Calculation of income tax (for salaried person and excluding house rent allowance)

Calculation Of Income tax (for salaried person and excluding house rent allowance)

Salary is made up of various components such as:

Basic salary,
House rent allowance (HRA),
Special allowance
Other allowances, reimbursements etc.

However, not all of the amount received as salary is fully taxable. A part of it will be fully exempt from tax and a part of it will be partially exempt. Hence, you must have all the required documents in order to ascertain the amount which is chargeable to tax from salary. These income details will be filled by you under the third-tab of the form ‘Income details’.

Chartered accountants recommend that before you start filing your ITR on the e-filing website of the tax department, it is advisable that you compute your taxable income on the piece of paper or in an Excel file. This helps to avoid wasting time while you are filing your returns as tax department login remains active for only 15 minutes. You can save the general information filled by you as a draft on the e-filing website and log out when have to compute the income chargeable to tax or do this before you start filing your return completely online.

There are five rows to be filled with regards to salary income:

Salary (excluding all allowances, perquisites and profit in lieu of salary),
Allowances not exempt,
Value of perquisites,
Profits in lieu of salary and
Deductions u/s 16.

All the information required to fill the salary details are available in Form-16 given to you by your employer as well as in your salary slips. Here’s how to get that information from Form-16 and salary slips and fill in ITR-1.

Form-16

Form-16 consists of two parts, A and B. Part A of the form consists of information such as name and address of the employer, TAN and PAN of your employer, PAN of the employee and summary of tax deducted and deposited quarterly. Part-B of the form consists of break-up of total income from salary, deductions that you can claim to reduce your total income chargeable to salary.

If you have changed your job in the last financial year, i.e., in 2017-18, ensure that you have received Form-16 from your previous employer as well or you have salary slips from the previous employer. Click here to know how to deal with Form-16 if you have switched jobs.

TDS deducted from your salary during the FY 2017-18 from your current or ex-employer should also be deposited with the tax department against your PAN. This can be checked by downloading Form 26AS.

Here, one must remember that TDS deducted from your salary should reflect in Form-26AS as well, otherwise you will not be able claim tax-credit for that deduction. Click here to know why TDS certificates should match with Form-26AS.

Salary excluding allowances, perquisites and profit in lieu of salary

The first row under the head ‘Salary’ requires you to provide the salary which is excluding of all allowances, perquisites and profit in lieu of salary. Naveen Wadhwa, DGM, Taxmann.com says, “Amount of salary reported in point no. (a) of gross salary in Part-B of Form 16 is inclusive of basic and all the allowances received during the year. This amount also includes allowances that are partially or fully exempt from tax. Therefore, if your employer does not provide you the break-up of your annual income in the Form-16 Part-B, then you will be required to calculate this taxable figure from the salary slips.”

This ‘salary’ amount will include basic salary or wages, any annuity or pension, gratuity, advance salary, leave encashment, fees, commissions, explains Wadhwa. Therefore, you will be required to add each of the above mentioned amounts to arrive at this figure.

Allowances not tax-exempt

The second cell asks the information about allowances not exempt from tax. You will be required to calculate this amount because Part-B of Form-16 provides amount that are exempt from tax.

You can find these allowances paid to you in the salary slips of the FY2017-18. You will be required to add up each allowance received every month from the corresponding pay-slip to calculate the annual amount received by you.

Taxation of each allowance received by you is different. It can be fully or partially taxable in your hands. For instance, amount of house rent allowance (HRA) that will be exempt from tax will be calculated based on certain conditions. However, if you are living in your own house or not paying any rent, then the whole amount will be taxable.

On the other hand, if your salary structure has special allowance, then the whole amount will be chargeable to tax. You will also be required to report the allowances exempt from tax as mentioned in point 2 of Form-16 Part-B in the tab ‘Taxes Paid and Verification’. For FY 2017-18, transport allowance up to Rs 19,200 in a year is exempt from tax. However, from FY 2018-19 onwards, this allowance will be fully taxable in your hands.

Valuation of perquisites

Apart from basic salary, if there are benefits offered to you from your employer such as rent-free accommodation, motor car for official as well as personal use, sweat Equity Shares, employees’ stock option plans (ESOPs) etc. then these will be chargeable as perquisites in your hands.

