Employees ALERT! How are wages, allowances, retirement benefits taxed? What is exempt? Here is the Income Tax Department GUIDE for you

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Anyone who works for an employer or runs their own business receives a sum of money as a salary or monthly income.

If your salary falls into the tax bracket, you also have to pay taxes according to the rules. Here’s what the Income Tax Department has to say about your paycheck and related taxes.

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What is considered salary income?

According to information provided by the Income Tax Service, Article 17 of the Income Tax Law defines the term “salary”. However, without going into the technical definition, generally anything that is received by an employee from an employer in cash, in kind, or as a facility [perquisite] is considered a salary.

What are allowances?

Allowances are fixed periodic amounts, outside of salary, that are paid by an employer for the purpose of meeting certain specific employee requirements. For example, Tiffin allowance, transportation allowance, uniform allowance, etc. There are generally three types of allowances for the purposes of income tax law: taxable allowances, fully exempt allowances and partially exempt allowances.

Perquisites are benefits received by a person as a result of their official position and are in addition to salary or wages. These indirect benefits may or may not be taxable depending on their nature. The uniform allowance is exempt to the extent of expenditure incurred for official purposes u / s 10 (14).

In addition, all reimbursements for groceries and child-rearing expenses made by the employer to the employee are considered income because they are of the nature of indirect benefits and must be assessed according to the rules prescribed therein. effect.

Are retirement benefits such as FP and Gratuity taxable?

In the hands of a government employee The retirement bonus and PF receipts are tax exempt. In the hands of a non-government employee, the gratuity is exempt subject to the limits prescribed in this regard and the receipts of PF are exempt from tax, if they are received from a recognized PF after rendering continuous service of ” at least 5 years.

It should be noted that from the 2022-23 tax year, no exemption will be available for interest income accumulated during the previous year in the recognized and statutory contingency fund insofar as it relates to the contribution paid by employees above Rs 2.50,000 the previous year.

However, if an employee contributes to the fund but there is no contribution to this fund by the employer, then the interest income accumulated during the previous year is taxable insofar as it relates to the employee’s contribution to this fund in excess of Rs 5 million during a fiscal year.

Are salary arrears taxable?

Wage arrears are taxable, however, the benefit of averaging income over the years to which it relates can be used for a lower tax incidence. This is called a u / s 89 relief from the Income Tax Act.

Is the receipt of leave taxable as salary?

It is taxable if received while in service. The collection of leaves received at the time of retirement is exempt in the hands of the State employee. In the hands of non-governmental employees, the collection of leave will be exempt subject to the limit prescribed in this regard under the Income Tax Act.

What is the taxation of housing allowance (HRA)?

The minus / minimum of the following is exempt (non-taxable / deducted from the total HRA received)

(a) Actual amount of HRA received

(b) Rent paid Less 10% of salary

(c) 50% of the salary if the rented house is located in Kolkata, Chennai, Mumbai and Delhi

Where

40% of the salary if the house is rented is NOT located in Kolkata, Chennai, Mumbai and Delhi.

What is the taxation of the fixed medical allowance and the transport allowance?

Medical allowance is a lump sum payment paid to employees of a company on a monthly basis, whether or not they present invoices justifying the expenses. It is fully taxable in the hands of the employee.

In accordance with section 10 (14) read with Rule 2BB Transportation allowance is exempt to the extent of the amount received or the amount spent, whichever is less. For example, if the amount received is Rs. 100 and the amount spent is Rs. 80, then only Rs. 20 is taxable. However, if the amount actually spent is Rs. 100; then nothing is taxable.


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