AMT – Alternative Minimum Tax under Section 115JC

The Income Tax Department had introduced the provision of AMT i.e. Alternate Minimum Tax for taxpayers other than Company. The government had introduced incentives and deductions to specified industries to encourage investment and growth. There were many taxpayers who misused the provision by paying zero tax. Thus, the IT department introduced MAT (Minimum Alternate Tax) for Companies and AMT (Alternative Minimum Tax) for taxpayers other than Company. As part of AMT, the government ensured collecting minimum tax from such taxpayers. Further, it also gave an option to carry forward the AMT Credit and adjust it in future years.

Applicability of AMT

The provisions of Alternative Minimum Tax are applicable to the following category of taxpayers:

  1. Individual, HUF, AOP (Association of Persons) or BOI (Body of Individuals) if the adjusted total income exceeds INR 20 lacs
  2. Any other taxpayer (other than Company) irrespective of the total income.

The AMT provisions are applicable to the above category of taxpayers only if:

  • Taxpayer claims a deduction under Section 80H to Section 80RRB (except Section 80P)
  • Taxpayer claims a deduction under Section 35AD.
  • The taxpayer claims a deduction under Section 10AA.

AMT Rate & Adjusted Total Income

Rate of Alternative Minimum Tax is 18.5% of the Adjusted Total income. In addition to this, surcharge and cess are applicable. Calculate the adjusted total income in the following manner:

  Particulars Amount (INR)
  Taxable Income XXXX
Add Deduction claimed u/s 80H to 80RRB (except 80P) XXXX
Add Deduction claimed u/s 35AD reduced by regular depreciation allowed as per Section 32 XXXX
Add Deduction claimed u/s 10AA XXXX
  Adjusted Total Income XXXX
  AMT – 18.5% of Adjusted Total Income XXXX

Tax Liability if AMT is applicable

If the provisions of Alternative Minimum Tax are applicable, Tax Liability would be higher of the following:

  • Tax Liability as per normal provisions of the Income Tax Act
    Calculate Total Income of the taxpayer from all sources of income and after claiming Chapter VI-A deductions. Calculate Tax Liability on the Total Income as per the applicable slab rates.
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore
  • Tax Liability as per AMT Rate
    Calculate Adjusted Total Income of the taxpayer as per the above table. Calculate Tax Liability on the Adjusted Total Income at the rate of 18.5%.

Example

Taxable Income of Samir for FY 2019-20 is INR 18,00,000. The taxable income is computed after claiming the deduction of INR 3,00,000 under Section 80QQB for a royalty on books. Is he covered under the provisions of AMT? Calculate Tax Liability.

Solution

  1. Calculate Adjusted Total Income

    Taxable Income = INR 18,00,000
    Add: Deduction u/s 80QQB = INR 3,00,000
    Adjusted Total Income = INR 21,00,000

  2. Applicability of AMT

    Adjusted Total Income exceeds INR 20 lacs. Therefore, the provisions of Alternative Minimum Tax are applicable.

  3. Calculate Tax Liability as per normal provisions

    Tax on Total Income of INR 18,00,000 as per slab rates
    Basic Tax = INR 3,52,500
    Total Tax = Basic Tax + Cess = 3,52,500 + 4% Cess = INR 3,66,600

  4. Calculate Tax Liability as per AMT provisions

    Tax on Adjusted Total Income of INR 21,00,000 at 18.5%
    Basic Tax = INR 3,88,500
    Total Tax = Basic Tax + Cess = 3,88,500 + 4% Cess = INR 4,04,040

  5. Final Tax Liability

    Higher of the above = INR 4,04,040

  6. AMT Credit

    Tax as per AMT – Tax as per Slab rates = 4,04,040 – 3,66,600 = INR 37,440. The AMC Credit can be carried forward for 15 years.

AMT Credit

A taxpayer to whom provisions of Alternative Minimum Tax are applicable pays tax as per normal provisions or as per the rate of 18.5% whichever is higher. When the tax liability for a financial year is paid as per Alternative Minimum Tax, the taxpayer can claim the credit of excess tax paid in the future financial years as per Section 115JD of the Income Tax Act. Excess Tax is the amount of Alternative Minimum Tax paid in excess of tax as per normal provisions.

