Calculation of income tax (for salaried person and excluding house rent allowance)
Salary is made up of various components such as:
- Basic salary,
- House rent allowance (HRA),
- Special allowance
- Other allowances, reimbursements etc.
However, not all of the amount received as salary is fully taxable. A part of it will be fully exempt from tax and a part of it will be partially exempt. Hence, you must have all the required documents in order to ascertain the amount which is chargeable to tax from salary. These income details will be filled by you under the third-tab of the form ‘Income details’.
Chartered accountants recommend that before you start filing your ITR on the e-filing website of the tax department, it is advisable that you compute your taxable income on the piece of paper or in an Excel file. This helps to avoid wasting time while you are filing your returns as tax department login remains active for only 15 minutes. You can save the general information filled by you as a draft on the e-filing website and log out when have to compute the income chargeable to tax or do this before you start filing your return completely online.
There are five rows to be filled with regards to salary income:
- Salary (excluding all allowances, perquisites and profit in lieu of salary),
- Allowances not exempt,
- Value of perquisites,
- Profits in lieu of salary and
- Deductions u/s 16.
All the information required to fill the salary details are available in Form-16 given to you by your employer as well as in your salary slips. Here’s how to get that information from Form-16 and salary slips and fill in ITR-1.
Form-16
Form-16 consists of two parts, A and B. Part A of the form consists of information such as name and address of the employer, TAN and PAN of your employer, PAN of the employee and summary of tax deducted and deposited quarterly. Part-B of the form consists of break-up of total income from salary, deductions that you can claim to reduce your total income chargeable to salary.
If you have changed your job in the last financial year, i.e., in 2017-18, ensure that you have received Form-16 from your previous employer as well or you have salary slips from the previous employer. Click here to know how to deal with Form-16 if you have switched jobs.
TDS deducted from your salary during the FY 2017-18 from your current or ex-employer should also be deposited with the tax department against your PAN. This can be checked by downloading Form 26AS.
Here, one must remember that TDS deducted from your salary should reflect in Form-26AS as well, otherwise you will not be able claim tax-credit for that deduction. Click here to know why TDS certificates should match with Form-26AS.
Salary excluding allowances, perquisites and profit in lieu of salary
The first row under the head ‘Salary’ requires you to provide the salary which is excluding of all allowances, perquisites and profit in lieu of salary. Naveen Wadhwa, DGM, Taxmann.com says, “Amount of salary reported in point no. (a) of gross salary in Part-B of Form 16 is inclusive of basic and all the allowances received during the year. This amount also includes allowances that are partially or fully exempt from tax. Therefore, if your employer does not provide you the break-up of your annual income in the Form-16 Part-B, then you will be required to calculate this taxable figure from the salary slips.”
This ‘salary’ amount will include basic salary or wages, any annuity or pension, gratuity, advance salary, leave encashment, fees, commissions, explains Wadhwa. Therefore, you will be required to add each of the above mentioned amounts to arrive at this figure.
Allowances not tax-exempt
The second cell asks the information about allowances not exempt from tax. You will be required to calculate this amount because Part-B of Form-16 provides amount that are exempt from tax.
You can find these allowances paid to you in the salary slips of the FY2017-18. You will be required to add up each allowance received every month from the corresponding pay-slip to calculate the annual amount received by you.
Taxation of each allowance received by you is different. It can be fully or partially taxable in your hands. For instance, amount of house rent allowance (HRA) that will be exempt from tax will be calculated based on certain conditions. However, if you are living in your own house or not paying any rent, then the whole amount will be taxable.
On the other hand, if your salary structure has special allowance, then the whole amount will be chargeable to tax. You will also be required to report the allowances exempt from tax as mentioned in point 2 of Form-16 Part-B in the tab ‘Taxes Paid and Verification’. For FY 2017-18, transport allowance up to Rs 19,200 in a year is exempt from tax. However, from FY 2018-19 onwards, this allowance will be fully taxable in your hands.
Valuation of perquisites
Apart from basic salary, if there are benefits offered to you from your employer such as rent-free accommodation, motor car for official as well as personal use, sweat equity shares, employees’ stock option plans (ESOPs) etc. then these will be chargeable as perquisites in your hands.
Deductions under section 16
There are certain deductions that are allowed from gross salary income. You can claim these deductions only if you have salary income. As per the current laws, you can claim these two deductions from the salary income:
- Entertainment allowance
- Tax on employment
Deduction on the entertainment allowance is available only to government employees. The amount of deduction available on entertainment allowance is the least of the following:
- Rs 5,000
- 1/5th of salary (excluding any allowance, perquisite)
- Actual amount received.
If you have paid any employment tax or professional tax to the state government, then you can claim the deductions for them as well.
The amount of deduction available is mentioned in the part-b of the Form-16 under the head ‘Deductions’.
After computing the amount that will be taxable under the different components of salary, you have got the amount that will be chargeable under the head of salary.
These amounts can be entered by you in the ITR-1 on the e-filing website against the corresponding cells under the head income from salaries in the Income Details tab.