FAQ on Salary:

What does Salary Income means?
Salary normally includes wages, annuity, pension, gratuity, commission, perquisites, etc. and any other payment received by an employee from the employer during the year. These are paid and tax deducted at source by your current employer. An annual statement of earning and deductions (Form 16) is given to each employee at the end of each financial year (April – March).

What do Allowances means?
Allowances are fixed sums of money paid regularly in addition to salary for the purpose of meeting some particular requirement. There are 3 types of allowances which are payable to employees every month –
• Taxable allowances
• Partially-exempted allowances
• Fully-exempted allowances

Most allowances are either fully taxable, while some are partially taxable like House Rent Allowance (HRA), City Compensatory allowance.

Fully Taxable Allowances Partially Exempted Allowances
• Dearness Allowance
• Medical Allowance
• Servant Allowance
• Hill Allowance
• Deputation Allowance
• Over-time Allowance
• Other Allowances
• Entertainment Allowance
• House Rent Allowance
• Children Education Allowance
• Children Hostel Allowance
• Transport Allowance

What is a Permanent Account Number (PAN)?
Permanent Account Number is a unique identification number by which the Assessing Officer of the Income Tax Department can identify any assessee. PAN consists of ten alphanumeric characters, and has to be taken by each employee of the company. This is a mandatory requirement before Annual Income Statements can be submitted to the department.

What are the current Income Tax slabs?

For General Category
Income Slab Tax Rate
0 to 100,000 Nil Tax
100,001 to 150,000 10%
150,001 to 250,000 20%
250,001 and above 30%

For working women
Income Slab Tax Rate
0 to 135,000 Nil Tax
135,001 to 150,000 10%
150,001 to 250,000 20%
250,001 and above 30%

For Senior Citizen (Age above 65 years)
Income Slab Tax Rate
0 to 185,000 Nil Tax
185,001 to 250,000 20%
250,001 and above 30%

Surcharge at 10% in case taxable income exceeds Rs. 1,000,000
Education Cess is computed at 2% of total tax payable, including surcharge, and is payable all levels of income.

Can I get working women rebate?
Working women rebate of Rs. 5000 has been removed from financial year 2005-2006. To accommodate this benefit, separate income tax slab rate has been introduced as mentioned above.

What is Form 16?
Form 16 is a certificate issued by the employer to its employees under section 203 of Income Tax Act for Tax Deducted at Source from the Income chargeable under the head “salaries” This is issued yearly and the original Form 16 is required to file Individual Tax Returns

How do I Account my Salary from More Than One Employer?
The employee is required to furnish details of the income, under the head "Salaries" due or received from the former/ other employer, to the present/current employer, and also tax deducted at source, in writing and duly verified by him and by the former/other employer in Form 12B (The present/current employer will deduct tax at source based on the aggregate amount of salary (including salary received from the former or other employer), though it is not shown on the Form 16 of the current employer.

How do I calculate my House Rent Allowance (HRA) and exemption thereon?
From the House Rent Allowance (HRA) received as part of salary during the year, least of the following three amounts are exempt from tax (or not included in income):
• Amount equal to 50% of annual salary for persons staying in metros (Mumbai, Chennai, Calcutta or Delhi) and 40%, for other cities
• Actual amount of HRA received
• Amount of rent actually paid in excess of 10% of annual salary

For HRA exemption purposes, Salary is defined as basic salary, dearness allowance(DA), and commission on fixed percentage, but not other allowances.
Example:
1. Salary for the entire year Rs. 300,000/- (Basic + Dearness Allowance)
2. Actual HRA received Rs. 72,000/-
3. Rent paid for the entire year Rs. 60,000/- (5000 pm * 12 months)
HRA exemption for this case is:
a) Actual HRA received = Rs. 72,000
b) Rent paid less 10% of Salary = Rs. 30,000 (60,000 minus 30,000 (10% of 300,000))
c) 40% of Salary (300,000) = Rs. 120,000
Least of the above, Rs. 30,000, is exempt from tax

