Computation of "Net Salary" Income

1.2.      WHAT IS ‘NET SALARY INCOME’ ACCORDING TO INCOME-TAX ACT.?

Gross Salary reduced by exemptions u/s 10 and deductions u/s 16, constitute ‘Net Salary Income’ i.e. the income chargeable to tax under the head “Income from Salaries”.

 EXEMPTIONS ... at a Glance
Income-Tax Act provides certain exemptions from the Gross  Income. Some of the popular exemptions provided under the act (subject to eligibility & fulfillment of conditions specified in the    relevant provisions of the act ) are :

SL.NO.

I.T.  Section

Exempted, Allowance, Perks

Amount of Exemption

Categories of Assesses Entitled

 

1

 

10(5)

 

Leave Travel

Actual Amount spent in respect of 2 journeys in a block of 4 calendar years (Current Block is 2006-2009)

 

All Employees

 

2

 

10(10)(i)

 

Retirement/ Death Gratuity

 
Actual Amount

 

Govt. employees

 

3

 

10(10)(ii)

Gratuity Received under Payment of Gratuity Act, 1972

Least of : 15 days salary or 3.5 lakh or Gratuity Received

 

Non-Govt. employees

 

4

 

10(10)(iii)

 

Any other Gratuity

Least of : 15 days average salary or 3.5 lakh or Gratuity Received

 

Non-Govt. employees

 

5

 

10(10A)(i)

 

Commuted Pension

    Full Amount

State/Central Govt. ,Defense & Civil Service Employees

 

6

 

10(10A)(ii)a

Commuted Pension   (where employee is eligible for Gratuity)

33.33% of the Commuted Value of Pension

Employees    excluding as  mentioned at SL.No.5

 

7

10(10A)(ii)b

Commuted Pension   (where employee is Not eligible for Gratuity)

50% of the Commuted Value of Pension

Other Employees not covered at SL.No-5

 

Exemptions mentioned at SL. No. 2 to 7 are allowed once in the life time service of an employee.

8

10(10B)

Any compensation received by a workman under the Industrial Disputes Atc, 1947 at the time of retrenchment.

Compensation as computed in accordance with Sec.25F(b) of Industrial Disputes Act or Rs. 5 Lakhs whichever  ls less.

Individual

9

10 (10C)

Voluntary Retirement Benefits [if Voluntary Retirement Scheme is approved by IT Dept.)

Max. limit Rs. 5 Lakhs.

All Employees

10

10 (13A)

House Rent      Allowance

Under Rule 2A (See HRA)

All Employees

 

11

 

10 (10D)

Maturity Value including Bonus received from Life Insurance Cos. expect **

 

Full Amount

 

Any Assessee

 

 12

 

10 (11)

Amount received from Provident Fund & Public Fund & Public Provident Fund

Full Amount

Individual / H.U.F.

**  Sum received under Key-man Insurance, Jeevan Aadhar, Jeevan Dhara, Jeevan Akshay, New Jeevan Dhara, New Jeevan Akshay Policies & Dhanraksha LIC Mutual Fund, From the F/Y 2003-2004, Premiums exceeding 20% of the S.A., in any year, will not enjoy tax free returns u/s 10(10D) (expect on death).

TOTALLY TAX-FREE

Apart from the exemptions mentioned earlier, the following income are also Tax FREE :


Section

Categories

10(1)
10(2)
10(2A)
10(10AA)
10(16)
10(18)
10(32)
10(34)
10(35)

Agricultural Income
Received from HUF
Partner’s share of profit from partnership firm
Leave Encashment on retirement subject to limits
Scholarship granted to meet the cost of education
Pension/family pension received by the Gratuity awardees
Income of Minor child up to Rs. 1,500 p.a.
Dividend income from a company
Dividend income from a Mutual Fund

 DEDUCTIONS    ... at a Glance

The following deductions are allowed from salary :

       (i)  Professional Tax - Actual paid by the employee.

However Standard Deduction has been abolished.

What are the permissible deductions an assessee can claim under I.T.Act ?


