Computation of Income from Salary

Description

Chapter 1
Introduction
Brief History of taxation of Income from Salary…………………………………………………..1
1. Manu Smriti (ancient legal text) ………………………………………………………………1
2. Mauryan Empire (322 to 185BC)………………………………………………………………1
3. The Indian Income Tax Act of 1860 ………………………………………………………….1
4. Indian Income Tax Act of 1886…………………………………………………………………2
5. Indian Income Tax Act, 1922 [Section 6]……………………………………………………2
6. Income Tax Act, 1961 [Section 14]…………………………………………………………….2
Income from Salary……………………………………………………………………………………..2
Due date of Salary……………………………………………………………………………………….3
Calculation period……………………………………………………………………………………….4
Salary due or received in foreign currency…………………………………………………..4
Number of Salary taxpayers ……………………………………………………………………….4
Sections dealing with “Salary”…………………………………………………………………….4
Chapter 2
Essential Characteristics of Salary
[1] Existence of employer-employee relationship is the sine-qua-non
(an essential condition) for taxing a particular receipt under the head
“Salaries”. …………………………………………………………………………………………………..6
Definition of ‘Employer’ ……………………………………………………………………………..6
Full-time or part-time employment does not matter……………………………………6
[2] Relationship between payer and payee……………………………………………………….7
[3] Master and servant relations vis-à-vis principal and agent………………………….7
[4] Rendering of service…………………………………………………………………………………….8
[5] Name not important…………………………………………………………………………………….8
[6] Salary income must be real and not fictitious………………………………………………8
[7] Salary received by individual only………………………………………………………………8
[8] Income from mere holding of an office is not sufficient……………………………….9
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[9] Payment received in capacity other than employee cannot be termed as
Salary…………………………………………………………………………………………………………..9
[10] Method of accounting adopted by employee not relevant…………………………..9
Chapter 3
Different Forms of Salary
[1] Bonus – Taxable as salary under section 15(b) ……………………………………………10
[2] Arrear Salary [Section 15(c)]………………………………………………………………………10
[3] Advance Salary [Section 17(1)(v)]………………………………………………………………10
Difference between advance of salary and loan…………………………………………10
[4] Salary in lieu of notice period…………………………………………………………………….11
[5] Foregoing of Salary……………………………………………………………………………………11
[6] Voluntary payments to employees…………………………………………………………….12
[7] Salary paid tax-free shall be included in the taxable income of the
employee……………………………………………………………………………………………………12
[8] Remuneration for extra duties……………………………………………………………………12
[9] O vertime payments……………………………………………………………………………………13
[10] Salary from more than one employer…………………………………………………………13
[11] Salary from each source is taxable under the head “Salary”………………………13
Loan against salary cannot be brought to tax as salary………………………………13
Sum received by a suspended employee is taxable under the head
“Salary”……………………………………………………………………………………………………..14
Chapter 4
Exempted Salary
[1] Salary/Pension received from a United Nations Organisation…………………..15
[2] Salary to teacher or professor from SAARC Member States [DTAA] ………..15
[3] Surrender of Salary to the Central Government…………………………………………16
Chapter 5
“Income” Includes [Section 2(24)]
Section 2(24) gives inclusive definition to the word ‘income’…………………….17
Chapter 6
Scope of Total Income [Section 5]
Salary of Non-resident employees in India – Taxability in India………………..18
Equating ‘earned’ with ‘accrued’……………………………………………………………….19
Chapter 7
Deemed to be Received [Section 7]
(1) The annual accretion in the previous year to the balance at the credit of
an employee participating in a recognized provident fund, to the extent
provided in Rule 6 of Part A of the IV Schedule, [Section 7(i)]……………………20
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(2) Taxable portion of transferred balance of URPF to RPF [Section 7(ii)]………..20
(3) The contribution made, by the Central Government or any other
employer in the previous year, to the account of an employee
under a pension scheme referred to in section 80CCD [Section 7(iii)]………..20
Chapter 8
Income Deemed to Accrue or Arise in India [Section 9]
(i) Place of accrual of salary income is where the service is rendered
[Section 9(1)]………………………………………………………………………………………………22
(ii) Income falls under the head ‘salaries’, if it is earned in India, irrespective of
place of receipt of salary in or outside India [Section 9(1)(ii)]…………………….22
(iii) Salary paid outside India to a Government employee, being a citizen of
India, is deemed to accrue in India, irrespective of place of work [Section
9(1)(iii)]………………………………………………………………………………………………………23
(iv) Pensions payable outside India to certain categories of Government
employees and Judges who permanently reside outside India, shall not be
deemed to arise or accrue in India. [Section 9(2)]……………………………………….23
Chapter 9
Basis for Charging Income Under the Head ‘Salaries’
[Section 15]
Salary due v. Salary accrued………………………………………………………………………26
Gains from incidental employment—cannot be termed as salary………………28
Salary refunded to comply with legal requirements of law cannot be taxed….
