What is Income Tax on Salary?

Every Individual who is employed in any organisation and receiving payments in the form of salary is required to pay Income Tax on the salary received by him. The final Income Tax will be determined for an individual at the time of filing IT Returns, after considering any other income earned by the individual and after allowing all the deductions and exemptions allowed under the Income Tax Act 1961.

What is the Tax which the employer deducts monthly as a deduction from your salary?

Every employer is statutorily liable to deduct income tax before crediting such salary to the individual. Therefore you need not wait to pay tax till the time of filing IT Returns. Infact, you receive the salary only after paying the Income tax through your employer by way of a deduction from salary. So, income tax is deducted at the point of source itself. It is called Tax Deducted at Source (TDS).

What are the exemptions and deductions available to salaried employees?

You might have seen various components in your salary apart from your Basic Salary and DA. It includes SODEXO MEAL PASSES, HRA, Travelling Allowance, Conveyance Allowance and many more. The reason why they split the salary is, the Income Tax Act provides exemption Under Section 10 for certain types of Salary Income.

Also, the Income Tax Act provides deduction to an individual from the salary income if he invest or spend in any of the modes specified under CHAPTER VI A of the Income Tax Act as follows: (subject to the limit specified in Income Tax Act)

  • Life Insurance Premium
  • Children’s Tution Fees (and not any other fees)
  • Repayment of Principal part of a housing Loan
  • Medical Insurance Premium
  • Interest paid on the Education Loan
  • Investments made in Public Provident Fund (PPF)
  • Investments made by you in PF from your salary
  • Investments in Equity Linked Savings Scheme (in Mutual Funds)
  • Investments in Tax Saving Fixed Deposits(for 5 yrars)
  • Purchse of NSC bonds from designated post office.
  • Investment in Sukanya Samriddhi Yojana

So, it is better to get the simplified services of FIRSTMAN to avail the exemptions and deductions to the fullest extent possible as we have expertised professionals in Income Tax Law

Interest Paid on House Property Loan:

As we have seen in above that the principal part of loan is allowable as deduction under chapter VI A, the interest paid on the Loan taken for the House property is allowable as deduction as follows:

  • House Property – Self Occupied (Not Let out for Rent): You can claim a maximum of Rs. 200000 as deduction for the Interest paid on the Loan taken. But it will be restricted to the actual amount of interest paid if it is less than Rs.200000. Now you can set off this Interest amount with the salary income received and you will end up in paying less Income Tax.
  • House Property Let Out ( Given for Rent):Now, you have to offer the Rental Income in your Income Tax Return. You have a standard deduction of 30% for meeting repairs , from the rental income offered by you in the Income Tax Return. Then you can claim the interest paid on House Property as in the above case . But here you will be allowed to take credit of the Excess interest paid above Rs.200000 and such excess amount will be carried forward and allowed to be set off from the salaried income for next 8 years.

Documents Required:

  • Form 16
  • Bank Statement and salary break up ( if Form 16 not available)
  • Proof of Investments made
  • Interest and Principal repayment certificate from Banks (if bought loan)

We FIRSTMAN, offer professional services at minimum cost but provide tax advices to the maximum extent possible which will help salried persons to save their hardly earned salary. Feel free to knock our doors!


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