LTC Cash Voucher Scheme

Finance minister, Nirmala Sitharaman, made an announcement on October 12, 2020 of LTC cash voucher scheme for the central government employees. The Income Tax Department, via a press release issued on October 29, 2020, then extended the benefits of the LTC Cash Voucher Scheme to non-central government employees as well, i.e., those employed in the private sector, public sector units, and the state government. The Leave Travel Concession (LTC) cash Voucher scheme was notified by the government in Budget 2021.

Objective of LTC Cash Voucher Scheme

This scheme was announced to boost consumer demand and to provide tax benefit to individuals who are unable to claim the usual LTC tax benefit due to Covid-related travel restrictions. The LTC Cash Voucher scheme aims to provide other expenditure options to the employees to avail the benefits. It would definitely entail tax savings to the individuals who are getting LTA or LTC from their respective employers. The employees have the option to receive a cash equivalent benefit of LTC fare and related leave encashment without traveling under the LTC scheme.

Who are Eligible?

The LTC cash voucher scheme will be available for central government and PSU employees. However, the finance minister extended this scheme to non-central government employees as well, i.e., those employed in the private sector, public sector units, and the state government.

Conditions to claim benefit under the Scheme

To claim the benefit under the LTC cash voucher scheme, an individual is required to fulfil the following conditions:

  • The amount both on account of leave encashment and fare shall be admissible if the employee spends:
    • an amount equal to the value of leave encashment and
    • an amount 3 times of the cash equivalent of deemed fare
    • on the purchase of goods/services attracting GST of 12% or more,
  • Purchases must be made during the period between October 12, 2020 and March 31, 2021.
  • The payment for the goods/services is mandatorily required to be made through a digital mode including cheque, UPI, etc.
  • Invoices must be furnished to an employer containing details of the vendor, GST number and GST amount paid. Invoices in the name of family members can also be submitted.

You will be able to claim the benefits under the scheme only if you fulfill all the above mentioned conditions.

Deemed LTC Fare

The deemed LTC fare for this purpose is as follows:

  • Employees who are entitled to business class of airfare: ₹36,000 (per person Round Trip)
  • Employees who are entitled to economy class of airfare: ₹20,000 (per person Round Trip)
  • Further, the employees who are entitled to Rail of any class: ₹6000 (per person Round Trip)

For example: A maximum tax benefit of LTC fare is INR 36,000 is available per person in case of business class air travel. Thus, for a family of four, the maximum tax benefit that can be claimed is INR 1.44 lakh. Further, to claim the maximum tax benefit, an individual taxpayer will be required to spend INR 4.32 lakh (INR 36,000 X 4 X 3).

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How Does LTC Cash Voucher Scheme Work?

The cash voucher scheme is in lieu of the LTC benefit. So, before you go on to file the claim you should know that this would only apply to you in the following circumstances:

  • The scheme applies to your LTC benefit for the block of 2018 – 2021
  • You have not exhausted the LTC exemption for the current block is 2018-21
  • The cash voucher scheme is available for the money spend on any family member(s) eligible for LTC benefit
  • LTC Cash Voucher scheme is available in the old tax regime. Further, This scheme benefit is not available to an employee who has exercised an option to pay income tax under new income tax / concessional tax regime.
  • Further, the benefits of this special cash voucher scheme will be settled within the current financial year provided the invoices of purchases of goods/services are submitted on time.

Should you opt for it?

This scheme is totally optional and the employees can either choose avail the scheme or opt for the regular LTC in the subsequent years in the block. The benefit is only to the extent of reimbursement in cash of the maximum amount of LTC eligible to them. Those employees who were not planning to avail or have not been able to avail of the the LTC owing to current situation due to Covid-19, have an opportunity to claim LTC cash voucher scheme.

Tax Benefits of LTC Cash Voucher Scheme

Besides getting the reimbursement of purchases, the employees also benefit from LTC scheme in terms of tax savings. Although TDS is applicable on leave encashment, but amount which is related to the cash reimbursement of LTC fare in lieu of deemed actual travel shall be allowed as exemption as per existing provisions. Therefore, TDS provision is not applicable on the amount of LTC fare, which is being reimbursed by employer. However, there are still some uncertain or unclear things in terms of the income tax applicability. IT department also issued clarification regarding various queries received relating to this scheme

FAQ

Can an employee avail of partial benefits of LTC cash voucher scheme?

An employee can avail of the scheme in partial, i.e. of the LTC of part of the eligible family. In such situations, LTC scheme benefits will be applicable to the fare left unutilized during the current block year starting from 2018 to 2021.

An employee incurs the expenditure on or before 31/3/2021 based on the invoice. Actual product or service received in April 2021?

The reimbursement is based on the production of an invoice with details of GST. As far as possible, the claim should be made and settled well before 31st March 2021 to avoid any last-minute rush and resultant lapse.

Do employees need to make a single purchase to get reimbursement under the LTC scheme?

There is no such prescribed format. The employees only need to submit an application to convey the desire to avail the LTC scheme benefits. If they need an advance for the purchase, the same is to be mentioned in the application.

How to Optimize Salary Structure to Reduce Tax Burden?

An individual’s salary structure includes various components that can help in reducing his/her tax liability. If one can optimally utilize all the allowances that they receive as a part of their salary and claim all the applicable deductions while filing their ITR, they can reduce their tax burden significantly. This article will throw some light on how to better plan your salary structure to minimize tax liability.

What are the Allowances and Deductions that can Reduce the Tax Liability?

Following are the salary components that will help in reducing the tax burden:

House Rent Allowance

House Rent Allowance is a component that is provided to employees who are staying in rented accommodation. In order to claim this exemption, it is necessary that it forms a part of one’s salary structure. The lowest amount from the following is exempt from taxes:

  • Actual HRA received;
  • Actual rent paid less 10% of basic salary
  • 50 % of basic salary plus dearness allowance if staying in metro cities (Mumbai, Kolkata, Delhi or Chennai) or 40 % of basic salary plus dearness allowance if staying in non-metro cities.