29
Salaries in form of Grant-in-aid received by Nuns, Sisters or Missionaries
working as teachers in religious institutions, from State Government, are
taxable……………………………………………………………………………………………………….30
Excessive salary paid to Managing Director of a company, in
contravention of provisions of Companies Act was to be construed
as income of assessee…………………………………………………………………………………30
Tips collected by Hotel from customers and paid to employees did not
amount to salary from employer………………………………………………………………..31
Incentive Bonus received by Development Officers is Salary only
assessee was entitled only for permissible deductions under section 16…….32
Pay and allowances received by the Chief Minister of a State are assessable
as salary……………………………………………………………………………………………………..33
Salary due to an assessee in the earlier years which was neither paid nor
was charged to tax in those years will have to be treated as ‘arrears of
salary’………………………………………………………………………………………………………..33
Remuneration received by judges of High Courts and Supreme Court is
salary and it is taxable as income under head of ‘Salaries’ ………………………..34
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Sum received by a suspended employee is taxable under the head
“Salary”……………………………………………………………………………………………………..34
No option to choose the basis of charge……………………………………………………..34
Chapter 10
Deductions From Salaries
[Sections 16(ia), 16(ii), 16(iii) & 24(b)]
[1] Standard deduction on salary income : [Section 16(ia)]……………………………..35
[2] Entertainment allowance [Section 16(ii)]……………………………………………………35
Quantum of Deduction:……………………………………………………………………………..35
Essential Conditions:………………………………………………………………………………….36
[3] Tax on employment : [Section 16(iii)]…………………………………………………………36
Quantum of Deduction:……………………………………………………………………………..36
Essential Conditions:………………………………………………………………………………….37
No deduction, other than those specified in section 16, is available from
salaries……………………………………………………………………………………………………….37
[4] Interest on borrowed capital : [Section 24(b)]……………………………………………..37
Interest on pre constructed period……………………………………………………………..38
Chapter 11
Meaning of Salary [Section 17(1)]
Meaning of the term ‘salary’ for purposes of income-tax…………………………..39
[1] Wages : [Section 17(1)(i)]…………………………………………………………………………….40
[2] Any Annuity or Pension : [Section 17(1)(ii)]……………………………………………….40
[3] Any Gratuity : [Section 17(1)(iii)]……………………………………………………………….42
[4] Any fees, commission, perquisites or profits in lieu of or in addition to
any salary or wages : [Section 17(1)(iv)]……………………………………………………..42
[5] Advance of Salary : [Section 17(1)(v)]………………………………………………………..42
[6] Any payment received by an employee in respect of any period of
leave not availed of by him, i.e., leave salary or leave encashment
[Section 17(1)(va)]………………………………………………………………………………………43
[7] Income deemed to be received : [Section 7]………………………………………………..43
[8] Contribution made by the Central Government in the previous year, to
the Agniveer Corpus Fund account [Section 17(1)(ix)]……………………………….44
Provision made by a company for payment of managerial
remuneration – Liable to be assessed as salary…………………………………………..45
Chapter 12
Perquisites [Section 17(2)]
Meaning of Perquisite………………………………………………………………………………..46
Perquisites are non-cash benefits……………………………………………………………….47
Conditions for taxability of Perquisites………………………………………………………47
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[1] Valuation of Rent Free Accommodation or accommodation provided at
