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
Total taxable salary elements:
Basic salary, DA, commission, bonus are fully taxable under salary head.
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.
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 his family from his employer or former employer is exempt from tax if it fulfills following conditions:
1. Travel concession for any place in India during the job or after the retirement or termination of job.
2. Family means spouse and children and
Parents, sisters and brothers of the person wholly or mainly dependent on the person.
3. Concession is for 2 journey performed in block of 4 year. The past block is calendar year 2010-2013. The current running blog is 2014 to 2017. When an individual has not availed concession during the block , he can carry forward the concession for one journey during the first year of following block. Take on example, if one person avail only 1 leave travel concession during the block 2010 to 2013, he can avail concession for 1 trip during the year 2014.
The exemption is computed according to following basis.
1. Journey by air:
Amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination.
2. Any other mode of journey:
· Where rail service is available, exemption is available up to amount not exceeding the air conditioned first class rail fare by the shortest route to the place of destination.
· Where rail service is not available and recognized public transport system does not exist, exemption is available up to amount equivalent to the air conditioned first class rail fares for the distance by the shortest route as if the journey had been performed by rail.
· Where rail service is not available but recognized public transport system exists, the exemption is available up to an amount not exceeding the first class or deluxe class fare on such transport by the shortest route to the place of destination.
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