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Income From Salary
As per the income tax law in India any income that is generated under the territory of the country is subjected to the income tax. Salary is taxed differently than the products as income tax is applicable on salary where as on commodities there is service tax and value added tax is applicable on it. The term salary is defines as any kind of remuneration that is generated through professional services, personal services and from different jobs in the organization.
Section 17 of the income tax act includes:
- Basic salary
- Provident fund (PF)
- House rent allowance (HRA)
- Cess tax and incentives generated from the salary
- Miscellaneous amount
- Finance tax
- Any encashment of leave salary
- Transport allowance
The essential conditions to notify the income as the salary income:
- The employee and the employer relationship are of servant and master. There should be a relationship. It is different than the principal and agent as agent won’t come under the full control of the employer. In India M.L.A is not come under the head salary due to the fact that it not comes under employee and employer relation ship bracket.
- In all the government organizations pension is deducted as it is mandatory to do so.
- Any salary that is generated outside India is taxable as per Indian income tax law.
- Provident fund is mandatory in government as well as in the private organization.
- As per Provident fund rule half of the amount is deducted from the salary of the employee and half of the amount will be added by the company or government. Most of the time employee claims their provident fund after leaving the job, however there is an exceptional clause under which employee can claim half of his provident fund amount at the time of buying a property or his/her wedding.
Exemption of tax in the salary:
This is a myth that every income is taxable that is received from an employer:
- Any traveling facility provided by an employer to its employee such as train or airplane passes is not come under the tax bracket.
- Gratuity amount is also not subjected to the income tax.
- Any payment received by the employee of central or state government from the encashment of his/her leave balance is entitled of exemption from tax.
- As per the provident fund act 1925. Provident fund amount is also exempted from the tax list.
- Any sum received under life Insurance policy is exempted from the list as per sub section (3) of section 80DDA.
- Income received by way of pension received by an individual or family for a member who was employed with central government/state government is also exempted from a tax list.
- Armed force professional who won the gallantry award for their services towards the country are exempted from the list of income tax. Employees of central or state government who have won Param vir Chakra, Maha vir chakra and any other notified gallantry awards are exempted from the tax list.