Taxation on salary income

Income tax on salary is applied based on a country's tax laws, typically using a progressive tax structure, meaning higher income brackets are taxed at higher rates. Here's a general breakdown of how income tax is applied to a salaried individual:

• Gross Salary (Basic + Allowances + Perquisites + Bonuses)
• Minus Exemptions (e.g., HRA, LTA)
• Minus Deductions (e.g., 80C, 80D, NPS)
• Taxable Income → Tax Applied as per Slabs
• TDS (Tax Deducted at Source) – Employer deducts tax monthly and deposits it with the government.

Even if the employer deducts TDS (Tax Deducted at Source), the employee must file an Income Tax Return (ITR) for the following reasons:

1. Verification & Adjustments – To ensure the right tax amount was deducted and claim any refund if excess TDS was paid.
2. Additional Income – If you have income from other sources (e.g., interest, rental income), it must be reported.
3. Claim Deductions – Some tax benefits (e.g., 80C investments, home loan interest) may not be accounted for in TDS.
4. Legal Requirement – If your income exceeds the taxable limit, filing ITR is mandatory, even if TDS was deducted.
5. Visa & Loan Applications – ITR acts as proof of income and financial stability for loans and visas.

Key Highlights:

• Increased Tax Exemption Limit: The basic exemption limit has been raised to ₹4 lakh from the previous ₹3 lakh.

• Standard Deduction: A standard deduction of ₹75,000 is available for salaried individuals and pensioners under the new tax regime.

• Tax Rebate under Section 87A: The rebate has been increased, ensuring that individuals with a taxable income of up to ₹12 lakh will not have any tax liability.

✅ Exempt under Section 10(5) for domestic travel expenses (employee & family).
✅ Allowed twice in a 4-year block (Current: 2022-2025).
✅ Only travel costs covered (Economy airfare, AC 1st-class rail, or public transport).
❌ No exemption for food, hotel, or international travel.
❌ Fully taxable if not used or no valid proof submitted.

Perquisites (perks) are benefits or facilities provided by an employer over and above salary. These can be monetary or non-monetary.

Tax Treatment of Perquisites:

1. Taxable Perquisites: (Fully Taxable)

• Company Car (if used for personal purposes)
• Rent-free Accommodation
• Interest-Free Loans (above a certain limit)
• Stock Options (ESOPs) (taxed at the time of allotment)

2. Exempt or Partially Taxable Perquisites:

• Medical Benefits (Up to ₹50,000 for treatment in India)
• Education Assistance (School fees up to ₹1,000/month per child exempt)
• LTA (Leave Travel Allowance) (Exempt for specified travel expenses)

3. Fully Exempt Perquisites:

• Provident Fund Contributions
• Health Insurance Premium Paid by Employer
• Mobile/Laptop Provided for Work Use

Tax Calculation:

• Perquisites are taxed as part of salary income under ‘Income from Salary.’
• The value of non-monetary perks is determined based on Income Tax Rules and added to taxable income.

1. Standard Deduction

✅ ₹75,000 for all salaried individuals and pensioners.

2. Tax Rebate (Section 87A)

✅ Individuals with taxable income up to ₹12 lakh will have zero tax liability after rebate.

3. Deductions Under the Old Tax Regime (If Opted)

• Section 80C (₹1.5 Lakh Limit) – EPF, PPF, ELSS, NSC, Life Insurance, Tuition Fees, etc.
• Section 80D – Health insurance premium (₹25,000 for self & family, ₹50,000 for senior citizens).
• Section 80E – Interest on education loans (No limit).
• Section 80G – Donations to charities (50%-100% deduction).
• Section 24(b) – Home loan interest deduction (Up to ₹2 lakh).

4. Limited Deductions in the New Tax Regime

• • Only Standard Deduction (₹75,000) is available.
  • Other exemptions & deductions (like 80C, 80D) are not allowed under the new tax regime.

Filing an ITR is mandatory if your income exceeds the exemption limit. Here’s a step-by-step guide:

Step 1: Collect Required Documents

✔ PAN & Aadhaar (Must be linked)
✔ Form 16 (Issued by employer)
✔ Form 26AS & AIS (Tax credit statement)
✔ Bank statements (For interest income)
✔ Investment proofs (80C, 80D, etc.)
✔ Home loan statement (If applicable)

Step 2: Choose the Right ITR Form

• ITR-1 (Sahaj): Salaried individuals (Income up to ₹50 lakh)
• ITR-2: For those with capital gains or rental income
• ITR-3: Business/professional income
• ITR-4 (Sugam): Presumptive business income

Step 3: Log in to the Income Tax Portal

🔗 Visit: https://www.incometax.gov.in
📲 Login using PAN & OTP

Step 4: Fill in ITR Details

• Select ‘File ITR’ → Choose Assessment Year 2025-26
• Pick Online or Offline Mode
• Enter income details from Form 16, 26AS, AIS
• Claim deductions & exemptions
• Compute total tax liability/refund

Step 5: Verify Tax Payable & Pay (If Needed)

• If tax is due, pay via Challan 280 on the portal
• If excess tax was paid, you’ll get a refund

Step 6: Verify & Submit ITR

✅ E-Verify using Aadhaar OTP, Net Banking, or Demat Account
✅ If not e-verified, send signed ITR-V to CPC, Bangalore

Step 7: Track ITR Status & Refund

• Go to ‘View Filed Returns’ on the portal
• Refunds are credited to your bank account within weeks

If you switched jobs in a financial year, follow these steps to ensure correct tax filing:

1. Collect Form 16 from Both Employers

• Each employer issues Form 16, showing salary paid & TDS deducted.
• Combine salary details from both employers while filing ITR.