Children Education Allowance

Children Education Allowance is given in order to support an employee’s child’s education. A monthly allowance of INR 100 per month i.e. INR 1200 per annum per child is exempt from taxation. This exemption can be claimed for a maximum of 2 children. Individuals can also claim deduction under section 80C for the tuition fees that are paid for the child’s education.

Hostel Expenditure Allowance

Hostel Expenditure Allowance of INR 300 per month i.e. INR 3600 per annum per child is provided to meet the hostel expenditure of the employee’s children. This exemption can be claimed for a maximum of 2 children.

Phone Bill Reimbursement

Phone Bill Reimbursement covers the cost of broadband Internet connection as well as a mobile phone bill. It is to be noted that this benefit may be given only to specific employees and not all.

Food Coupons

Food/Meal Allowance is provided by the employees to meet the food expense an employee may incur. This allowance is in the form of coupons. Coupons up to INR 50 per meal are exempt from taxation. This means that annually if there are 22 working days in a month and 2 meals a day then an employee can claim INR 26,400 as an exemption from his salary.

Leave Travel Allowance

Leave Travel Allowance is given by the employees to help meet the travel expenses incurred while travelling with family in India. The exemption is provided on the mode of travel to the destination and back i.e., economy air travel or AC railway travel. An employee can claim this allowance for two journeys taken in the block on four calendar years.

Gift Vouchers

The gift or voucher that given by the employer whose value is not more than INR 5000 annually can be claimed as an exemption if it becomes part of the salary.

Newspaper/Journal Allowance

If the employee has to gain extra knowledge for the job by subscribing to newspapers and journals, then he/she can claim a Newspaper/Journal allowance by showing the bills of the subscriptions taken.

Uniform Allowance

An employer provides Uniform Allowance to meet the expenses of purchase/maintenance for wearing a uniform while working.

Car Maintenance Allowance

An employee can claim an exemption of the car expenses partially or fully depending on the ownership of the car. If the ownership of the car is with the employer, the employee using that car will pay tax on a prerequisite of INR 2,700 per month (car with engine capacity up to 1,600 cc) or INR 3,300 per month (car with engine capacity more than 1,600cc) in respect of the aggregate of the actual lease rent, driver’s salary, maintenance expenses and fuel expenses borne by the employer. If the employee owns the car, he can claim an exemption of INR 2,700 per month or INR 3,300 per month.

How are these Allowances Calculated in a Salary?

Let us take an example to understand how to maximize tax savings by structuring your salary efficiently.

Ms Mehra is an employee at a reputed bank and earns INR 10,00,000 per annum. Let us examine her salary structure in two different manners:

Particulars Salary Structure 1 Salary Structure 2
Basic Salary 5,00,000 4,00,000
+ HRA 3,00,000 2,00,000
+ Provident Fund (12%) 60,000 48,000
(+) Standard Allowance (Conveyance allowance + medical reimbursement) 40,000 40,000
(+) Leave Travel Allowance 30,000 30,000
(+) Other Allowances 70,000 2,82,000
Total 10,00,000 10,00,000
(-) Exempted HRA 2,50,000 2,00,000
(-) Standard Allowance 40,000 40,000
(-) Leave Travel Allowance 30,000 30,000

(-) Other allowances

Meal allowance
Mobile bill reimbursement
Gift voucher
Child’s education allowance
Child’s hostel allowance
Newspaper/Journal allowance
Internet Bill reimbursement
26,400
10,000
5,000
2,400
7,200
16,000
 12,000
Total taxable Salary 6,80,000 6,51,000
Less: Profession Tax Paid 2,500 2,500
Income under the head Salary 6,77,500 6,48,500
(-) Deductions under Section 80C 1,50,000 1,50,000
Total Taxable Income 5,27,500 4,98,500
Tax on income 18,720 12,920
Saving in tax   5,800

Which ITR Form to file?

  • If an individual earns income from salary has to file ITR 1 if the total salary is below INR 50 lakhs, inclusive of both salary income and income from other sources.
  • ITR 2 must be filed if the individual has other income apart from salary like income from more than one house property, income from capital gains and IFOS.

What is Standard Deduction in Income Tax?

The standard deduction was introduced for the salaried taxpayers under Section 16 of the Income Tax Act. It allows salaried individuals to claim a flat deduction from income towards expenses incurred in relation to his or her employment. There is no proof required in order to claim this deduction.

What is Standard Deduction

It has been introduced to bring parity between salaried employees and self-employed individuals. While self-employed individuals can claim various business-related expenses as deductions that bring down their taxable income, no such benefit could be claimed by most salaried individuals. It is a flat deduction of INR 50,000/- from AY 2020-21 to your “Income taxable under the head salaries”.

Standard Deduction for Salaried Person

This benefit is available to all salaried individuals irrespective of their annual income and no bill expenses have to be submitted for claiming this benefit. It helped employees more in terms of reduction in their tax liability. These are generally deducted from the gross salary and claimed as an exemption. This tax benefit can be claimed irrespective of the actual amount spent on

Let us understand how this deduction works in this section by calculating the tax outgo before and after standard deduction. For example, Mr. Arjun has a taxable income of INR 7 lakh for FY 2019-20.

PARTICULARS Before (INR) After (INR)
Gross Salary 7,00,000 7,00,000
–  Transport Allowance 19,200 NA
– Medical Allowance 15,000 NA
– Standard Deduction NA 50,000
Net Taxable Income 6,65,800 6,50,000

Therefore, as per the above calculations it can be seen that taxable salary has been brought down on account of the standard deduction.

