Frequently Asked Questions On Payroll
Ans.: Section 17 of the Income-tax Act defines the term ‘salary’. However, not going into the technical definition, generally whatever is received by an employee from an employer in cash, kind or as a facility [perquisite] is considered as salary.
Ans.: Allowances are fixed periodic amounts, apart from salary, which are paid by an employer for meeting some requirements of the employee. E.g., Tiffin allowance, transport allowance, uniform allowance, etc.
There are generally three types of allowances for Income-tax Act – taxable allowances, fully exempted allowances and partially exempted allowances.
Ans.: Yes, you will have to pay self-assessment tax and file the return of income.
Ans.: Form-16 is a certificate of TDS. In your case it will not apply. However, your employer can issue a salary statement.
Ans.: In the hands of a Government employee Gratuity and PF receipts on retirement are exempt from tax. In the hands of non-Government employee, gratuity is exempt subject to the limits prescribed in this regard and PF receipts are exempt from tax, if the same are received from a recognised PF after rendering continuous service of not less than 5 years.
Ans.: Yes. However, the benefit of spread over of income to the years to which it relates to can be availed for lower incidence of tax. This is called as relief u/s 89 of the Income-tax Act.
Ans.: It is taxable if received while in service. Leave encashment received at the time of retirement is exempt in the hands of the Government employee. In the hands of non-Government employee leave encashment will be exempt subject to the limit prescribed in this behalf under the Income-tax Law.
Ans.: As per Finance Act, 2018, new section 16(ia) has been inserted where the standard deduction is allowed while computing income chargeable under the head salaries. It is available to all class of employees irrespective of the nature of employer. Standard Deduction is also available to pensioners. Amount of Standard Deduction is Rs. 40,000 or amount of salary/pension, whichever is lower.
Ans.: Exemption of transport allowance of Rs. 1600 p.m. granted to an employee is discontinued from A.Y 2019-20. However, exemption of transport allowance of Rs. 3200 p.m. granted to an employee who is blind or deaf and dumb or orthopaedically handicapped is still available.
Ans.: Standard deduction is allowable to the extent of:
a) Rs. 40,000 or
b) Amount of Salary, whichever is lower
In this case standard deduction of Rs. 40,000 is allowable to Mr. X.
Ans.: Least/minimum of the following is exempt (Not taxable/deducted from total HRA received)
(a) Actual amount of HRA received
(b) Rent paid Less 10% of salary
(c) 50% of salary if house taken on rent is situated in Kolkata, Chennai, Mumbai and Delhi
40 % of salary if the house is taken on rent is NOT situated in Kolkata, Chennai, Mumbai and Delhi.
Ans.: An individual who is resident in India and whose total income does not exceed Rs. 3,50,000 is entitled to claim rebate under section 87A. Rebate under section 87A is available in the form of deduction from the tax liability. Rebate under section 87A will be lower of 100% of income-tax liability or Rs. 2,500. In other words, if the tax liability exceeds Rs. 2,500, rebate will be available to the extent of Rs. 2,500 only and no rebate will be available if the total income (i.e. taxable income) exceeds Rs. 3,50,000.
Ans.: As per the section 80C of the Act, the deduction is available only to an Individual or a Hindu Undivided Family (HUF) and deduction does not exceed Rs. 1,50,000 during a previous year. Taxpayer is eligible for deduction if contribution/deposits/investments / payment made during the previous year. Tax payer should made investments/deposits out of his taxable income or otherwise.