concessional rate : [Section 17(2)(i) & 17(2)(ii)—Rule 3(1)]…………………………47
[2] Value of perquisite in respect of free domestic servants—Sweeper,
Gardener or Watchman provided by the employer : [Section 17(2)(iii)—
Rule 3(3)]……………………………………………………………………………………………………48
[2a] Valuation of perquisite in respect of free supply of Gas, Electricity or
Water : [Section 17(2)(iii)—Rule 3(4)]…………………………………………………………49
[2b] Valuation of perquisite in respect of free or concessional education
facility to any member of employee’s house hold : [Section 17(2)(iii)—
Rule 3(5)]……………………………………………………………………………………………………49
[2c] Car owned by employer but provided to employee…………………………………..51
[2d] Valuation of perquisite in respect of free or concessional transport
facility : [Section 17(2)(iii)—Rule 3(6)]………………………………………………………..51
[2e] Value of perquisite in respect of Motor Car facility : [Section 17(2)(iii)—
Rule 3(2)]……………………………………………………………………………………………………52
Not regarded as perquisite…………………………………………………………………………55
Allotment of shares by a Company to its employees :
[Section 17(2)(iii)(c)]…………………………………………………………………………………..56
[3] O bligation of employee met by employer : [Section 17(2)(iv)]……………………56
[4] Insurance premium payable by employer [Section 17(2)(v)]………………………58
[5] Value of any specified security or sweat equity shares free of cost or at
concessional rate to employees : [Section 17(2)(vi)]……………………………………58
“Employee Stock Option Plan” (ESOP)……………………………………………………..60
Gains on exercise of ESOP………………………………………………………………………….61
Taxability of the perquisite – Issue of shares at less than market price……….61
[6] Employer’s contribution to approved superannuation fund :
[Section 17(2)(vii)]………………………………………………………………………………………62
[7] Value of Travelling, touring & holiday homes : [Section 17(2)(viii)—
Rule 3(7)(ii)]……………………………………………………………………………………………….63
[7a] Value of free food or refreshment or non-alcoholic beverages :
[Section 17(2)(viii)—Rule 3(7)(iii)] …………………………………………………………….64
[7b] Valuation of perquisite in respect of any gift, voucher or token to
employees : [Section 17(2)(viii)—Rule 3(7)(iv)]…………………………………………..64
[7c] Valuation of perquisite in respect of Credit Card facility : [Section 17(2)
(viii)—Rule 3(7)(v)]……………………………………………………………………………………65
[7d] Club Facilities : [Section 17(2)(viii)—Rule 3(7)(vi)]…………………………………….66
[7e] Perquisite in respect of use of employer’s movable assets by employees :
[Section 17(2)(viii)—Rule 3(7)(vii)]…………………………………………………………….67
Transfer of assets [Rule 3(7)(viii)]:………………………………………………………………67
[7f] Valuation of perquisite in respect of assets transferred (sold) by an
employer to its employees at a nominal price : [Section 17(2)(viii)—
Rule 3(7)(viii)]……………………………………………………………………………………………68
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[7g] Any other benefit, amenity, etc. : [Section 17(2)(viii)–Rule 3(7)(ix)]…………….69
Perquisite exempted for all (Specified and Non-specified with certain
limits)…………………………………………………………………………………………………………70
[8] Treatment of Medical facilities : [Proviso to Section 17(2)]………………………….70
Exemption of amount received for medical treatment due to Covid 19
[clause (c) of proviso to clause (2) of section 17]……………………………………..72
Exemption of amount received on death due to Covid 19 [clauses (XII)
& (XIII) of Proviso of Section 56(2)(x)(c)]……………………………………………………72
Exemption of amount received on death due to Covid 19 [clauses (XIII)
of Proviso of Section 56(2)(x)(c)]…………………………………………………………………73
[9] Interest-free or concessional loans provided to any employee by his
