
c) 40% of Salary (300,000) = Rs. 120,000
Least of the above, Rs. 30,000, is exempt from tax
How is the exemption on Leave Travel allowance calculated? (Refer your HR policy also along with this note. Enclosed is a best practice interpretation)
Allowance to meet the cost of travel incurred by employee:
Leave Travel Expenses exempt for 2 domestic journeys in a block of 4 years (Current block is 2002 2005, and next block is 2006 2009)
One un-availed journey for previous block can be availed in the 1st year of next block
Assessee should be part of the travel throughout
Boarding and lodging are not exempt
Leave should be availed during the period of travel
Only fare cost is exempt, which is restricted to
Particulars Exempt Amount
Journey performed by air Economy fare by the shortest route or actual amount spent, whichever is the least.
Journey performed by rail Air-conditioned first class rail fare by the shortest route or actual amount spent, whichever is the least.
Journey performed by any other mode but the origin and destination are covered by Rail Air-conditioned first class rail fare by the shortest route or actual amount spent, whichever is the least.
Where the origin and destination are not connected by rail, and Where a organized public transport exists Where no organized public transport exists First class or deluxe class fare by shortest route or amount actually spent, whichever is least Air-conditioned first class rail fare by shortest route or actual amount spent whichever is least
Example:
1. LTA received for the entire year = Rs. 40,000
2. Air tickets for the travel undertaken = Rs. 35,000
Rs. 35,000 is exempt from tax
Transport allowance / Conveyance Allowance
Transport allowance for traveling from residence to office is exempt up to Rs 800 per month, if provided as part of your compensation structure
Children Education Allowance
Rs.100 per month per child up to a maximum of two children, if provided as part of your compensation structure
What is Perquisite and how it is taxed?
Perquisites are emoluments or benefits received from an employer, in addition to salary, bonus, allowances, gratuity, etc. They include rent-free accommodation, free electricity, gas, or water supply, free domestic servant, etc. provided / paid for by the employer. These perquisites are added to the Salary Income for arriving at the tax liability as per the applicable slabs. Examples of few perquisites are:
1. Rent Free (commonly called Company Lease) Accommodation
The valuation of perquisite in respect of accommodation is as under:
a. Where employer owns the accommodation provided to the employee - 20% of 'salary' in cities having population exceeding four lakh as per the 2001 census. For other places, the perquisite value is 15% of salary.
b. Where accommodation provided is taken on lease/ rent by the employer, 20% of the salary or the actual amount of lease rental payable by the employer, whichever is lower, as reduced by any amount of rent paid by the employee.
For furnished accommodation, the value of perquisite as determined by the above method will be increased by-
a. 10% of the cost of furniture, appliances and equipments, or
b. Where the furniture, appliances and equipments have been taken on hire, by the amount of actual hire charges payable as reduced by any charges paid by the employee himself.
Salary for purposes of CLA is defined as all Taxable earnings (excluding perquisites) less section 10 exemption, if any.
Example:
1. Salary for the entire year is Rs. 500,000
2. CLA (Lease Rent) is Rs. 20,000 pm (taken on lease)
3. Cost of Furniture is Rs. 40,000
Rent for the entire year (Rs.20, 000* 12 Months) = Rs. 240,000
20 % of Salary (Rs. 500,000 * 20%) = Rs. 100,000
Least of the above is Rs. 100,000
Add 10% of Furniture (Rs.40, 000 *10%) = Rs. 4,000/-
Total perquisite on Rent Free Accommodation with furniture is Rs. 104,000
2. Motor Car
Car perquisite has been removed from FY 2005-2006
3. Gas, Electricity and Water
Value of perquisite is the amount paid by the employer to the agency supplying the amenity (free supply of gas, electricity and water) for household consumption. Any amount paid by the employee for such facilities or services shall be reduced from the above amount.
4. Interest free or concessional loans
Value of perquisite is the excess of interest payable at prescribed interest rate over interest actually paid by the employee, or any member of his household. The prescribed interest rate is the rate charged by the State Bank of India as on the 1st day of the relevant financial year.
The aggregate of loan amounts (from Personal, Vehicle & Housing) should be more than Rs.20000/- for this perquisite to apply.
