Income under the Head Salaries (Basic, Allowances & Retirement Benefits)
Income of a person is computed under head Salary when there is relation of Employer and Employee between the giver and receiver of the income. Income is taxed on basis of received or due whichever is earlier. Income can be given in cash or kind.
RULES REGARDING SALARY:
Salary and wages: For Income tax there is no difference between salary and wages.
Salary from more than one source: If an Individual receives salary from more than one employer during same previous year, salary from all such source is taxable under the head Salaries.
Overtime payment: Any over time payment received by an employee is fully taxable.
Basis of Charge: As per section 15
• Salary due from an employer, or former employer in the previous year, whether paid or not
• Salary paid or allowed to an employee in the previous year by or on behalf of an employer though not due or before it becomes due to him
So salary is taxable on due or receipt basis whichever is earlier.
When a fixed amount is paid to employee periodically in addition to the salary for the purpose of meeting some specific they are known as allowances.
HOUSE RENT ALLOWANCE Section 10(13A)
House Rent Allowance is given by the employer to the employee to meet the expenses in connection with rent of accommodation which the employee might have to take. HRA is taxable under head Salaries to the extent it is not exempt under section 10(13A). HRA is exempt under section 10(13A) to the extent of the minimum of the following three.
• Actual HRA Received by the employee
• Excess of Rent paid for the accommodation occupied by him over 10% of the salary for the relevant period, that is Rent paid – 10% of Salary
• 50% of the salary where the residential house is situated at Mumbai, Kolkata, Delhi or Chennai and 40% of the salary where the house is situated at any other place.
SPECIAL ALLOWANCE FOR PERFORMANCE OF OFFICIAL DUTIES Section 10(14) (i):
These allowances are provided for meeting expensed incidental with performance of job and hence are exempted to the minimum of
• Actual Amount spent on the purpose for which allowance was provided
• Actual amount received.
These allowances are
• Travelling Allowance: Allowance paid to meet the expenses of official tour or on transfer of duty
• Daily Allowance: Allowance paid to an employee to meet his daily expenses who is on tour or due to transfer is absent from his normal place of duty.
ALLOWANCE TO MEET PERSONAL EXPENSES Section 10(14) (ii):
These allowances are provided to meet personal expenses of the employee and can be sub divided in two categories.
• Allowances which are exempted to the extent of amount received or the limit specified
• Allowances which are fully taxable
These online MCQ Mock tests and MCQ questions includes all main concepts of the chapter (Income under the Head Salaries (Basic, Allowances & Retirement Benefits)) in CS Executive Module I Tax Laws & Practice (MCQ based OMR) Exam.