INCOME TAX

ACT, 1961
Tax implication on Salary
Income
Presented by:

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Income-tax Act
The levy of income-tax in India is governed by the Income-tax Act,
1961. We shall briefly refer to this as the Act.

This Act came into force on 1st April, 1962.

The Act contains 298 sections.

These undergo change every year with additions and deletions

brought about by the Finance Act passed by Parliament.

In pursuance of the power given by the Income-tax Act, rules have

been framed to facilitate proper administration of the Income-tax Act .
Income-tax Rules

The administration of direct taxes is looked after by the Central Board

of Direct Taxes (CBDT).

The CBDT is empowered to make rules for carrying out the purposes
of the Act.

For the proper administration of the Income-tax Act, the CBDT frames
rules from time to time. These rules are collectively called Income-tax
Rules, 1962. It is important to keep in mind that along with the
Income-tax Act, these rules should also be studied .
LEVY OF INCOME-TAX

Income-taxis a tax levied on the total income of

the previous year of every person. A person
includes
An individual,
Hindu Undivided Family (HUF),
Association of Persons (AOP),
Body of Individuals (BOI),
A firm,
A company etc.
 Salary
Salary is a periodical payment for Services rendered by an
employee to an employer. However under sec.17(1) of the Income
Tax Act, following items are also included :

1. Wages
2. Any Gratuity
3. Any Fees, commission, perquisites or profits in lieu of or in
addition to any salary or wages.
4. Any advance for Salary.
5. Any payment received by an employee while in service in
respect of any period of leave not availed of by him. ( i.e. leave
encashment)

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Other items included under Salary
Allowance :
It is an additional payment over & above the basic Salary for meting
the high cost of living.

Bonus :
It is a payment made under a service agreement between the
employer & employee, which may be in the form of Diwali Bonus,
Performance Bonus etc.

Commission / Incentive :
If an employee is appointed on a fixed monthly salary plus
commission as a percentage of revenue or sales then the said
commission shall also be included in his Salary.

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Exemptions under Sec.10(14)
Nature of Allowance Extent to which Exempt

1. Conveyance Allowance Rs.800/- per month

2. Children Education Rs.100/- per month per child

Allowance upto max. of 2 children

3. Allowance to meet Rs.300/- per month per child

the hostel expenditure of the upto max. of 2 children
child

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 Exemption towards reimbursement of
Medical expenses

The reimbursement by employer of actual expenditure incurred by an

employee for Medical treatment of himself or any of his family
members is exempt subject to a maximum ceiling of Rs.15000/-p.a.

Family in relation to an employee means :

The Spouse and children of the employee

Parents, brothers and sisters of the employee who are wholly or

mainly dependent on him

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 Exemption towards House rent
Allowance

An employee is entitled to claim the exemption towards

HRA U/s.10(13A) when all the following conditions are fulfilled:

1. The allowance from the employer must be specific to meet

expenditure on payment of rent.

2. The residential accommodation occupied by the employee is not

owned by him.

3. The actual payment of rent should exceed 10% of his salary.

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Exemption towards House rent
Allowance (contd...)

If all these conditions are satisfied then HRA is exempt subject to

least of the following:

Actual HRA received

Rent paid in excess of 10% of Salary
40% of Salary

For the purpose of this section Salary means Basic + D.A

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Exemption towards Leave Travel
concession
Leave travel concession / allowance received by an employee for
himself and his family in connection with his proceeding on leave to
any place in India is exempt U/s.10(5) subject to the following
conditions framed under Rule 2B:

Where the journey is performed by Air an amount not exceeding the

economy air fare of the National carrier and where the journey is
performed by Rail or any other mode of transport an amount not
exceeding the First Class A.C rail fare by the shortest route to the
place of destination.
The said exemption is available in respect of two journeys performed
in a block of 4 calendar years.
It is important to understand that the LTA is exempted only towards
the expenses incurred for the mode of transport and excluding hotel,
food, entertainment expenses etc.

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 Deductions available from Salary
(Way to save your TAX )
After computing the net salary as mentioned in the previous provisions
an individual is entitled to claim deductions under various other sections
of the Income Tax Act, which are mentioned here under:

1. Deduction U/s.80C:
Amount invested in specified savings like Life Insurance Premium, PF,
PPF, NSC, ELSS Mutual Fund & Housing Loan principal repayment.

2. Deduction U/s.80CCC:
Contribution towards pension plans subject to a maximum payment of
Rs.10000/- It may however be noted that the overall ceiling for
investment U/s.80C & 80CCC is restricted to Rs.1.00 Lac p.a.

3. Deduction U/s.80D:
Medical insurance premium paid for the health of the individual and
spouse or dependent parents or dependent children subject to a
maximum of Rs.10000/-p.a.
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Sachin Gujar, C.A
Deductions available from
Salary (Way to save your TAX ) contd

4. Deduction U/s.80DD:
Expenditure incurred for maintenance and medical treatment of
a dependent who is a person with disability subject to deduction
of Rs.50000/- p.a. or Rs.75000/-p.a. if such person has severe
disability as mentioned in the provision.

5. Deduction U/s.80E:
Expenditure incurred on interest on loan (and not repayment of
principal amount) taken from any financial institution for the
purpose of higher education.100% of interest repayment is
allowed as a deduction for 8 successive years beginning from
the year in which the repayment starts.

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Deductions available from
Salary (Way to save your TAX ) contd
6. Deduction U/s.80G:
Donations to approved funds, Institutions & Trusts qualify for 50% or
100% deduction as applicable, U/s.80G.
It may however be noted that the total deduction U/s.80G should not
exceed 10% of gross total income.

7. Deduction U/s.80GG:
Where a individual is not entitled to HRA and who is paying rent in
excess of 10% of his total income and who files a declaration in form
no.10BA is eligible for deduction under this section subject to the
following conditions:-
a. The Assessee does not own any other residential accommodation at
the place / city where he performs his duties for employment and
b. Subject to max. of 25% of total income or Rs.2000/- per month
whichever is less

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Deduction for Housing Loan Repayment

One of the important deduction available under the

Income Tax Act is repayment of your housing loan.

The Interest component is exempt with a upper

limit of Rs.1.50 Lacs p.a. U/s.24

The principal component is deductible with a

upper limit of Rs.1.00 Lac p.a. (together with
other specified savings) U/s.80C

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Due Date For Filing your Tax Return

The Due date for filing your Tax Return is 31st July

Non Filing of your Return in time can attract Interest /

Penalty

You have to file your Tax Return in Form No.2D ( Saral ).

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 Thank You..!!!

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