The AMT Credit can be carried forward for a period of 15 financial years. If the taxpayer is unable to utilise the AMT Credit in 15 years, this credit will lapse. No interest is paid on such credit.

Example

Aryan Enterprises is a Partnership Firm covered under the provisions of Alternative Minimum Tax. Below are the details:

FY 2019-20

Tax Liability as per normal provisions = INR 15,00,000
Tax Liability as per AMT provisions = INR 18,00,000

Final Tax Liability = INR 18,00,000 (higher of the above)
Carry Forward AMT Credit = INR 3,00,000 (18,00,000-15,00,000)

FY 2020-21

Tax Liability as per normal provisions = INR 10,00,000
Tax Liability as per AMT provisions = INR 9,00,000
Brought forward AMT Credit from FY 2019-20 = INR 3,00,000

Final Tax Liability = INR 10,00,000 (higher of the above)
Since there is an AMT Credit of the previous financial year, the taxpayer can utilise AMT Credit up to the extent of difference between tax liability as per normal provisions and tax liability as per AMT.

Thus, the credit can be utilised for INR 1,00,000 (10,00,000-9,00,000). Remaining Credit of INR 2,00,000 can be carried forward to future years.

Report from CA

A taxpayer to whom the provisions of Alternative Minimum Tax are applicable should obtain a report from a Chartered Accountant in Form 29C. It is the report under Section 115JC of the Income Tax Act Under this report, the CA would certify that the Adjusted Total Income and AMT is calculated as per the provisions of the Income Tax Act.

Budget 2020 : Highlights

The Finance Minister, Nirmala Sitharaman had presented the budget 2020 on the 1st of February 2020. The record-breaking 2 hours and the 30-minute speech by the Finance Minister had many major announcements. The major highlights of the budget 2020 that have been covered under this article are as follows:

New Tax Regime v/s Current Tax Regime

Income Tax Slab Rates

According to the Finance Minister, the taxpayers now have the option to either continue with the current tax regime or join the new tax regime in the upcoming Assessment Year. The major difference between both of these tax regimes is the exemptions and deductions. The given below tables shows the slab rates under both the tax regimes:

Income Range Current Income Tax Rates New Income Tax Rates
Up to INR 2,50,000 NIL NIL
INR 2,50,001 to INR 5,00,000 5% 5%
INR 5,00,001 to INR 7,50,000 20% 10%
INR 7,50,001 to INR 10,00,000 20% 15%
INR 10,00,001 to INR 12,50,000 30% 20%
INR 12,50,001 to INR 15,00,000 30% 25%
Above INR 15,00,000 30% 30%

The Finance Minister announced that under the new tax regime, the basic tax exemption limit will remain the same for all assessees including the senior citizens. Therefore, in case you opt for the new regime, there will be no higher tax exemption for the senior and super senior citizens.

Changes in Deductions and Exemptions

According to the announcement made in the budget 2020, there have been major removals of tax exemptions and deductions. This has made compliance tax less tedious. Here is the list of what deductions have stayed and what deductions have been removed:

Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore

Changes under Income from House Property

Changes in Deductions on Home Loan interest- Section 24(b)

No claim of home loan Interest on Self Occupied House Property: Individuals who have taken a home loan on their self-occupied property and are paying interest on it, can not claim that interest deduction under Section 24(b).

A claim of home loan Interest on Rental House Property: Under the new income tax regime, individuals can claim interest on home loans for let out property only up to the amount of their rental income.

The setting off losses from house property

As per the new income tax regime, losses from house property can only be set off against other income from house property. Moreover, losses from income from house property cannot be carried forward in the new income tax regime.

Deduction for first-time Homebuyers

Deduction u/s 80EE & Section 80EEA gives relief on interest paid on home loans for first time home buyers. This deduction is no longer available for taxpayers following the new income tax regime.

ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
[Rated 4.8 stars by customers like you]
ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
[Rated 4.8 stars by customers like you]

Other Important Highlights of the Budget 2020

Dividend Distribution Tax (DDT)

Dividend Distribution Tax (DDT) has been abolished for the companies. However, the dividend is now taxable for the shareholders at the rate of 15%.

Corporate Tax

Tax on co-operative societies has been reduced from 25% to 22% without exemptions. Additionally, manufacturing startups will have to pay a 15% tax if they have registered after 1 October 2019, as long as they commence operations by 31 March 2023.

