Computation of taxable Income from Salary
Computation of taxable income are categories under various heads:-
As per section 14, all income has been classified under the following 5 heads
1. Income from Salary (Section) [5 to 17]
2. Income from house property[section 22 to 27]
3. Profits and gains of business and profession [section 28 to 44 da]
4. Capital gains [section 45-55A]
5. Income from other sources [section 56-59]
Computation of Income from Salary
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1 |
Basic salary, pension, annuity, bonus, commission, arrears of salary, advance salary |
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*** |
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2 |
(+): 1. gratuity, leave encashment, commuted 2. Pension and allowance after claiming 3. Exemption, if any, u/s 10 |
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Total |
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3 |
(+): value of perquisite or profits in addition to in lieu of salary |
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Total |
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4 |
Employers contribution to RPF in excess of 12% of salary of employee |
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5 |
Interest credit to RPF in excess of notified amount. |
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6 |
Gross salary (1+2+3+4+5) |
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7 |
(-): deduction allowed under section 16 (i)entertainment allowance[section16 (ii)] (ii) employment tax [section16(iii)] |
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Total |
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Income chargeable under the head salaries (6-7) |
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Illustration:
Compute the taxable income of Dr. Jogesh Jo Jo from the following information, a Government employee under the head of salary for assessment year 2020-21.
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Particulars |
Rs. |
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1. 2. 3. 4. 5. 6. 7. 8. 9. |
Basic pay Dearness allowance Entertainment allowance Tribal area allowance His own contribution towards statutory provident fund Employer’s contribution Interest credited to SPF @10% p.a. House rent allowance Rent paid |
20,000 pm 4,500 pm 850 pm 460 pm 1,200 pm 1,200 pm 5,000 pm 3,200 pm 4,000 pm |
Solution;
Computation of income from salary for the assessment year 2020-21
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Particular |
Rs. |
Rs. |
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Basic pay(20,000*12) Dearness allowance(4,500*12) Entertainment allowance(850*12) Tribal area allowance (460*12) 5,520 Less: exempt @ 200 pm 2,400 ———————- Interest credited to SPF Employer’s contribution to SPF House rent allowance (see working note.1) Gross salary Less: deduction on account of entertainment allowance u/s 16 (working notes 2) |
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2,40,000 54,000 10,200 3120 Exempt Exempt 14,400 3,21,720 5,000 |
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Income from salaries |
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3,16,720 |
Notes:
1. Salary for HRA = Basic salary 2, 40,000. DA is not included as not under terms of employment.
a. 40% of salary 2,40,000 96,000
b. Rent paid – 10% of salary (48,000 – 24,000) 24,000
c. HRA received (3,200*12) 38,400
Exempt amount is 24,000 and taxable amount of HRA is 38,400 – 24,000 = 14,400
2. In case of govt. employees, entertainment allowance is exempt to the extent of least of the following:
a. 20% of salary 2,40,000 48,000
b. Maximum limit 5,000
c. Entertainment allowance received 10,200
5,000 being the least is deduction
From the above it can be concluded that there are 5 different heads of income in income tax. The first and foremost important heads is salary. There are different exemption and adjustment also but the computation of that will be easy by following above Income from salary format.
Also read:
- 3 Important Practical Problems of Income from Salary
- Income Tax MCQ QUIZ Set-2 (Income from Salary)
- Income Tax MCQ QUIZ Set – 3 (Income from Salary)
- Income Tax MCQ QUIZ Set – 4 (Income from salary)
- Income Tax MCQ QUIZ Set – 5 (Income from Salary)
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