If you have not filed the return yet, then the last date for filing ITR (Income Tax Return) with penalty for the financial year 2020-21 is 31 March 2022. While filing the ITR, the employees working in the private company should calculate the tax liability according to their salary. Tax expert Girish Narang says that there are many components in the CTC (Cost To Company) given to the employees of a private company.
CTC includes Basic Salary, House Rent Allowance (HRA), Dearness Allowance (DA), Variable Pay, Reimbursement, Leave Travel Allowance (LTA), Medical Allowance, Bonus, Provident Fund (PF) and Food Allowance are included.
The components of CTC are different for every company. The calculation of tax liability on these or on the facilities provided by the company is also different. These can be assessed to tax according to the nature of allowance and additional facilities received by the employee. Some of these are fully taxable, while some are fully exempt and some are partially exempt.
Income tax has to be paid on these parts of CTC…
Basic Pay is a fixed amount, which is paid by a company for the work done by the employees. This does not include bonuses, benefits or any other compensation. This salary is fully taxable income.
This part of CTC is fully taxed. It is given to the employee according to his performance.
The bonus received by the employees is fully taxable. That is, if a company gives bonus to its employee, then it has to pay tax on it.
It is fully taxed. However, on receipt of gratuity at the time of retirement, the tax will be calculated on the basis of whether the company is covered under the Payment of Gratuity Act or not.
-If the company is covered under this Act, then the actual amount under section 10(10) of the Income Tax Act, after dividing 15 times of last salary of Rs 20 lakhs and last salary by 26, to be multiplied by the number of years of service in the company. But the amount that comes, whichever is less of these three, gets tax exemption on it.
If the company does not come under this law, then the actual amount, Rs 20 lakh and the average monthly salary i.e. the average basic salary of the last 10 months and the lowest in DA, gets tax exemption.
You can take exemption on these parts of salary…
This part of CTC is eligible for tax exemption up to a certain limit as per Section 10 (13A) of the Income Tax Act. Taxpayers can claim exemption on actual HRA amount, 50 per cent of salary in metro cities, 40 per cent in other cities and rent paid in excess of 10 per cent of salary, whichever is the lowest of the three . Basic salary, DA and commission received on the basis of turnover are included in salary for computing HRA. If a taxpayer does not pay house rent, then he does not get exemption on HRA.
Under Section 10(14) of the Income Tax Act, the amount received by employees for official purposes is exempt. However, for this the employees have to show this expense. Necessary bills and vouchers have to be paid.
Entertainment allowance received by private employees is fully taxable. But, if it is reimbursed for the expenses for the hospitality of the customers i.e. business purposes, then it can be exempted under section 10(14) of the Income Tax Act.
One can claim exemption on Leave Travel Allowance under Section 10(5) of the Income Tax Act, but, it is necessary to fulfill certain conditions.
If the taxpayer has traveled by air, then the benefit of exemption will be available on domestic travel only.
Employee will get exemption only for travel done with himself and family. The family consists of spouse, children, dependent parents and siblings of the taxpayer. This exemption is not available for more than two children born after October 1, 1998.
-Can avail tax exemption on LTA only twice in four calendar years (2022-2025).
Tax on company’s esop
BPN Fincap AK Nigam states that ESOP (Employee Stock Option Plan) is an employee benefit plan. Through this, the employee gets a company equity stake, which is usually less than the fair market value of the shares. On this difference of price, the employees have to pay tax in the form of additional facilities under Section 17(2)(6) of the Income Tax Act.