employer : [Section 17(2)(viii)—Rule 3(7)(i)]………………………………………………73
Interest free loan is taxable as perquisites in the hands of employee
as per Rule 3 of the Income Tax Rules ……………………………………………………….75
Tax-Free Perquisite : (for all employees)……………………………………………………………..75
Chapter 13
“Profits in Lieu of Salary” includes [Section 17(3)]
Text of Section 17(3)……………………………………………………………………………………78
(i) Terminal Compensation : [Section 17(3)(i)]………………………………………………..79
(ii) Payment from an unrecognized provident fund or an unrecognized
superannuation fund…………………………………………………………………………………80
(iii) Payment under Keyman Insurance Policy ………………………………………………..80
(iv) Any amount due or received before joining or after cessation of
employment : [Section 17(3)(iii)]………………………………………………………………..80
Compensation for failure to employ not profit in lieu of salary………………….81
(v) Compensation received from the employer……………………………………………….82
(vi) Any other sum received by the employee from the employer……………………82
Not termed as profit in lieu of salary………………………………………………………….82
Chapter 14
Salary not Treated as Income Under the Head ‘Salary’
(i) Salary received by Member of Parliament (MP) or of a State Legislature
(MLA)………………………………………………………………………………………………………..84
(ii) Salary received by a partner from his partnership firm……………………………..85
(iii) Salary received by a proprietor from his proprietorship firm…………………….85
(iv) Family Pension received by widow from former employer of her
husband…………………………………………………………………………………………………….86
(v) Honorarium received by the visiting doctors…………………………………………….87
(vi) Remuneration paid to lecturer for setting question paper by a
university…………………………………………………………………………………………………..87
(vii) Income from profession as a musician……………………………………………………….87
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(viii) Acting as guarantee commission agent………………………………………………………87
(ix) Remuneration of directors…………………………………………………………………………87
(x) Director’s Fees……………………………………………………………………………………………88
Chapter 15
Incomes which do not Form Part of Total Income [Section 10]
[1] Leave Travel Allowance or Leave Travel Concession or Leave Travel
assistance received by an individual from his employer : [Section 10(5)]…..90
[2] Remuneration to persons who are not citizens of India : [Section 10(6)]…….94
(i) REMUNERATION RECEIVED BY DEPLOMATS, etc. :
Section 10(6)(ii)………………………………………………………………………………….94
(ii) REMUNERATION RECEIVED BY A FOREIGN NATIONAL AS
EMPLOYEE OF A FOREIGN ENTERPRISE : Section 10(6)(vi)………….94
(iii) NON-RESIDENT EMPLOYED ON A FOREIGN SHIP :
Section 10(6)(viii)………………………………………………………………………………94
(iv) REMUNERATION OF AN EMPLOYEE OF A FOREIGN
GOVERNMENT DURING HIS TRAINING IN INDIA :
Section 10(6)(xi)…………………………………………………………………………………95
[3] Allowance or perquisites provided to government employees outside
India : [Section 10(7)]………………………………………………………………………………….95
[4] Amount received under a life insurance policy : [Section 10(10D)]…………….95
Amount received by the dependent disabled, before his death, by way
of annuity or lump sum, shall not be taxable under section 80DD(2)
[Section 80DD(3A)]……………………………………………………………………………………96
Keyman insurance – Amount received by employee director on maturity
of insurance policy is exempt under section 10(10D)…………………………………97
[5] Any payment from Provident Fund and recognized provident fund :
[Section 10(11)]…………………………………………………………………………………………..97
Taxability of Interest income earned on Employees annual contribution
exceeding Rs. 2,50,000 made on or after 01.04.2021 to provident funds ………..