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Impact of standard deduction on Pensioners

As per a recent clarification issued by the Income Tax Department, if a taxpayer has received income from a pension from the former employer, it shall be taxable under the head “Salaries”. Therefore, taxpayers receiving a pension from their ex-employers are eligible to claim a standard deduction of INR 50,000 or the amount of pension, whichever is less. Further, the benefit of this deduction will be allowed to pensioners only if it is taxable as salary income. In case it is charged to tax as other source income then the benefit of the standard deduction will not be available.

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Limit of the standard deduction

The eligible amount for this deduction cannot exceed the salary amount. The maximum amount of deduction will be:

  • INR 50,000/- or
  • Salary amount whichever is lower.

Example

Let us understand the calculation of Salary income by claiming standard deduction with a small example. Given below are salary details for FY 2019-20

Particulars Amount (INR)
Gross Salary  3,00,000
HRA exemption  80,000
LTA Exemption 1,10,000
Other exemption  1,30,000
Net Salary 20,000
Standard Deduction
Rs. 50,000 or
Amount of salary i.e. 20,000
(whichever is lower)
20,000

Treatment under new tax and old tax regime

Our Finance Minister, Nirmala Sitharaman in budget 2020 has introduced a new tax regime (FY 2020-21) under which income would be taxable at lower rates. To avail of this option, the taxpayer will have to forego major tax exemptions and benefits including standard deduction.

Particulars FY 2020-21 (Old Tax Regime) FY 2020-21 (New Tax Regime)
Income from Salary 4,50,000 4,50,000
Less: Standard Deduction 50,000
Taxable Salary 4,00,000 4,50,000

FAQ

Can standard deduction be claimed along with other deductions?

Yes, a taxpayer can claim various other deductions, such as those available under tax-saving investments available under Section 80C (PPF, ELSS Funds, etc) to Section 80U.

Can I claim deduction of INR 50,000 for previous returns also?

No, you can claim a deduction of INR 50,000 from previous year FY 2019-2020 only. Before that the limit was of INR 40,000 was applicable.

Is standard deduction available to senior citizens also ?

Yes, standard deduction is available to all salaried taxpayers & pensioners irrespective of their age.

Are Bills Required to Claim Standard Deduction?

No, you do not have to submit any medical or travel bills in order to claim standard deduction.

File Income Tax Return – ITR 1 Online for Salaried Employee

It is important for salaried individuals to file their returns. Individuals whose annual income is below the taxable should also file their ITR. There are a great many advantages of filing the income tax return such as availing loans, traveling abroad, claiming a refund, etc. In this article we discuss how to file income tax return online for salaried employee.

Contrastingly, not filing your income tax return despite having taxable income can make you liable for penalty and prosecution provisions of the income tax act. Below, we list down some of the important points to remember for salaried persons while filing their ITR.

ITR 1 Form Breakdown

The ITR 1 form has 5 sections that are required to be filled before submitting it. The sections are mentioned below:

  • Personal Information
  • Gross Total Income
  • Total Deductions
  • Tax Paid
  • Total Tax Liability

How to File ITR 1 Using JSON Utility from AY 2021-22?

After an individual has downloaded the Offline JSON Utility on their system, they will be taken to the Homepage for filing the Income Tax Return.

  1. Click on Continue

    After you install the utility, you will land on the homepage. Now click on continue to file your ITR for AY 2021-22

  2. Select the applicable option

    You will find 3 tabs namely: Returns, Draft Version of Returns and Pre-filled Data. Select the option that is applicable to and click on ‘File Return’

  3. Click on ‘Import Pre-filled Data’

    Now, you have to select the ‘Import Pre-filled Data’ option. This will import all the data that you have already saved on your system and will pre-filling information in the ITR

  4. Enter the PAN and Assessment Year

    Now, enter the PAN details of the taxpayer and select the assessment year, and then click on proceed

  5. Download the ‘Pre-filled JSON’

    Next, download the pre-filled JSON from the e-filing website by logging into your account.

  6. Upload the Pre-filled JSON File

    Now, export the pre-filled JSON file from your system and upload it and then click proceed

  7. Click on ‘File Return’

    Now you will be redirected to the file ITR screen which will contain the basic pre-filled information from the JSON file

  8. Select the Status

    Next, select the applicable status and click on continue

  9. Select ‘ITR 1’

    Now from the options given select ITR 1

  10. Click on ‘Let’s get started’

    In order to start filing your ITR, click on ‘Let’s get started’

  11. Fill the applicable and mandatory fields of the Form

    Enter in all the necessary and applicable details, validate all the tabs of the ITR form and then Tax will be calculated

  12. Now Submit your Return

    After you have confirmed all schedules, you can submit and preview your return

  13. Download or Print the Preview

    You can now download or print the preview on your system for your reference

  14. Click on ‘Proceed to Validation’

    Now return to the screen and click on ‘Proceed to Validation’ to validate the return

  15. Validate the Errors

    If there will be any errors, taxpayer will have to validate that, post that one can “Download the JSON”

File ITR 1 Online using the eFiling Website

  • Log in to the e-filing portal using your user ID & password.
  • Click on e-file > Income Tax Returns > File Income Tax Return from the dashboard
  • Select the appropriate assessment year
  • Select the online mode of filing the ITR
  • Select the applicable status and click on proceed
  • Select the ITR 1 option from the list provided
  •  Once you have selected the ITR applicable to you, note the list of documents needed and click Let’s Get Started
  • Select the checkboxes applicable to you and click Continue
  •  Review your pre-filled data and edit it if necessary. Enter the remaining / additional data (if required). Click Confirm at the end of each section
  • Enter your income and deduction details in the different section. After completing and confirming all the sections of the form, click Proceed
  • In case there is a tax liability, you will be provided with the options to pay it at that instant or you can pay it later
  • After paying tax, click Preview Return. If there is no tax liability payable, or if there is a refund based on tax computation, you will be taken to the Preview and Submit Your Return page
  • On the Preview and Submit Your Return page, enter Place, select the declaration checkbox and click Proceed to Validation
  • Once validated, on your Preview and Submit your Return page, click Proceed to Verification
  • On the Complete your Verification page, select your preferred option and click Continue
  • On the e-Verify page, select the option through which you want to e-Verify the return and click Continue 

How to File ITR with Multiple Form 16?

