Basics of Income Tax
This document comes to assist our employees to understand the various aspects of taxation and what needs to be done. It details down major aspects of IT with respect to your employment at Vandey.
The Indian taxation laws are constantly amended making it crucial for every individual to stay up to date. The need for the same arises as this constitutes a major liability on part of an individual to pay out.
Every organization has a predefined set of procedures they follow to stay statutory complaint and ensure a balanced system to manage the employee’s Payables and dues. At Vandey ,We provide the same via our efficient payroll team. We have also provided some taxation notes which will give you key insights on the prevailing policies.
Note that this document contains details which are constantly amended at the end of every fiscal year post the Finance Bill. This document is to help you familiarize with the process of Income tax calculation on the salary income and will provide you with options to reduce your tax liability. Our aim here is to familiarize you with Income Tax computation and deductions applicable. Any changes in the future which contradicts this document shall not be at the liability of Vandey Consultancy.
Introduction to Income Tax
An income tax is a tax that governments impose on income generated by businesses and individuals within their jurisdiction. By law, taxpayers must file an income tax return annually to determine their tax obligations.
Following is a detailed document of the process followed at Vandey to make your financial planning easier. Tax year in India follows the financial year i.e. from 1st April to 31st March. All Indian residents liable to taxation are obligated to file their respective Income Tax Returns (ITR) on or before 31st July (Unless extended by the government) of the subsequent year.
Process followed at Vandey
1. Assessment of tax liability of an Individual
The CTC of an individual employee is checked via the slab rates applicable as per the income tax act. An employee with or lower than gross salary of INR 5,00,000 Per Anum as per old regime and INR 7,00,000 Per Anum as per new regime is not taxable under the income tax act as per the current union budget.
2. Planning of investment according to your salary
This step is applicable if you fall under the taxable category (Income above INR 7,00,000 P.A). An employee can plan their investments in order to reduce their tax burden. In Vandey , We provide two major reliefs which reduces that taxable portion of your income.
Provident Fund – As applicable**
House Rent Allowance – As Applicable**
**Deduction maximum limit is explained further in the document
3. Declaration of Investment in GreytHR Portal
All the planned investment such as House rent, PPF, FD and other investments should be declared by the employee on or before 25th April of the financial Year. Vandey is not responsible for investments not declared on portal before due date. This remains under the liability of an employee.
If no declaration is provided before the deadline; It is assumed that the employee has no investment or deductions available and taxes for the same will be computed as per the basic slab rates.
4. Submission of proofs for the financial Year
The proof against all the declaration made at the beginning of the financial year should be duly submitted by the employee in the GreytHR portal on or before 31st January. This would further be assessed by the Vandey Payroll team.
The Proofs Include:
For HRA: Current Rental agreement, PAN Number of landlord (If rent exceeds 1,00,000/- Per Anum) and Rent receipts with landlord’s signature.
For Investment: Relevant acknowledgment cum receipts as required.
5. Acknowledgement of the Proofs by Payroll Team
All the investment proofs submitted will be assessed and approved by the Vandey’s Payroll team. The approved investments will be notified via GreytHR.
Any investment declared but no proof submitted will be accounted as no investment made and will be added to the taxable share of the income from salaries with relevant adjustment made for the previous months.
Any incremental tax liability will be adjusted against the salary for the month of February and March.
6. Issuance of Form-16
The Tax liability is computed at as per the income tax rules for each individual employee and is remitted to government of India as TDS (Tax deducted at source) against the PAN number of the respective employee. On remittance of tax to IT department; form 16 is generated which can be viewed by each employee on their IT portal**
**Guide to register on IT portal is explained further in the document
7. Filing of your Income Tax Returns
Filing of returns is a personal responsibility of each employee. Vandey shall not be held liable for any incorrect filing of returns. We recommend the employees to take help of tax experts to file their ITR.
8. Remittance of tax payable/Claiming for refund (If Applicable)
Any additional tax liability accruing on account of other income must be remitted to the department while filing of ITR on or before 31st July. If any refund is applicable on account of fresh investment which qualify as deductions can be claimed via the same.
9. Remittance of refund by Indian Income Tax Department
The IT department after assessment of the returns filed either approves the Income tax return filed or issue a notice for additional proofs or any mismatch found. This is advised to be consulted with a lawyer or tax expert.
Helping you understand better
Understanding your Salary
The salary details/ Pay slip on your GreytHR will display various components to your CTC (Cost to Company). Here, you will get an idea of the major components of your salary and how much tax will be deducted from your salary based on them.
Example: Most companies (Including Vandey) give House Rent Allowance (HRA), and you can save tax on that if you are living on rent.
Income on which you pay Tax
Besides the salary income you receive, you may be earning an income from several other sources. Your Total Income is the sum of all heads of income below.
Sources of Income
Deductions reduce your Gross Income. These are the amounts Income Tax Department allows you to reduce your Income, bringing down your tax liability.
Sum of All heads of Income = Gross Income Gross Income – Deductions = Taxable Income
House Rent Allowance
House Rent Allowance, or commonly known as HRA, is an amount which is paid by employers to employees as a part of their salaries. This is basically done as it helps provide employees with tax benefits towards the payment for accommodations every year.
