Taxation of "Salary Income" in India - FY 2022-23

A. Brief of Salary Taxability
  • ​​​​​​​​​Section 17​​ of the Income-tax Act defines the term ‘salary’.
  • Generally, it includes whatever is received by an employee from an employer (current as well as former) in cash, kind or as a facility (perquisite / allowance).
  • It shall be chargeable to Income Tax, considering the following:
    • Due in previous year, whether paid or not (i.e., salary accrued)
    • Paid or allowed in the previous year, though not due or before it became due (i.e., advance salary)
    • Arrears of salary paid or allowed in previous year, if not taxed earlier (i.e., arrears of salary)
For advance salary and arrears of salary, the Act has provided relief u/s. 89 for the differential amount of tax – Click here to read our detailed article on the same.

B. Taxability of Allowances received as a part of salary
  • Allowances are fixed periodic amounts, apart from salary, which are paid by an employer for the purpose of meeting some particular requirements of the employee. E.g., Child education allowance, transport allowance, uniform allowance, professional development allowances, etc.
  • The said allowances might be fully taxable, fully exempted and partially exempted under the Income Tax Act.​
  • To know the allowability of exemptions, Section 10 of the Act may be referred by the one.
C. Taxability of Perquisites received as a part of salary
  • “Perquisite” may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. (ref. Section 17(2) of the Act).
  • Perquisites are benefits received by a person as a result of his/her official position and are over and above the salary or wages, such as rent-free accommodations, employer’s contribution to approved superannuation fund/ provident fund/ NPS, any other benefit/ amenity provided during the course of employment.
  • These perquisites can be taxable, non-taxable and which are taxable only in the hands of specified Employees depending upon their nature. (Ref. Rule 3 of the Income Tax Rules - Valuation of the perquisites).
  • Other than the regular perquisites, recently the interest income accrued during the previous year in the recognised and statutory provident fund to the extent it relates to the contribution made by the employees over ₹2,50,000/- in the previous year shall also be construed as perquisites. However, if an employee is contributing to the fund but there is no contribution to such fund by the employer, then the interest income accrued during the previous year shall be taxable to the extent it relates to the contribution made by the employee to that fund in excess of ₹5,00,000/- in a financial year. (The same was exempt u/s. 10(11) and/or u/s. 10(12) till FY 2020-21).
D. Deductions/ exemptions allowable from salary income

Below is the list of most useful deductions claimed from salary income and click here for detailed list of all the benefits/ exemptions available to salaried taxpayer:
  • Deductions u/s. 16:
    • Standard deduction of ₹50,000/- or the amount of the salary, whichever is less
    • Entertainment allowance to government employees- 1/5th of salary (exclusive of any allowance, benefit or other perquisite) or ₹ 5,000/-, whichever is less
    • Professional tax
  • Deduction u/s. 10:
    • Exemption for HRA – Section 10(13A): The least of the following shall be claimed as exemption:
      • a. Actual amount of HRA received
      • b. Rent paid Less 10% of salary (Basic + DA)
      • c. 50% of salary if house taken on rent is situated in Kolkata, Chennai, Mumbai and Delhi or 40 % of salary if the house is taken on rent is NOT situated in Kolkata, Chennai, Mumbai and Delhi.
    • Click here for HRA calculator as provided by Income Tax department
    • Exemption for Leave encashment – Section 10(10AA):
      • If received while in service, forms part of taxable salary
      • If received at the time of retirement
        • a. For government employees: Fully exempt
        • b. Non-Government employees: Least of the following shall be exempt from tax:
          • i. Amount actually received
          • ii. Unutilized earned leave X Average monthly salary
          • iii. 10 months Average Salary
          • iv. ₹ 3,00,000
    • Exemption for LTA – Section 10(5):
      • The exemption shall be limited to fare for going anywhere in India along with family twice in a block of four years
    • Any other exemption such as child education allowance, uniform allowance, etc. – Section 10(14)
  • Deduction u/s. 24(b)
    • Deduction of Interest paid on housing loan maximum upto ₹2,00,000/-
  • Deduction – Chapter VIA
    • Section 80C: In aggregate deduction available maximum upto ₹ 1,50,000/- for investment made in specified instruments. Such as:
      • LIC
      • Employee’s Contribution to Provident Fund/ Superannuation fund
      • Public Provident Fund (PPF)
      • Subscription to National Savings Certificates (VIII Issue)
      • Contribution for participation in unit-linked Insurance Plan of UTI/ LIC Mutual fund
      • Principal repayment of housing loan
      • 5 years tax savings Term deposits with a scheduled bank/ post office
    • Section 80D: For Mediclaim premium paid
      • For self, spouse and dependent children: ₹25,000 (₹50,000 if person insured is a senior citizen)
      • For parents of the assessee: (Additional) ₹25,000 (₹50,000 if person insured is a senior citizen)
      • Medical expenditure if no amount is paid in respect of health insurance-₹50,000 (only in case of senior citizen)
      • Deduction for preventive health check-up: Maximum upto ₹5,000
      • To brief it: When premium is paid for
        • self/ spouse/ children/ Parents (none of them is senior citizen): maximum amount allowed (incl. amount for preventive health checkup) ₹ 50,000/-
        • self/ spouse/ children/ Parents (Parents are senior citizen): maximum amount allowed (incl. amount for preventive health checkup) ₹ 75000/-
        • self/ spouse/ children/ Parents (self/ spouse along with parents are senior citizen): maximum amount allowed (incl. amount for preventive health checkup) ₹ 1,00,000/-
    • Section 80CCD(1B): Investment in Contribution to Pension funds maximum upto ₹50,000/-
    • Section 80TTA: Deduction of maximum ₹10,000/- in respect of interest on deposits in Saving account (with bank/ post/ co-operative banks), offered as Income from other sources
    • Section 80TTB: Deduction of maximum ₹50,000/- in respect of interest on deposits in Saving account or fixed deposits (with bank/ post/ co-operative banks), offered as Income from other sources in case of senior citizens, provided deduction u/s. 80TTA not taken.
    • Section 80EE: Deduction of maximum ₹50,000/- for Interest payable on loan taken by an individual from any financial institution for the purpose of acquisition of a residential house property subject to certain condition
    • Section 80G: 100% or 50% of net qualifying amount as prescribed, for donations to certain approved funds, trusts, charitable institutions
    • Section 80GGC: 100% of sum contributed to any political party/electoral trust
E. Relevant links of the sections for ready reference of the viewers:

For any further assistance you may contact us or can reach us at mrinkblog@gmail.com. We would be happy to assist you in filing of timely return.

Advisory: Information relates to the law prevailing in the year of publication/ as indicated. The above article is only to enable public to have a quick and an easy understanding. Viewers are advised to ascertain the correct position/prevailing law before relying upon any document

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