A taxpayer may have multiple Form 16 if they changed jobs during the financial year. They get Form 16 from both their current employer and past employer at the end of a financial year. The taxpayer needs to File ITR-1 on the Income Tax e-Filing portal even though he has received Multiple Form 16.

Steps to e-File return with Multiple Form 16

  • Collect Form 16 from respective employers. A lot of people assume that they can’t be issued Form 16 from the previous employer since they have left the job during the year. But you should contact your previous employer and ask for form 16. You can not file your ITR without knowing the taxable salary income earned from all the employers.
  • Check your Form 26AS and compare TDS amount with each Form 16. If there are any discrepancies between the details mentioned on Form 26AS and Form 16, report the same to your employer before filing your ITR.
  • Add up the salary particulars(basic salary, perquisites, allowances etc) from multiple Form 16 and recalculate your tax liabilities. Since Individual employers only consider salary payment made by them, your total tax liability might be different after adding up the multiple salary incomes during the year.
  • For Example – If employer A paid the salary of INR. 5,50,000 then he will deduct TDS on INR. 5,50,000 at slab rate. Now if you join employer B who has made payment of INR. 10,20,000 then he will deduct TDS on INR. 10,20,000 at slab rate. Whereas your actual taxable salary income will be INR. 15,70,000 and it will be charged to tax as per applicable slab rates.
  • If you hadn’t mentioned correct/complete details regarding your tax-saving deductions to your employers, there are chances of excess/short TDS deductions. Your tax liabilities might change after calculating the combined income and deductions from multiple employers. So don’t forget to include all chapter VI-A (Section 80) deductions while calculating taxable income.
  • If you’re falling short in TDS paid, you need to pay the difference, plus interest u/s 234A, 234B, 234C as Self-Assessment tax before you file your return. After payment of self-assessment tax, you can add the details of the challan in return and file your ITR.
  • If there’s an excess in TDS paid after combining the income and deductions, you can claim for refunds in your ITR.
  • You can also ask your current employer to issue you a consolidated Form 16 where they’ll club your income details from your previous employer using your Form 12BB – in which case your current employer will calculate & deduct TDS as per your combined total income.

e-File Income Tax Return without Form 16

Employers may fail to provide Form 16 to their employees due to various reasons. In such a case, employees find it difficult to file an ITR without Form 16. This is because they don’t know their taxable salary and TDS amount.

Follow these steps to e-file your ITR without Form 16

  • You can know your taxable salary for a particular financial year from Line No. 6 of Form 16 Part-B. But when you have not received Form 16 from your employer, you need to calculate your taxable salary for a financial year from payslips
    • Add up all the gross salary received during the year
    • Deduct the allowances to the extent exempt from tax such as
    • HRA, LTA, Conveyance Allowance, and other allowances
    • Deduct any tax on employment and statutory deduction paid by the employer
    • In case you changed jobs during the year,  you need to consider the total gross salary from all the employers while calculating taxable salary income.
  • When you are an owner of a house property and if it is let out, then you must report the rental income in your ITR. It is covered under the head ‘Income from House Property’. When you have income such as interest from bank deposits, Recurring Deposits, etc. it will be included under the head ‘Income from Other Sources‘. You can check your passbook, Form 16A and Form 26AS to make sure that you are not missing any income.
  • Chapter VI-A(Section 80) Deductions will help you save tax. Income Tax Act allows the deduction to taxpayers for certain tax-deductible investments/expenses. For eg. Investment in PPF, ELSS, National Pension Scheme, etc. And expenses like a life insurance premium, medical insurance premium, higher education loan, etc. are allowed as a deduction under chapter VI-A. Keep your investment documents/payment receipts handy while filing the return.
  • Form 26AS is a tax credit statement. It contains details of self-assessment/advance tax deposited by you as well as TDS deducted and deposited by others on your income. It is important to go through Form 26AS and make sure that you are not missing out on any tax credits while filing your IT return.
  • After adding all the taxable incomes for a particular year and claiming all eligible deductions and considering all TDS credits, If there are tax dues then pay the same to the IT Department. Enter the tax payment details in IT Return. This tax is known as Self Assessment Tax.  Remember to pay tax dues before filing your return otherwise, your return will be considered as a defective return. In case you have paid excess tax during the financial year, you can claim a tax refund while filing your ITR.
  • Now you are all set to file your tax return. You can file your tax return online with Quicko in a jiffy. It is the easiest way to file your return without any hassle. It is important that you file your income tax return before the due date to avoid penalties and non-compliance.

Income Tax Return Form – ITR 1

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Major Changes in ITR 1 for AY 2021-22

  • Taxpayers are given the option to choose between the old tax regime and the new tax regime
  • Dividend Income has to be added with a quarterly breakdown for accurate calculation of Interest under Section 234C

Major Changes in ITR 1 for AY 2020-21

  • The individual taxpayers who meet the following criteria:
    • Make cash deposits above INR 1 Crore with a bank,
    • Incur expenses above INR 2 Lakh on foreign travel or,
    • Spend above INR 1 Lakh on electricity should also file ITR1
  • Condition of the individual having income from salaries, one house property, other income, and having total income up to INR 50 Lakh continues
  • Resident individuals owning a single property in joint ownership can also file ITR 1 where the total income is up to INR 50 Lakh
  • Taxpayers should separately disclose the amount of the investment or deposits or payments towards tax saving made from 1 April 2020 until 30th June 2020
Income Tax Calendar
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FAQs

How to file income tax return online for salaried employee?

