Guide to File Salary and Other Income
My company is deducting tax from my salary, should I file my tax return?
All taxable income is subjected to pay income tax. Submitting the details of income and tax paid together is called filing of return. Under section 194 and 195, tax is to be deducted from certain payments. Salary is such a payment subjected to deduct tax.
In an employer employee relations employer will pay monthly salary to employees after ducting certain amount as tax and remit the same to income tax. This called tax deducted at source. In fact, this becomes only the payment of tax. The responsibility of the employee ends only when he submits the details of income and tax in the prescribed format before the due date. This entire process in total is called filing income tax return.
Normally the employer will give back a Form 16 in return of the tax deducted to know the tax at credit. This is a numbered certificate of tax along with details of salary and allowances given, deductions and exemptions calculated, computation of tax, rebate, relief if any etc. with details of PAN, TAN, and others. Most of the companies are issuing the Form 16 by the end of May every year. Once it is received an employee can easily file your taxes using appropriate forms.
My CTC (Cost to Company) and income tax
Cost to Company (CTC) is total expenses bared by the company for the service of an employee. A sample CTC structure contains the following.
|City Compensatory Allowance||6000|
|EPF Employer contribution||24048|
|Group Insurance premium||1200|
|City Compensatory Allowance||6000|
|Less: Exemption on HRA||60000|
|Less: Less deduction u/s 80C|
|EPF employee contribution||21600|
The conveyance, uniform and helper allowances are fully tax free income. These allowances are supposed to spend fully for the purpose. The EPF employer contribution, gratuity contribution, medical reimbursement, and group insurance premium are other exempted items in the CTC.
My allowances and Tax benefits
Mr. Prakash Kothari is working as a Senior Marketing Executive, in ABC Investments Private Limited. His salary and allowances are as given.
Basic Pay and Dearness Allowances (DA)
No Tax deduction available for basic pay. Basic pay is a measuring base to fix other benefits. Dearness Allowance is a payment usually given for adjusting the inflation and price changes in the market or consumable goods. DA is also taxable.
House Rent Allowance (HRA)
If a person stayed in own house and receives HRA, it is fully taxable. If the employee stays in a rented house in his work place and family stays in his own house or entire family stays in rented house then HRA can be used for tax deduction. The deduction will be given on the basis of the eligibility. The eligibility will be the least of the items given below.
1. HRA received
2. 40% of Salary (Basic+DA)/ 50% in Metro cities
3. Rent paid in excess of 10% of salary (Basic+DA)
Conveyance allowance is usually given to an employee for spending money for commuting from the place of residence to the workplace and back. Since the amount is actually to be spent for travel, it is eligible for exemption. The limit fixed for conveyance expenses was ₹9600 per annum, but from FY 2015-16 it is increased to ₹ 19200. Any excess amount is subject to tax.
Uniform allowance is special allowance under section 10 (14) (i) of Income Tax Act. There is no limit fixed for the allowance. Usually the employee can deduct the entire amount from taxable salary. In principle whatever be the actual amount spent from the uniform allowance is eligible for deduction.
Medical allowance in a regular nature is always taxable allowance. But Medical reimbursement facility is allowed for tax exemption. An employee can claim medical reimbursement up to ₹15000 from 01st April to 31st March every year. The medical expenses are to be claimed against actual bills and it should be submitted to the employer.
Helper allowance is fully exempt from tax, if the amount spends fully for performing his duties. Any helper used for personal purposes and such expenses are not eligible for tax exemption.
City Compensatory Allowance (CCA)
CCA is special allowance given to the employees working in a city or metros. It mainly intends to cop up the extra expenses in the urban places. No tax exemption allowed for CCA, it is fully taxable.
It is fully taxable. This allowance may be given with specific purpose.
Certain Companies are giving extra benefit in accordance with the performance. But it is fully taxable. It will be wise if the performance bonus is given in other planned heads.
Mostly commission is based on the turnover created or based on the targets. The commission element in salary is not eligible for any tax exemption or deduction.
How could I get my Form 16?
It is the responsibility of the employer to give Form 16 of an employee. Once the annual TDS return filed (normally last date is 15th May every year), the employer can give a download request to the TRACES website and it can be downloaded later. The Form can be given in soft or hard form. In addition the employer should prepare the details of the salary, allowances, perquisites etc. with exemptions and deductions in the prescribe form under section 203 of Income tax Act. This form should also be given along with the Form 16 downloaded from TRACES.
Can I file my pension income?
Yes, pension can be of two types, viz. Pension for your own service and family pension. Pension from your own service is coming under the head Salary and Pension and it is just like salary filing. An important thing is to check the taxability of different age group. If you are a senior citizen, the first ₹300000 is fully exempted from tax, else a super senior, it will be ₹500000. While filling the ITR form, the name of employer can be filled with either ‘Name of the treasury from where you draw pension monthly’ or the parent department from where you retired. It is very important to check the 26AS of each pensioner to understand whether the TDS are in the credit and can use the details of the deductor to fill the ITR.
What are the Income Tax rates?