Foreign Portfolio Investment (FPI)

Foreign Portfolio Investment (FPI) is an investment by non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc. Post budget 2020, the limit in corporate bonds has been raised from 9% to 15%.

ITR for NRIs & Foreign Nationals
CA Assisted Income Tax Return filing for Non-Resident Indian Individuals having taxable income in India.
[Rated 4.8 stars by customers like you]
ITR for NRIs & Foreign Nationals
CA Assisted Income Tax Return filing for Non-Resident Indian Individuals having taxable income in India.
[Rated 4.8 stars by customers like you]

Residential Status

Residential status conditions have been amended in Budget 2020. 180 days in the previous financial year has been reduced to 120 days.

Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
Explore
Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
Explore

FAQs

How to calculate self-occupied house property income?

​A Self Occupied House Property is the one that you use as your own residence. This property may also be used by your children, spouse and/or parents. Since there is no Income from such House Property, the gross annual value of this property is NIL (zero).

​Since the gross annual value in the case of Self Occupied House Property is zero, claiming a deduction for Home Loan interest will result in a Loss from House Property. This loss can be adjusted against income from other heads.

What are the conditions to claim deduction u/s 80EEA?

Deduction u/s 80EEA is available subject to given below conditions:

1. The stamp duty value of residential houses shall be up to Rs. 45 lakh.
2. The deduction can be claimed only by individual taxpayers.
3. The loan is taken from a financial institution.
4. The loan has been sanctioned between 01-04-2019 to 31-03-2020.
5. Assessee is not claiming any deduction under section 80EE.
6. The assessee owns no residential house property on the date of sanction of loan.

Is TDS deducted on dividend paid to a non-resident shareholder?

Yes. Domestic Company distributing dividends to a shareholder not resident in India should deduct TDS at the prescribed rates as per Section 195 of the Income Tax Act. In the case of a resident shareholder, TDS should be deducted at the rate of Sec 194 or Sec 194K.

What are the general documents needed to file ITR?

Following are the documents required to file ITR:

1. Aadhaar
2. PAN
3. Bank account details
4. TDS Certificate (Form 16, 16A, 26AS)
5. Tax payment challan (Self-assessed or Advance tax)
6. Original notice (In case of refiling the ITR)

Income Tax : Rates, Due Date and Return Filing in India

Income Tax is a type of direct tax that you pay on income earned during the financial year. In India, a direct tax is governed as per Income Tax Act, 1961 along with Income Tax Rules, 1962 Income Tax is levied based on the different types of incomes and taxpayers.

Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]
Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]

Who should file Income Tax Return (ITR)?

A taxpayer is required to file ITR if their income is more than the basic exemption limit. The basic exemption limit for Individuals and HUFs below the age of 60 years is INR 2.5 Lakh in AY 2019-20.

However, a taxpayer with income less than the basic exemption limit can also file an ITR. This is known as a NIL return.

Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore

What are the Due Dates to file Income Tax Return (ITR)?

Category Due Date
Individuals to whom audit is not applicable 31st July of the Assessment Year
Companies 30th September of the Assessment Year
Individuals to whom audit is applicable 30th September of the Assessment Year
Individuals/ HUF who are partners in a firm and firm’s accounts are subject to audit 30th September of the Assessment Year

Due Date for Filing ITR for AY 2021-22

What are the Documents required to file ITR?

The basic documents required to file ITR are:

  • PAN (Permanent Account Number)   
  • Aadhar Number
  • Form 26AS
  • Bank Account Details
  • Challan of any advance tax or self-assessment tax (if paid during the year)
  • Details of the original return (if filing a revised return)

However, documents required to submit ITR may differ based on the income situations and ITR form the taxpayer has to file.

Which ITR Form to File?

The ITR form a taxpayer should file differs based on their income source and residential status. The Income Tax Department has prescribed 7 different ITR forms for different income situations. The taxpayer is required to choose the ITR Form that is applicable to them for that particular assessment year. The most common ITR form filed by individual taxpayers is ITR 1 or ITR 4.

