Salary Income Computation Under explained: this guide covers what Salary Income Computation Under means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
1. What is Salary Income?
Salary under Section 17(1) of ITA 2025 is broadly defined to include: wages, annuity, pension, gratuity, fees, commissions, perquisites, profits in lieu of salary, advance salary, and any payment from an employer. The key test is employer-employee relationship — income from contract or freelance does not qualify as salary.
2. Components of Gross Salary
| Component | Taxable? | Notes |
|---|---|---|
| Basic salary | Fully taxable | Base for HRA, PF, NPS calculations |
| Dearness Allowance (DA) | Fully taxable | Part of "salary" for HRA and PF purposes |
| HRA (House Rent Allowance) | Partly exempt | Exempt portion computed per Rule 2A (old regime only) |
| Leave Travel Allowance (LTA) | Partly exempt | Actual travel cost exempt twice in 4-year block |
| Special allowance | Fully taxable | No exemption available |
| Bonus | Fully taxable | Taxable in year of receipt |
| Perquisites | Valued per Rule 3 | Car, accommodation, ESOP etc. |
| Employer PF (above Rs 7,500/month) | Taxable excess | Employer PF above 12% of salary taxable |
3. Standard Deduction: Rs 75,000
All salaried employees and pensioners get a standard deduction of Rs 75,000 from gross salary — in both old and new regimes. No proof required. This replaced the earlier Rs 40,000 (raised to Rs 50,000, then Rs 75,000 by Budget 2024). The standard deduction is applied before computing taxable salary.
4. HRA Exemption Computation (Old Regime)
HRA exemption is the LOWEST of three:
- Actual HRA received from employer
- Actual rent paid minus 10% of (Basic + DA)
- 50% of (Basic + DA) for metro cities (Mumbai, Delhi, Kolkata, Chennai); 40% for non-metro
If you live in your own house or do not pay rent — HRA is fully taxable. Landlord PAN must be submitted if rent exceeds Rs 1 lakh per year.
5. Salary vs Retirement Benefits: Different Tax
| Item | Tax Treatment |
|---|---|
| Gratuity | Exempt up to Rs 20L (non-govt) |
| Leave encashment (at retirement) | Exempt up to Rs 25L (non-govt) |
| VRS compensation | Exempt up to Rs 5L |
| Commuted pension (non-govt with gratuity) | 1/3 exempt |
| Uncommuted pension | Fully taxable |
6. Salary Received from Two Employers
If two salaries are received in the same year (previous job + new job), both are taxable in the same year. Each employer deducts TDS independently unless the employee submits Form 12B to the new employer. File ITR-2 or ITR-3 (not ITR-1) since ITR-1 requires only one employer Form 16. Disclose both Form 16s in the ITR.
7. Why TaxClue
Salary computation — especially with multiple employers, retirement benefits, and perquisites — requires careful reconciliation with Form 16. TaxClue handles all salaried ITR filings. Contact us under ITA 2025.