Individuals can file their tax returns by preparing it on their own and submitting it on the Income Tax e-Filing portal. They can also prepare it offline with the help of the ITR preparation utility. The third option would be to file through an e-return intermediary (ERI) like Quicko.

How to file ITR if I only have Form 16 from my current employer and not from my previous employer?

First, add the salary income of the current employer as per Form 16. And then calculate the taxable salary from the previous employer as per salary slips and file your ITR.

Can I file a return after the Due Date?

Yes. You can file a ‘Belated Return’ after the due date. You can file a belated return before the end of Assessment Year or before the completion of the assessment whichever is earlier. Late filing fees as per section 234F will also be levied.

Rent Free Accommodation ( RFA )

What is Rent Free Accommodation?

Perquisites are considered as a very important element of Income from Salary. One of the important perquisites given to employees is Rent-free Accommodation (RFA). It means a place of residence which the employer gives to an employee to stay in. RFA can be given either free of cost or at a concessional rate. The term accommodation shall include:

  1. A flat
  2. Farm House or part thereof
  3. Hotel
  4. Guest House
  5. Service apartment
  6. Caravan
  7. Mobile home
  8. Ship or other floating structures

For the purpose of computation of tax, employees are divided in the following two categories:

  • Central and State Government employees
  • Private sector employees or other employees

Types of rent-free accommodation

  1. Furnished rent-free accommodation
  2. Unfurnished rent-free accommodation

Taxability of Rent Free Accommodation

Value of Furnished RFA

Particulars Amount
Value of Unfurnished accommodation XXXX
Plus: 10% p.a of cost of furniture, if the furniture is owned by the employer or actual rent of furniture. XXXX
Amount Taxable XXXX

Value of Unfurnished RFA

1. Central and State Government employees

License fee of House determined will be taxable.

2. Private sector employees or other employees

  • If employer owns the property:
City population as per 2001 census % of Salary Taxable
Up to 10 lakhs 7.5%
Exceeding 10 lakhs but up to 25 lakhs 10%
Exceeding 25 lakhs 15%
  • If taken on lease by employer:
Particulars Amount
Actual lease rent paid by the employer XXXX
15% of Salary XXXX
Whichever is less will be taxable XXXX

Taxability for Hotel Accommodation

Very often employer provides accommodation in a hotel to the employee (whether Government or non-Government). For the purpose of income tax, hotel accommodation provided to an employee in a hotel will be valued as under:

Accommodation is unfurnished Accommodation is furnished
It is not taxable

– The actual Charges paid/ payable to such hotel; or
– 24% of salary

Whichever is less will be taxable
Charges recovered from the employee shall be deducted.

Exemption

  • Perquisite value shall be exempt if Accommodation provided in a Hotel for a period not exceeding 15 days on the transfer of the employee from one place to another
  • Accommodation provided by the employer shall be a tax-free perquisite if accommodation is provided to the employee in a remote area
  • A rent-free house is not taxable if it is provided to a High Court Judge, Supreme Court Judge Union Minister, Leader of Opposition in Parliament, an official in Parliament, and serving Chairman and member of UPSC
  • If an employee is transferred and a housing facility is provided to him at the new location ( he is yet to vacate a house given at the old location), for a period of 90 days immediately after transfer only one house at the option of the employee is chargeable to tax and the other one will be tax -free

Definition of Salary

Salary for purpose of Taxability of Rent free accommodation shall include = Basic pay+ Dearness Allowance/pay (if forms part of superannuation or retirement benefits) + Bonus + Commission + Fees + All taxable allowances + All monetary payments chargeable to tax, from one or more employers.

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FAQ

What is the Difference between RFA & HRA?

House Rent Allowance is an Allowance that an employee gets from his or her employer for fulfilling the rental expenses of their house. RFA is accommodation which covers house or property provided by the employer for the residential purpose of the employee.

What is the basis of valuation in case of govt employees for rent free house?

The value of perquisite in respect of accommodation provided to government employees is equal to the license fee which would have been determined by the Central or State Government in accordance with the rules framed by the Government for allotment of houses to its officers.

Salary Arrears – Taxability & Relief under Section 89(1)

Salary arrears means the outstanding salary of a previous month. There may be a revision in the Salary of an employee from retrospective effect. Further, salary may have been revised but increments can be paid at a later date. Therefore, in such cases, the differential amount paid in the subsequent period is known as salary arrears. The employer mentions it separately in the salary slips and part B of Form 16.

Example

Arjun’s salary is INR 50,000 per month. His employer raised the salary to INR 60,000 per month in April 2020 effective from March 2020. Since the salary for March 2020 would already be paid, the additional INR 10,000 should be paid in April 2020. This is called Salary Arrears.

Taxability of Salary Arrears

Arrears in salary is treated as a salary income. They are taxable in the year of receipt. However, the taxpayer can claim relief under Section 89(1). The taxpayer should report it under the head ‘Salary’ and pay tax at slab rates.

Relief under Section 89(1)

A taxpayer receiving any portion of the salary in arrears or in advance or receives profits in lieu of salary can claim relief under Sec 89(1) of the Income Tax Act.

If the total income of a taxpayer includes any past salary paid in the current financial year and the tax slab rates are different in both years, this may lead to higher tax dues. Thus, the Income Tax Act allows relief u/s 89(1) to save the taxpayer from any additional tax liability due to delay in receiving income. Moreover, the employer calculates relief under Sec 89(1) and mentions it in Part B of Form 16. Further, the employee can claim relief under Sec 89(1) by filing Form 10E on the income tax website.

Let us understand the steps to calculate tax relief with the help of an example.

