Every person who earns any income and exceeds the basic exemption limit of Rs. 2.5 Lac is required to pay Income tax to the government as per the Income-tax Act, 1961 and Rules made thereunder. As per the 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 the changes brought by Finance Act, 2019 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 an employee from his/her employer for the services rendered for a certain period of time. The essence is that there must be the existence of an employer-employee relationship. Accordingly, the salary includes wages, pension, gratuity, fees, commission, perquisites, PF contribution, etc.
Now, income tax law also offers various opportunities in the form of deductions and exemptions to the salaries class for saving tax and thereby reduce their income tax liability.
Finance Act, 2019 introduced some changes that brought a smile on the faces of the salaried class.
Standard Deduction: (Finance Act 2018)
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 Earlier, the provision of standard deduction was available but the same was repealed by Finance Act, 2005.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 benefits. Before the 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 benefits 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.
Deduction u/s 80D:
Under section 80D, deduction on premium paid for medical insurance for self or family or parents can be claimed. Currently, the deduction allowed is up to 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 up to 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 classes 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, the following are some points that 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 an 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 the only deduction of one house property. For the 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 the 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 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 a mismatch of personal details.
- Also, a very common mistake of claiming deduction under the wrong section should be avoided.
- At last but not least one must consult a professional before finally submitting ITR to avoid any last-minute silly mistakes.
Legal Suvidha is an online platform for filing Income Tax Return by the Expert Team of Income Tax Professionals, Chartered Accountants and Company Secretaries who can assist you in filing your Income Tax Return more efficiently. You can contact us at 9599937963 or 8130645164 and mail us at [email protected]
Moreover, you can use our free tools to compute Income Tax via INCOME TAX CALCULATOR
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