ITR-1 (SAHAJ) The most basic ITR form for individuals having income up to Rs. 50,00,000 from salary/pension, one house property, and interest.
ITR-2 For individuals/HUF having income from salary/pension, multiple house property, capital gains, interest, and partner’s income from the partnership firm.
ITR-3 For individuals/HUF having income from salary/pension, multiple house property, capital gains, interest, and income from proprietary business or profession.
ITR-4 For individuals/HUF/Partnership firms having income from presumptive business or profession.
Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
Explore
Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
Explore

What are the Income Tax Rates for AY 2019-20?

Income is taxed based on the category of a taxpayer. In India, income tax rates are declared every year in Union Budget by the finance minister. The Income Tax Slab Rates for Individuals and HUFs below the age of 60 years are:

Taxable Income Tax Rate
Up to INR 2,50,000 Nil
INR 2,50,000 to INR 5,00,000 5%
INR 5,00,000 to INR 10,00,000 20%
Above INR 10,00,000 30%
  • Rebate u/s 87A of INR 2,500 or 100% of the tax (whichever is lower) is available to Individuals with income is less than Rs. 3,50,000
  • A surcharge is applicable if your taxable income is:
    • between INR 50,00,000 to 1,00,00,000 : Surcharge 10%
    • above INR 1,00,00,000 : Surcharge 15%
  • Health & Education Cess is 4% on the total of income tax + surcharge

How to file ITR?

You can file Income Tax Return using:

  • Income Tax e-filing Website
    • Income tax account
    • IT utilities
  • ERI (e-Return Intermediary): these are government-approved intermediaries like Quicko

e-File ITR using Income Tax e-Filing Website

To e-file your ITR by using an income tax e-filing website, you should use your income tax e-filing account.

  • Log in to the e-Filing portal by entering the user ID (PAN), Password, Captcha code and click ‘Login’.
  • Navigate to e-file > Income Tax Return
  • Select ITR Form, Assessment Year and other details
  • Prepare your ITR
  • Pay Self-Assessment Tax if you have outstanding tax dues. Or claim Tax Refund if you have paid excess tax during the financial year.
  • Click on ‘Submit’ to e-File your ITR.

e-File ITR using Income Tax Utilities

Income Tax Department provides Java and Excel utilities to prepare and e-file your income tax returns. These utilities allow the taxpayer to prepare their ITR offline, and using the income tax e-filing account the taxpayer can submit their ITR.

  • Go to incometaxindiaefiling.gov.in click on Offline Utilities under the Download section. Now go to Income Tax Return Preparation Utilities and select the assessment year
  • Select the ITR Form you are required to file and Download ITR Utility for that ITR Form.
  • Extract the files from a zip folder: You need to have java runtime environment to unzip the utility
  • Prepare your ITR offline
  • Upload the utility on your Income Tax e-filing account.
Track Your ITR Status
Check your Income Tax Return Status using the PAN and Acknowledgment number - which is allocated by the Income Tax Department after filing your ITR.
Explore
Track Your ITR Status
Check your Income Tax Return Status using the PAN and Acknowledgment number - which is allocated by the Income Tax Department after filing your ITR.
Explore

What is ITR e-Verification?

ITR filing process is not complete until you e-Verify your return. When a taxpayer files the ITR, they receive ITR V on their registered email id from the income tax department. ITR-V means Income Tax Return Verification Form, it is also known as ITR-V (Acknowledgement). 

You can e-verify your ITR by the following methods:

ITR e-Verification
An expert assisted Income Tax Return(ITR) e-verification for Individuals and HUFs.
[Rated 4.8 stars by customers like you]
ITR e-Verification
An expert assisted Income Tax Return(ITR) e-verification for Individuals and HUFs.
[Rated 4.8 stars by customers like you]

FAQs

What is the due date to file the Income Tax Return (ITR)?

The due date to file the Income Tax Return (ITR) for individuals, Hindu Undivided Families (HUF), and taxpayers whose accounts are not required to be audited July 31st unless extended by the government.

What are the Income Tax slab rates for individuals?

The Income Tax slab rates for individuals for the Financial Year 2020-21 are given below. The table consists of both the current regime and new regime tax slab rates.

What are the basic documents required to file Income Tax Return (ITR)?

PAN (Permanent Account Number)   
Aadhar Number
Form 26AS
Bank Account Details
Challan of any advance tax or self-assessment tax (if paid during the year)
Details of the original return (if filing a revised return)

Is it necessary to verify the Income Tax Return (ITR)?

