Salary
Salary is the remuneration received by or accruing to an individual,periodically,
for service rendered as a result of an express or implied contract. The actual
receipt of salary in the previous year is not material as far as its tax ability is concerned.
The existence of employer-employee relationship is sine-qua-non for taxing a particular
receipt under the head 'salaries'. Accordingly:
A. The Pension received by an assesses from his former employer is taxable is 'Salaries'
whereas pension received on death of an employee by members of his/her family as Family
pension is taxed as 'Income from other Sources'.
B.The Salary received by a partner from his partnership firm carrying on a business is not chargeable
as 'Salaries' but as 'Profit & Gains from Business &
Profession'.
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Salaries includes:
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Wages
Annuity or Pension
Gratuity
Fees,commission,perquisites or profits in lieu of salary
Advance of Salary
Receipt from provident Fund
Contribution of employer to a Recognized Provident Fund in excess of the prescribed limit
Leave Encashment
Compensation as a result of variation in Service contract etc.
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Deductions From Salary:
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The income chargeable under the head Salaries shall be computed after making the following deductions:
1. A deduction in respect of any allowance in the nature of an entertainment allowance specifically
granted by an employer to the assesses who is in receipt of salary from the Government, a sum equal to
one-fifth of his salary (exclusive of any allowance,benefit or other perquisite)or five thousand
rupees, whichever is less;
2. A deduction of any sum paid by the assesse on account of a tax on employment within the meaning of
clause (2) of article 276 of the Constitution, enviable by or under any Law.
There are many options are available to save TAXES however, SALARIED peoples pays huge taxes
due to lack of awareness of about different types of incentives, allowances and rebates available to save
TAX under the Income Tax Act. However, Apart from section 80C deductions there re various other sections
which can help salaried individual to save taxes are as under:
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A. Salary Restructuring:
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To save TAX on your SALARY, you should first know your salary structure.
HR Department of various organizations creates employees salary structure in such a way
that will attract minimum TAX hence, your salary structure will be as follows:
1.Basic Salary:
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Fully Taxable, thus basic salary should be minimum.
2.Dearence Allowances (DA):
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Fully Taxable,thus DA should be minimum
3.Tiffin/Food coupons:
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SODEX coupon or Ticket Restaurant coupon are given by companies to their employees as part
of their salary which are 100% exempted from TAX.
4.Allowances:
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Allowances such as medical allowance, transport allowance, conveyance allowance, education allowance,
uniform allowances and telephone expenses could be structured as your part of salary.
You can provide bills of actual expenses incurred for these allowances to reduce tax.
a)Medical allowance is exempted to Rs.15000/- or actual medical bills whichever is less.
b) Travel allowance (from your residence to office) upto Rs 800/- per month is exempted however Rs.1600/-.
is exempted to handicapped or orthographically assessee.
c) Conveyance allowance (from office to office) is 100% exempted from tax irrespective to the amount received.
d)Education allowance is exempt to the extend of Rs.100 per month per child for maximum of 2 Children
(grand children are not considered).
e)Hostel allowance is exempt to the exempt of Rs.300 per month per child for maximum of 2 children.
f) Feild areas allowance is exempted to Rs. 1,300/- per month.
g) Underground allowance (coal mine worker etc.) of Rs. 800/- per month
5. HRA:
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if HRA forms part of your salary, then the minimum of the following three will be exempted:
1.Actual HRA Received
2.(50% for Metro city) or 40% of Basic + DA Excess of Rent paid above 10% of Basics +DA
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B.SECTION 80C:
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Section 80C offers maximum deduction of Rs.1,50,000/-
DEDUCTION is available to:
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1)An Individuals and
2)Hindu Undivided Family
INVESTMENT/PAYMENTS ELIGIBLE FOR DEDUCTION are as under:
1. Life Insurance Premium:
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Life Insurance Premium paid for insuring life of Individual,his spouse(either husband or wife)
and children. In case of HUF premium paid for insuring life of member of HUF. However,
Amount of premium paid cannot exceed 20% of Capital sum assured.
2. Public Provident Fund:
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Public Provident Fund also Known as Recognised Provident Fund. In Case of which only Employee
contribution is eligible for deduction and not the amount contributed by employer.
