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Income Tax Return Bangalore-Expert supported By Yaxyoga

I. Your Payslip Explained

The first step in understanding taxes should start with knowing what goes into your payslip. Your monthly payslip will show you what’s been paid to you and what deductions have been made.

1. Basic Salary

This is a fixed component in your paycheck and forms the basis of other portions of your salary, hence the name. It is usually a large portion of your total salary. HRA is also defined as a percentage of this basic salary Income Tax Return bangalore. Your PF is deducted at 12% of your basic salary.

2. House Rent Allowance

Salaried individuals who live in a rented house/apartment can claim house rent allowance or HRA to lower tax outgo. This can be partially or completely exempt from taxes. The allowance is for expenses related to rented accommodation Income Tax Return Filing btm bangalore.If you receive HRA and don’t live on rent your HRA shall be fully taxable.

3. Medical Reimbursement

If your company provides you with medical reimbursement of Rs 15,000 towards medical expenses, you must submit bills to your employer to claim this. These expenses could be incurred towards consultation with a doctor, medicines, medical tests, etc. Deductions can also be claimed against medical expenses of your dependents. Please check about this with your company Tax Audit Report bangalore. Make sure to keep all the bills safely and submit them to your employer for reimbursement on time. The Rs 15,000 you can claim is for each tax year, starting on April 1st and ending on March 31 next year.

My company provides me with ‘medical reimbursement’ of Rs 15,000 as part of my salary. I have only claimed medical expenses worth Rs 6,000 during the year. How much tax will be deducted if I don’t submit medical proofs for the remainder of the Rs.15,000?

The IT Department allows medical reimbursement of up to Rs 15,000. You must, however, furnish the necessary bills to your employer to claim this. The remaining unclaimed amount of the Rs 15,000 is added to your taxable salary. Your taxable salary is taxed at the slab rate you belong to. The bills must be between April last year to March this year.

4. Conveyance Allowance

Conveyance allowance is given to the employees to meet travel expenses from residence to work. The conveyance allowance for up to Rs 9,600 per annum is exempt from tax. Starting FY 2015-16, this limit has been increased to Rs 19,200 per annum.

5. Leave Travel Allowance (LTA)

Salaried employees can avail exemption for a trip within India under LTA. The exemption is only for the shortest distance on a trip. This allowance can only be claimed for a trip taken with your spouse, children, and parents, but not with other relatives Return of income tax bangalore. This particular exemption is up to the actual expenses, therefore unless you actually take the trip and incur these expenses, you cannot claim it. Submit the bills to your employer to claim this exemption.

6. Special Allowance

Any number in your salary by the name of ‘special allowance’ is fully taxable. This is usually the leftover component of your salary, after allocating to basic, HRA, LTA, and transport allowance.

7. Bonus

Bonus the bonus usually paid once or twice a year. Bonus, performance incentive, whatever may be its name is 100% taxable. Performance bonus is usually linked to your appraisal ratings or your performance during a period and is based on the company policy.

8. Employee Contribution to PF

Both employer and employee contribute a 12% equivalent of the employee’s basic salary every month toward employee’s pension and provident fund. An interest of about 8.5% gets accrued on it. This is a retirement benefit that companies with over 20 employees must provide.

9. Professional Tax

Professional tax or tax on employment is a tax levied by a state, just like income tax which is levied by the central government. The maximum amount of professional tax that can be levied by a state is Rs 2,500. It is usually deducted by the employer and deposited with the state government. In your income tax return, professional tax is allowed as a deduction from your salary income.

II: How is Take Home Different from CTC?

Your job may entitle you to some benefits in the form of food coupons or a cab service apart from your salary. The total cost to the company is the sum of all the benefits offered plus your salary.

Below is an example of components of your CTC that is on your offer letter.

CTC

Components Amount
Basic salary Rs 3,00,000
Special allowance Rs 1,00,000
HRA Rs 80,000
Medical reimbursements Rs 15,000
Medical insurance for you and your family Rs 5,000
PF (12% of basic) Rs 36,000
Performance bonus (range between 50,000 to 75,000 based on performance ratings) Rs 75,000
Total CTC Rs 6,11,000

Whereas this is how your payslip will look for the CTC mentioned above.

Taxable Salary

Components Amount
Basic salary Rs 3,00,000
Special allowance Rs 1,00,000
HRA (less exemption on producing of rent receipts) Rs 50,000
Bonus received Rs 70,000
Total salary Rs 5,20,000
Less: 12% PF Rs 36,000
Less: Tax payable* Rs 12,875
Take home salary Rs 4,71,125

Broadly your CTC will include:

  • Salary received each month.
  • Retirement benefits such as PF and gratuity.
  • Non-monetary benefits such as an office cab service, medical insurance paid for by the company, or free meals at the office, a phone provided to you and bills reimbursed by your company.

Your take-home salary will include:

  • Gross salary received each month.
  • Minus allowable exemptions such as HRA, LTA, conveyance allowance etc.
  • Minus income taxes payable (calculated after considering Section 80 deductions).

Tax Payable

Components Amount
Total salary Rs 5,20,000
Less: Deduction under Section 80C Rs 1,25,000
Taxable salary Rs 3,95,000
Tax payable (includes cess; excludes interest payable) Rs 12,875

III: Retirement Benefits

Exemption on Leave Salary

Check with your employer about their leave encashment policy. Some employers allow you to carry forward some amount of leave days and allow you to encash them while others prefer that you finish using them. The amount received as compensation for leave days accumulated is referred to as leave encashment and it is taxable as salary.