Where only employee contributing to the funds [Second Proviso to
Section 10(11) inserted by the Finance Act, 2021, with effect from
01.04.2022]………………………………………………………………………………………………….98
[6] Any payment from Sukanya Samriddhi Account : [Section 10(11A)]…………99
[7] Payments from Recognized Provident Fund : [Section 10(12)]…………………..99
Where only employee contributing to the funds [Second Proviso to
Section 10(12) inserted by the Finance Act, 2021, with effect from
01.04.2022]………………………………………………………………………………………………..100
Withdrawal from PF becomes taxable before 5 years of service……………….100
Table on taxability on withdrawal of EPF…………………………………………………101
[8] Any payment from National Pension System to an employee :
[Section 10(12A)]………………………………………………………………………………………103
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Quantum of Exemption under section 10(12A) ……………………………………….103
[9] Tax Exemption to Premature Partial Withdrawal from NPS
[Section 10(12B)]………………………………………………………………………………………103
[10] Any payment received from the Agniveer Corpus Fund to a person
enrolled under the Agnipath Scheme, or to his nominee
[Section 10(12C)]………………………………………………………………………………………104
[11] Any payment from an approved Superannuation Fund :
[Section 10(13)]…………………………………………………………………………………………104
[12] House Rent Allowance : [Section 10(13A)]……………………………………………….105
Paying guest accommodation…………………………………………………………………..108
[13] Scholarship granted to meet the cost of education : [Section 10(16)]…………109
[14] Award or Reward : [Section 10(17A)]……………………………………………………….112
[15] Income of a minor child : [Section 10(32)]…………………………………………………114
[16] Dividend to be exempt in the hands of the shareholders :
[Section 10(34)]…………………………………………………………………………………………115
[17] Income from units to be exempt in the hands of the unit-holders :
[Section 10(35)]…………………………………………………………………………………………115
[18] Income under reverse mortgage transaction : [Section 10(43)]……………………115
Chapter 16
Treatment of Retirement Benefits
[1] Death-cum-retirement gratuity received by an employee :
[Section 10(10)]…………………………………………………………………………………………118
[2] Commutation of pension received by the employees : [Section 10 (10A)]…121
[3] Treatment of Leave Encashment after retirement : [Section 10(10AA)]…….123
[4] Compensation on retrenchment : [Section 10(10B)]………………………………….126
[5] Amount received on Voluntary retirement : [Section 10(10C)]………………….129
Guidelines for the purposes of section 10(10C) [Rule 2BA]………………………129
Chapter 17
Treatment of Various Allowances
(A) Allowances which are not taxable……………………………………………………………134
(B) Allowances which are partially taxable……………………………………………………135
(C) Allowances—Exemption depends upon actual expenditure by the
employee as per Rule 2BB(1) : [Section 10(14)(i)]……………………………………..136
(D) Allowances to meet personal expenses which are exempt to the extent
of amount received or the limit specified, whichever is less as per
Rule 2BB(2) : [Section 10(14)(ii)]……………………………………………………………….137
(E) Fully taxable allowances………………………………………………………………………….142
All allowances, other than those specifically exempt are taxable and
are also tax deductible……………………………………………………………………………..143
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Chapter 18
Treatment of Various Funds
[1] Recognized Provident Fund (RPF) : [Section 10(12)]………………………………..145
[2] Unrecognized Provident Fund…………………………………………………………………147
[3] Statutory Provident Fund : [Section 10(11)]………………………………………………148
[4] Public Provident Fund : [Section 10(11)]…………………………………………………..149
[5] Approved Superannuation Fund : [Section 10(13)]…………………………………..150
Chapter 19
Treatment of Salary of Foreign Citizen
1. Salary of diplomatic personnel : [Section 10(6)(ii)]……………………………………152
2. Salary to foreign employees : [Section 10(6)(vi)]……………………………………….152
3. Salary received by a ship’s crew : [Section 10(6)(viii)]………………………………153
4. Remuneration of a foreign national as a trainee : [Section 10(6)(xi)]…………153
5. Remuneration or fees received by non-resident consultants :
[Section 10(8A) – Applicable up to Assessment year 2022-23]………………….153
6. Remuneration or fees received by foreign employees of non-resident
consultants : [Section 10(8B) – Applicable up to Assessment year
2022-23]……………………………………………………………………………………………………154
Chapter 20
Deductions to be From Gross Total Income of Salary
[Sections 80C to 80U]
Deductions under sections 80C to 80U are not allowed……………………………156
Deduction should be claimed by assessee : [Section 80A(1)]…………………….157
Deductions cannot exceed gross total income : [Section 80A(2)]………………157
