What is Taxable

Under the Income Tax Act, 1961 the employer is required to deduct tax on
average monthly basis from the salary paid to the employees and deposit the
same in to the Government treasury with in specified time. All components of
payroll are generally taxable unless specific exemption is available. The
taxability of various components of payroll is as under:

Basic Fully taxable

HRA Partly taxable - Note 1
Special Allowance Fully taxable
Variable Allowance Fully taxable
Performance Award Fully taxable
Bonus Fully taxable
Referrals Fully taxable
Meal Allowance Fully taxable
Conveyance Transport allowance to meet
Allowance expenditure for the purpose of
commuting between residence and
place of duty is exempt up Rs 800
per month
Medical Non taxable for reimbursement of
Reimbursement expenditure actually incurred for
treatment for self and any member
of the family subject to maximum
of Rs 15000 per annum
Leave Travel Exempted for reimbursements for
Concession the amount spent for self and any
member of the family on fare by
economy class air or air-
conditioned class rail by the
shortest route. (two journeys are
allowed in a block of four calendar
year commencing from 1986,
current block is 2010-2013)

Note 1:
Lowest of the following are exempt from HRA under section
10(13A):-
• Actual HRA received
• Rent paid over 10% of salary [Basic]
• 50% of salary [40% in case of Non-Metros]
 Deductions chapter VIA :-
The employer can allow the following deductions from salary income while
calculating taxable salary:-

Section Particulars
80C Major items covered includes:
• Provident Fund contribution [deduction by employer]
• Life Insurance premiums [LIC or other insurance
companies]
• PPF [SBI or some nationalized banks, Post office]
• NSC [Post office]
• ULIP [UTI]
• Payment towards children education [Tuition fee only
up to two children]
• Repayment of Principal amount on Housing Loan to any
Financial Institution (House should be complete)
• Infrastructure Bonds like ICICI or IDBI or specific public
issues.
• Pension Fund [LIC or other insurance companies]
• Mutual Fund [Approved]
• Fixed deposits for a period over 5 years under specified
scheme.

Presently overall tax saving invest is limited up to

Rs.1,00,000/- (sec 80C). Now an additional investment up to
Rs. 20,000/- in long-term infrastructure bonds has been
introduced under section 80CCF.

80D • Mediclaim- for Self, Spouse & Children up to Rs. 15,000

in additional to that the an individual can claim for Rs.
15000 in case of dependent parents covered under
policy ( Rs 20,000 parents who are senior citizen).
• It can be done through different Insurance companies
80DD • Deduction against medical treatment, training or
rehabilitation of handicap dependant or deposit of any
amount under any approved scheme up to Rs 50000 (Rs
100000 in case of severe disability).
• Certificate from physician, surgeon, occultist or
 psychiatrist working in a government hospital should be
obtained.
80DDB • Deduction against medical treatment of certain
specified decease or ailment for self and dependant
relative (a relative who is not dependant for his support
or maintenance on any person other than the assessee)
up to Rs 40000 (Rs 60000 in case the dependant
relative is a senior citizen)-
• Certificate in the prescribed Form from specified
authority to be obtained. This deduction shall be
reduced to the extent of claim received from any
insurer in respect of the medical treatment.
80E • Amount repaid as Interest paid on loan taken from
financial institution or charitable institution for Higher
studies of self, spouse or children.
• There is no maximum limit for availing deduction under
this section.
• Certificate for interest repaid from the financial
institution should be produced
80G • 50 %( 100%) of the donation to certain specified bodies
are allowed.
• Employer can give credit under this clause only in a
very selected cases ( PM National Relief Fund etc).

80U • A deduction of Rs 50000 ( Rs 100000 in case of severe

disability) is available in case of person suffering from
permanent physical disability including blindness
• Certificate from the doctors of government hospital
required.
Salaried employee and the New Rates of Income-Tax for
F. Y. 2010-11 [A. Y. 2011-12]
As per the Finance Bill, 2010 the new Income-Tax for individuals Rate are as
under :-

On Income up to Rs. NIL

1,60,000
On Income over Rs. 10%
1,60,001 but up to Rs.
5,00,000
On Income in excess of 20%
Rs. 5,00,001 but up to
Rs. 8,00,000
On Income in excess of 30%
Rs. 8,00,001

Notes:-

I. For female tax payers, initial income of Rs. 1, 90,000 is exempt.

II. For Senior citizen tax payers, initial income of Rs. 2, 40,000 is exempt.
III. Education Cess of 3% payable.
Note on setting off the loss under the head " Income
from house property " against salary income” under
section 24(b)

Under the Income Tax Act, loss under the head Income from house property
may be incurred under the following circumstances.

(A) Where the employee owns and occupies the house property for the
purpose of his residence.
Or
(B) Where the property could not be occupied by the employee owing to his
employment and
• Such property is not let out and.
• The employee resides in a property not owned by him at the place
where he exercises his employment.
In case the employee fall under any of the above situations and have
taken a loan for the purposes of acquiring, constructing, repairing,
renewing or reconstructing a house property, the interest so
paid/payable during the financial year will qualify as a loss under the
head " Income from House property". Interest for the pre Construction/
Acquisition period may be apportioned in 5 equal yearly installments
starting from the year of acquisition or completion of construction of the
House property.
The maximum possible deduction on account of the aggregate interest is
Rs.30,000 per annum. However a higher deduction of Rs.150,000 is
allowable provided all the following conditions are fulfilled:
• Interest is payable on a loan taken by the employee.
• The loan is taken for the acquisition or construction of a property.
• The loan has been taken on or after 1st April 1999.