When is Leave Encashment Exempt from Tax?

It is fully exempt for Central and State government employees. For non-government employees, the least of the following three is exempt. The amount chargeable to tax shall be the total leave encashment received minus exemption calculated as above. This is added to your income from salary.

  • 10 months average salary preceding retirement or resignation.
  • (where average salary includes basic and DA and excludes perquisites and allowances).
  • Leave encashment actually received.
  • Amount equal to salary for the leave earned.
  • (where leave earned should not exceed 30 days for every year of service).
  • Rs 3,00,000.

Relief under Section 89(1)

You are allowed tax relief under Section 89(1) when you have received a portion of your salary in arrears or in advance, or have received a family pension in arrears.

Calculate the Tax Relief Yourself

  • Calculate the tax payable on the total income, including additional salary in the year it is received.
  • Calculate the tax payable on the total income, excluding additional salary in the year it is received.
  • Calculate the difference between Step 1 and Step 2.
  • Calculate the tax payable on the total income of the year to which the arrears relate, excluding arrears.
  • Calculate the tax payable on the total income of the year to which the arrears relate, including arrears.
  • Calculate the difference between Step 4 and Step 5.
  • The excess amount at Step 3 over Step 6 is the tax relief that shall be allowed.

Note that if the amount at Step 6 is more than the amount at Step 3 no relief shall be allowed.

Exemption on Receipts at the Time of Voluntary Retirement

Any compensation received upon voluntary retirement or seperation is exempt from tax as per Section 10(10C) when the following conditions are fulfilled.

  • Compensation received is towards voluntary retirement or separation.
  • Maximum compensation received does not exceed Rs 5,00,000.
  • The recipient is an employee of an authority established under the Central or State Act, local authority, university, IIT, state government or central government, notifued institute of management, or notified institute of importance throughout India or any state, PSU, company or cooperative society.
  • The receipts are in compliance with Rule 2BA.

No exemption can be claimed under this section for the same AY or any other if relief under Section 89 has been taken by an employee for compensation of voluntary retirement ot seperation or termination of services. Note: Exemption can only be claimed in the assessment year the compensation is received.

Pension

Pension is taxable under the head salaries in the income tax return. Pension is paid out periodically on a monthly basis usually. You may also choose to take pension as a lump sum (also called commuted pension) instead of a periodical payment. At the time of retirement, you may choose to receive a certain percentage of your pension in advance. Such pension received in advance is called commuted pension. For e.g.- At the age of 60, you decide to receive in advance 10% of your monthly pension of the next 10 years of Rs 10,000. This will be paid to you as a lump sum. Therefore, Rs.10% of 10000x12x10 = 1,20,000 is your commuted pension. You will continue to receive Rs 9,000 (your uncommuted pension) for the next 10 years until you are 70 and post 70 years of age, you will be paid your full pension of Rs 10,000.

Uncommuted pension or any periodical payment of pension is fully taxable as salary. In the above case, Rs 9,000 received by you is fully taxable. Rs 10,000 starting the age of 70 years are fully taxable as well.

When is Commuted and Uncommuted Pension Exempt from Tax?

Commuted pension or lump sum received may be exempt in certain cases. For a government employee, commuted pension is fully exempt.

Uncommuted pension or any periodical payment of pension

Fully taxable as salary. In the above case Rs 9,000 received by you is fully taxable. Rs 10,000 starting the age of 70 yrs are fully taxable as well.For a non-government employee, it is partially exempt. If gratuity is also received with a pension – 1/3rd of the amount of pension that would have been received if 100% of the pension was commuted is exempt from commuted pension and remaining is taxed as salary. If only the pension is received, gratuity is not received – ½ of the amount of pension that would have been received if 100% of the pension was commuted is exempt. Pension received by a family member though is taxed under income from other sources in the income tax return. If this pension is commuted or is a lump sum payment it is not taxable. Uncommuted pension received by a family member is exempt to a certain extent. Rs 15,000 or 1/3rd of the uncommuted pension received – whichever is less is exempt from tax. Pension that is received from UNO by its employees or their family is exempt from tax. Pension received by family members of Armed Forces is also exempt.

How is Gratuity Taxed?

Gratuity is a retirement benefit that employers provide for their employees. The employee is entitled to receive gratuity when he completes five years of service at that company. It is however only paid on retirement or resignation. Gratuity received on retirement or death by a central, state or local government employee is fully exempt from tax for the employee or his family. The tax treatment of your gratuity is different depending on whether your employer is covered by the Payment of Gratuity Act. Check with your company about its status and then proceed to calculate.

If your employer is covered by the Payment of Gratuity Act, then the least of the following three is tax-exempt.

  • 15 days salary based on the salary last drawn for every completed year of service or part thereof in excess of 6 months. For simplicity sake, this is calculated as last drawn salary x number of years in employment x 15/26.(where last drawn salary is Basic salary and DA and number of years in service is rounded off to the nearest full year).
  • Rs 10,00,000.
  • Gratuity actually received.

If your employer is not covered under the Payment of Gratuity Act, the least of the following three is tax-exempt.

  • Half month’s salary for each completed year of service. While calculating completed years, any fraction of a year shall be ignored. For example – if you have worked in an organization for 14 years and 9 months, the number of years of employment shall be considered to be 14 years. Here salary is taken as the average salary of the 10 months immediately before the month in which the person retires.
  • Rs 10,00,000.
  • Gratuity actually received.

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