FAQ Income Tax -

What is included in Taxable Income?

1. Taxable income includes the following:
2. Basic
3. House Rent Allowance (HRA)
4. Conveyance / Transport Allowance
5. Adhoc
6. Taxable one time payments (like Hot Skill Allowance, Joining Bonus, Retention Bonus, Night Shift / Stand by Allowance, Marriage / Child birth gift claimed without bills etc)
7. Taxable reimbursements (like Professional Development Reimbursement (PDR), Telephone, Domiciliary Medical, Leave Travel Allowance (LTA) etc claimed without supporting bills/invoices/documents etc)

How is tax calculated?

From your taxable income, the investments made by you to avail tax benefit (like investments made under 80C, Home loan interest etc) will be computed based on the documentation submitted by you. Then the tax slabs will be applied on this net taxable income.

Investments covered under 80C -

Section 80 C of the Income Tax Act provides tax benefit for certain financial products. The amount invested in these financial products is deductible for tax i.e. you don’t have to pay income tax for that value. However, kindly note that the upper limit for investment which will be considered for exemption under this section is INR 1,00,000 only.
Thus if you are in the 30% tax range and you invest the maximum allowed under this section i.e INR 1,00,000, then INR 30,000 will be reduced from your total tax liability.
There are a wide range of investments that are eligible for exemption under this section. The common investment options are:

1. PF Deductions (Deducted through your monthly pay)
2. Contribution to Public Provident Fund
3. Life insurance Premiums
4. NSC Bonds and Accrued interest on NSC
5. Infrastructure/Tax saving bonds
6. ULIP/Tax Saving Mutual Funds
7. Fixed Deposits with 5 years plus tenure
8. Tuition and exam fees spent on Child(ren)’s education
9. Housing Loan- Principal repayment

What is Housing loan benefit and how it is calculated?

Housing loan benefit is provided only on the Interest component of the Equated Monthly Installment (EMI) repaid to the bank/financial institution. The interest that is repaid is considered as a ‘loss from house property’ and is reduced from the taxable income and then Income Tax is calculated on the remaining amount.
The principal component of the EMI is not eligible for benefit under this section as per the Income Tax Act.
Computation of Housing loan benefit if the property is ‘self occupied’
If the property is self occupied, the employee will not be provided HRA benefit from the month of occupation of the property during the Financial Year.
For e.g.
If the month of occupation of the property is November 2008, then HRA benefit can be claimed from April to October 2008 only.
The maximum benefit under this section would be Interest on Housing loan paid or INR 1,50,000 whichever is lower.
Computation of Housing loan benefit if the property is ‘let out’
If the property is let out, then the computation will be as follows:
Step 1 - Rent received during the Financial Year minus the amount paid towards Municipal/Corporation/Local taxes minus 30% towards maintenance charges will be added to the taxable income.
Step 2 - The actual interest paid to the bank/financial institution for the Financial Year will be deducted from the total taxable income calculated in Step 1.
Step 3 – Applicable Income tax will be levied on the taxable income arrived at after Step 2.
Step 4- If Step 1 minus Step 2 results in a Loss on House property, such Loss can be offset against taxable income earned in the current year.

How we calculate Housing loan benefit if the Property is under Joint Ownership?

If the property is under joint ownership (e.g., 2 joint owners) then the employee would receive 100% / 2 (joint owners) = 50% housing loan interest deduction.

If the property is under joint ownership (e.g., 3 joint owners) then, the employee would receive 100% / 3 (joint owners) = 33.33% housing loan interest deduction, etc.

If the employee has submitted a declaration from the joint owner(s) committing that it is only the employee who is availing the deduction and the other joint owner(s) are not availing the deduction, then the employee eligible to 100% housing loan interest benefit.