Unit – II: Income from Salaries

1. Salaries: Meaning

Definition:

• "Salaries" refers to the compensation or remuneration paid by an employer to an employee for the services rendered. It includes basic pay, allowances, perquisites, and other benefits received by the employee.

2. Salaries: Basic Concepts

• Components:
  • Basic Pay: The fixed component of the salary, usually constituting a significant portion.
  • Allowances: Additional amounts provided for specific purposes.
  • Perquisites: Non-monetary benefits provided by the employer.

3. HRA (House Rent Allowance)

Concept:

• HRA is an allowance provided by employers to employees to meet the cost of renting a home.

Conditions:

• It is applicable if the employee pays rent for a residential accommodation.
• The employee should not own the accommodation for which HRA is claimed.

Exemption Amount:

• The least of the following is exempt:
  • Actual HRA received.
  • 50% of salary (basic + DA) if living in metro cities; 40% for non-metro cities.
  • Rent paid minus 10% of salary.

4. Allowances

Concept:

• Allowances are additional payments made by the employer to meet specific needs of the employee.

Conditions:

• Taxability depends on the nature of the allowance.
• Some allowances are fully taxable, while others may have exemptions or partial exemptions.

Exemption Amount:

• Varies based on the nature of the allowance. For example, Transport Allowance up to Rs. 1,600 per month is exempt.

5. Perquisites

Concept:

• Perquisites, or perks, are non-monetary benefits provided by the employer.

Conditions:

• Taxability depends on the type of perquisite.
• Common perquisites include the use of a company car, accommodation, and free or concessional education.

Exemption Amount:

• The taxable value of perquisites is determined based on prescribed rules for each type.

6. Retirement Benefits

Concept:

• Retirement benefits include payments made to employees upon retirement.

Conditions:

• Common examples are Provident Fund, Gratuity, and Pension.

Exemption Amount:

• The exempted amount varies for each benefit. For example, Gratuity is exempt up to Rs. 20 lakhs.

7. Deductions from Salaries

Concept:

• Certain deductions from the salary are allowed to reduce taxable income.

Conditions:

• Deductions include contributions to Provident Fund, Professional Tax, etc.

Exemption Amount:

• Amount depends on the specific deduction and the rules governing it.

8. Relief in Respect of Salary in Arrears and Advance

Concept:

• Relief is provided for salary received in arrears or advance.

Conditions:

• Relief is available in certain cases where the salary is received in a lump sum for past years.

Exemption Amount:

• Calculated using a specific formula provided by the Income Tax Act.

9. Deduction under Section 80C:

Concept:

• Allows individuals and Hindu Undivided Families (HUFs) to claim deductions for specified investments.

Conditions:

• Investments in instruments like Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), National Savings Certificate (NSC), etc.

Exemption Amount:

• Maximum deduction of Rs. 1.5 lakhs.

10. Deduction under Section 80CCC:

Concept:

• Similar to Section 80C but specifically for contributions to pension plans.

Conditions:

• Investments made in pension plans of insurance companies.

Exemption Amount:

• The combined limit with Section 80C is Rs. 1.5 lakhs.

11. Deduction under Section 80CCD(1):

Concept:

• Deduction for contributions to the National Pension Scheme (NPS).

Conditions:

• Applies to employees and self-employed individuals contributing to NPS.

Exemption Amount:

• Maximum deduction of 10% of salary (for employees) or 20% of gross total income (for self-employed), subject to an overall limit of Rs. 1.5 lakhs.

12. Deduction under Section 80CCD(1B):

Concept:

• Additional deduction for contributions to NPS.

Conditions:

• Individuals can claim this deduction over and above the limit under Section 80CCD(1).

Exemption Amount:

• Maximum deduction of Rs. 50,000.

13. Deduction under Section 80CCD(2):

Concept:

• Deduction for employer's contribution to the employee's NPS account.

Conditions:

• Applicable to employees.

Exemption Amount:

• The deduction is over and above the limits of Sections 80C and 80CCD(1).

