Every person who earns any income and exceeds the basic exemption limit of Rs. 2.5 Lac is required to pay Income tax to government as per Income tax Act, 1961 and Rules made thereunder. As per Income tax Act, income is calculated under 5 heads i.e. House Property, Capital gains, Salary, Profits & gains from Business & Profession and Other Sources. This Article discusses about the changes brought by Finance Act, 2018 with respect to head salary and the precautions that an employee has to keep in mind while filing his/her return.
In India, a significant amount of tax is collected from salaried employees. Income tax law expressly provides what is to be included and excluded while calculating income under the head salary. In common parlance, salary is the remuneration which is received by employee from his/her employer for the services rendered for a certain period of time. The essence is that there must be an existence of employer-employee relationship. Accordingly, salary includes wages, pension, gratuity, fees, commission, perquisites, PF contribution etc.
Now, income tax law also offer various opportunities in form of deductions and exemptions to the salaries class for saving tax and thereby reduce their income tax liability.
Finance Act, 2018 introduced some changes that brought smile on the faces of salaried class.
In 2018 budget, standard deduction (SD) has been again introduced. Earlier, the provision of standard deduction was available but the same was repealed by Finance Act, 2005.
The SD replaced two deductions which were commonly claimed by the employees i.e. transport allowance of Rs. 1600 p.m. and medical allowance of Rs. 15,000 p.a. The introduction of SD resulted in additional benefit. Before introduction of SD, the benefit available was
(1600*12 )19,200 + 15000 = 34,200
After the introduction of SD, the employees can deduct the fixed amount of Rs. 40,000.
From the above, it can be said that the employees will get additional exemption benefit to the extent of Rs. 5,800 (Rs. 40,000 – Rs. 34,200).
The important point is that the benefit of SD can now also be claimed by pensioners as earlier they were not allowed any deduction in terms of transport allowance and medical reimbursement. Now, pensioners can get extra tax free income of Rs. 40,000.
Under section 80D, deduction on premium paid for medical insurance for self or family or parents can be claimed. Currently the deduction allowed is upto Rs. 25,000 for insurance covering self, spouse or children. For premiums paid for insurance covering parents who are senior citizens i.e. above the age of 60 yrs., one can claim deduction upto Rs. 30,000. But this limit has been extended to Rs. 50,000 via Finance Act, 2018 effective from 01.04.2018.
Now, as we know all the salaried class are also required to file Income Tax Return (ITR) in the forms prescribed. It is possible that they may end up with silly mistakes which may result in serving of notice to them. So, following are some points which should be kept in mind while filing ITRs.
- Before filing ITR, collect Form 16 from your employer which is also known as tax withholding certificate issued by employer that contains your salary details & TDS. In case the employees have switched their jobs, they must take Form 16 from their previous employers as well.
- It is advisable to declare all the income from house property. If you own more than one property, you can claim only deduction of one house property. For second property, you are required to fill details regarding rent received and receipts of municipal taxes will also be required.
- Income from investments, bank interest, fixed deposit interest and dividends etc. should also be disclosed.
- For avoiding any mistake, taxpayers can see the details of TDS in Form 26AS which is downloadable from the income tax website.
- That taxpayer must file ITR if his/her income exceeds basic exemption limit of Rs. 2.5 Lac. To avoid any penalty, the same should be filed by the due date. Filing of ITR increases the credibility which is helpful in taking loans from banks.
- There are 7 ITR forms. So, one must select the correct form to avoid any notice from the department. Also, one must furnish correct details as many times the ITR gets rejected due to mismatch of personal details.
- Also, a very common mistake of claimimg deduction under wrong section should be avoided.
- At last but not the least one must consult a professional before finally submitting ITR to avoid any last minute silly mistakes.
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