Explain fully on what basis income is taxed under the head salary.

Income from Salary

All income received as salary under Employer-Employee relationship is taxed under this
head. Employers must withhold tax compulsorily, if income exceeds minimum exemption
limit, as Tax Deducted at Source (TDS), and provide their employees with a Form 16 which
shows the tax deductions and net paid income. In addition, the Form 16 will contain any other
deductions provided from salary such as:
1. Medical reimbursement: Up to Rs. 15,000 per year is tax free if supported by bills.
2. Conveyance allowance: Up to Rs. 800 per month (Rs. 9,600 per year) is tax free if
provided as conveyance allowance. No bills are required for this amount.
3. Professional taxes: Most states tax employment on a per-professional basis, usually a
slabbed amount based on gross income. Such taxes paid are deductible from income
tax.
4. House rent allowance: the least of the following is available as deduction
1. Actual HRA received
2. 50%/40%(metro/non-metro) of basic 'salary'
3. Rent paid minus 10% of 'salary'. basic Salary for this purpose is basic+DA
forming part+commission on sale on fixed rate.
Income from salary is net of all the above deductions.

5.1 Income chargeable under the head "Salaries".

(1) The following income shall be chargeable to incometax
under the head "Salaries" :
(a) any salary due from an employer or a former
employer to an assessee in the previous year,
whether paid or not;
(b) any salary paid or allowed to him in the
previous year by or on behalf of an employer or
a former employer though not due or before it
became due to him.
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(c) any arrears of salary paid or allowed to him in
the previous year by or on behalf of an
employer or a former employer, if not charged
to income-tax for any earlier previous year.
(2) For the removal of doubts, it is clarified that where any
salary paid in advance is included in the total income of any
person for any previous year it shall not be included again in
the total income of the person when the salary becomes due.
Any salary, bonus, commission or remuneration, by whatever
name called, due to, or received by, a partner of a firm from the
firm shall not be regarded as "Salary".
Income From House property Jarif
Income from House property is computed by taking what is called Annual Value. The annual
value (in the case of a let out property) is the maximum of the following:
• Rent received
• Municipal Valuation
• Fair Rent (as determined by the I-T department)
If a house is not let out and not self-occupied, annual value is assumed to have accrued to the
owner. Annual value in case of a self occupied house is to be taken as NIL. (However if there
is more than one self occupied house then the annual value of the other house/s is taxable.)
From this, deduct Municipal Tax paid and you get the Net Annual Value. From this Net
Annual Value, deduct :
• 30% of Net value as repair cost (This is a mandatory deduction)
• Interest paid or payable on a housing loan against this house
In the case of a self occupied house interest paid or payable is subject to a maximum limit of
Rs,1,50,000 (if loan is taken on or after 1 April 1999 and construction is completed within 3
years) and Rs.30,000 (if the loan is taken before 1 April 1999). For all non self-occupied
homes, all interest is deductible, with no upper limits.
The balance is added to taxable income.

Medical Allowance (Reimbursements)

Medical allowance is paid out to help you with the amount that you spend on medical
treatment and medicines.
Medical allowance can be paid out monthly or yearly.
Medical allowance is a fully taxable component of your salary.
However, if you receive reimbursement of your medical expenses against submission of bills,
such medical reimbursement is tax-free upto Rs. 15,000 per year.
Income Tax (IT) treatment of House Rent Allowance
(HRA)

Most of the salaried people get an allowance for taking care of the rent that they
pay for their home. This is called House Rent Allowance, or HRA.

HRA gets special treatment in income tax laws, and is exempt from income tax
to a certain extent. Here are the rules explained in simple terms.

If you are like most other salaried people, one of the components of your pay
would be House Rent Allowance, or HRA. This is an allowance paid to the
employee to defray the housing rent expense.

Since housing is one of the fundamental needs for us, the government treats it
sympathetically, and gives us various tax breaks towards it.

Thus, you get income tax benefit when you take a home loan to buy a house. (Please read
“Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage” for more details
on this).
Similarly, there are income tax benefits on the House Rent Allowance (HRA) as well. The
tax benefit on HRA is available under section 10 (13A) of the IT Act.

How much Income Tax (IT) exemption is available

The minimum of the following three is available as exemption from your income:
1. The actual HRA received from your employer
2. The actual rent paid by you for the house, minus 10% of your salary (this includes basic +
dearness allowance, if any)
3. 50% of your basic salary (if you live in a metro) or 40% of your basic salary (if you live in
a non-metro)

Example
Let’s take the following example:
Basic: Rs. 15,000
DA: Rs. 5,000
HRA: Rs. 9,000
Rent paid: Rs. 10,000
You live in Mumbai.
Now let’s evaluate the above rules:

1. The actual HRA received from employer

This is Rs. 9,000

2. The actual rent paid for the house, minus 10% of salary
This would be Rs. 10,000 – 10% of (Rs. 15,000 + Rs. 5,000) = Rs. 10,000 – Rs. 2,000 =
Rs. 8,000

3. 50% / 40% of your basic salary

Since you live in a metro, this would be 50% of Rs. 15,000 = Rs. 7,500.

The minimum of 1, 2 and 3 is Rs. 7,500. Therefore, the amount of HRA exempt from tax is
Rs. 7,500 per month.
The remaining HRA amount of Rs. 1,500 (Actual HRA received Rs. 9,000 – exempt HRA
Rs. 7,500 = Rs. 1,500) would be added to your income, and would be subject to income tax