Deduction allowed only when it is claimed by the assessee
[Section 80A(5)]………………………………………………………………………………………..157
Assessee’s duty to place relevant material……………………………………………….157
[1] Deduction in respect of LIP, PPF etc. : [Section 80C]…………………………………158
Deduction under section 80C will be allowed only on payment basis……..158
Salient features of sukanya samriddhi account………………………………………..163
O pening an account for a minor………………………………………………………………165
Who can and who cannot open PPF Account under PPF Scheme, 2019……165
Minimum and maximum deposit limit…………………………………………………….165
O nly the person actually depositing the amount gets section 80C
benefit………………………………………………………………………………………………………166
PPF defaults and revival…………………………………………………………………………..166
Premature withdrawal from PPF……………………………………………………………..166
Premature closure of account under PPF………………………………………………….166
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PPF maturity options……………………………………………………………………………….167
Closure of account……………………………………………………………………………………168
O ption of extension of account with deposits after maturity……………………168
PPF tax concessions………………………………………………………………………………….169
Interest rates for PPF Accounts………………………………………………………………..169
[2] Deduction in respect of contribution to certain Pension Funds:
[Section 80CCC]……………………………………………………………………………………….184
[3] Deduction in respect of contribution to pension scheme of “Central
Government” or “any other employer” or “self-employed” individual:
[Section 80CCD]……………………………………………………………………………………….186
New Pension Scheme [NPS]…………………………………………………………………….187
Eligible assessee:………………………………………………………………………………………188
Tax Benefits at the time of Contribution in National Pension Scheme………190
Contribution by assessee (for self-employed) [Section 80CCD(1)(b)] ………190
Tax Benefit On Withdrawal of Corpus under various situations………………190
(i) Withdrawal of Corpus on Retirement: Up to 60% of corpus withdrawn
in lump sum is exempt from tax………………………………………………………………190
(ii) Balance amount (40% of corpus withdrawn) invested in annuity is
exempt from tax……………………………………………………………………………………….191
(iii) Partial withdrawal from National Pension System (NPS) to the
extent of 25% of amount contributed is not taxable
[Section 10(12B)]………………………………………………………………………………………191
Limit on Amount of partial withdrawal…………………………………………………..191
Pension received out of investment in annuity is taxable…………………………192
Types of Account under NPS……………………………………………………………………192
Cumulative impact of payment from NPS……………………………………………….194
There is no investment return guarantee………………………………………………….195
Subscriber cannot avail loan against NPS holdings………………………………….196
[4] Limit of deductions under section 80C, section 80CCC and section
80CCD: [Section 80CCE]…………………………………………………………………………..196
[5] Deduction in respect of investment made under Rajiv Gandhi Equity
Saving Scheme or listed units of an equity oriented fund : [Section
80CCG]…………………………………………………………………………………………………….197
[6] Deduction in respect of contribution to Agnipath Scheme [Section
80CCH]…………………………………………………………………………………………………….199
[7] Deduction in respect of health insurance Premia : [Section 80D]……………..200
Lump sum payment of health insurance premium [Section 80D(4A)]……..202
[8] Deduction in respect of maintenance including Medical Treatment of a
handicapped dependent who is a person with disability :
[Section 80DD]…………………………………………………………………………………………203
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What expenses are eligible for deduction under section 80DD…………………204
Amount received by the dependent disabled, before his death, by way
of annuity or lump sum, shall not be taxable under section 80DD(2)
[Section 80DD(3A)……………………………………………………………………………………205
Difference between Sections 80DD and 80U…………………………………………….205
Assessee can claim deduction under sections 80U and 80DD
simultaneously…………………………………………………………………………………………206
Who can certify a person as a disabled person…………………………………………206
Who is a Disabled Dependent under section 80DD………………………………….206
Who can certify a person as a disabled person…………………………………………208
[9] Deduction in respect of medical treatment, etc. of specified disease or
ailments : [Section 80DDB]……………………………………………………………………….210
Kind of medical treatments allowed under section 80DDB………………………211
[10] Deduction for interest paid on loan taken for higher education :
[Section 80E]…………………………………………………………………………………………….212
Interest on loan taken for higher education abroad is also deductible……..214
[11] Deduction in respect of interest on loan taken for residential house
property : [Section 80EE]………………………………………………………………………….214
