Introduction

Returns from property computation

Income Tax Assessee classification

Residential status

Income from salary

Exemptions available on salary

Income from house property

Tax exemption

Income and taxation

Long term/Short term capital gains

Income from other sources

Capital gains

  
The various allowances which are exempted fully or partially for the computation of taxable salary:
   

1. Allowances paid by the government to employees for services outside India are fully exempt under Section 10(7)

2. Sumptuary Allowance given to High Court & Supreme Court judges is fully exempt.

3. Gratuity-Sec.10(10).

1. Death-cum-retirement gratuity received by government employees is fully exempt

2. In the case of employees covered by Payment of Gratuity Act 1972, the least of the following is exempt:

• Rs 3,50,000 or

• 5 days salary for each completed year of service or part of the year in excess of 6 months on the basis of salary last drawn gratuity actually received

3. In the case of other employees the least of the following is exempt:

• Rs 3,50,000 or

• half a month salary for each completed year of service based on the average salary of last 10 months gratuity actually received

4. Commuted Pension-Sec. 10 (10A)

1. Received by government employee is fully exempt from tax\

2. Received by non-government employee is exempt to the following extent:

• In case when he is in receipt of gratuity - one third of the amount of commutation pension which he would have received had he commuted the whole of the pension.

• In other cases, half of the amount of commuted pension which he would have received had he commuted the whole pension.

5. Leave salary on retirement Sec. 10(10AA). Exempt from tax in the case of government employees. In the case of other employees the least of the following is exempt from tax:

1. Cash equivalent to leave salary entitlements subject to the condition that the earned leave entitlements shall be fixed on 30 days for every year of actual service

2. Ten months average salary

3. .Amount specified by the government. (presently, Rs 2,40,000)

6. Retrenchment compensation-Sec. 10(10B)

1. Least of the following is exempt from tax:

• Amount calculated under the Industrial Dispute Act, 1947, that is, 15 days average pay for every completed year of service.

• Any amount notified by Central government not being less than Rs 50,000 (The Central government has specified Rs 5 lakh as the maximum amount of compensation exempt for this purpose).

7. Voluntary Retirement Scheme (VRS)-Sec.10(10C)

1. Exemption is available up to a maximum of Rs 5,00,000 on amount received by employees under Voluntary Separation Scheme of public sector companies and under Voluntary Retirement Schemes of the following entities:

• Public sector company or any other company

• An authority established under Central, state or provincial Act.

• Local authority

• Cooperative society

• University or IIT

• Such institutes of management as the Central government may notify w.e.f. April 1, 2001. Employees of any state government and Central government are also eligible for the exemption. The exemption is allowed for schemes that satisfy certain conditions laid down in Rule 2B of the Income Tax Rules.

8. Statutory/Public Provident Fund-Sec.10(11). Any payment from a statutory Provident Fund (PF Act, 1925) or Public Provident Fund set up by the Central government and notified is exempt from tax

9. Recognized Provident Fund-Sec. 10(12)

1. The receipt of the following from a recognized Provident Fund is exempt from tax:

• Employer's contribution to the extent of 12 per cent salary

• Interest credited up to 12 per cent on deposits. Amount received in excess of the above are taxable in the respective years as salary.

• Amount received on retirement is fully exempt.

10. Approved Superannuation Fund-Sec.10{13).

1. Any payment from an approved superannuation fund is exempt from tax if it is made:

• On the death of the beneficiary; or

• To the employee on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement.

• By way of refund of contributions on the death of beneficiary.
  

11. House Rent allowance-Sec. 10(13 A)

The relief in respect of House Rent Allowance is subject to certain limits and conditions. Relief will be available only where the employee is residing in a house for which he pays rent. The accommodation should not be owned by him.