The percentage fixed for charging income tax is called income tax rates. It differs for individuals and others. For individuals three different rates are applicable for normal, senior and super senior citizens. But same rate is fixed for all regardless of the gender status.
|Slab||Percentage||Normal citizens||Senior citizen Above 60, below 80 years||Super senior citizen Above 80 Years|
|2,50,000 - 3,00,000||10%||5,000||NIL||NIL|
|3,00,000 - 5,00,000||10%||20,000||20,000||NIL|
|5,00,000 - 10,00,000||20%||10,000||10,000||10,000|
|Above 10 lakhs||30%||As per the amount||As per the amount||As per the amount|
10% surcharge only if the taxable income is more than 1.00 crore rupees. (refer Marginal Relief)
3% Education cess on total tax and surcharge if any
If the total income is more than 1.00 crore, surcharge of 10% on tax is also to be charged. But the calculated surcharge should not be more than the remaining incremental income after tax. See the example below:
|Tax on Total Income||2,00,000|
|Surcharge at 12%||3,39,360|
|Tax for 1.00 core||28,25,000|
|Increase in Tax (A)||3,42,360|
|Less: Increase in Income (B)||10,000|
|Margin Relief (A-B)||3,32,360|
|Surcharge Applicable (C-D)||7,000|
|12% surcharge (C)||3,39,360|
|Less: Margin Relief (D)||3,39,360|
My spouse Income
Income earned by a person is always liable to pay tax when he is above the taxable limit. The status of spouse is not a reason for taxability. If the income earned by a person from his/her effort and qualification, the taxability is reserved to that person alone.
But when wife or husband draws salary or other income from an institution with substantial interest of the other is being the income of the person who have substantial interest in the firm.
For example, Wife is drawing salary from a company without any professional qualification, where her husband has more than 20% shares. The salary will be clubbed into the income of her husband. Another instance says that if one of spouse transfers an asset in the name of the other and the second one make income, such income is to be clubbed with the first spouse income.
Transfer of asset in the name of son’s wife and generating income is also coming under the concept of clubbing of income.
How is my son's income taxable?
It is based on the age of your son and application of talent and skill. If he is a minor child, definitely the income is to be clubbed together with the income of his parent whose income reports higher. But the income is earned by applying his skill or talent the amount cannot be clubbed with parent’s income. If your son is not minor whatever be the income earned in his name will be taxed in his own name only.
My child with 10 years age earned Rs.250,000 from a stage show by applying his skill, will it be taxable or clubbed to my income?
Since the child earned money by his talent or skill it cannot be clubbed in to the parent’s income. The income is to be taxed in the name of child only. Here the total income is 2.5 lakhs and up to which no tax can be levied and hence your child’s income is completely exempted from tax.
When my son's income clubbed to my income?
If a fixed deposit in the name of your son derives an interest, the amount is earned not because of any skill or talent of your son and hence it is to be clubbed with your income.
When my son earned bank interest from the amount received from a stage show, what will be the tax treatment?
The amount received from the stage show will be treated as your child income and the interest earned from that money is to be clubbed in your income. Basic exemption can be claimed by you and your child. An amount of 1500 can be claimed on the minor’s income while computing your income.
In the midst of the year I have shifted my job to my home town, how could I file my tax?
Definitely you can file your tax in your home town by entering the local Income tax ward details. The CPC will allocate the ITR details to the concerned Income Tax office at your home town. In the mean time you can apply for address change through income tax login.
How can I correct my Form 16?
There are PART A and PART B in a Form 16. The PART A corrections are only made through corrected TDS returns to Traces. The possible corrections are name, PAN, and type of payment. In PART B any change can be made in consultation with the employer. But the total salary should be matched with the figures in Form 16 Part A.
How could I manage my arrear salary income and tax?
Arrear is the pending payment due for the previous period. Normally arrear salary is a usual thing in government departments and public enterprises when they declare new DA or new salary structure. A separate tax treatment is required only when the arrears are from different previous years.
There are different steps to be followed when there is arrear salary in the current year income.
Step1: Calculate the tax for the entire income in the latest year and identify the tax for the years in which arrear due without arrears.
Step2: Separate the income according to the year in which it is due.
Step3: Calculate tax for the latest year excluding arrears and calculate tax for the years in which arrear due including arrears
Step4: Calculate the difference of the total tax as per step1 and Total of tax as per step3
Step5: If it is a positive figure we can claim relief u/s 89
A sample statement is here for more clarity
|Income excluding arrears||100000||100000||100000|
|Surcharge and Cess||150||90||90|
|Income excluding arrears||100000||100000||100000|
|Arrears allocation in the years||0||15000||10000|
|Surcharge and Cess||90||115||112|
|Relief u/s 89||1113|
I have received some shares of my company free of cost, but sold it for profit, how come taxable?
Double taxation is not possible in Income tax. Therefore the surplus amount can be treated as capital gain. If it disposed in the same year it will be short term capital gain. If it is disposed off after an year it is not taxable as capital gain, but the fair market value of the shares at the time of awarding will be treated as perquisites under salary and allowances and it will be treated as taxable income of the year too.
What is Portuguese civil code?
As per section 5, the person governed by the Portuguese civil code from the state of Goa, Dadra Nagar Haveli and Dan Dui, can apportion the entire income made by both the spouses except salary and allowances among the spouse equally and file the returns accordingly.
What is 26AS?
For each assesse there is a login in the Income Tax website. 26As is one of the menus in the login page and which explains the TDS deducted by different parties, details of advance tax paid, details of self-assessment tax paid, details of refund given, etc. in the year
What is the difference between assessment year and financial year?
Both these years start from 01st April and ends up in 31st March. The years in which a person makes income is called Financial year or Previous year. The tax for the income is calculated or assessed in the immediate next year only and which is called Assessment year