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Income Tax declarations

 As the new financial year has commenced, all the employees who are liable for tax deduction shall submit the details of savings and eligible expenses.

In this post, I would like to elaborate on such declarations to be made by the employees.

Which type of tax regime should we choose?

With the changes in laws, there are 2 types of tax regimes that an employee should opt out of them. The tax regimes are typically called OLD and NEW regimes. Both provide for different exemptions and tax rates. An individual shall select the Old OR New tax regime based on his individual inputs. I have prepared a comparative sheet for the same and it can be accessed at the following link.

Employee once opted for a particular scheme with the employer shall not be able to change it till the end of the financial year. However, an assessee can opt to change a  particular tax regime at the time of filing the income tax return.

https://drive.google.com/file/d/1oBF83gDzLJ_6Zn15czrFnWLcgwv4eqci/view?usp=sharing

Income from salary:

Details that can be submitted by the employee under this head of income shall be:

a) Rental receipts

Calculation of HRA: LEAST of the following is allowed as exemption.

  • HRA received from your employer.
  • Actual rent paid minus 10% of salary.
  • 50% of basic salary for those living in metro cities.(Mumbai, Chennai, Delhi, Kolkata)
  • 40% of basic salary for those living in non-metro cities.

Valid PAN of landlord shall be provided in case rent paid exceeds Rs.1 lac per annum.

b) LTA

Valid bills supporting the LTA claim subject to LTA part of the gross salary. You can refer my detailed post on LTA for 2021-22.

c) Leave encashment

Leave encashment received at the time of retirement or resignation is exempted as follows:

Least of the following is exempt from tax

1) Actual leave encashment amount
2) Average salary* of last 10 months (salary means basic+DA+commission)
3) Salary per day * unutilised leave (considering maximum 30 days leave per year) for every year of completed service 
4) Rs.3,00,000

d) Retrenchment Compensation

In case of lay-offs by employer, the retrenchment compensation received is exempt from tax subject to the LEAST of following

1) Rs.5,00,000
2) Actual retrenchment compensation received
3) 15 days average salary for every completed year of service or part thereof in excess of 6 months.

e) Gratuity

An employee is eligible for gratuity payment when he leaves the organisation after completion of minimum 5 years of continuous employment.

Gratuity paid at the time of retirement or resignation is exempt subject to the LEAST of the following

1) last drawn basic salary * number of completed years of service*15/26
2) Rs.20 lakhs

f) Salary received from previous employer

An employer shall declare the salary received from previous employment in Form 12B. This declaration will ensure proper tax deduction and would avoid from duplication in exemptions and deductions for tax computations.

Income from House property:

A person who is earning rental income from letting out of a house property or paying interest on housing loan shall declare the amounts under this head.

👉Can a person be staying in a rental property in spite of owning a house property?

Yes. Provided the 2 properties are 25 kms away from each other and he cannot live in his own house for any other reason.

👉 Can a person claim HRA and interest on home loan?

YES.

Details that shall be furnished under this head are as follows.

In case of Self occupied property:

Interest paid on home loan under section 24b

In case of Let out Property:

1) Annual Rental income to be declared under Gross annual value. 
2) Municipal taxes paid.
3) Interest paid on home loan under section 24b

Income from Other Sources:

Interest income from various savings accounts maintained with banks or post office, interest income from fixed or recurring deposits, dividend income, interest on income tax refund, PF withdrawal shall be declared under this head of income.

Declaring other heads income with the employer helps in effective tax computation as tax is computed on overall income at the time of assessment.

Deductions under Chapter VI-A:

Section 80C

Details of deductions available under this section can be viewed at below mentioned post.


Section 80D


Section 80DDB

Deduction under section 80DDB can be claimed only by the person incurring the expenses. However, the medical expenses can be incurred for the treatment of the following people:

  • Individuals: In case of an individual, the medical expense can be incurred on the medical treatment of the assessee or any of his dependents. The ‘dependents’ in respect of this section would include spouse, his children, his parents, brothers and sisters of the individual or any of them
Types of diseases covered under Section 80DDB:

  1. Neurological Diseases as identified by a specialist ,where the level of disability has been certified to be of 40% and above and covers Dementia, Dystonia Musculorum Deformans, Chorea, Motor Neuron Disease, Ataxia, Aphasia, Parkinson’s Disease and Hemiballismus.
  2. Malignant Cancer
  3. AIDS- Acquired Immuno-Deficiency Syndrome
  4. Chronic Renal failure
  5. Hematological disorders like Hemophilia or Thalassaemia.
Amount of deduction:

Rs.40000 in case of patient is aged below 60 years, otherwise Rs.1,00,000.

Section 80E

Interest paid on education loan.

Details on this section can be viewed at the below mentioned link.


Section 80G

Eligible donations made to religious or charitable institutions or political parties can be claimed under this section.

Section 80TTA

Interest earned on savings account up to a maximum of Rs.10000. Applicable for non-senior citizens.

Section 80TTB

Eligible only in case of senior citizens. An amount upto Rs.50000 is eligible for deduction on interest earned on savings account, recurring or fixed deposits maintained with banks or post office.

Section 80U

Maintenance of persons with disability subject to a maximum of Rs.125000.

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