Deductions under section 16

There are certain deductions that are allowed from gross salary income. You can claim these deductions only if you have salary income. As per the current laws, you can claim these two deductions from the salary income:

Entertainment allowance
Tax on EMPLOYMENT

Deduction on the entertainment allowance is available only to government employees. The amount of deduction available on entertainment allowance is the least of the following:

Rs 5,000
1/5th of salary (excluding any allowance, perquisite)
Actual amount received.

If you have paid any employment tax or professional tax to the State Government, then you can claim the deductions for them as well.

The amount of deduction available is mentioned in the part-b of the Form-16 under the head ‘Deductions’.

After computing the amount that will be taxable under the different components of salary, you have got the amount that will be chargeable under the head of salary.

These amounts can be entered by you in the ITR-1 on the e-filing website against the corresponding cells under the head income from salaries in the Income Details tab.,

Gross Salary

Gross salary is the total amount of Money that you earn before any deductions are made. It includes your basic salary, any bonuses or commissions, and any allowances that you receive.

Deductions

Deductions are expenses that you can claim against your income to reduce your taxable income. Some common deductions include:

Professional tax
House rent allowance
Medical expenses
Interest on Education loans
Donation to charitable organizations

Net Salary

Net salary is the amount of money that you take home after all deductions have been made. It is calculated by subtracting your deductions from your gross salary.

Taxable Income

Taxable income is the amount of income on which you will be taxed. It is calculated by subtracting your deductions from your gross salary.

Tax Payable

Tax payable is the amount of tax that you owe on your taxable income. It is calculated by applying the applicable tax rates to your taxable income.

Advance Tax

Advance tax is tax that you pay in advance during the financial year. It is calculated on the basis of your estimated income for the year.

Self-Assessment Tax

Self-assessment tax is tax that you pay after the end of the financial year. It is calculated on the basis of your actual income for the year.

Interest on Delayed Payment of Tax

If you do not pay your taxes on time, you will be liable to pay interest on the delayed amount. The interest rate is currently 12% per annum.

Refund

If you have overpaid your taxes, you will be entitled to a refund. The refund will be processed after you file your tax return.

How to Calculate Income Tax

To calculate your income tax, you will need to gather the following information:

Your gross salary
Your deductions
Your taxable income
The applicable tax rates

Once you have this information, you can use the following formula to calculate your income tax:

Tax payable = (Taxable income x Applicable tax rates)

For example, let’s say that your gross salary is Rs. 10 lakh, your deductions are Rs. 2 lakh, and your taxable income is Rs. 8 lakh. The applicable tax rates for the financial year 2022-23 are as follows:

Income up to Rs. 2.5 lakh: Nil
Income between Rs. 2.5 lakh and Rs. 5 lakh: 5%
Income between Rs. 5 lakh and Rs. 10 lakh: 10%
Income above Rs. 10 lakh: 15%

In this case, your income tax would be calculated as follows:

Tax payable = (8 lakh x 10%) = Rs. 80,000

How to File Your Income Tax Return

You can file your income tax return online or offline. To file your income tax return online, you will need to create an account on the Income Tax Department’s website. Once you have created an account, you can log in and file your return.

To file your income tax return offline, you will need to download the Income Tax Return Form from the Income Tax Department’s website. You can then fill in the form and submit it to the Income Tax Department’s office.

The deadline for filing your income tax return is 31st July of the financial year following the financial year for which you are filing your return. For example, the deadline for filing your income tax return for the financial year 2022-23 is 31st July 2023.

Penalties for Late Filing of Income Tax Return

If you fail to file your income tax return by the deadline, you may be liable to pay a penalty. The penalty for late filing of income tax return is as follows:

If you file your return within 30 days of the deadline, the penalty will be Rs. 500.
If you file your return after 30 days of the deadline, the penalty will be Rs. 1,000.
If you file your return after 60 days of the deadline, the penalty will be Rs. 2,000.
If you file your return after 90 days of the deadline, the penalty will be Rs. 5,000.

Conclusion

Income tax is a mandatory payment that all taxpayers must make to the government. The amount of income tax that you pay will depend on your income, your deductions, and the applicable tax rates. You can file your income tax return online or offline.

Here are some frequently asked questions about the calculation of income tax for salaried persons, excluding house rent allowance:

What is the income tax slab for salaried persons in India?

The income tax slab for salaried persons in India is as follows:

How is house rent allowance (HRA) exempt from income tax?

