Income from salary new tax regime

What is salary income Calculation of Income from salary under new tax regime ??

Calculation of Income from salary under new tax regime fy 2022-23 , first we have to learn the meaning of salary . What is salary ?? Salary is fixed amount amount of money or compensation paid to employee by an employer in return of work or services performed. Further, Salary generally paid for fixed period like monthly. Provisions relating to salary contained in section 15,16, and 17.

Taxability of salary income for Calculation of Income from salary under new tax regime fy 2022-23

Any payment is taxable under income from salary head only if relationship between employee and employer , payer and payee or master & servant exists.

How to determine employer and employee relationships exists??

Where employer direct and controls as to what is required to be done by employee and how is to be done. Means employer will have full control on his employee i.e all the work done by employee is directed ,control and supervised by employer. Because ,it is necessary to determine employer and employee relationship for the purpose of calculating income from salary for fy 22-23.

Example of employer and employee relationship

• Payer must be owner of the business and receiver should be the employee.
• Salary paid by Shopkeeper to his employee
• Salary paid by owner of company to his employee
• However remuneration earned by employee directors taxable under head of salary for calculating income from salary. On other hand, remuneration earned by non employee directors is taxable under head of income from other source
• Despite of salary paid by Partnership Firm to its partners is taxable in hands of partners as business income under head PGBP to the extent allowed u/s 40 (b)
• MP/MLA are not employee of Central/ State Govt. and thus remuneration received by them is not chargeable under head salary rather such income is chargeable to tax under head income from other source.

Place of accrual of salary income under section 9 for calculation of Income from salary under new tax regime fy 2022-23

In fact for calculation of Income from salary under new tax regime fy 2022-23 salary is deemed to be accrue arise at the place where services have been rendered ( provided ) by employee. Therefore, salary is deemed to be accrue or arise in India if services rendered/provided in India.

Chargeability of salary income under section 15 means how salary income is calculated

Following above provisions salary income is chargeable to income tax on due or receipt basis, whichever is earlier. If salary taxed on due basis than it will not taxed at the time of receipt. And if salary taxed on receipt basis than it will not taxed at the when salary is due.

For Instance :

1. If salary due on last day of month, salary from April 2022 to March 2023 shall become due in previous year 2022-23.
2. And if salary due on first day of next month than salary from March 2022 to February 2023 will become due in previous year 2022-23.

Advance Salary is added to calculate income from salary under new regime

Although for calculation of Income from salary under new tax regime fy 2022-23 , advance salary is taxable when it is received . Although Loan taken against salary is not taxable.

Deductions under section 16

Section 16 of income tax act provides deductions from income chargeable to tax under salary head. From this deductions a salaried individual can decreases his/her income tax liability to some extent.

A ) Standard deduction for calculating income from salary under section 16(i)

Standard deduction is allowed for calculating income from salary under section 16(ai). Under new regime standard deduction of Rs. 50,000 is allowed to salaried individual.

In addition to, this standard deduction is also available to pensioner . It means pension received by employee from his employer is chargeable under income from salary head. In brief pension is charged to tax as salary income hence deductions also available to pensioner under section 16.

Amount of deductions for calculating salary is least of the following i.e.

• Rs. 50,000 or,
• Gross Salary

Point to be noted: This standard deduction is not connected with deductions under chapter VIA.

B ) Deductions under section 16(ii) entertainment allowance

Central/State Govt. employee can claim deductions under this section. Entertainment allowance is first included in gross salary and than deduction is allowed .

Besides, this deduction is not available to Non Govt employees. Only Central/State Govt employees are eligible for this deduction. It means employees of local authorities or statutory corporations are not eligible.

Amount of entertainment allowance deductible for calculating income from salary is least of the following i.e.

• Actual Amount received ; or
• Maximum deductions Rs. 5,000 p.a. ; or
• 20% of basic salary

C ) Profession Tax deduction under section 16 (iii)

Profession tax is deduction from gross salary on ” Payment basis”. Profession tax is allowed as deduction on paid basis i.e. it is allowed as deduction only in financial year in which it is actually paid to Govt.

The tax paid by employer on behalf of employee is also eligible for deduction. Amount paid by employer as a profession tax first included in salary as a perquisite and than allowed as deduction under section 16(iii).

Deduction of profession tax is actual amount of tax paid to Govt. State Govt cannot leavy more than 2,500 p.a. as a profession tax.

Example for calculating salary income under new and old tax regime for financial year 2022-23

Let say Mr. Aryan is working in XYZ Ltd company for two years ,he earns salary income of Rs. 15,50,000 p.a. for financial year 2022-23 and the salary is due and received on last day of same month. In addition to he has received advance salary Rs. 80,000 which is excluded from total salary income. Further, XYZ Ltd paid profession tax of Rs. 2,500 on behalf of Aryan on 12 January 2023 and paid entertainment allowance of Rs. 5,000 p.a.

Solutions: Computation of taxable salary and tax under new and old tax regime for financial year 2022-23

Mr. Aryan is Resident individual and he is Non – Govt Employee

Sources of Income	Taxable income under old regime	Taxable income under New regime
Basic Salary	15,50,000	15,50,000
Advance Salary	80,000	80,000
Add:
Allowance Entertainment Allowance	5,000	5,000
Perquisite Profession tax paid by XYZ Ltd	2,500	2,500
Gross Salary	16,37,500	16,37,500
Less: Deductions u/s 16
Standard Deduction u/s 16(i)	(50,000)	(50,000)
Entertainment Allowance u/s 16(ii)	Nil	Nil
Profession Tax u/s 16(iii)	(2,500)	(2,500)
Income from Salary	15,85,000	15,85,000

Note: Since Mr. Aryan is No- Govt. employee he is not eligible for deduction u/s 16(ii) entertainment allowance.