In India, taxation of income from salaries is governed by the Income Tax Act, 1961. The provisions related to the taxation of salary income are outlined in Sections 15 to 17 of the Act. Here’s a brief overview:
- Section 15 – Definitions of Salary:
- This section defines what constitutes “salary” for the purpose of income tax. Salary includes wages, annuity, pension, gratuity, fees, commission, perquisites, profits in lieu of, or in addition to, any salary or wages, etc.
- Section 16 – Deductions from Salary:
- Section 16 outlines the deductions that are allowed to be claimed from the salary income. These deductions include:
- Standard deduction (if applicable).
- Entertainment allowance.
- Professional tax paid during the year.
- Section 17 – Definition of Perquisites and Allowances:
- This section defines various terms related to perquisites and allowances. Perquisites are benefits or amenities provided by the employer to the employee in addition to salary.
- Perquisites and Allowances Taxable as Salary:
- Perquisites and allowances that are taxable as part of salary include:
- House Rent Allowance (HRA).
- Special Allowances.
- Medical Allowances.
- Conveyance Allowance.
- Leave Travel Allowance (LTA).
- Tax Treatment of Provident Fund and Gratuity:
- Provident Fund contributions and gratuity received by an employee are also subject to specific tax treatment.
- Form 16 – TDS Certificate:
- Employers are required to issue a TDS certificate in Form 16 to employees, summarizing the details of salary paid and tax deducted at source (TDS).
- Income Tax Slabs:
- Salary income is taxed at applicable income tax slabs. The income tax slabs are subject to change based on amendments made in the annual budget.
It’s important for individuals to be aware of the latest amendments to the Income Tax Act and any changes in tax slabs. Consultation with a tax professional is advisable for accurate and up-to-date information, especially when it comes to claiming deductions and optimizing tax liability.