Income Tax Taxation

Salaried? You need to file Income Tax Return!

Tax on Salaried

In the article, we will discuss chargeability of tax on a salaried person by the Indian Government and various other things related to income tax.

What is Salary and what does it Generally Include?

The money which you earn from different kind of sources is taxed differently. So in case you are a salary earner, your salary income to be taxed will be calculated in a different way. The term “Salaries” includes remuneration in any kind of form for personal service, under an orally expressed or implied contract of employment or service. Section 17 of the Income Tax Act[1] defines salary to include:-

  • Wages,
  • Pensions or Annuities,
  • Gratuities,
  • The advance of Salary,
  • Any kind of cess, commission, perquisites or profits in addition to salary or wages,
  • Any encashment of leave salary,
  • Any kind of amount credited to the provident fund of the employee to the extent it is taxable.

Therefore “salary” includes basic salary, encashment of leave salary, advance salary, arrears of salary, various allowances such as dearness allowance, house rent allowance, conveyance allowance, etc. and also includes perquisites by way of free accommodation, free vehicle, free schooling for children of employees, etc.

Trying to understand Salary?

When you as a beginner start your job, try to reach out to your payroll or Human Resource (HR) department and get your Salary details or Pay Slip / Salary Slip. Through the mentioned, you will get a major idea of the important components of your salary and how much amount of tax will be deducted from your salary based on them.

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How taxable Income is Calculated on your Salary?

The Tax rate for Individuals Who are Under 60 Years of Age:

 Net IncomeIncome Tax Rate
Up to Rs. 2.5 lakhsNil
Rs. 2.5 lakhs to Rs. 5 lakhs5%
Rs. 5 lakhs to Rs. 10 lakhs20%
Above Rs. 10 lakhs30%

The Tax rate For individuals who are between 60 to 80 years of age:

Net IncomeIncome Tax Rate
Up to Rs. 3 lakhsNil
Rs. 3 lakhs to Rs. 5 lakhs5%
Rs. 5 lakhs to Rs. 10 lakhs20%
Above Rs. 10 lakhs30%

The Tax rate For the individuals who are above 80 years of age:

Net IncomeIncome Tax Rate
Up to Rs. 5 lakhsNil
Rs. 5 lakhs to Rs. 10 lakhs20%
Above  Rs. 10 lakhs30%

Similar Read: Income Tax Refund for Salaried – A Comprehensive Guide.

What are the Essential Conditions for Income to be Treated as Salary Income?

The following are the most essential conditions for income to be treated as salary income:-

  • There must be a relation of employer and employee between the income payer and income receiver
  • Salary may be from more than one employer.
  • Salary may be received from not just the present employer but also a prospective employer and in some cases even from a former employer for example pension received from a former employer.
  • Salary income must be real and not fictitious there must an intention to pay and receive a salary.
  • Foregoing of salary i.e. if an employee surrenders his salary or part of a salary to the central government, then the salary so surrendered will not be and shall not treat as taxable income of the employee.
  • Salary paid tax-free – Tax-free salary means the salary on which income tax is borne not by the employee but by the employer. However, Tax-free salary is also completely taxable in the hands of the employee.
  • Salary is taxable in the year of receipt or in the year of earning of the salary income, whichever is earlier. If it has been first earned but not yet have been received then it will be taxable in the year of earning. Salary income can be taxable only in the hands of individuals. No other kind of person like, a firm or HUF, companies can earn the salary income, etc.
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Income Tax is the amount of money you are liable to pay in the form of tax to the government which depends on the tax slab you fall under depending on your income. In order to calculate the exact amount of your tax, compute your exact taxable income.  After which final tax payable is calculated by applying the applicable tax rates which are in force and after that deducting the taxes which are already paid in the form of TCS/TDS or advance tax from the tax due amount.

Caution: Salaried Individuals, take care of this:

  • Many people are under the impression that as full tax has already been deducted from their salary, they are not required to file their income tax returns. This is not the case as the discharge of tax liability and the liability to file your income tax return are two different concepts and distinct liabilities and you need to discharge both the liabilities.
  • Even if the full tax has been deducted from your income or even in some cases where you do not have taxable income and thus do not have any tax liability, you are still required to file the income tax return to be on the right side or justify the law.

How Salaried Class people can Save Tax?

Salaried individuals are one of the classes of people that pay maximum taxes in our country. This often leads to disappointment among salaried individuals. Of course, no one could be happy knowing that almost half of their hard-earned money has been deducted in the form of taxes? But after following the right tax planning[2] strategies, it is possible to save your income from tax liabilities. Following are the few ways which can help you save taxes as a salaried individual.

  • Through restructuring your salary: We often spend money from our own account on those expenses which are actually employer’s or company’s requirement. For example, if you wear a uniform for your job’s sake or talk to a client with your own mobile phone. Such kind of expenses should be covered by your employer. Ask for the restructuring your salary, if you are paying for the following expenses. The following allowances can help you to save tax:
    • Conveyance
    • Newspaper, Books, and Magazine
    • Medical Treatment
    • Uniform
    • Telephone and Mobile
    • Office Entertainment
  • Try to Make use of section 80C: Under section 80C, you are allowed to avail a maximum tax deduction of Rs 1 lakh by investing in any of the following options:
    • ELSS(Equity linked saving scheme)
    • Public provident fund
    • Life insurance policy
    • Fixed deposits
    • National saving certificates.
  • Save tax on rent payment: You might be working outside your hometown and do not have company Expenses on payment of rent should be deducted from your taxable income. House rent allowances include 25 % of the total income. However, the deduction will not be allowed in case you own a residential house in that particular location.
  • Reimburse all the travel and medical expenses: Personal expenses like travel and medical are also tax-deductible. Though, you would be required to provide proper receipts and bills to claim the deduction. However, Deduction, under this category, is limited only up to Rs 15,000.
  • Saving tax from home loans: As a salaried individual, you will always first consider home loan option before thinking of buying a house. In such a case, you should not forget to take into account all the tax deductions which are applicable to both principal payments as well as an interest Section 80C allows a deduction up to Rs 1 Lakh on the principal component of your home loan.
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Apart from considering all the above tax saving options, consult Enterslice, which has a team of professional tax planner to guide you and file your income tax returns before the due date.

Also, Read: All About Salary Income, Perquisites, and Allowances under the Income Tax Act.

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