5. Use of Movable assets
If an asset owned by the employer is used by the employee, perquisite is charged at the rate of 10% of the original cost of the asset, as reduced by any charges recovered from the employee for such use. These include house-hold furniture, white goods, though computers and laptops are not covered under this perquisite.
What amount gets deducted under section 16?
(a) Standard Deduction
Standard deduction has been abolished from Financial Year 2005 2006
(b) Tax on Employment / Professional Tax
Professional tax or tax on employment levied by the state is allowed as a deduction
How do I account for my loss on House Property?
For Self Occupied property
House that is constructed or acquired after April 1999 by using borrowed capital, interest on such borrowed capital up to an amount of Rs.150, 000 can be claimed as deduction. In case, the house was acquired / constructed prior to April 1999, the amount of deduction is Rs. 30,000
For Let Out property
Rent received for let out property less Interest on borrowed capital plus 30% of the net annual value for repair and maintenance is taken as loss / profit.
For both the above, assessee has to provide a certificate from the lender specifying the interest payable towards the capital borrowed for construction or acquisition of a house. Only interest paid post completion of house is entitled / eligible for deduction and Pre-EMI interest is amortized over a period of 5 years.
Example:
1. Interest payable on housing loan (Loan taken after 01.04.1999): 160,000
2. Pre-EMI paid is Rs. 30,000
3. Annual Value of the property (in case of Let Out Property) Rs. 250,000
4. Rent received (in case of Let Out Property) Rs. 60000/- pa
For Self Occupied property
Interest on housing loan (loan post 1/4/99) is Rs. 160,000
Pre EMI at 20% on Rs. 30,000/- (Amortized over 5 years) is Rs. 6,000/-
Total loss is Rs. 166,000 though maximum allowed is restricted to Rs. 150,000/-
For Let out Property
Interest on borrowed capital is Rs. 160,000/-
Pre EMI at 20% (Amortized over 5 years) is Rs. 6,000/-
30% of annual value (250,000) is 75,000 (for repairs and maintenance)
Total of 241,000 is reduced by Rs. 60,000 (rent received) = 181,000
Total loss eligible for deduction is Rs.181,000
What are the various deductions allowed under Chapter VI A?
Under 80C, an employee is entitled to deductions for the amounts paid or deposited in the current financial year in the following schemes, subject to a limit of Rs.100, 000/-:
Life Insurance Premium
Contributions to recognized Provident Fund / V P F / P P F
Contributions to approved Superannuation Fund
Cumulative Time Deposit A/c with P O
Contribution to U L I P, 1971 of Unit Trust of India
Contribution to U L I P of LIC Mutual Funds
Annuity with Insurance Company
Subscription to Mutual Fund
Subscription to deposit schemes of National Housing Bank
Subscription to NSC & Interest accrued on NSC subscription
Subscription to deposit schemes of a public sector company engaged in providing long-term finance for construction / purchase of houses in India for residential purposes.
Repayment of Housing Loan principal
Infrastructure Bonds
Children Tuition Fees (education)
Term Deposits Scheduled Bank (5 years and more)
Investments of up to Rs.100,000 under erstwhile section 80 CCC
80D Medical Insurance
Deduction up to Rs. 10,000 for general category and Rs. 15000 in case of Senior Citizen
80DD Medical Treatment for Handicapped Dependent
Deduction on medical treatment and maintenance of handicapped dependant up to Rs. 50,000 for disability below 80% and Rs. 75,000 for disability above 80%
80DDB Medical Treatment for Specified Illness/Diseases
Deduction on medical treatment of specified illness/diseases is up to Rs. 40,000 for general category and Rs. 60,000 in case of senior citizen
80E Interest on Education Loan
Repayment of interest paid in the current year on loan taken for higher education is eligible for deduction, if the loan availed was for pursuing employees own higher education. There is no limit on the deduction.
80U Permanent Physical Disability
Assessee certified by the medical authority to be a person with permanent physical disability is allowed a deduction of a sum of Rs. 50,000, and in case the assessee is certified as one with (severe) permanent physical disability, deduction is Rs. 75,000
80L Interest for Securities
Deduction under this section has been removed from financial year 2005-2006
80G Donations
For deduction in respect of donations to certain funds, charitable institutions etc, the employee can claim the deduction while filing individual returns
Regards
shubha
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