Filing ITR as a Salaried Person?

The Income-tax returns of the financial year 2019-20 are due to be filed by 30.11.2020 for all classes of taxpayers. This is a substantial change for salaried taxpayers since every year the said due date is 31st July. This is an opportunity to file your taxes not in haste and urgency but with proper appreciation of your incomes and savings and claiming all eligible tax deductions. The is at the forefront of saving tax of salaried taxpayers with its mission of tax planning and saving it till the last paisa.

The computation of tax on the taxable income is a no brainer since you can do it by applying the applicable tax rates to arrive at tax payable. What is most important and worthy of your time is the correct computation of taxable income since it involves lot of legal rules and calculations in respect of different incomes, exemptions, and deductions. The has grouped these calculations into four broad steps and the fifth step is about tallying and verifying the computation with entries in Form 26AS so that you can be sure as to the correctness of your computation. The Form 26AS contains information about your incomes and taxes paid you as per the Government records. So, you need to tally with that record and match the numbers.

As per the Income-tax Act, the income that any person can earn in a financial year can be classified into five heads of income and they are Income from Salary, Income from house property, Income from business and profession, Income from capital gains, and income from other sources. The last head of income i.e income from other sources contains the items not covered in the earlier four heads of income. A large number of salaried taxpayers have income under three heads of income viz. Income from Salary, Income from House Property, and Income from other sources. They do not have income from business and profession and in very few instances and in one or two years they may have income from capital gains. Therefore, this blog article focuses on the computation of taxable income in respect of a large number of salaried taxpayers.

The documents needed for the exercise
Before you sit down to compute your taxable income, you must have few documents ready with you for reference and cross-reference. These documents are few and fortunately accessible through the internet or saved on your computer smart-phone.

These documents and their sources are:

Step wise computation of taxable income

Once you have these documents ready for computation taxable income can be computed in a stepwise manner as under.

Income from your salary
Go through your Form 16, check every head of it carefully. Here is the guide on how to check Form 16. Please confirm your income shown in form 16 with a hat shown in payslips. Often the taxable income in Form 16 is computed on a higher side since the tax-free incomes are not computed with tax-saving in mind but not to miss out on TDS deduction. We have found that Form 16 computes HRA and other allowances incorrectly on a higher side. Please check your income from salary computed under different sub-sections like 17(1), 17(2), and 17(3). Basically, Form 16 is an aggregate of all the payslips of the financial year. Please check that aggregate amounts of various heads of salary and allowances in payslips and Form 16 tally with each other. Further, you must cross-verify the various amounts paid to you by your employer shown in Form 16 with those shown in Form 26AS. Last but not the least, the amount of TDS shown to be deducted in Form 16 must match with the amount in Form 26AS. The has prepared a complete guide on the topic of income from salary. This can be accessed here.

Income from House Property
Even if you believe that the HR department of your employer has correctly computed your income from house property, you must check and re-check this head of income carefully because this is where you can save tax on three occasions, one, interest on home loan (up to ₹200,000/-), two, home loan principal and three, 80EEA deduction on interest.

For income tax purposes, the house property is of three kinds, self-occupied (SOP), Let Out Property (LOP), and Vacant or deemed let out a property (DLOP). The computation of income is different for all three different situations. In the case of SOP, the income is NIL but you can claim loss from house property of the amount equal to the interest paid on a home loan up to a limit of ₹200,000/-. In the case of a let-out property, the starting point is the amount of rent received (unless the rent received is lesser than the municipal valuation) and in the case of vacant property or DLOP, the starting point is the amount of rent expected to be received by the property owner. After this starting point amounts, the deductions on account of municipal taxes and standard deduction (30%) are claimed after which you can claim the deduction on account of interest paid on housing loan which is deductible up to an amount of ₹200,000/-. In cases of SOP, this turns out to be generally a loss, hence, gets set off against income from salary and hence reduces income from salary. On this issue of income from house property, has prepared a detailed guide which can be reached here.

Income from other sources
The income earned by you which is not covered under any other heads of income is clubbed under this head and hence this head is called the residual head of income. However, there are certain incomes specified in this section like dividends, interest, family pension, remunerations, etc. For the salaried taxpayers, these incomes are generally of the nature of interest on the savings bank account and interest on FDs and dividend income. You need to go through your bank account statements of the active bank accounts and FD statements and compute the aggregate income under this head and add to the income under the other two heads to arrive at gross total income.

Gross Total Income
The income of a person from different sources and under different heads is aggregated to arrive at a gross total income. This is a gross annual income on which tax deductions are claimed to arrive at Total Taxable Income.

Tax Deductions
In your Form No. 16, you might have seen that after computing income from all sources, the gross total income is computed and then the amount of tax savings is mentioned. These amounts are reduced from gross total income and then total taxable income is computed. Generally, the tax deductions u/s 80C and 80D of the Income-tax Act are claimed. However, there are many tax deductions that can be claimed by salaried individuals but are forgotten while filing I-T Returns. These tax deductions are very well explained by in these blog posts.

Total Taxable Income
The amount arrived at after claiming the tax deductions from gross taxable income is known as Total Taxable Income. This is arrived at after as below:

Compute tax on the taxable income
After you compute your total taxable income as discussed above. You need to apply applicable tax rates to the total taxable income to arrive at the tax amount due to you. If you are eligible to claim the tax rebates you must claim deduction on account of tax rebate from such tax due from you to arrive at net tax liability. Your employer must have deposited the tax (TDS) on behalf of you which is already indicated in Form 16 or Form 26AS. So, you can claim the TDS deduction from such tax liability, and the remaining may be tax payable or refundable to you.

Read more on the computation of taxable income and tax

Income from salary
Understand Income Tax Form No.16

10 Frequently Asked Questions (FAQs) on Income tax and salary

Income from House property
Own a house? Claim this Extra Tax Benefit

How to compute Income from House property?