Interest on Home Loan (First Time Buyers)……………………………………………..214
Quantum of deduction…………………………………………………………………………….214
Conditions for claiming deduction under section 80EE……………………………214
[12] Deduction in respect of interest on loan taken from any financial
institution for the purpose of acquisition of a residential house
property [Section 80EEA]…………………………………………………………………………214
[13] Deduction in respect of interest on loan taken for purchase of an electric
vehicle from any financial institution [Section 80EEB]……………………………..215
[14] Deduction in respect of donations to certain funds, charitable
institutions, etc. : [Section 80G]………………………………………………………………..216
[15] Deduction in respect of rents paid : [Section 80GG]…………………………………221
[16] Deduction in respect of certain donations for scientific research or
rural development : [Section 80GGA]………………………………………………………223
[17] Deduction in respect of contributions given by any person to political
parties : [Section 80GGC]…………………………………………………………………………226
[18] Deduction in respect of interest on deposits in savings account with
banks, co-operative bank and post office : [Section 80TTA]………………………226
[19] Deduction in respect of interest on deposits in case of Senior Citizens:
[Section 80TTB]………………………………………………………………………………………..227
[20] Deduction in case of a person with disability : [Section 80U]……………………228
Difference between Section 80U and Section 80DD………………………………….229
Person with Disability under – New regime……………………………………………………..231
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Chapter 21
Taxation of Pensioners
Pension [Section 17(1)(ii)]…………………………………………………………………………232
Important features of pension …………………………………………………………………232
Pension exempt from attachment…………………………………………………………….233
Uncommuted pension……………………………………………………………………………..233
Commuted pension in case of Govt. employees – Fully exempt:
[Section 10(10A)(i)]…………………………………………………………………………………..233
Commuted pension in case of non-Govt. employees : [Section
10(10A)(ii)]……………………………………………………………………………………………….233
Commuted pension from LIC Fund : [Section 10(10A)(iii)]………………………234
Provisions in brief…………………………………………………………………………………….234
Income Tax Benefits for Senior Citizens……………………………………………………234
Treatment of pension of Armed Forces…………………………………………………….238
[1] Disability pension of an armed force person…………………………………………….239
[2] Pension received by gallantry award winners/any member of their
family [Section 10(18)]……………………………………………………………………………..241
[3] Family pension received by the family members of armed forces
(including para-military forces) personal killed in action in Certain
Circumstances : [Section 10(19)]……………………………………………………………….243
[4] Family Pension received by the legal heirs of deceased employee……………244
Deduction under section 57(iia)……………………………………………………………….244
Divorced Wife is not entitled to the award of family pension…………………..244
Salary or Pension to officials of UN & its Organizations is exempt from
taxation…………………………………………………………………………………………………….245
Pension paid to assessee, a widow of United Nations ex-official, from
UN Joint Staff Pension Fund is exempt from tax under the United
Nations (Privileges and Immunities) Act, 1947 ………………………………………..246
Amount of pension received by assessee from UNO would fall within
description of word ‘salary’ used in sections 14 and 17 and consequently,
immunity granted under section 18 of 1947 Act would become
applicable ………………………………………………………………………………………………..247
Leave salary paid to the legal heirs of the deceased employee – Not
taxable……………………………………………………………………………………………………..248
Gratuitous payments to widow/legal heirs of employee…………………………248
[5] Pension received from a former employer……………………………………………….249
TDS provisions are applicable on Pension……………………………………………….250
Citizens of age 75 years and above (specified senior citizens) who
have only Pension and Interest income – Need not file Income Tax
Returns…………………………………………………………………………………………………….250
contents xix
Chapter 22
Rebate of income-tax in Case of Certain individuals
[Section 87A]
87A. Rebate of income-tax in case of certain individuals………………………….252
[B] Quantum of rebate of Income-tax [whose income is chargeable to tax
under section 115BAC(1A)]………………………………………………………………………254
Marginal rebate under Section 87A…………………………………………………………..254
Chapter 23
Rebate when Salary, etc., is paid in Arrears or in Advance
[Section 89]
Item on which relief is allowable……………………………………………………………..257
Basic Rule – How to get relief under Section 89………………………………………..257
Mandatory to file online Form 10E…………………………………………………………..257
