Category: income tax

Salary has many elements like basic salary, dearness allowance, gratuity, pension, perquisites etc. On each element, tax calculation is different. Here I have tried to explain tax treatment for each element of salary. So let’s take a look. Taxability of salary: Salary is chargeable to tax either on due or receipt basis whichever is early. Salary due in previous year is taxable whether it is received or not during that year. When advance is received by employee, it is also taxable on receipt basis. But it is not taxable again on due basis when it is accrue. See the chart Salary received Salary accrued Salary taxable 13-14 13-14 13-14 12-13 13-14 12-13 14-15 13-14 13-14 Total taxable salary elements: Basic salary, DA, commission, bonus are fully taxable under salary head. Entertainment Allowance: Entertainment allowance is qualifying for deduction u/s 16(2). The deduction is only for government employees and for other employees it is taxable. Following deduction is allowed to government employees. 1.       Rs. 5000 2.       20% of basic salary 3.       Actual entertainment allowance received Whichever is lower. Professional tax: If professional tax is paid by employer on behalf of employee, it is included in salary and deduction u/s 16(3) is allowed. If professional tax is paid by employee, he is eligible for deduction in that case also. Leave travel concession taxability: Value of travel concession received by individual and...