by Under the Indian Income Tax Act, 1961, income is classified into five heads for the purpose of computation of taxable income. The five heads of income are:
- Income from Salaries (Section 15-17): This includes income received by an individual from an employer or a former employer, such as basic salary, bonus, commission, allowances, and perquisites.
- Income from House Property (Section 22-27): This includes income earned by an individual from a house property owned by them, such as rental income or deemed rental income from a self-occupied property.
- Profits and Gains from Business or Profession (Section 28-44): This includes income earned by an individual from any business or profession, including gains from sale of assets, such as machinery and buildings, and expenses incurred to earn such income.
- Capital Gains (Section 45-55): This includes income earned by an individual from the sale of a capital asset, such as real estate, shares, and mutual funds.
- Income from Other Sources (Section 56-59): This includes income earned by an individual that does not fall under any of the above-mentioned heads, such as interest income, dividend income, and lottery winnings.
It is important to note that the provisions of the Income Tax Act, including the rates of tax, deductions, and exemptions, vary depending on the head of income. Taxpayers are required to carefully analyze and understand the head of income applicable to them and comply with the relevant provisions of the Income Tax Act. Failure to do so may result in penalties, interest charges, and other legal consequences. It is always advisable to seek professional advice for effective tax planning and compliance with the applicable tax laws and regulations.
Income from Salaries
Income from Salaries is one of the five heads of income under the Indian Income Tax Act, 1961. The following is a brief explanation of each section under Income from Salaries:
- Section 15: Definition of Salary; This section defines the term “salary” and includes basic salary, dearness allowance, bonus, commission, allowances, etc.
- Section 16: Deductions from Salary; This section provides for various deductions that can be claimed from salary income, such as standard deduction, entertainment allowance, professional tax, and interest on borrowed capital.
- Section 17: Value of Perquisites; This section deals with the value of perquisites or benefits in kind received by an employee from their employer, such as rent-free accommodation, car facility, interest-free loans, and club membership.
- Section 80CCF: Deduction for Investment in Long-term Infrastructure Bonds; This section provides for a deduction of up to Rs.20,000 for investment in long-term infrastructure bonds.
- Section 192: TDS on Salary; This section deals with the provisions related to TDS (Tax Deducted at Source) on salary income. It specifies the rates of TDS, the time of deduction, and the procedures for depositing the TDS with the government.
- Section 192A: TDS on Withdrawal from Provident Fund; This section deals with the TDS provisions on withdrawal from a recognized provident fund account before the completion of the five-year lock-in period.
- Section 194J: TDS on Professional Fees; This section provides for TDS on fees for professional or technical services received by an employee, such as consultancy services or technical advice.
Question:
Mr. A works in a private company and his annual salary is Rs. 8,00,000. He received HRA of Rs. 1,20,000, conveyance allowance of Rs. 15,000, medical reimbursement of Rs. 10,000, and a bonus of Rs. 50,000 during the financial year 2021-22. Calculate his taxable income from salaries for the assessment year 2022-23.
Solution:
| Particulars | Amount (Rs.) |
| Gross Salary | 8,00,000 |
| Add: HRA | 1,20,000 |
| Add: Conveyance allowance | 15,000 |
| Add: Medical reimbursement | 10,000 |
| Add: Bonus | 50,000 |
| Total income from salaries | 9,95,000 |
| Less: Standard deduction (50,000 or 1/3rd of total income from salaries, whichever is less) | 50,000 |
| Net taxable income from salaries | 9,45,000 |
The calculation of taxable income from salaries for Mr. A is shown. His gross salary is Rs. 8,00,000 and he received various allowances and a bonus during the financial year 2021-22. These amounts are added to arrive at the total income from salaries of Rs. 9,95,000. A standard deduction of Rs. 50,000 is allowed for salaried individuals, which is deducted from the total income from salaries to arrive at the net taxable income from salaries of Rs. 9,45,000. This amount will be subject to income tax, as per the applicable rates and provisions of the Income Tax Act.