2. Check Form 26AS & AIS

• Download Form 26AS & Annual Information Statement (AIS) from the Income Tax portal.
• Verify TDS deducted matches your salary from both jobs.

3. Avoid Double Standard Deduction

• Standard deduction of ₹75,000 (Budget 2025) can be claimed only once in the financial year.
• Ensure both employers haven’t given full deductions separately, or else extra tax may be due.

4. Compute Final Tax Liability

• Each employer deducts TDS considering only their part of the salary.
• The total salary may push you into a higher tax slab, leading to additional tax payable.
• Use the income tax calculator to check the final tax payable.

5. Pay Additional Tax (If Required)

• If TDS deducted is less than total tax due, pay the balance via Challan 280 on the IT portal.
• If excess tax was deducted, claim a refund while filing ITR.

6. File ITR Correctly

• Report total income from both jobs in your return.
• Claim eligible deductions & exemptions.
• Verify & submit the ITR before the deadline.

If you fail to file your ITR before the due date, here’s what happens:

1. Late Filing Penalty (Section 234F)

• ₹5,000 if filed after the due date but before December 31.
• ₹10,000 if filed after December 31.
• If income is below ₹5 lakh, the penalty is capped at ₹1,000.

2. Interest on Tax Due (Section 234A)

• If you have unpaid tax, 1% interest per month (or part of the month) is charged until payment is made.

3. Loss of Carry Forward Benefits

• Business losses and capital losses cannot be carried forward if ITR is not filed on time.

4. Delay in Tax Refund

• If you are eligible for a refund, it will be delayed until the ITR is filed and processed.

5. Prosecution for High-Income Taxpayers

• If unpaid tax exceeds ₹25 lakh, there can be prosecution with imprisonment ranging from 3 months to 7 years.

6. Higher TDS in Future (Section 206AB)

• If ITR is not filed for two consecutive years, higher TDS rates may apply on certain incomes.

Filing errors can lead to penalties, delays, or notices from the Income Tax Department. Here’s what to avoid:

1. Choosing the Wrong ITR Form

• Different forms apply based on income type (salary, business, capital gains, etc.).
• Using the wrong form may lead to rejection.

2. Not Reporting Income from Multiple Sources

• Salary from two employers (if you changed jobs).
• Freelance or side income (consulting, rent, etc.).
• Interest from savings, FD, or capital gains.

3. Ignoring Form 26AS & AIS

• Always check Form 26AS & AIS to match TDS deducted and income reported.
• Mismatched details can lead to notices from the IT department.

4. Claiming Deductions/Exemptions Incorrectly

• 80C, 80D, HRA, LTA, and home loan deductions should be properly documented.
• Standard deduction ₹75,000 (as per Budget 2025) can be claimed only once, even if you had multiple employers.

5. Failing to E-Verify ITR

• Filing alone is not enough! You must e-verify within 30 days to complete the process.
• Without verification, your return is invalid.

6. Not Paying Additional Tax (If Required)

• If TDS deducted is less than actual tax payable, ensure you pay the balance before filing to avoid interest (Sec 234A).

7. Filing After the Due Date

• Late filing attracts a penalty of ₹5,000 to ₹10,000 (₹1,000 for income below ₹5L).
• You cannot carry forward losses if filed after the deadline.

If you've made an error in your ITR, you can correct it using the revised return (Section 139(5)) or the rectification request (Section 154).

1. File a Revised Return (Section 139(5))

✅ If you made a mistake in income details, deductions, TDS, etc.
✅ Deadline: Before December 31 of the assessment year (AY 2025-26).
✅ Steps:
1️⃣ Log in to Income Tax e-Filing Portal
2️⃣ Select ‘File Revised Return’ under ‘Income Tax Returns’
3️⃣ Choose Section 139(5) – Revised Return
4️⃣ Enter the correct details and submit
5️⃣ E-Verify the revised return

2. Rectification Request (Section 154)

✅ If you spot an error in IT department processing (mismatch in tax calculation, incorrect refund, etc.).
✅ Steps:
1️⃣ Log in to the Income Tax Portal
2️⃣ Go to ‘Services’ → ‘Rectification’
3️⃣ Select the Assessment Year & Return Type
4️⃣ Choose the error type and upload supporting documents
5️⃣ Submit the request and track the status

3. If You Missed Filing the ITR? (Updated Return – Section 139(8A))

✅ If you forgot to file the return or missed reporting some income
✅ File an updated return (ITR-U) within 2 years of the end of the relevant financial year
✅ Penalty: 25% to 50% of the unpaid tax (if any)