Arjun’s salary is INR 6,00,000 (50,000 per month). His employer raised the salary to INR 7,20,000 (60,000 per month) in April 2020 which is effective from March 2020.

Therefore, the year of Receipt would be FY 2020-21 and the year of Accrual would be FY 2019-20. Hence, the arrears would amount to INR 10,000 for March 2020

File Form 10E

It is mandatory to file Form 10E in order to claim the benefits under section 89(1). The taxpayer needs to file this form on the income tax e filing portal.

Calculation of Tax Relief under Section 89(1) for Salary Arrears

  1. Tax Liability on total income including arrears for year of receipt

    Calculate tax liability on total income including salary arrears in year of receipt
    Year of Receipt = FY 2020-21
    Total Income (including arrears) = INR 7,30,000
    Tax Liability = INR 60,840

  2. Tax Liability on total income excluding arrears for year of receipt

    Calculate tax liability on total income excluding arrears in year of receipt
    Year of Receipt = FY 2020-21
    Total Income (excluding arrears) = INR 7,20,000
    Tax Liability = INR 58,760

  3. Difference between Step 1 & Step 2

    Calculate difference in tax liability between step 1 and step 2
    Difference in tax liability = 60,840 – 58,760 = INR 2,080

  4. Tax Liability on total income excluding arrears for year of accrual

    Calculate tax liability on total income excluding additional salary i.e. salary arrears of financial year to which arrears are related
    Year of Accrual = FY 2019-20
    Total Income (excluding arrears) = INR 6,00,000
    Tax Liability = INR 33,800

  5. Tax Liability on total income including arrears for year of accrual

    Calculate tax liability on total income including additional salary i.e. salary arrears of financial year to which arrears are related
    Year of Accrual = FY 2019-20
    Total Income (including arrears) = INR 6,10,000
    Tax Liability = INR 35,880

  6. Difference between Step 4 & Step 5

    Calculate difference between step 4 and step 5
    Difference in tax liability = 35,880 – 33,800 = INR 2,080

  7. Relief = Step 3 – Step 6

    Tax Relief u/s 89(1) = Step 3 – Step 6. If amount in step 6 is more than step 3, no tax relief is allowed
    Tax Relief = NIL

Additionally, you can calculate tax relief under Sec 89(1) by using calculator of Income Tax Department – Relief under Section 89(1)

Income Tax Notice for Non Filing of Form 10E

From the financial year 2014-15 (the assessment year 2015-16), ITD has made it mandatory to file Form 10E if you want to claim relief under section 89(1). Taxpayers who have claimed relief under section 89(1) but have not filed Form 10E have received an income tax notice from the tax department.

FAQs

How to claim tax relief on Salary Arrears under Section 89?

Arrears or Salary advance are taxable in the year of receipt. The income tax department allows tax relief u/s 89 of the Income Tax Act to save the taxpayer from additional tax burden. Thus, the employer will calculated relief u/s 89 and report in Form 16. The employee can claim such relief in the ITR.

How to save tax on Salary Arrears?

Employee who has received arrears in salary can save tax on such additional income in the following ways:
* Calculate the relief u/s 89(1)
* File Form 10E to claim relief u/s 89(1)

Tax on Gratuity

Gratuity is a lump sum amount that an employee receives from a company when he leaves after serving continuously for five years. This is also one of the many retirement benefits. Furthermore, tax can be applicable on gratuity only where its amount exceeds the Exemption Amount as calculated under Section 10(10) of the Income-tax Act.

It is calculated based on two factors: the number of years an employee completes with an organization and the last drawn salary at the organization. It is provided by the employer to the employee on completion of 5 years of service.

Eligibility Criteria to Receive Gratuity

The employer shall pay this amount only after an individual satisfies a few basic criteria. Following are the criteria’s:

  • Employee – An individual should be an employee drawing wage from an organization. An apprentice is not eligible to receive this benefit.
  • Term – The employee should have put in continuous service for a minimum of 5 years.
  • Resignation/superannuation – It is payable only on the resignation, superannuation, or death of an employee, after completion of the requisite term.

Moreover, any organization which has 10 or more employees at a given point of time shall extend this benefit to eligible candidates.

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Gratuity Exemption

Exemption u/s 10(10) is available for this benefit received at the time of retirement/separation and for that employees has been classified into 2 categories:

  1. Govt Employees
  2. Non- Govt Employees (including PSU employees)

The whole amount received by Govt employees is fully exempt u/s 10(10)(i). This extends to employees of both State and Central Government employees, employees from the defense sector, and those working in any local authority. For Non-Govt employees / other employees, the exemption amount depends on whether the employee is covered under the Payment of Gratuity Act 1972 or not.

Tax on Gratuity

To calculate the tax-exempt gratuity amount, the law divides non-government employees into two categories. Differential tax treatment is provided based on these criteria. In case this amount is received by a nominee/heir on the demise of an employee, the amount received is liable to be taxed, falling under the “Income from other sources” head.

Employees Covered Under the Payment of Gratuity Act

This benefit received by an individual will be viewed as a part of his/her salary component, making it a taxable entity as per existing laws. If the employee is covered by Payment of Gratuity Act 1972- Exemption is available u/s 10(10)(ii). The least of the following is exempt from tax:

  1. Amount of Gratuity received
  2. INR 20 Lacs
  3. Last salary (basic + DA)* number of years of employment* 15/26

For Example:

  • Mr. A receives the following amount in the previous year:
  • Gratuity received INR 7,00,000
  • Year of service 25 years 7 months( excess of 6 months should be taken as a full year)
  • Last salary INR 40000
Sr. No. Particulars Amount (INR)
1 Last drawn salary (Basic + DA) 40,000
  Number of years of employment 26 (rounded off)
  Gratuity 40,000*26*15/26 = 600000
2 Maximum exemption allowed 20 lakhs
3 Gratuity actually received 7 Lakhs
  Amount of exemption (least of the three) 6 Lakhs
  Taxable Gratuity 1 Lakh

Note:

  • 15 days salary based on the salary last drawn for every completed year of service or part thereof i.e. 15/26.
  • A number of years in service are rounded off to the nearest full year.