The Income Tax Return (ITR) filing process is not complete until the filed ITR is verified by the taxpayer. The taxpayer can either e-verify the ITR or can send signed ITR-V (Acknowledgement) to the Income Tax Department (ITD). If the e-Verification of ITR is not possible then the taxpayer needs to send the signed ITR-V to the Income Tax Department within 120 days at CPC Bangalore.

Income from Salary & Taxes

What is Income from Salary?

Salary Income is simply the paycheque you get every month from your employer. An amount received from your employer in the form of bonus, allowance, perquisites, etc. is a part of your Salary Income only.

Pension received by you after your retirement (not family pension) is also a part of the head Salary Income.

So first let’s have a look at components of salary income:

  • Wages
  • Annuity or Pension
  • Gratuity
  • Fees, Commission, allowances, perquisites or profits in lieu of salary
  • Advance of Salary
  • Amount transferred from unrecognized provident fund to recognized provident fund
  • Contribution of the employer to a Recognised Provident Fund in excess of the prescribed limit
  • Leave Encashment
  • Compensation as a result of variation in Service contract etc.

Moreover, this is an inclusive and not an exhaustive list.

Upload Form 16
File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Upload Form 16

File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

What is the Pension Income?

The employer pays a certain amount to his employee after retirement on a periodic basis for the services rendered by him during his job. This is known as Pension. Pension is taxable under the head Income From Salary.

There are mainly two types of pension:

  • Uncommuted Pension: A periodical payment of pension received by the employee after retirement. Uncommuted pension is fully taxable to Government and Non-Government employees under the head Income from Salaries.
  • Commuted Pension: A lump sum payment received by the employee at the time of retirement. In the case of Government employees commuted pension is fully exempt. Whereas in the case of non-government employee it is as follows:
Particulars Tax Treatment
Gratuity Received by pensioner ⅓ of the pension which he is normally entitled to receive is exempt from tax
Gratuity Not Received by pensioner ½ of the pension which he is normally entitled to receive is exempt from tax

Please keep in mind that ‘pension’ and ‘family pension’ are two separate things. An employer receives a pension after his/her retirement, and therefore, it is taxable under the head Salary. Whereas family pension is received by the nominated family members of the employee after his death. Additionally, for family members who receive a family pension, it is taxable under the head Income from Other Sources.

A salaried individual can file ITR 1ITR 2ITR 3, and ITR 4. Of Course, the applicability of ITR depends upon all the sources of income but salary income can be filed in all these ITRs.

Understanding Salary Income and Salary Slip

From the taxability point of view, it is very important that you understand your salary slip and its components. Additionally, the salary structure may vary from employer to employer. Salary Slip is divided into the following two parts:

Earnings

  1. Basic Salary,
  2. HRA (House Rent Allowance),
  3. LTA (Leave Travel Allowance),
  4. Conveyance Allowance,
  5. Dearness Allowance,
  6. Special Allowance.

Deductions

  1. Professional Tax,
  2. Employee’s Provident Fund (EPF/PF),
  3. TDS/ Income Tax.

Why Should Salaried Person File ITR?

It is mandatory to file the ITR if the gross total income exceeds the limit of INR 2,50,000 in the FY, subject to certain conditions. The limit for senior citizens is INR 3,00,000. Furthermore, it is also important to file an ITR for such individuals to:

  • Avail tax refunds
  • Has assets outside of India
  • Required to carry forward loss under any other head of income, etc

Which ITR should a Salaried Person File?

The Income Tax Department (ITD) requires salaried individuals to file the ITR 1 Form. In this case, their total salary should be under INR 50 lakhs, inclusive of both salary income and income from other sources. Furthermore, the individual should not have more than one house property and their income from agriculture (if any) should not exceed INR 5,000. They can also file ITR 2 if they have income from salary, more than one house property, income from capital gains and IFOS. Individuals can file ITR 3 if they receive income from business and profession in addition to the above mentioned incomes.

Calculate the Taxable Income from Salary

Salary Income is taxable on the basis of accrual or payment whichever is earlier. Hence in simple terms even if you receive your March months salary in April of next financial year it would still be taxable in the current financial year only.

