Overview of Personal Income Tax

Aman Mookhi
 Agenda
1. Total Income and Income Tax

2. Heads of Total Income

3. Discussion on salary

4. Computation of Taxable Salary

5. Computation of Total Income

6. Computation of Tax

Overview of Personal Income Tax

 Total Income and Income Tax
Total Income (Section 5)
Subject to the provisions of this Act, the total income of any previous year of a person who is a
resident includes all income from whatever source derived which-
• is received or is deemed to be received in India in such year by or on behalf of such person ; or
• accrues or arises or is deemed to accrue or arise to him in India during such year ; or
• accrues or arises to him outside India during such year

Income Tax
• An income tax is a tax that governments impose on income generated by businesses and
individuals within their jurisdiction
• Income taxes are a source of revenue for governments. They are used to fund public services, pay
government obligations, and provide goods for citizens
• Most countries like India employ a progressive income tax system in which higher-income earners
pay a higher tax rate

Overview of Personal Income Tax

 Heads of Total Income
• Salaries

• Income from House Property

• Capital Gains

• Income from Business / Profession

• Other Income

Overview of Personal Income Tax

 Standard Salary Structure
Particulars Amount (INR)
Basic Salary 1,500,000
House Rent Allowance (HRA) 750,000
Supplementary Allowance 150,000
Leave Travel Allowance 100,000
Telephone Reimbursement 21,450
Sodexo Food vouchers 26,400
Employer share of Provident Fund @ 12% of Basic Salary 180,000
Gratuity @ 4.81% of Basic Salary 72,150
Performance Bonus 200,000
Cost to Company (CTC) 3,000,000

Note: Few organizations also offer equity shares, insurance premium as part of CTC

Overview of Personal Income Tax

 Taxability of salary heads

Heads of Total Income Taxability

Basic Salary Fully Taxable
House Rent Allowance (HRA) Exempt based on rent paid
Supplementary Allowance Fully Taxable
Leave Travel Allowance Exempt upto ticket value
Telephone Reimbursement Exempt upto invoice value
Sodexo Food vouchers Fully Exempt
Employer share of Provident Fund @ 12% of Basic Fully Exempt
Salary
Gratuity @ 4.81% of Basic Salary Exempt upto INR 2mn
Performance Bonus Fully Taxable

Overview of Personal Income Tax

 House Rent Allowance (HRA)
Exemption is restricted to the least of the following:

• HRA received – INR 750,000

• Rent paid less 10% of basic salary – INR 450,000 (6 lacs less 1.5 lacs)

• 50% of Basic Salary – INR 750,000

Overview of Personal Income Tax

 Leave Travel Allowance (LTA)
Following conditions need to fulfilled to claim exemption:

• Employee should be on leave;

• Exemption restricted to travel cost within India by Air (Economy) or

3AC Train fare;

• Proof of Travel to be submitted to Finance Department

Overview of Personal Income Tax

 Provident Fund (PF)
• Employee contributes 12% of the basic salary and an equal amount is
contributed by employer (some employers restrict it to minimum as per
law);

• Mostly deposited with the PF department of GoI, some large companies

have their own trust

• Earns an tax free interest @ 8.65% p.a.

• Withdrawal only on retirement or on a sabbatical for 60 days+

Overview of Personal Income Tax

 Gratuity
• Employer pays @ 4.61% of last drawn basic salary for each year of
completed service

• Gratuity is playable after employee completes 5 years of continuous

service

• Exempt from tax upto INR 2,000,000

Overview of Personal Income Tax

 Computation of Taxable Salary
Heads of Total Income Amount (INR) Amount (INR)
Basic Salary 1,500,000
House Rent Allowance (HRA) 750,000 less 450,000 300,000
Supplementary Allowance 150,000
Leave Travel Allowance 100,000 less 20,000 80,000
Telephone Reimbursement 21,450 less 1,450 20,000
Sodexo Food vouchers NIL
Employer share of Provident Fund @ 12% of Basic Salary NIL
Gratuity @ 4.81% of Basic Salary NIL
Performance Bonus 200,000
Less: Standard Deduction (50,000)
Taxable Salary 2,200,000

Overview of Personal Income Tax

 Computation of Total Income
Heads of Total Income Amount (INR) Amount (INR)
Salaries 2,200,000

Income from House Property NIL

Capital Gains 250,000

Income from Business / Profession NIL

Other Income 50,000

Gross Total Income 2,500,000

Overview of Personal Income Tax
Deduction u/s 80C – 150,000
Investments
1. Equity Linked Savings Scheme (ELSS) – lock-in 3 years

2. Public Provident Fund (PPF) – lock-in 15 years – earns 8% p.a.

3. Bank Deposit – lock-in 5 years

4. National Savings Certificate (NSC) – lock-in 5 years – earns 8% p.a.

5. Life Insurance Premium paid

6. Repayment of housing loan

Overview of Personal Income Tax
Deduction u/s 80D – 55,000
Medical Premium

• Deduction available on payment of Medical Insurance Premium

• Upto 25,000 for self, spouse and dependent children

• Additional 25,000 for parents, increases to INR 30,000 if parents are

more than 60 years of age.

Overview of Personal Income Tax

Deduction u/s 80E
Interest on Educational loan

• Interest on loan taken for higher education

• Entire interest paid in the year is allowed as a deduction

• Deduction is allowed for a maximum of 8 years or till loan is repaid,

whichever is earlier

Overview of Personal Income Tax

Deduction u/s 80G
Donations

• Donations given to eligible institutions allowed as deduction

• Entire donation or 50% based on approval received from government

• Donation in cash can be paid only upto INR 2,000

• Deduction can be claimed ONLY while filing Return of Income

Overview of Personal Income Tax

Deduction u/s TTA – 10,000
Interest on savings bank account

• Interest earned on savings bank account maintained with a bank, co-

operative society or post office

• Interest earned upto INR 10,000 is allowed as a deduction, any amount

in excess shall be taxed

Overview of Personal Income Tax

 Computation of Total Income
Particulars Amount (INR) Amount (INR)
Gross Total Income 2,500,000
Less: Deductions
u/s 80 C (investments / insurance) 150,000
u/s 80D (medical insurance) 25,000
u/s 80E (interest on educational loan) 20,000
u/s 80 G (donations) – can be claimed only N/A
while filing Return of Income
u/s 80TTA (interest on savings bank a/c) 5,000
(200,000)
Less: Interest on housing loan (200,000)
Taxable Income 2,100,000

Tax Liability including surcharge 460,200

Overview of Personal Income Tax

 Computation of Tax
Taxable Income (INR) Rate of tax Tax
0 to 250,000 NIL Nil
250,001 to 500,000 5% 12,500
500,001 to 1,000,000 20% 100,000
1,000,001 and above 30% 330,000
442,500
Health & Education Cess 4% 17,700

Additional Cess if Taxable Income is greater than 5,000,000 10%

Additional Cess if Taxable Income is greater than 10,000,000 15%

Overview of Personal Income Tax

Questions?

Overview of Personal Income Tax

Overview of Personal Income Tax