Specified DDO can allow relief under section 89……………………………………..257
Calculation of Relief Under Section 89……………………………………………………..258
Arrears of salary are paid under orders of Court, the employee would be
entitled to relief under section 89……………………………………………………………..260
Chapter 24
New Regime – Lower Tax Rate Option [Section 115BAC]
New Regime Tax rates [With effect from assessment year 2024-25]………….261
Tax Rates – For Assessment years 2021-22 to 2023-24 [New Regime]…………….262
Applicability of the Scheme …………………………………………………………………….263
FORM 10-IE to exercise the option ………………………………………………………….264
What if no Intimation is received from Employee? ………………………………….264
Due date of Filing of FORM 10-IE [For Assessment years 2021-22 to
2023-24]……………………………………………………………………………………………………264
Exemptions and deductions not claimable under the new tax regime
[For Assessment years 2021-22 to 2023-24]……………………………………………….264
Exemptions and deductions available under the new regime also…………..265
Chapter 25
Tax Deduction at Source From Salary [Section 192]
Method of Tax Calculation………………………………………………………………………………..266
Payment of Tax on Perquisites by Employer…………………………………………………….266
Computation of Average Income Tax………………………………………………………………..266
Information regarding income under any other head……………………………………….267
Adjustment for Excess or Shortfall of Deduction………………………………………………267
Salary paid in Foreign Currency………………………………………………………………267
Persons responsible for deducting tax and their duties …………………………..267
xx contents
No need for tax deduction from salary paid by a preceding employer…….268
Deduction of Tax at Lower Rate……………………………………………………………….268
TDS can be made at a Lower Rate or no deduction be made altogether…..268
Deposit of Tax Deducted………………………………………………………………………….269
Due dates for payment of TDS…………………………………………………………………269
Quarterly deposit of tax……………………………………………………………………………269
Compulsory filing of Statement by PAO, Treasury Officer, etc., in case
of payment of TDS by Book Entry under section 200(2A)………………………..270
Interest, Penalty & Prosecution for Failure to Deposit Tax Deducted……….271
Furnishing of Certificate for Tax Deducted (Section 203)………………………….272
Furnishing of particulars pertaining to perquisites, etc.: [Section 192(2C)].274
DDOs empowered to obtain evidence of proof or particulars of the
prescribed………………………………………………………………………………………………..275
Statement of deduction of tax under section 200(3) [Quarterly
Statement of TDS]…………………………………………………………………………………….275
Fee for default in furnishing statements : [Section 234E]………………………….276
Rectification of mistake in filing TDS Statement………………………………………276
Penalty for failure in furnishing statements or furnishing incorrect
information (Section 271H)………………………………………………………………………276
Time limit for issue of TDS certificate ……………………………………………………..276
Penalty for non-issuance of TDS Certificates [Section 272A(2)(g)]……………276
Matters pertaining to the TDS made in case of Non-Resident………………….277
Form 12BB—Form to claim Income Tax Deductions by Employees…………278
Furnishing of evidence of claims by employee for deduction of tax
under section 192(1)—Rule 26C(1)……………………………………………………………279
DDOs to satisfy themselves about the genuineness of claim…………………….279
Chapter 26
Computation of Salary Income
STEPS FOR CALCULATION OF INCOME TAX ON SALARIES…………….285
(A) Basic items……………………………………………………………………………………………….285
(B) Allowances………………………………………………………………………………………………285
(C) Perquisites……………………………………………………………………………………………….286
(D) Gross salary …………………………………………………………………………………………….286
(E) Make exemptions/deductions ………………………………………………………………..286
(F) Total income chargeable under the head “salaries” …………………………………286
Chapter 27
Income Tax Rates
For Assessment Year 2024-25 [New Regime]……………………………………………291
contents xxi
Marginal rebate under Section 87A…………………………………………………………..292
For Assessment years 2021-22 to 2023-24 [New Regime]………………………….292
From Assessment Years 2020-21 to 2024-25 [Old Regime]………………………..293
For Assessment year : 2019-20………………………………………………………………….295
For Assessment year : 2018-19………………………………………………………………….296
For Assessment Year : 2017-18………………………………………………………………….299
Chapter 28
Important Forms
FORM NO. 10BA……………………………………………………………………………………..302
Form No. 10CCD……………………………………………………………………………………..303
FORM NO. 10E………………………………………………………………………………………..304
FORM NO. 10-IA……………………………………………………………………………………..313
FORM NO. 12BA……………………………………………………………………………………..319
FORM NO.12BB……………………………………………………………………………………….321
FORM NO. 16…………………………………………………………………………………………..323

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