3.Post Office Cumulative Time deposits:
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Deposits in 10 years and 15 years account under Post Office Saving Bank (CTD) Rules 1959.
4.National Savings Scheme:
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Amount invested in NSS.
5.National Saving Certificate:
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Amount invested in NSS VIII issue is eligible for deduction in the year of investment.
Interest accrued on such NSS can be claimed as deduction since it is invested for the first 4 years
(form current Previous Year). 5th year interest cannot claimed as deduction because it will not be
reinvested. NSC interest for Ist four year will be taxable as other source income.
6. United Linked Insurance Plan (ULIP):
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contribution make by as Individual in respect of the unit-linked insurance plan of Unit Trust of India
7.Dhanaraksha:
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contribition by Individual or HUF in Respect of Unit Linked Insurance Plan of LIC of India.
8.Jeevan Dhara/Jeevan Akshay:
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Contribution towards Jeevan Dhara and Jeevan Akshay plans Launched by LIC of India.
National Housing Bank Loan:
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Any sum paid as subscription to Home loan Account Scheme of the National Housing Bank.
10.New House:
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Payment made towards cost of Purchase or construction of New Residential House Property.
Repayment of the Amount borrowed (Loan) from Government. Nationalised or Private Bank,LIC,NHB etc.
is eligible for deduction. Stamp Duty, Registration Fee or other expenses for the purpose of transfer
of such house property to the assessee.
Following Deduction Allowed:
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An Admission fees, Cost of Shares and initial deposits etc. paid by member of co-operative society
for become a member of society. The cost of any addition,alteration,renovation or repair of the House property
carried out after completion of House property.
11. Tuition Fees:
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Tuition Fees paid by an individual are only eligible for deduction. It does not include development fees or donation.
It is paid to a university,school or other educational institution situated in India.
Tuition fees paid for any two children of the tax payer will be eligible.
12.Bank Fixed Deposit:
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Term deposit for 5 Years or more with a Schedule Bank in accordance with prescribed scheme by an individual or HUF.
13.NABARD Bonds:
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Amount invested in notified bonds of NABARD.
14.Infrastructure Bonds:
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Amount Invested in Debentures,Equity Shares or units of a public company engaged in infrastructure or power or
telecommunication sector.
******************PLEASE NOTE*************
AMOUNT OF DEDUCTION would be:
Amount invested of payment made would be allowed s deduction u/s 80C is equal to 100% of the qualifying amount or Rs.1,50,000
whichever is less. However , the maximum amount deductible under section 80C, 80CCC, 80CCD cannot exceed Rs. 1,50,000
as laid down under section 80CCE. In view of the same, consequential amendments are proposed
in sections 80CCE and 80CCD of the Act. w.e.f. 1st April,2015
Extension of tax benefits under section 80CCD to private sector employees.
it is proposed to amend the provision of section 80CCD to provide that the condition of the date of joining the service
on or after 1.1.2004 is not applicable to them for the purposed of deduction under the said section. w.e.f. 1 st April, 2015.
*****************PLEASE NOTE*********************
WHEN DEDUCTION IS DISALLOWED OR WITHDRAWN
The deduction will be disallowed or withdrawn in following Cases:
1.If a ULIP (united linked insurance plan Dhanraksha ) is terminated before five years
2.If Insurance Policy is discontinued before premium for 2 years has been paid or a single premium policy is surrendered
within two years from the date of its commencement.
3.If assessee transfers a house property before the expiry of 5 years from the date of possession of house property.
4.If assessee transfers infrastructural debentures/shares/units before the expiry of 3 years from the date of their acquisition.
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C.OTHER SECTIONS:
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a) Section 80D -Deduction of Rs. 15,000 for medical insurance of self,spouse and dependent children and
Rs.20,000 for medical insurance of parents above 65 years.
b)Section 80G - Donations to specified funds or charitable institutions.
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D. House Rent Allowance:
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If you are paying rent but not receiving any HRA from your company still you can claim HRA under section 80GG
which is the lowest of the following three options stated under:
1. 25% of Basics + DA
2. Rs.2,000/- per month
3. Excess of rent paid above 10% Basics + DA.
**********PLEASE NOTE***************
This deduction will not be allowed, if you or your spouse or minor child owns a residential accommodation
in the location where you reside or perform office duties.
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