Key Highlights
- Salary provisions: Sections 15-25, Chapter IV-A, ITA 2025
- Standard deduction: Rs 75,000 — available in BOTH regimes (Finance Act 2024 enhancement)
- HRA, LTA: exempt under Schedule II — Old Regime only
- Perquisites (company car, rent-free accommodation, ESOP) taxable as salary
- Employer NPS (Section 132): deductible in BOTH regimes — up to 10%/14% of salary
- TDS deducted by employer under Section 391 at average rate of tax
1. What Counts as Salary?
Under Section 17 of ITA 2025, salary includes basic pay, DA, advance salary, bonus, commission, pension, perquisites (non-cash benefits), and profits in lieu of salary (termination compensation). Any payment from an employer to an employee in the context of employment is salary income.
2. Computation of Taxable Salary
| Step | Particulars |
|---|---|
| Start | Gross Salary (basic + DA + HRA + allowances + perquisites) |
| Less | Exempt allowances — HRA, LTA, etc. (Old Regime only) |
| Less | Standard Deduction: Rs 75,000 (Section 16(i)) — both regimes |
| Less | Professional Tax paid (Section 16(iii)) |
| Less | Entertainment allowance for Govt employees (Section 16(ii)) |
| = | Net Taxable Salary (Income under Salaries head) |
3. Standard Deduction: Rs 75,000
Every salaried employee and pensioner receives a flat standard deduction of Rs 75,000 under Section 16(i) of ITA 2025 — enhanced from Rs 50,000 by Finance Act 2024. No proof is required. It is available under both New and Old Tax Regimes. For a 30% bracket taxpayer, this saves Rs 22,500 + cess annually.
4. Allowances: Tax Treatment
| Allowance | Old Regime | New Regime |
|---|---|---|
| HRA | Partly exempt (rent proof needed) | Fully taxable |
| LTA | Exempt for 2 journeys/4 years | Fully taxable |
| Special Allowance | Fully taxable | Fully taxable |
| Children Education (Rs 100/child) | Exempt Rs 2,400/year (2 children) | Exempt Rs 2,400/year |
| Uniform Allowance | Exempt (actual) | Exempt (actual) |
5. Perquisites
Perquisites are non-cash benefits taxable as salary. Key examples: Rent-free accommodation — 10-15% of salary (unfurnished) as per city population; Company car — Rs 1,800-2,400/month for personal use; ESOPs — FMV minus exercise price on allotment date; Interest-free loans — difference between SBI PLR and actual rate; Club memberships — full cost. All perquisites are valued as per Schedule XIV of ITA 2025 rules and included in TDS computation by employer.
6. Salary Computation Example
Illustrative only. Amit, Mumbai: Basic Rs 9,60,000; HRA Rs 4,80,000 (50% basic); Special Allowance Rs 4,00,000; Employer PF Rs 1,15,200.
New Regime: Gross = Rs 18,40,000 (basic + HRA + SA). Less standard deduction Rs 75,000 = Taxable Rs 17,65,000.
Old Regime: HRA exempt = Min(Rs 4.8L; rent paid Rs 2.4L minus 10% of Rs 9.6L = Rs 1.44L; 50% of Rs 9.6L = Rs 4.8L) = Rs 1.44L. Taxable = Rs 18.4L minus Rs 1.44L minus Rs 75K = Rs 16.21L. Compare and choose the lower tax option.
7. Form 16 — Salary Certificate
Employers issue Form 16 by 15 June each year. Part A shows TDS deposited quarter-wise; Part B shows complete salary breakup, exemptions, deductions, and taxable income. Form 16 is the primary document for ITR filing by salaried employees. Always cross-check Form 16 with AIS on the Income Tax Portal before filing.
8. Latest Updates
- Standard deduction Rs 75,000 (Finance Act 2024) — both regimes
- ESOP deferral for eligible startups — confirmed in ITA 2025
- Salary provisions: Sections 15-25 (were Sections 15-17 of ITA 1961)
9. Why TaxClue
Choosing the right tax regime and claiming all salary exemptions correctly maximises your take-home pay. TaxClue handles complete salaried ITR filing with regime comparison, HRA and LTA computation, and Form 16 verification. Contact us for Tax Year 2026-27 filing.