Employees Not Covered Under the Payment of the Act

If the employee is not covered by Payment of Gratuity Act 1972- Exemption is available u/s 10(10)(iii) being least of the following:

  1. Amount of Gratuity received
  2. INR 20 Lacs
  3. Last 10 month’s average salary (basic + DA)* number of years of employment* 1/2

For Example:

  • Mr. B receives the following amount in the previous year:
  • Gratuity received INR 9,00,000
  • Year of service 19 years 7 months( excess of 6 months should be taken as a full year)
  • Average of last 10 month’s salary INR 70000

 

Sr. No. Particulars Amount (INR)
1 Average of last 10 month’s salary 70,000
  Number of years of employment 20 (rounded off)
  Gratuity 70,000*20*1/2 = 7,00,000
2 Maximum exemption allowed 20 lakhs
3 Gratuity actually received 9 Lakhs
  Amount of exemption (least of the three) 7 Lakhs
  Taxable Gratuity 2 Lakh

FAQ

Whether TDS is to be deducted by the employer on payment of Gratuity to Employees?

The employer shall deduct TDS only when this amount exceeds exemption amount under section 10(10) of Income-tax Act, otherwise, employer shall not deduct any TDS.

When is Gratuity Amount paid?

It is payable on:
– Superannuation (or) Retirement.
– Your Resignation (or) Termination.
– Death or Disablement due to accident or disease.
– Retrenchment (or) Layoff.
– VRS (Voluntary Retirement Scheme).

Will I get an interest in gratuity?

Yes, if the employer makes a delay in the payment of gratuity, you are entitled to get a simple interest for the same from the due date of the payment made.

How do I show my gratuity exemption in income tax?

The exemption varies and depends on whether you are covered under the Payment of Gratuity Act or not. The maximum limit is INR 20 lakhs. In the ITR form, firstly enter the amount as income after deducting the exempted amount under the head Income from Salaries. Secondly, the same exempted amount to be entered in the ‘Exempt Income’ section for verification.

Income Tax on Pension

The employer pays the employee a certain amount regularly in consideration of his past service. These periodic payments are Pension. Pension is taxable under the head “Income from Salary“. Further, pension received by a family member of the deceased employee is taxable under the head “Income from other sources.”

Pensions received from UNO by its employees or their family is exempt from tax. Pension received by family members of armed forces is also exempt. 

Commuted and Uncommuted Pension

  • Employees may choose to receive a certain percentage of their pension in advance at the time of retirement. Such pension received in advance is called commuted pension. This is payable as a lump sum amount. For example, a person has entitled to INR 10000 pm. He/She may decide to receive 25% of his monthly pension in advance for the next 10 years worth INR 10,000. Therefore, 25% of INR 10000x12x10 = INR 3,00,000 is your commuted pension.
  • Commuted pension is fully exempt for a government employee. However, for a non-government employee, it is partially exempt.
  • A non-government employee who receives pension along with gratuity, 1/3rd of the 100% of the commuted pension is exempt. Balance is taxable under the salary head.
  • A non-government employee receiving only a pension and not a gratuity, 50% of the 100% of the commuted pension is exempt.
  • Uncommuted pension refers to periodic payments received by the individual. Any amount received as Uncommuted Pension is fully taxable in the hands of both government and non-government employees.
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Tax of Commuted and Uncommuted Pension

  • Uncommuted pension or any periodical payment of pension is fully taxable as salary.
  • Commuted or lump sum pension received may be exempt in some instances.
    • For a government employee, commuted pension is fully exempt.
    • 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.
      • And in case the only pension is received and gratuity is not received – ½ of the amount of pension that would have been received, if 100% of the pension was commuted, is exempt.

Income Tax on Pension received by Family Member

Pension received by the family member of the deceased employee is taxable under the head income from other sources. Commuted or lump-sum payment of family pension is not taxable.

Uncommuted pension received by a family member is exempt to the extent of INR 15,000 or 1/3rd of the uncommuted pension received – whichever is less. For example, a family member receives a monthly pension of INR 50,000/-. So the exemption will be INR 15,000/- [lower of INR 15,000/- or INR 16,665/- (INR 50,000*33.33%)]. Thus, the taxable family pension will be INR 35,000/- ( 50,000 – 15,000 ).

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Tax Treatment of Pension

  • While filing ITR-1 you have to choose the ‘Pensioners’ option in the field ‘Nature of Employment’ under the general information section.
  • Whereas in other ITR’s nature of employer is as “Pensioners” in the salary schedule. Therefore, pension income taxable as ‘salary’ has to be reported by mentioning the name, address, tax collection account number (TAN) of the employer and the TDS thereon.
  • Amount of the pension to the extent tax-exempt must be entered in the field ‘Commuted value of pension received under Section 10(10A)’ under the ‘Allowances to the extent exempt under section 10’. We have to report excess amount as ‘Annuity Pension’ under ‘Salary under Section 17(1)’
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FAQ

Do I have to file taxes on pension income?

The pensioners are liable to pay income tax on pension if their total income exceeds the maximum exemption limit.

If I receive my pension through a bank who will issue Form-16 or pension statement to me- the bank or my former employer?​​​​

If you are a pensioner, the bank through which you are receiving your pension will issue Form 16.
Hence pension paying branch is bound to give Form 16 for the period and thereafter.

Is Family pension taxed as salary income?​​​

No, it is taxable as income from other sources.​ However, commuted Family Pension is exempt.