Taxable Salary Income can be calculated in the following manner:

  1. Add up all the amounts you received from your employer

    Be it in the form of remuneration, wages, gratuity, commission, allowances, perquisites, bonus, etc.

  2. Deduct all the allowances to the extent they are exempt u/s 10.

    Like House rent allowance (HRA), Transport allowance, Medical Allowance, Uniform Allowance, etc.

  3. Deduct section 16 deductions i.e, the Professional tax, Standard Deduction, and Entertainment Allowance.

    This resulting figure will be your taxable salary income.
    In your Form 16 Part B, this figure will be reflected against the line no. 6 “Income chargeable under the head Salaries”

File Your Tax Return

On Time , Online on Quicko.com

Open Your Account Today

File Your Tax Return

On Time , Online on Quicko.com

Open Your Account Today

Difference Between CTC and Take Home Salary

What is CTC?

CTC stands for Cost to Company, which is actually the cost company bears for an employee. CTC includes the basic salary, all the allowances/ benefits, and employer’s contribution to retirement benefits. Allowances and benefits include HRA, LTA, Special Allowance, Free Meals, etc. And retirement benefits include the Employee Provident Fund (EPF), Gratuity, etc.

CTC = Basic Salary + All Allowances + All the Benefits + Retirement Benefits
Tip
CTC = Basic Salary + All Allowances + All the Benefits + Retirement Benefits

What is Take Home Salary?

The salary that gets credited to your bank account is your Take Home Salary. Take-Home Salary is also known as Net Salary. Take-Home Salary is computed after deducting taxes & contributions from CTC. As a result, your Take Home Salary will be lower than your CTC.

Example

Vijay is a fresher and the following is the salary offered to him.

Components Amount 
Basic Salary 5,00,000
House Rent Allowance 1,00,000
Leave Travel Allowance 15,000
Free meal (Non-Monetary Benefits) 15,000
Conveyance Allowance 19,200
Special Allowance 1,50,000
Employer’s Contribution to EPF (12% of basic salary) 60,000
Employee’s Contribution to EPF (12% of basic salary) 60,000
Bonus 1,00,000
Taxes/TDS 66,785

Following will be the CTC for Vijay

 

Components Amount
Basic Salary 5,00,000
House Rent Allowance 1,00,000
Leave Travel Allowance 15,000
Free meal (Non-Monetary Benefits) 15,000
Conveyance Allowance 19,200
Special Allowance 1,50,000
Employee’s Contribution to EPF (12% of basic salary) 60,000
Employer’s Contribution to EPF (12% of basic salary) 60,000
Bonus 1,00,000
Taxes/TDS 66,785
CTC  10,85,985

 

Following will be the Take Home Salary of Vijay

Components Amount 
Basic Salary 5,00,000
House Rent Allowance 1,00,000
Leave Travel Allowance 15,000
Conveyance Allowance 19,200
Special Allowance 1,50,000
Bonus received 80,000
Total Salary 8,64,200
Less: Employee’s Contribution to EPF (12% of basic salary) (60,000)
Less: TDS (66,785)
TAKE HOME SALARY 7,37,415

Conclusion

  • As you can see that the major differentiators between the CTC and the Take Home Salary are Non-Monetary Benefits, employee’s contribution to EPF, and Taxes.
  • Here the free meals worth Rs. 15,000 as per Vijay’s CTC will not be paid to him but he may be given coupons. Which can be redeemed for availing the benefit of a free meal. As a result, it will not form part of his Take Home Salary.
  • Vijay’s contribution to EPF will be deducted since it’s a mandatory investment. And it is not paid out to him every month.
  • At last, after deduction of the TDS & Professional tax, Vijay will get his Take Home Salary.
ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
[Rated 4.8 stars by customers like you]
ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
[Rated 4.8 stars by customers like you]

Tax Deductions on Income from Salary

Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

For eg,

  • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
  • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
  • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

How to Calculate Tax on Income from Salary?

Income from Salary is taxed at the applicable slab rate. In the case of salary, TDS is deducted by an employer every month. The employer deducts TDS after taking into account the Investment Declaration (Form 12BB) submitted by the employee. You can know this TDS amount from your Form 26AS or Form 16 Part A.

