Guide to .. Tax Management ,Tax Planning and Tax Saving

 

 

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) Agricultural Income
10(2) Received from HUF
10(2A) Partner’s share of profit from partnership firm
10(10AA) Leave Encashment on retirement subject to limits
10(16) Scholarship granted to meet the cost of education
10(18) Pension/family pension received by the Gratuity awardees
10(32) Income of Minor child up to Rs. 1,500 p.a.
10(34) Dividend income from a company
10(35) 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

DEDUCTION UNDER CHAPTER VI-A IN RESPECT OF 'PAYMENTS'
Section Nature of Payment Who can Claim
80C LIfe Insurance Premia, Provident Fund Contribution (Maximum : Rs. 1,50,000) Individuals
80CCC Pension Fund [ Maximum : Rs. 1,50,000 Individuals
80CCD(1) Deduction available in respect of Employee’s / Assessee’s Contribution to National Pension Scheme (NPS) [Section 80CCD(1)] Individuals
80CCD(1B) Additional Deduction of Rs. 50,000 is available in respect of Employee’s / Assessee’s Contribution to National Pension Scheme (NPS) [Section 80CCD(1B)] Individuals
80CCD(2) Deduction available in respect of Eemployer’s Contribution to National Pension Scheme (NPS) [Section 80CCD(2)] Employees
80D Deduction in respect of Health or Medical Insurance Premium Individual/HUF
80DD Deduction in respect of Maintenance Including Medical Treatment of a Dependent who is a Person with Disability Resident Individual/ Resident HUF
80DDB Deduction in respect of Medical Treatment , etc. Resident Individual/ Resident HUF
80E Payment of interest of Loan taken for higher studies Individual
80EE Deduction in respect of Interest on Loan taken for Residential House Property Individual
80G Deduction in respect of Donations to certain Funds, Charitable Institutions , etc. [Section 80G ] All Assessee
80GG Deduction in respect of Rents Paid [Section 80GG] Individual
80GGA Deduction in respect of certain Donations for Scientfic Research or Rural Development [Section 80GGA] All assessees not having any income chargeable under the head 'Profits and gains of business or profession'
80GGB/GGC Contribution to Political Parties  
DEDUCTION UNDER CHAPTER VI-A IN RESPECT OF 'CERTAIN INCOMES'
80-IA

Deduction in respect of Profit and Gains from Industrial Undertaking or Enterprises engaged in infrastructure Development [Section 80IA]

All Assessee
80-IAB

Deduction in respect of profits and gains by an undertaking or an enterprise engaged in development of Special Economic Zone (SEZ)

Developers
80-IAC Special Provision in respect of Eligible Business of Eligible Start Up [Section 80-IAC] [W.e.f. A.Y. 2017-18] Companies / LLPs
80-IB Deduction in respect of Profit & Gain from certain Industrial Undertaking other than Infrastructure Development Undertaking [Section 80-IB] All Assessee
80-IBA Deduction in respect of Profits and Gains from Housing Projects [Section 80-IBA] All Assessee
80-IC Deduction in respect of Profits and Gains of Certain Undertaking or Enterprises in certain Special Category States. [Section 80-IC] All Assessee
80-ID Deduction in respect of Profits and Gains from Business of Hotels and Convention center in NCR All Assessee
80-IE

Deduction in respect of certain undertaking in North-Eastern States

All Assessee
80-JJA

Deduction In Respect Of Profit And Gains From Business Of Collecting And Processing Of Bio-Degradable Waste

All Assessee
80-JJAA

Deduction In Respect Of Employment Of New Employees [Section 80-JJAA] w.e.f. A.Y. 2017-18

All Assessee
80LA

Deduction in respect of certain incomes of Offshore Banking Units and International Financial Services Centre

Scheduled Banks
80P

Deduction in respect of income of Co-operative Societies

Co-operatives Societies
80PA

Deduction in respect of income of Farm Producer Companies [W.e.f. A.Y. 2019-20]

Producers Companies
80QQB

Deduction in respect of royalty income, etc., of authors of certain books other than text books [ Maximum Rs. 3,00,000]

Resident Individuals
80RRB

Deduction in respect of royalty on patents [ Maximum Rs. 3,00,000]

Resident Individuals
80TTA

Deduction in respect of interest on deposits in savings accounts to the maximum extent of Rs. 10,000

Individuals / HUF
80TTB

Senior citizen to be allowed a deduction of Rs. 50,000 on account of interest on deposits with Banks / co-operative bank / post office.

[W.e.f. A.Y. 2019-20]

Senior Citizens
80U

Deduction in case of a person with disability [ Maximum : Rs.1,25,000]

Resident Individuals

 

 Important Links....for calculating Salary Income

(A). Salary -Definition & Meaning
(B). Provident Fund
(C). Allowance
(D). Perquisites
(E). Profit in lieu of Salaly
(F). Retirement Benefits
(G). Deductions
(H). Table Presentation of Salary Income (Section 15 to 17)


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