Salary Income
Understanding the taxation of salary income, allowances, perquisites, and exemptions for ITR filing.
What Constitutes Salary Income?
Salary income includes wages, annuities, pensions, gratuity, advance salary, fees, commissions, perquisites, and profits in lieu of salary. It is chargeable to tax on a due or receipt basis, whichever is earlier, under the head "Income from Salaries" as per Section 15 of the Income Tax Act, 1961.
Components of Salary
Basic Salary
The foundational component of salary, fully taxable without any exemptions. Forms the basis for calculating various allowances and benefits.
Allowances
Fixed sums paid for specific purposes. Taxability depends on the nature of the allowance and applicable exemptions under Section 10.
Perquisites
Benefits in addition to salary, such as rent-free accommodation, company car, medical reimbursements, etc. Taxed at prescribed values.
Exempt Allowances (Section 10)
| Allowance | Exemption |
|---|---|
| HRA (Section 10(13A)) | Least of: Actual HRA, 50%/40% of basic, rent paid - 10% basic |
| Leave Travel Allowance | Actual travel cost (economy class) for India travel only, 2 trips in 4 years |
| Conveyance Allowance | Actual expenditure incurred for official duties |
| Medical Allowance | ₹15,000 per annum (only for reimbursed medical expenses) |
| Children Education | ₹100/month per child (max 2 children) |
| Hostel Allowance | ₹300/month per child (max 2 children) |
| Standard Deduction | ₹50,000 (flat deduction for all salaried employees) |
Standard Deduction (Section 16(ia))
Universal Benefit
Every salaried individual can claim a flat standard deduction of ₹50,000 (or salary amount, whichever is lower) without submitting any bills or proof. This replaced the earlier medical reimbursement (₹15,000) and transport allowance (₹19,200) exemptions.
Professional Tax Deduction
Professional tax paid by the employee to the state government is deductible from salary income under Section 16(iii). The maximum professional tax levied by any state is ₹2,500 per annum.