Although it is the responsibility of the employer to deduct the tax from salary. An employee needs to calculate Tax liability while e-filing ITR. An employee ends up with tax dues if TDS deducted by an employer does not match with income tax payable.

Income tax rates for individuals below the age of 60 years are as follows:

Income Slab Tax rate (For FY 2019-20 )
Up to Rs. 2,50,000* No Tax
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Rs. 10,00,000 and above 30%
Surcharge @ 10% of the total income tax if total income exceeds Rs. 50 Lakhs and up to Rs. 1 Cr. Surcharge @15% if total income exceeds Rs. 1 Cr.  
Health & Education Cess @ 4% on the total of income tax and surcharge.  

* In case of senior citizens (within the age group of 60 – 80) the basic exemption limit is Rs. 3,00,000. In the case of a super senior citizen (aged above 80 years) the basic exemption limit is Rs, 5,00,000.

Income Tax Calculator
Calculate your Income tax liability. And Compare tax liability as per New vs Old Tax Regime
Explore
Income Tax Calculator
Calculate your Income tax liability. And Compare tax liability as per New vs Old Tax Regime
Explore

Document Checklist for Filing ITR for Income from Salary

Form 16 or salary certificate

Any salaried individual, whose TDS has been deducted from his salary by the employer, receives Form 16 from his/her employer. Form 16 is a detailed statement that shows the salary earned during a Financial Year along with deductions, exemptions, and tax deducted from the salary in that year. If no tax is deducted even then the employee can ask for the issue of salary certificate.

Form 26AS

Form 26AS is a consolidated Tax Credit Statement which provides the following details to a taxpayer.

  • ​Details of taxes deducted from the taxpayer’s income.
  • ​Details of taxes collected from taxpayer’s payments.
  • Advance Taxes, Self Assessment Taxes and Regular Assessment Taxes paid by the taxpayers.
  • Details of the refund received during the year.
  • Details of any high-value transactions (for eg. Shares, Mutual Funds, etc.).

It is very important to check Form-26AS before e-filing the Income Tax Return because no one would want their tax credits to be unclaimed.

Salary Slip

Salary slip is given by the employer to you on a monthly basis. It will also include your gratuity leave encashment as well. An Individual must keep the details of gratuity or leave encashment that has received or is yet to be received no matter if it is taxable or not while filing their ITR.

If an individual, changes their job in the middle of the Financial Year, all Form 16 submitted by him/her should be considered.

Pension Certificate

Employee pension is also treated as salary income and therefore becomes taxable. It is wise to collect the Pension certificate through Form 16 from the bank as per requirements.

PF Passbook

Provident Funds are set up to encourage social security for both employees. Employees contribute a fixed amount of their basic pay towards this fund and the employer also contributes the same amount in many cases. The entire amount credited to the employee’s account can be taxable or not taxable. But for references, he/she should have their Provident Fund Passbook ready with all the details.

Form 12BB

Form 12BB also known as Investment Declaration/Investment proof is basically a disclosure of all their tax-saving investments in that particular Financial Year. It is required by the employer for an accurate calculation and deduction of TDS on salary income. It needs to be submitted at the beginning of every financial year.

FAQs

What is a tax exempt allowance?

Allowances are fixed periodic amounts, apart from salary. Therefore, they are paid by an employer for the purpose of meeting some particular requirements of the employee. E.g., House Rent Allowance, Transport Allowance, Uniform Allowance, etc. 
There are generally three types of allowances for the purpose of the Income-tax Act
1. Taxable allowances,
2. Fully exempted allowances and
3. Partially exempted allowances​

Is pension income taxable?

Yes, Pension income is taxable as salary income. However, family pension will be taxable under the head income from other sources.

Is leave encashment taxable?

It is taxable if received while in service. However, leave encashment received at the time of retirement is exempt in the hands of the Government employee. Moreover, in the hands of non-Government employee leave, encashment will be exempt subject to the limit prescribed by the Income-tax act.​

What is the tax treatment of Arrears of Salary?

Any arrears of salary received are taxable under section 15 of the Income Tax Act. It is taxable in the year of receipt under the head Income from Salary. However, relief u/s 89 is available on the same.

Which ITR needs to be filed by a salaried individual?

