Phoenix Auditing

Salary Income for Individuals

Amendments in Budget 2019 –

  •  Individuals having a taxable income upto Rs.5,00,000 will get full rebate of tax as per section 87A
  •  Standard Deduction for a Salaried Employee has been increased from Rs.40,000 to Rs.50,000
  • Capital Gain Exemption available on purchase of two house properties as per section 54 and it can be availed once in lifetime  
  •  TDS threshold for interest on bank and post office deposits has been increased from Rs.10,000 to Rs.40,000 .
  1. Brief about Salary and relevant topics –

1. Basic Salary

  • It forms largest portion of Total Salary
  • In general it will be the fixed Component in your pay slip
  • House Rent Allowance will be on the basis of percentage of Basic Salary
  • Provident Fund will be deducted at 12% of your basic salary

2. Leave Travel Allowance

  • Salaried employee can avail exemption if he travel within India for a short duration
  • This allowance can only be claimed for a trip taken with your spouse, children, and parents, but not with other relatives.
  • This exemption is available only up to actual expenses
  • Assessee has to submit the bill to Employer to avail exemption.

3. Bonus

  • Bonus will be paid to the employee as per the Company Policy
  • Bonus will be paid once or twice in a Year
  • Whatever may be the name it will be 100% taxable

4. House Rent Allowance

  • Salaried Indiviual who lives in a Rented House can avail this exemption

Calculation –

  1. Actual HRA received
  2. 50% of Basic Salary and Dearness Allowances if an Individuals stays in Metro Cities, if in case of non-metro 40%.
  3. Actual Rent received less 10% of Basic Salary.

[Which-ever-lower]

 . Important points –

  1. Assessee can claim both HRA and deduction on Home Loan at same time
  2. If the amount of rent paid is more than Rs. 1 Lakh obtain PAN from Land Lord to get exemption.
  3. Payment of rent to NRI Land Lords assesse need to deduct TDS at 30% beform making payment of rent.
  4. Paying rent and no HRA from employer, still you can claim deduction as per section 80 GG.
  1. You must be either a Self-Occupied / Salaried.
  2. Assessee has not received HRA during the year
  3. Your family and you do not own any Residential house at that Place

Deduction –

  • Rs. 5000 per month
  • 25% of Adjusted Total Income
  • Actual Rent less 10% of Adjusted Total Income

[Which-ever-lower]

Adjusted Total Income – Total Income less Long Term Capital Gain , Short Term Capital Gain as per section 111A and Income as per section 115A or 115D and deductions os sec 80C to 80U ( except deductions as per section 80GG)

  • An individual can claim HRA while living with parents also provided that they has to enter into a Rental Agreement with Parents and transfer money monthly)

5. Employee Contribution to Provident Fund

  • Both employer and employee contribute a 12% equivalent of employee basic salary every month towards employee Pension and Provident Fund.
  • From the FY 2017-18 8.55% interest gets accrued on the amount deposited.
  • This provisions are applicable for companies with more than 20 employees.

 6.Standard Deductions

  • This include deduction of Conveyance allowance and Medical allowance
  • Employee can claim Rs.40,000 as standard deduction from total income there by reducing tax outgo.

7. Professional Tax

  • Professional Tax is the tax levied by State Government
  • Maximum amount of tax that can be levied is Rs.2,500
  • This tax will be deducted by employer and deposited with the State Government
  • Allowed as deduction from Salary Income
  • Tax Rates
  • From the Gross Total Income you have to deduct deductions of Chapter VI A the resulting Income will be Net Total Income on which you have to pay tax.
  • Your tax is calculated as per the slabs mentioned below.

Income Tax Rates for Individual under 60 years of age in FY 2018-19 , FY 2019-20

Tax Slab Tax Rate
Up to Rs 2,50,000 (Basic Exemption Limit) No tax
Rs 2,50,000 – Rs 5,00,000 5%
Rs 5,00,000 – Rs 10,00,000 20%
Rs 10,00,000 and beyond 30%

Basic Exemption limit for senior citizens (age of 60 years or more but up to 80 years)

  • For FY 2018-19 , FY 2019-20 is Rs. 3,00,000

Baisc Exemption limit for super senior citizens (age of 80 years or more)

  • For FY 2018-19 , FY 2019-20 is Rs. 5,00,000

Surcharge

  • At 10% of tax if Net Total Income greater than Rs.50 Lakh but upto Rs.1 Crore
  • At 15% of tax if Net Total Income greater than Rs.1 Crore

Understanding the difference between Take Home Salary and Cost to Company –

  • Cost to Company means
    • Total Salary received by an employee
    • Any Non-monetary benefits such as an office cab service, medical insurance paid for by the company, or free meals at the office, a phone provided to you and bills reimbursed by your company.
    • Provident Fund and Gratuity.

          All the expenses incurred by the employer for employee

  • Take Home Salary means
    1. Gross salary received each month.
    2. Minus allowable exemptions such as HRA, LTA, etc.
    3. Minus income taxes payable (calculated after considering Section 80 deductions).