Professional Tax : Meaning, Rates, and Applicability

In your Form 16 or Salary slips you may have come across “Professional Tax” along with other Salary breakups. Your employer pays this tax to the state government on your behalf. The deduction is generally of INR 200. The amount of professional tax differs from state to state. Not all states in India chose to levy this tax. State Government is also empowered to make laws with respect to profession tax.

What is Professional Tax?

It is not only the tax levied on professionals, but it is a tax on all kinds of professions, trades, and employment. And it is levied based on the income of such profession, trade, and employment. It is levied on employees, a person carrying on the business including freelancers, professionals, etc., subject to income exceeding the threshold if any. This tax is levied by a state government. Further, this tax can be paid either online/offline.

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Professional Tax Slab

The rate of professional tax varies from one state to another. However, the limit has been set to Rs. 2500 per year as per Article 276 of the Constitution. Therefore, each state declares a slab, and the tax is deducted on the basis of these slabs. Here are some illustrative Profession Tax slabs in a few states:

Maharashtra

Income per month (INR) Tax per month in INR
Up to 7500 for Men Nil
Up to 10000 for Women Nil
7500 TO 10000 for Men 175
10000 and above 200 ( And 300 for February)

Gujarat:

Income per month (INR) Tax per month (INR)
Upto 5999 Nil
6000 to 8999 80
9000 to 11999 150
More than 12000 200

Karnataka:

Income per month (INR) Tax per month (INR)
Upyo 15000 Nil
More than 15000 200

Tamil Nadu:

Income per month (INR) Tax per month (INR)
Upto 21000 Nil
21,001 to 30,000 100
30,001 to 45,000 235
40,001 to 60,000 510
60,001 to 75,000 760
75,001 and above 1095

Who is Responsible for deducting Profession Tax?

Self-employed persons who carry out their profession or trade on their own and fall in the ambit of profession tax are liable to pay the tax themselves to the state government. In the case of salaried individuals and wage earners, the employer is liable to deduct profession tax on a monthly basis. Therefore, the employer needs to register and obtain both the Professional Tax Registration Certificate to be able to pay professional tax on his trade or profession and Professional Tax Enrolment Certificate to be able to deduct the tax from his employees and pay. List of forms for payment of Profession Tax.

Consequences

If a person fails to get registration, then he will be liable to a penalty for the period during which he remains unregistered. However, the actual amount of penalty or interest shall depend upon State’s Legislation. Non-payment of tax or a late payment attracts a 10% additional tax.

Procedure to Pay Professional Tax

In general, a professional tax may be paid either online/offline. Further, depending on the State’s requirement, professional tax returns also need to be filed at specified intervals.

FAQs

Why does Profession tax differ from one state to another?

As professional tax is levied by the state government, it usually differs from one state to another. Each state has its own slab that it declares and the profession tax is deducted based on these slabs.

Is Profession tax applicable in Union territories?

As Union Territories are small regions of the country, they tend to generate lower revenue than states. Hence, professional tax is not applicable to employees working in a Union Territory.

Who is exempted professional tax?

There are a few categories of people that get benefit of tax exemption:
– Senior citizens are exempt from professional tax.
– Parent of a mentally challenged child is exempt from this tax.
– Persons or parents of children suffering from physical disability are exempt from paying professional tax.

Form 10BA : Claim Deduction under section 80GG

What is Form 10BA?

Form 10BA is a declaration to be filed by a taxpayer who wants to claim deduction under section 80GG for rent paid on rental property. In order to claim deduction u/s 80GG following two conditions should be satisfied:

  1. ​The taxpayer should not be receiving HRA from an employer AND,
  2. ​The taxpayer, his spouse, minor child or if the assessee is a member of HUF, then the HUF should not own any self-occupied residential accommodation.

If both the above conditions are satisfied, then the taxpayer can submit a declaration in Form 10BA. A taxpayer should submit Form 10BA before filing ITR.

Other important ITR documents include: Form 16, Form 26AS, Form 12BB, Form 15G & Form 15H.

  • Taxpayer’s Name and PAN,
  • Address of rental property,
  • Rent paid,
  • Name and Address of Landlord.
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Example

During FY 2019-20, Arun was employed for the first 6 months and after that, he started doing freelancing work. Arun stayed at rented premises during the entire year. During his employment he received HRA. He does not own any self-occupied house property.

In the above scenario, Arun is eligible to claim deduction under section 80GG and can file Form 10BA for the last 6 months’ rent paid by him. Since he was not receiving any house rent allowance during that time and he did not own any self-occupied property.

How to submit Form 10BA?

A taxpayer has to submit the form online from his/her e-filing account on IT Department website.

  1. Go to the Income Tax e-Filing Portal

    Log in to the e-filing account from the e-filing portal.

  2. Navigate to e-file > Income Tax Forms

    It is right next to the My Account tab.

  3. Select FORM NO. 10BA from the drop-down, select the relevant Assessment Year

    Select Submission Mode as Prepare and Submit Online and click Continue.

  4. Enter the details like Name of Landlord, Details of Rent Paid etc.

    Preview and submit

What are the details required in Form 10BA?

Following details are required:

It is advisable to submit Form 10BA before filing income tax return and claiming deduction under section 80GG.

FAQs

Can I claim a deduction on rent paid if House Rent Allowance forms part of my salary?

No. As per primary conditions, you can not claim a deduction on rent paid if you receive an allowance from your employer. In this case, only HRA is allowed as deduction.

I am a freelance and I stay in rented premises, can I claim a deduction under section 80GG and file Form 10BA?

Yes, you can file Form 10BA. Provided you, your spouse, a minor child or your HUF does not own any self-occupied residential accommodation.

When can I claim deduction under section 80GG?

You can claim deduction u/s 80GG while filing your ITR. However, Form 10BA needs to be filed before filing ITR.