Tax implication on Salary

Income

Presented by:

Sachin Gujar
Chartered Accountant

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.
2.
3.
4.
5.
6.

Wages
Any annuity or pension
Any Gratuity
Any Fees, commission, perquisites or profits in lieu of or in
addition to any salary or wages.
Any advance for Salary.
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

Dearness 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
Allowance

Rs.100/- per month per child

upto max. of 2 children

3.

Allowance to meet
the hostel expenditure of the
child

Rs.300/- per month per child

upto max. of 2 children

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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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Let us see an example for HRA

Rs.(p.a) Rs.(p.a)
Annual salary
House rent allowance received
Less: Exemption u/s. 10(13A)read with Rule2A:
(a)House rent allowance recd...
86,400
Rs.
(b)Actual rent paid
93,600
Less: 10% of Salary 14,400
79,200
(c) 40% of salary

Rs.(p.a)
1,44,000

86,400

57,600

Least of (a), (b) & (c) is exempt

Salary income subject to deduction...

57,600

28,800
1,72,800
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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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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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Income Tax Rates

Individual

Tax Payable for Mar07

If the net income is upto

1 Lac p.a.

Nil

Between Rs.1.00 Lac p.a. to

Rs.1.50 Lacs p.a.

10% of the amount by which the total

income exceeds Rs. 1,00,000/ p.a.

Between Rs. 1,50,000/-p.a. to

Rs.2,50,000/- p.a.

Rs. 5000 + 20% of the amount by

which the total income exceeds Rs.
1,50,000/-p.a.

Rs.2,50,000/-p.a. and above

Rs. 25,000/- + 30% of the amount by

which the total income exceeds Rs.
2,50,000/-p.a.

Surcharge

10 % of the tax payable if total

income exceeds Rs. 10.00 lacs p.a.
otherwise NIL

Education Cess

2 % of Tax Payable
Sachin Gujar, C.A

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Income Tax rates for Women

Individual

Tax Payable for Mar07

If net income is upto

Rs.1.35 Lac p.a.

Nil

Between Rs.1.35 Lac p.a. to

Rs.1.50 Lacs p.a.

10% of the amount by which the.

total income exceeds Rs.
1,35,000/-p.a.

Between Rs.1,50,000/-p.a. to
Rs.2,50,000/-p.a.

Rs. 1500 + 20% of the amount by

which the total income exceeds
Rs. 1,50,000/-p.a.

Rs.2,50,000/-p.a. and above

Rs. 21500/- + 30% of the amount

by which the total income exceeds
Rs. 2,50,000/-p.a.

Surcharge

10 % of the tax payable if total

income exceeds Rs. 10.00 lacs p.a.
otherwise NIL

Education Cess

2 % of Tax Payable
Sachin Gujar, C.A

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Illustration No.1
Tax payable by an individual having total income of Rs.2.00 lacs
On Rs.1.00 Lac p.a.
NIL
On Rs.1.00 Lac p.a. to Rs.1.50
Lacs p.a. @ 10%

5000/-

On Rs.1.50 Lacs p.a. to Rs.2.00

Lacs p.a. @ 20%

10000/-

Tax Payable

15000/-

Add: Education Cess @ 2%

Net Tax Payable

300/15300/16

Sachin Gujar, C.A

Illustration No.2
Tax payable by a Women having total income of Rs.2.00 lacs
On Rs.1.35 Lac p.a.
NIL
On Rs.1.35 Lac p.a. to Rs.1.50
Lacs p.a. @ 10%

1500/-

On Rs.1.50 Lacs p.a. to Rs.2.00

Lacs p.a. @ 20%

10000/-

Tax Payable

11500/-

Add: Education Cess @ 2%

Net Tax Payable

230/11730/17

Sachin Gujar, C.A

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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Budget Implications for F.Y 2007-08

Basic exemption increased from Rs.1.00 Lac p.a. to Rs.1.10 Lacs

p.a. and from Rs.1.35 Lacs p.a. to Rs.1.45 Lacs p.a. for women.

Deduction U/s.80D for medical insurance premium increased from

Rs.10000/-p.a. to Rs.15000/-p.a.

Education cess increased from 2% to 3%.

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Thank You..!!!

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Contact Us:
Sachin Gujar
Chartered Accountant
1040, Sadashiv Peth,
Bahar Apts,
Near Nagnath Par,
Pune 411 030
: 020-24477990
Email : gujar_sachin@hotmail.com
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Sachin Gujar, C.A