14. Deduction under Section 80CCG:

Concept:

• Deduction for investments made under the Rajiv Gandhi Equity Savings Scheme (RGESS).

Conditions:

• Applicable to new retail investors with gross total income below a specified limit.

Exemption Amount:

• Maximum deduction of 50% of the amount invested, subject to a maximum of Rs. 25,000.

15. Deduction under Section 80D:

Concept:

• Deduction for premiums paid on health insurance policies.

Conditions:

• Applicable to individuals and HUFs.

Exemption Amount:

• Maximum deduction varies based on the type of policy (individual, family, senior citizen).

16. Deduction under Section 80DD:

Concept:

• Deduction for expenses incurred on the medical treatment of a disabled dependent.

Conditions:

• Applicable to individuals and HUFs.

Exemption Amount:

• Maximum deduction varies based on the extent of disability.

17. Deduction under Section 80DDB:

Concept:

• Deduction for expenses on medical treatment of specified diseases.

Conditions:

• Applicable to individuals and HUFs.

Exemption Amount:

• Maximum deduction varies based on age and actual expenses incurred.

18. Deduction under Section 80E:

Concept:

• Deduction for interest paid on education loans.

Conditions:

• Applicable to individuals for loans taken for higher education.

Exemption Amount:

• Deduction is available for a maximum of 8 years or until interest is paid in full, whichever is earlier.

19. Deduction under Section 80EE:

Concept:

• Deduction for interest paid on a home loan for first-time homebuyers.

Conditions:

• Applicable to individuals for loans sanctioned between April 1, 2016, and March 31, 2017.

Exemption Amount:

• Maximum deduction of Rs. 50,000.

20. Deduction under Section 80EEA:

Concept:

• Additional deduction for interest paid on a home loan for first-time homebuyers.

Conditions:

• Applicable to individuals for loans sanctioned between April 1, 2019, and March 31, 2020.

Exemption Amount:

• Maximum deduction of Rs. 1.5 lakhs.

21. Deduction under Section 80EEB:

Concept:

• Deduction for interest paid on loans taken to purchase electric vehicles.

Conditions:

• Applicable to individuals.

Exemption Amount:

• Maximum deduction of Rs. 1.5 lakhs.

22. Deduction under Section 80G:

Concept:

• Deduction for donations to specified funds and charitable institutions.

Conditions:

• Applicable to individuals and entities.

Exemption Amount:

• Varies based on the fund or institution; usually, 50% or 100% of the donated amount.

23. Deduction under Section 80GG:

Concept:

• Deduction for rent paid when HRA is not received.

Conditions:

• Applicable to individuals not receiving HRA and not owning a residential house.

Exemption Amount:

• The least of the following: Rent paid minus 10% of total income, 25% of total income, or Rs. 5,000 per month.

24. Deduction under Section 80TTA:

Concept:

• Deduction for interest earned on savings accounts.

Conditions:

• Applicable to individuals and HUFs.

Exemption Amount:

• Maximum deduction of Rs. 10,000.

25. Deduction under Section 80U:

Concept:

• Deduction for individuals with a disability.

Conditions:

• Applicable to individuals with a disability certified by a medical authority.

Exemption Amount:

• The deduction amount varies based on the extent of disability.

26. Deduction under Section 87A:

Concept:

• Rebate for individuals with lower income.

Conditions:

• Applicable to individuals with total income below a specified limit.

Exemption Amount:

• The maximum rebate is Rs. 12,500 or the amount of tax payable, whichever is lower.

27. Deduction under Section 87A

Concept:

• This section provides a rebate to individuals with a lower income.

Conditions:

• Available to individuals with total income below a specified limit.

Exemption Amount:

• The maximum rebate is Rs. 12,500 or the amount of tax payable, whichever is lower.

28. Computation of Income from Salaries

Concept:

• Calculation of taxable income from salary involves adding various components and making deductions.

Conditions:

• Income is calculated based on the components of salary, allowances, perquisites, deductions, etc.

Exemption Amount:

• The final taxable income is calculated after considering exemptions, deductions, and applicable tax rates.