Income Tax is levied on a person who was in India for 182 days during the previous tax year or the person who was in India for at least 60 days during the previous tax year and for at least 365 days during the preceding 4 years will be taxed.
Note: Please note that no changes were made to the tax slabs in the Interim Budget presented by the Finance Minister on February 1, 2024.
If you earn and draw a salary then a portion of it is going to be taxable. Depending on your annual income and the tax regime selected by you, you can calculate the amount taxable.
It is essential to gather all the details required to file your Income Tax Returns before computing your taxable income on salary. You will then have to calculate your total taxable income, followed by the calculation of final tax refundable or payable.
Components of Salary
- Wages
- Annuity
- Pension
- Gratuity
- Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages
- Advance of Salary
- Leave Encashment
- Bonus
- Salary in lieu of Notice Period
- Fee and Commission
- Overtime Payments
Wages- Wages are similar to salaries. A wage is considered a monetary compensation paid by an employer to an employee in exchange for work done. Hence, wages are treated just like salary and are taxable on the same basis of salary.
Annuity- An Annuity is an annual grant provided by the employer that gets categorized under the head of salaries. This is a voluntary payment made by the employer on a contractual basis. The annuity is treated as follows:
- When the present employer pays the annuity, it is taxable as salary.
- If it is received from a former employer, it is taxed as profits instead of salary.
- If an annuity is granted by an insurance company, it is then considered as “Income from Other Sources”
Pension- A pension is a payment made by the employer after the retirement/death of the employee as a reward for the past service. The payment of pension is done on a periodical basis or even as a lump, based on the agreement between the employer and the employee. This process is called ‘Commutation of Pension’. There are two different categories under which the pensions are treated. They are:
Un-Commuted Pension- This is otherwise known as ‘periodical pension’ and it is fully taxable in the hands of the employees irrespective of the source – Governmental or Non-Governmental.
Commuted Pension- In the case of government employees, employees of local authority and employees of corporations it is fully tax-exempt.
Bonus- A bonus is defined as, “A sum of money added to a person’s wages as a reward for good performance”. Bonus is taxable based on the following:
- The bonus is taxable on receipt basis.
- It will be included in the gross salary in the year the bonus was received.
Salary in Lieu of Notice Period- The notice period is the time period between the receipt of the letter of dismissal and the end of the last working day. This time period has to be given to an employee by their employer before their employment ends. This salary is completely taxable.
Fee and Commission- A fee is a payment made to a professional person or to a professional or public body in exchange for advice or services. The commission is the payment of commission as remuneration for services rendered or products sold is a common way to reward salespeople.
- All fee and commission payable to an employee are fully taxable.
- It will be included in gross salary.
- Irrespective of the fixed amount or a fixed percentage, a commission is fully taxable.
Overtime Payment- This payment is given to the employee as a reward for working extra time in the office beyond the stipulated time. Any payment made as ‘overtime payment’ is completely taxable in the hands of the employee. This is also included in the gross salary.
The procedure for the calculation of taxable income on salary
- Calculate Gross Salary
- Add up all the salary components, along with Form 16 for the previous fiscal year and add every emolument.
- Deduct Non-taxable Portion of Allowances
- Subtract the non-taxable portion of partially taxable allowances, such as HRA and LTA. For HRA, use the formula provided by the Income Tax Department to determine the exemption amount.
- Deduct Professional Tax and Standard Deduction
- Subtract the professional tax and the standard deduction from your salary. The standard deduction for salaried individuals is Rs. 52,500.
- Include other Income
- If you have any other sources of income, such as interest, fees, commission, rental income, or capital gains, add them to the total amount.
- Calculate Gross Total Income
- The sum arrived at after step 4 is known as the gross total income.
- Deduct Tax Deductions
- From the gross total income, deduct the eligible tax deductions, such as investments under Section 80C, 80D, etc.
- Calculate Net Taxable Income
- The result after step 6 is your net taxable income. This is the amount on which you will be liable to pay income tax.
FAQs
Is pension a part of the salary?
Pension is included in your salary. Under the contract of employment pension is covered up and is taxed under the heading of salary. But if the pension is paid out of any insurance product then it is placed under the heading of income from other sources.
What does the term perquisites mean and what is the process of taxation?
Perquisites are the benefits given to you by your organisation beside your basic pay as a part of your job position. This amount is given beside the salary amount for example vehicle for your commute, accommodation which is rent free etc. Depending on the nature of the perquisites it is decided whether to tax it or not. Rule 3 of the Income tax defines the valuation of perquisites.
Practice area's of B K Goyal & Co LLP
Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice | Psara License | FCRA Online
Company Registration Services in major cities of India
Company Registration in Jaipur | Company Registration in Delhi | Company Registration in Pune | Company Registration in Hyderabad | Company Registration in Bangalore | Company Registration in Chennai | Company Registration in Kolkata | Company Registration in Mumbai | Company Registration in India | Company Registration in Gurgaon | Company Registration in Noida | Company Registration in lucknow
Complete CA Services
RERA Services
Most read resources
tnreginet |rajssp | jharsewa | picme | pmkisan | webland | bonafide certificate | rent agreement format | tax audit applicability | 7/12 online maharasthra | kerala psc registration | antyodaya saral portal | appointment letter format | 115bac | section 41 of income tax act | GST Search Taxpayer | 194h | section 185 of companies act 2013 | caro 2020 | Challan 280 | itr intimation password | internal audit applicability | preliminiary expenses | mAadhar | e shram card | 194r | ec tamilnadu | 194a of income tax act | 80ddb | aaple sarkar portal | epf activation | scrap business | brsr | section 135 of companies act 2013 | depreciation on computer | section 186 of companies act 2013 | 80ttb | section 115bab | section 115ba | section 148 of income tax act | 80dd | 44ae of Income tax act | west bengal land registration | 194o of income tax act | 270a of income tax act | 80ccc | traces portal | 92e of income tax act | 142(1) of Income Tax Act | 80c of Income Tax Act | Directorate general of GST Intelligence | form 16 | section 164 of companies act | section 194a | section 138 of companies act 2013 | section 133 of companies act 2013 | rtps | patta chitta