Income From Salary

Income From Salary: 

In the context of the Income Tax Law for the Assessment Year 2024-2025 (Financial Year 2023-2024), Income from Salary is a key component. This section deals with how different allowances, perquisites, and profit in lieu of salary are taxed under the head "Income from Salary."

Example of Income from Salary for the Assessment Year 2024-2025

Let's assume the following scenario for an employee, Mr. Amit Kumar, who is employed in a company in India. Below are the details of his salary and benefits, followed by the tax treatment of the different components:

1. Basic Salary

  • Basic Salary: ₹7,00,000

This is fully taxable under the head "Income from Salary."

2. Allowances

  • House Rent Allowance (HRA): ₹3,00,000
    • Rent paid: ₹30,000 per month
    • HRA received: ₹3,00,000

The HRA exemption is calculated based on the least of the following:

3.                   Actual HRA received: ₹3,00,000

4.                   Rent paid minus 10% of salary: ₹30,000 × 12 months = ₹3,60,000 - (10% of ₹7,00,000) = ₹3,60,000 - ₹70,000 = ₹2,90,000

5.                   50% of salary (since Mr. Amit lives in a metro city): 50% of ₹7,00,000 = ₹3,50,000

Exempted HRA = ₹2,90,000 (since it is the least amount) Taxable HRA = ₹3,00,000 - ₹2,90,000 = ₹10,000

  • Conveyance Allowance: ₹1,20,000
    • Since conveyance allowance is exempt to the extent of actual expenses incurred, if no additional expenses are claimed, the full ₹1,20,000 is fully taxable.
  • Special Allowance for Children’s Education: ₹10,000
    • This allowance is exempt up to ₹100 per month per child, with a maximum exemption of ₹200 per month for two children (₹2,400 annually). The remaining ₹7,600 (₹10,000 - ₹2,400) is taxable.

Taxable Special Allowance = ₹7,600

3. Perquisites

  • Rent-Free Accommodation: The employer provides Mr. Amit with a rent-free accommodation. The annual value of the accommodation is ₹5,00,000, and 15% of the basic salary is considered as the taxable value.

Perquisite Value for Rent-Free Accommodation = 15% of ₹7,00,000 = ₹1,05,000

  • Company Car: Mr. Amit uses a company car for personal purposes, and the annual cost to the employer for this car is ₹1,00,000. The value of this perquisite is taxed based on the engine capacity and use of the car.

Perquisite Value for Car = ₹1,00,000

  • Medical Facilities: Mr. Amit has received free medical treatment under the employer's health insurance plan, and the value of this benefit is ₹20,000. If it exceeds the limit of ₹15,000, the excess is taxable.

Taxable Medical Perquisite = ₹5,000 (₹20,000 - ₹15,000)

4. Profit in Lieu of Salary

  • Gratuity: Mr. Amit has worked for 5 years, and the company pays him a gratuity of ₹2,00,000. Gratuity is exempt up to ₹20,00,000 (subject to conditions), so the entire amount is exempt.
  • Leave Encashment: Mr. Amit encashes 30 days of leave at ₹2,500 per day. The total encashment is ₹75,000.

Leave encashment is exempt to the extent of ₹3,00,000 for government employees, but for non-government employees, it is taxable. Hence, ₹75,000 is fully taxable.

Summary of Mr. Amit Kumar’s Income from Salary for the Assessment Year 2024-2025

Particulars

Amount (₹)

Basic Salary

7,00,000

HRA Received

3,00,000

Exempt HRA

2,90,000

Taxable HRA

10,000

Conveyance Allowance (Taxable)

1,20,000

Special Allowance (Taxable)

7,600

Perquisite for Rent-Free Accommodation

1,05,000

Perquisite for Company Car

1,00,000

Taxable Medical Perquisite

5,000

Leave Encashment (Taxable)

75,000

Gross Salary

₹10,22,600

Calculation of Total Income from Salary

  1. Basic Salary: ₹7,00,000
  2. Taxable HRA: ₹10,000
  3. Conveyance Allowance: ₹1,20,000
  4. Special Allowance: ₹7,600
  5. Perquisite for Rent-Free Accommodation: ₹1,05,000
  6. Perquisite for Company Car: ₹1,00,000
  7. Taxable Medical Perquisite: ₹5,000
  8. Leave Encashment: ₹75,000

Total Taxable Salary Income: ₹10,22,600

 


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