Important  Deductions that can be claimed under Chapter VI A of I.T. Act are :

Section 80 Deduction Table

Section

Deduction on

Allowed Limit (maximum) FY 2018-19

80C

Investment in PPF
– Employee’s share of PF contribution
– NSCs
– Life Insurance Premium payment
– Children’s Tuition Fee
– Principal Repayment of home loan
– Investment in Sukanya Samridhi Account
– ULIPS
– ELSS
– Sum paid to purchase deferred annuity
– Five year deposit scheme
– Senior Citizens savings scheme
– Subscription to notified securities/notified deposits scheme
– Contribution to notified Pension Fund set up by Mutual Fund or UTI.
– Subscription to Home Loan Account scheme of the National Housing Bank
– Subscription to deposit scheme of a public sector or company engaged in providing housing finance
– Contribution to notified annuity Plan of LIC
– Subscription to equity shares/ debentures of an approved eligible issue
– Subscription to notified bonds of NABARD

Rs. 1,50,000

80CCC

For amount deposited in annuity plan of LIC or any other insurer for a pension from a fund referred to in Section 10(23AAB)

-

80CCD(1)

Employee’s contribution to NPS account (maximum up to Rs 1,50,000)

-

80CCD(2)

Employer’s contribution to NPS account

Maximum up to 10% of salary

80CCD(1B)

Additional contribution to NPS

Rs. 50,000

80TTA(1)

Interest Income from Savings account

Maximum up to 10,000

80TTB

Exemption of interest from banks, post office, etc. Applicable only to senior citizens

Maximum up to 50,000

80GG

For rent paid when HRA is not received from employer

Least of :
– Rent paid minus 10% of total income
– Rs. 5000/- per month
– 25% of total income

80E

Interest on education loan

Interest paid for a period of 8 years

80EE

Interest on home loan for first time home owners

Rs 50,000

80CCG

Rajiv Gandhi Equity Scheme for investments in Equities

Lower of
– 50% of amount invested in equity shares; or
– Rs 25,000

80D

Medical Insurance – Self, spouse, children
Medical Insurance – Parents more than 60 years old or (from FY 2015-16) uninsured parents more than 80 years old

– Rs. 25,000
– Rs. 50,000

80DD

Medical treatment for handicapped dependent or payment to specified scheme for maintenance of handicapped dependent
– Disability is 40% or more but less than 80%
– Disability is 80% or more

– Rs. 75,000
– Rs. 1,25,000

80DDB

Medical Expenditure on Self or Dependent Relative for diseases specified in Rule 11DD
– For less than 60 years old
– For more than 60 years old

– Lower of Rs 40,000 or the amount actually paid
– Lower of Rs 1,00,000 or the amount actually paid

80U

Self-suffering from disability :
– An individual suffering from a physical disability (including blindness) or mental retardation.
– An individual suffering from severe disability

– Rs. 75,000
– Rs. 1,25,000

80GGB

Contribution by companies to political parties

Amount contributed (not allowed if paid in cash)

80GGC

Contribution by individuals to political parties

Amount contributed (not allowed if paid in cash)

80RRB

Deductions on Income by way of Royalty of a Patent

Lower of Rs 3,00,000 or income received

 

MORE TOPICS ...
Allowances Under Section-10 & 17(3) under Head 'Salary' Income
Chart Showing Computation of 'Salary' Income
Computation of 'Gross Salary' Income
Computation of 'Net Salary' Income :
Deduction under Chapter VI-A

Retirement Benefits

1.       Major Retirement benefits gets by the Employee

2.       Tax Treatment of ‘Leave Encashment’

3.       Tax Treatment of ‘Gratuity’

4.       Tax Treatment of ‘Pension’
Other Benefits & Facilities gets by the Salaried Employees
Arrear of Salary and relief under section 89(1)
Deduction Under Section 80 C ( How to Find Out)
Exemption Specified in Income Tax Rules in 'Salary' Income
'Perquisies' and 'Income Tax - ( Taxable and Exempted) - Salary :
Computation of 'Profit in Lieu of Salary' (Sec-17(3)
Computation of Income Under Head 'Salaries' under Income Tax
 
 
 
Get.. Tally.ERP9 Book + GST Practical Assignment @ Rs.550 Tally.ERP9 Book Online Order Tally.ERP9 Book Content
 
© 2018 : IncomeTaxManagement