HRA is exempt from income tax up to a maximum of 50% of the salary, subject to certain conditions. The conditions are as follows:

The employee should be staying in a rented accommodation.
The rent paid should be paid to a registered landlord.
The rent paid should be supported by rent receipts.
The employee should not own any house in the city where he/she is working.
What are the deductions that can be claimed while calculating income tax?

The following deductions can be claimed while calculating income tax:

Standard deduction of Rs. 50,000
Interest on home loan up to Rs. 2 lakhs
Medical insurance premium up to Rs. 25,000
Donation to eligible charitable institutions up to 10% of the adjusted gross total income
What is the process of filing income tax return?

The process of filing income tax return is as follows:

Log in to the Income Tax Department website.
Click on the “File Income Tax Return” link.
Enter your personal details and income details.
Select the applicable income tax slab.
Claim the applicable deductions.
Verify the details and submit the return.
What is the deadline for filing income tax return?

The deadline for filing income tax return for salaried persons is 31st July of the assessment year. However, if you are unable to file your return by the due date, you can file it on or before 31st December of the assessment year, subject to payment of late filing fees.

What are the consequences of not filing income tax return?

If you do not file your income tax return by the due date, you may face the following consequences:

You may be charged a penalty of up to Rs. 5,000.
You may be barred from filing your return for the next assessment year.
You may be arrested and imprisoned for up to two years.
What are the benefits of filing income tax return?

The following are the benefits of filing income tax return:

You can claim the applicable deductions and exemptions.
You can get a refund of the excess tax paid.
You can avoid the consequences of not filing income tax return.
You can build a good credit history.
What are the documents required for filing income tax return?

The following documents are required for filing income tax return:

Form 16 from your employer
Bank statements
Income tax receipts
Proof of rent payment
Proof of medical insurance premium payment
Proof of donation to eligible charitable institutions
How can I get help with filing income tax return?

You can get help with filing income tax return from the following sources:

Income Tax Department website
Income Tax helpline
Chartered accountants
Tax return preparation Software
What is the process of claiming refund of excess tax paid?

The process of claiming refund of excess tax paid is as follows:

File your income tax return.
Attach a copy of the income tax receipt showing the excess tax paid.
Submit your return to the Income Tax Department.
The Income Tax Department will process your refund and credit it to your bank account.

Which of the following is not a deduction allowed under the Income Tax Act, 1961?
(A) Interest on housing loan
(B) Medical insurance premium
(C) Professional tax
(D) Donation to charitable institutions
The maximum amount of deduction allowed for interest on housing loan is:
(A) Rs. 1.5 lakh
(B) Rs. 2 lakh
(C) Rs. 3 lakh
(D) Rs. 5 lakh
The maximum amount of deduction allowed for medical insurance premium is:
(A) Rs. 25,000
(B) Rs. 50,000
(C) Rs. 1 lakh
(D) Rs. 2 lakh
The maximum amount of deduction allowed for professional tax is:
(A) Rs. 1,000
(B) Rs. 2,000
(C) Rs. 3,000
(D) Rs. 5,000
The maximum amount of deduction allowed for donation to charitable institutions is:
(A) 50% of the gross total income
(B) 100% of the gross total income
(C) 100% of the net income
(D) 50% of the net income
The income tax slab for individuals for the financial year 2022-23 is:
(A) Income up to Rs. 2.5 lakh – Nil
(B) Income from Rs. 2.5 lakh to Rs. 5 lakh – 5%
(C) Income from Rs. 5 lakh to Rs. 10 lakh – 10%
(D) Income from Rs. 10 lakh to Rs. 15 lakh – 15%
(E) Income from Rs. 15 lakh to Rs. 20 lakh – 20%
(F) Income above Rs. 20 lakh – 30%
The standard deduction for individuals for the financial year 2022-23 is:
(A) Rs. 50,000
(B) Rs. 100,000
(C) Rs. 150,000
(D) Rs. 200,000
The tax exemption limit for senior citizens (aged 60 years and above) for the financial year 2022-23 is:
(A) Rs. 3 lakh
(B) Rs. 3.5 lakh
(C) Rs. 4 lakh
(D) Rs. 5 lakh
The tax exemption limit for super senior citizens (aged 80 years and above) for the financial year 2022-23 is:
(A) Rs. 3.5 lakh
(B) Rs. 4 lakh
(C) Rs. 4.5 lakh
(D) Rs. 5 lakh
The education cess for the financial year 2022-23 is:
(A) 2%
(B) 3%
(C) 4%
(D) 5%