As a salaried employee, you cannot claim for the full rental amount you are paying. Your exemption will be based on the least of the below mentioned options:
The actual amount allotted by the employer as the HRA.
Actual rent paid less 10% of the basic salary.
50% of the basic salary, if the employee is staying in a metro city (40% for a non-metro city).
Leave Travel Allowance as the name suggests is an allowance paid to the employee by the employer when the former is traveling with their family or alone. The amount paid as Leave Travel Allowance is tax-free. To avail the Leave Travel Allowance, the following conditions must be satisfied.
LTA can be claimed only on the actual cost of travel. No expenses such as accommodation, food, local conveyance etc. are eligible for this exemption.
All mediums of travel, i.e. road, rail or air are eligible for LTA.
It can be claimed only on the domestic travel expenses.
It can be claimed only twice in a block of 4 years.
If LTA isn't claimed in a particular block, it can be carried over to the next block and used in the first year of the next block itself.
LTA exemption offers cover for the family of the individual too. A family, under LTA, includes immediate family which is the parents, siblings, spouse, and children.
. The exemption under Leave Travel Allowance is not available for more than two children born after October 1, 1998
The exemption is also limited to the LTA provided by the employer. For instance, If the LTA provided by the employer is ₹40,000/- and the actual cost is ₹20,000/-, LTA can be availed only to the extent of ₹20,000/- and the balance amount of ₹20,000/- would be included in the taxable salary income.
The employee should keep the proof handy as it can be required for Income tax filing purposes.
Deduction Under Section VI-A
The maximum allowable deduction under the sum of this investment is of INR 1,50,000/- Per Anum
Provident Fund: When you open a PPF account, you need to deposit a minimum of INR 500 and a maximum of INR 1,50,000 in a year. Money deposited in a PPF account compounds, as you deposit more money in the subsequent financial years to claim deductions. A PPF account can be easily opened with a bank. PPF has a lock in period of 15 years, it offers partial liquidity through loan and partial withdrawals.
Tax-saving FD: Fixed deposits assure capital protection as well as a sizable interest income for investors. To get tax benefits under 80C, you need to stay invested for at least 5 years. It is safe, but the Interest Income from it is taxable.
Tax-saving mutual funds or ELSS: One of the only mutual fund schemes allowed under 80C, ELSS (Equity Linked Savings Scheme). Another perk of ELSS is that it has the lowest lock-in period of 3 years.
There exists a standard deduction of INR 50,000 from FY 2019-20 onwards for all the taxable individuals
These are taxes levied by the state government and may vary from each state to state. This deduction only possible when it is actually paid by the employer during the previous year after deducting the same from the employee salary. Currently Karnataka has a standard deduction of INR 200/- Per Month for employees who draw gross salary above INR 25,000/- Per month.
Income Tax Slab Rates
The Income Tax Department has recently issued a circular on the New Tax Regime which is called Concessional Tax Rate. Here’s what you should know and act upon.
1. Existing Tax Rate (With all exemptions and deductions): If you want to retain the Existing Tax Rate option, one may continue with all deductions existing under FY 23-24
2. Concessional Tax Rate (No exemptions and deductions): If you choose the Concessional Tax Rate option, exemptions and deductions like HRA, LTA, 80C, 80D, 80E & other Chapter VIA deductions (except Section 80CCD(2)-Employer NPS Contribution), Home Loan Interest, Standard Deduction, Professional Tax, Meal Allowance benefit etc., will not be available for claim which are still available in the Existing Tax Rate option. However , they can avail standard deduction of INR 50,000 and 80CCD (2)
The decision to choose between both the tax regime is at the discretion of the taxpayer. One tax regime suit for higher income group and the other for the vice-versa.
New tax regime for FY 2023-24 (AY 2024-25)
Note: The above income tax slabs are applicable for every individual irrespective of their age. Unlike old tax regime, the new income tax regime does not differentiate individuals on the basis of their age.
Old tax regime for FY 2023-24 (AY 2024-25)
Individual who is of the age of less than 60 years on the last day of the relevant year
Resident who is of the age of 60 years or more but less than 80 years at any time during the year:
Resident who is of the age of 80 years or more at any time during the year:
Surcharge on Amount of Tax :
Education Cess: 4% of income tax plus surcharge
Note: For the old tax regime, an individual, who is resident in India, is allowed a tax rebate under section 87A if the total income of such individual does not exceed Rs. 500,000. The rebate is allowed to the extent of Rs. 12,500. Thus, if the total tax (excluding health & education cess) is less than or equal to Rs. 12,500, then the whole amount can be claimed as a rebate by a resident individual.
For the new tax regime, rebate under section 87A is available to resident individuals whose total income during the previous year does not exceed Rs. 7,00,000. Rebate is available to the extent of Rs. 25,000 only, and no rebate will be available if the total income exceeds Rs.7,00,000.
Access to IT Portal
To access the portal, enter username (PAN of the Employee) and password along with Captcha code to log in. Those who have not registered with the I-T e-filing portal need to register beforehand.
Refer the guide How to register on IT Portal for assistance.