Salaried individual needs to file ITR-1 every year by 31st July of the next year. ITR-2 needs to be filed if the total salary is more than Rs. 50 lakhs.

What is the tax treat of advance salary received?

Advance salary received is taxable in the year of receipt u/s 15 of the income tax act. It is taxable under the head Income from Salary and relief u/s 89 is available on the same.

Who should file Income Tax Return (ITR)?

It is important to file your Income Tax Return (ITR) if your taxable income is more than the basic exemption limit. However, irrespective of the income it is mandatory to file ITR for certain income situations. Let’s look at scenarios under which it is mandatory to file an income tax return in India.

Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore

When is it Compulsory to File ITR?

It is mandatory to file ITR under the certian conditions irrespective of the basic exemption limit:

  • If your Gross Total Income for a financial year exceeds the basic exemption limit as per the following table: (Gross total income is income before claiming deductions such as 80C,80D,80TTA)
Category Basic Exemption Limit
Individual/ HUF (Resident/ NRI) INR 2,50,000
Resident Senior Citizen Individual (60 years or more but less than 80 years) INR 3,00,000
Resident Super Senior Citizen Individuals (80 years or more) INR 5,00,000

 

  • Any resident to whom any of the following situations is applicable needs to file ITR:
    • Who has an asset outside India,
    • Who has a financial interest in any entity located outside India,
    • Earned income from a source outside India during the year,
    • Who has signature authority in any bank account located outside India.
  • Any taxpayer who wishes to claim a refund of excess TDS deducted needs to file ITR.
  • Any taxpayer who has incurred the losses during the financial years and wishes to carry it forward to the next financial year needs to file the return.
  • All Companies, Partnership Firms, LLPs, Local Authorities are required to file ITR.

Prerequisites to File ITR

General

  • Registered user on the e-Filing portal with valid user ID and password
  • Status of PAN is active

Others

  • Link PAN and Aadhaar
  • Pre-validate at least one bank account and nominate it for refund
  • Valid mobile number linked with Aadhaar / e-Filing portal / your bank / NSDL / CDSL
  • Download the offline utility or avail a third-party software (if using offline mode)

Who is required to file Income Tax Return online (e-File)?

You can also file income tax returns online using the IT Department Utility or Income Tax E-Filing website. Moreover, the IT Department has identified the following situations where e-filing of return is mandatory if:

ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
[Rated 4.8 stars by customers like you]
ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
[Rated 4.8 stars by customers like you]

FAQs

Do I need to file ITR if my income is less than INR 2,50,000?

No, if your gross total income for a year is less than INR 2,50,000 then you don’t need to file ITR. However, if you wish to claim a refund of TDS deducted on your income or if you wish to claim losses from the business then you should file ITR.

Do I need to file tax return if my employer has deducted TDS on salary?

Yes, you need to file a tax return even though tax has been deducted by the employer from salary. Additionally, the filing of a tax return is the responsibility of each taxpayer who is earning income in India. Hence, reporting the income earned during the year by a taxpayer and taxes paid on the same needs to be filed through ITR.

Should NRI file return?

In the case of NRI, tax return filing is not compulsory. But in the following circumstances ITR filing is mandatory:

1. NRI has earned income in India which is more than INR 2,50,000 i.e, Basic Exemption Limit.
2. NRI wished to claim a refund of TDS deducted on interest income earned in India.
3. If NRI has incurred losses in India and wished to claim the same then ITR filing is mandatory.

Can a minor file income tax return?

Income earned by a minor is taxable just like any other person. In general practice, the income of minor gets clubbed with the income of parents. Hence, the minor is not required to file a tax return. But in the following cases, filing return of minor is compulsory:

1. When minor earns income using special skills or knowledge.
2. When none of the parents is alive.

What happens if I don’t file the return?

If you do not file an income tax return, the IT department might send you a notice for filing a tax return. If you have any outstanding tax liability then you will be penalized with interest on tax liability u/s 234A, 234B, 234C, and 234F. Hence it is always advisable to file a tax return.

What are the benefits of filing return?

Following are the few benefits of filing return:

1. You can claim a refund of taxes deducted during the year,
2. You can avoid interest penalty and/or default on income earned during the year,  
3. IT Return works as documentary proof of income of an individual,
4. For loan application and visa application banks, financial institutions and consulate demand IT Returns.