Page 197 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes Allowances

Section 17 of the income tax act includes:
1. Basic salary
2. Wages
3. Annuity

4. Provident fund (PF)
5. House rent allowance (HRA)
6. Gratuity
7. Cess tax and incentives generated from the salary

8. Miscellaneous amount
9. Finance tax
10. Any encashment of leave salary
11. Transport allowance

The essential conditions to notify the income as the salary income:
1. The employee and the employer relationship are of servant and master. There should be
a relationship. It is different than the principal and agent as agent wont come under the
full control of the employer. In India M.L.A is not come under the head salary due to the
fact that it not comes under employee and employer relation ship bracket.

2. In all the government organizations pension is deducted as it is mandatory to do so.
3. Any salary that is generated outside India is taxable as per Indian income tax law.
4. Provident fund is mandatory in government as well as in the private organization.
5. As per Provident fund rule half of the amount is deducted from the salary of the employee
and half of the amount will be added by the company or government. Most of the time
employee claims their provident fund after leaving the job, however there is an exceptional
clause under which employee can claim half of his provident fund amount at the time of
buying a property or his/her wedding.

Exemption of tax in the salary:
This is a myth that every income is taxable that is received from an employer:
1. Any traveling facility provided by an employer to its employee such as train or airplane
passes is not come under the tax bracket.
2. Gratuity amount is also not subjected to the income tax.
3. Any payment received by the employee of central or state government from the
encashment of his/her leave balance is entitled of exemption from tax.
4. As per the provident fund act 1925. Provident fund amount is also exempted from the tax
list.

5. Any sum received under life Insurance policy is exempted from the list as per sub section
(3) of section 80DDA.

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