How is the exemption on Leave Travel allowance calculated?
Allowance to meet the cost of travel incurred by employee:
• Leave Travel Expenses exempt for 2 domestic journeys in a block of 4 years (Current block is 2002 – 2005, and next block is 2006 – 2009)
• One un-availed journey for previous block can be availed in the 1st year of next block
• Assessee should be part of the travel throughout
• Boarding and lodging are not exempt
• Leave should be availed during the period of travel
• Only fare cost is exempt, which is restricted to

Particulars Exempt Amount
Journey performed by air Economy fare by the shortest route or actual amount spent, whichever is the least.
Journey performed by rail Air-conditioned first class rail fare by the shortest route or actual amount spent, whichever is the least.
Journey performed by any other mode but the origin and destination are covered by Rail Air-conditioned first class rail fare by the shortest route or actual amount spent, whichever is the least.

Where the origin and destination are not connected by rail, and
• Where a organized public transport exists
• Where no organized public transport exists
• First class or deluxe class fare by shortest route or amount actually spent, whichever is least
• Air-conditioned first class rail fare by shortest route or actual amount spent whichever is least

Example:
1. LTA received for the entire year = Rs. 40,000
2. Air tickets for the travel undertaken = Rs. 35,000
Rs. 35,000 is exempt from tax

Transport allowance / Conveyance Allowance
Transport allowance for traveling from residence to office is exempt up to Rs 800 per month, if provided as part of your compensation structure
Children Education Allowance
Rs.100 per month per child up to a maximum of two children, if provided as part of your compensation structure

What is Perquisite and how it is taxed?
Perquisites are emoluments or benefits received from an employer, in addition to salary, bonus, allowances, gratuity, etc. They include rent-free accommodation, free electricity, gas, or water supply, free domestic servant, etc. provided / paid for by the employer. These perquisites are added to the Salary Income for arriving at the tax liability as per the applicable slabs.

Examples of few perquisites are:
1. Rent Free (commonly called Company Lease) Accommodation
The valuation of perquisite in respect of accommodation is as under:
a. Where employer owns the accommodation provided to the employee - 20% of 'salary' in cities having population exceeding four lakh as per the 2001 census. For other places, the perquisite value is 15% of salary.
b. Where accommodation provided is taken on lease/ rent by the employer, 20% of the salary or the actual amount of lease rental payable by the employer, whichever is lower, as reduced by any amount of rent paid by the employee.

For furnished accommodation, the value of perquisite as determined by the above method will be increased by-
a. 10% of the cost of furniture, appliances and equipments, or
b. Where the furniture, appliances and equipments have been taken on hire, by the amount of actual hire charges payable as reduced by any charges paid by the employee himself.

Salary for purposes of CLA is defined as all Taxable earnings (excluding perquisites) less section 10 exemption, if any.
Example:
1. Salary for the entire year is Rs. 500,000
2. CLA (Lease Rent) is Rs. 20,000 pm (taken on lease)
3. Cost of Furniture is Rs. 40,000

Rent for the entire year (Rs.20, 000* 12 Months) = Rs. 240,000
20 % of Salary (Rs. 500,000 * 20%) = Rs. 100,000
Least of the above is Rs. 100,000
Add 10% of Furniture (Rs.40, 000 *10%) = Rs. 4,000/-
Total perquisite on Rent Free Accommodation with furniture is Rs. 104,000
2. Motor Car
Car perquisite has been removed from FY 2005-2006
3. Gas, Electricity and Water

Value of perquisite is the amount paid by the employer to the agency supplying the amenity (free supply of gas, electricity and water) for household consumption. Any amount paid by the employee for such facilities or services shall be reduced from the above amount.

4. Interest free or concessional loans
Value of perquisite is the excess of interest payable at prescribed interest rate over interest actually paid by the employee, or any member of his household. The prescribed interest rate is the rate charged by the State Bank of India as on the 1st day of the relevant financial year.
The aggregate of loan amounts (from Personal, Vehicle & Housing) should be more than Rs.20000/- for this perquisite to apply.

5. Use of Movable assets
If an asset owned by the employer is used by the employee, perquisite is charged at the rate of 10% of the original cost of the asset, as reduced by any charges recovered from the employee for such use. These include house-hold furniture, white goods, though computers and laptops are not covered under this perquisite.