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The ITR-2 form for AY 2014-15 requires taxpayers to give a detailed break-up of tax-exempt allowance in schedule S.  Schedule S is for filling the salary income in ITR2. This article explains the changes in filling Schedule S in ITR2 this year.

What is Schedule S of ITR?

The ITR2 to ITR6 has multiple schedules such as Schedule S which is for salary. Schedule-HP which is Computation of income under the head Income from House Property. Schedule-CG Computation of income under the head Capital gains. These schedules can be thought of as different sections related to Income Tax calculations. One is not required to fill all schedules, Many of the schedules are optional . For example a person who has not bought/sold a house has no Computation of Income under Income From House Property and hence would not be required to fill the Schedule HP.

In ITR utilities  a taxpayer can decide which of the sheets are relevant for their eFiling and can choose to view only such sheets. For ex : If there are no House Property details to be submitted, the taxpayer can deactivate / hide this sheet . XML will only be generated hence for the active sheets. Explained in our article Filling ITR1 Form

Our article Income Tax for AY 2014-15:Tax slabs, ITR Forms explains in detail about ITR for AY 2014-15 or FY 2013-14.

Tax Exemptions Under Scanner

The tax exemptions are increasingly being put under the scanner by the CBDTThe Centeral Board of Direct Taxes (CBDT) is a part of the Department of Revenue in the Ministry of Finance of the Government of India. The essential functions of the CBDT include: a) It provides the essential inputs, ideas and requirements for planning and policy in India, with regard to direct taxes in India. b) It helps in the administration of direct taxes throughout India through Income Tax Department.

In October 2013, it had declared that the salaried taxpayers who claim HRA exemption will have to report their landlord’s PAN if the total rent in a year exceeded Rs 1 lakh.In case the landlord does not have a PAN, the employee will have to submit a declaration to this effect from the landlord, along with his name and address. Earlier, you were not required to submit the landlord’s PAN details if the total rent paid was less than Rs 15,000 a month. The new rule effectively reduced this limit to Rs 8,333 a month. Though this was meant to plug tax evasion by salaried professionals who submitted fake rent receipts to maximise their HRA exemption, even honest taxpayers had to suffer the collateral damage. The new rule created problems for many employees because landlords are generally reluctant to provide PAN on rent receipt to tenants.

 Tax Exemptions for Salary under Scanner

Many employees get house rent allowance (HRA), leave travel assistance (LTA) and travel allowance as part of their salaries. These allowances are exempt if certain conditions are met.  Till AY 2013-14 the taxman had no issues if you mentioned a consolidated figure in your return, but now he wants to know how much you received under different heads. You will now have to separately mention the figures for, say, HRA and LTA. Images below show the difference in the form for AY 2013-14 and AY 2014-15. If you look at Image of Schedule S for AY 2013-14 , point 2, Allowances exempt under section 10 were bundled together, highlighted by red box.

Schedule S in ITR2 for AY 2013-14

Schedule S in ITR2 for AY 2013-14

In AY 2014-15 Allowances exempt under section 10 are now split into Travel concession/assistance received, Tax paid by employer on non-monetary perquisite etc highlighted by the red box in image below.

Schedule S in ITR2 for AY 2014-15

Schedule S in ITR2 for AY 2014-15

Explanation of exempt Allowances

Travel concession/assistance received is under section 10(5). It basically refers to Leave Travel allowance or LTAwhich  is an allowance you get from your employer when you are on leave from work and you along with your family actually travel domestically i.e. within India. Our article What is Leave Travel Allowance or LTA explains it in detail.

Tax is paid by the employer on non-monetary perquisites (sec 10(10CC)) . Perquisite is a benefit received by an employee in excess of his salary. Perquisite can be provided both by way of a monetary payment or a non-monetary payment/benefit. Payments which can be called non-monetary payments are car facility, chauffeur salary paid directly, benefit on account of interest-free loans, rent-free accommodation, furniture provided to employees, soft furnishings and so on. A perquisite by way of a monetary payment could be a case where the employee initially incurs the expense and the same is later reimbursed by the employer to him. If an employer paid the tax on behalf of an employee, which is otherwise payable by the employee is considered as taxable perquisite. However, under section 10(10CC) of the Income Tax Act, 1961, an employer has been given an option to pay tax on the whole or part of the value of perquisite on behalf of employee without deduction of it from the salary of an employee. When the tax actually paid by an employer as non-monetary perquisite, it is not taxable in the hands of employees. As far as Section 10(10CC) of the I-T Act is concerned, payments made to a third party on behalf of the employee are a non-monetary benefit in kind. Direct Monetary payments to employees are outside the purview of the exemption. Our article Understanding Perquisites deals with Perquisites in detail.

Allowances to meet expenditure incurred on house rent under section 10(13A). House Rent Allowance or HRA is given by the employer to the employee to meet the expenses of rent of the accommodation which the employee has taken for his residential purpose. House Rent Allowance so paid by the employer to his employee is taxable under head Income from Salaries , but it can help you save taxes under  Section 10(13A) of the Income Tax Act. Our article HRA Exemption,Calculation,Tax and Income Tax Return deals with HRA calculation in detail.

Tax exemption in Form 16 and showing it in ITR for AY 2014-15

To fill the values in Schedule S  such as of tax exemptions, one would have to look at Form 16. A sample Form 16 from  our article Filling ITR1 Form is given below. Our article Understanding Form 16: Part I explains Form16 in detail.

Income Details including exemptions in Form 16

Income Details including exemptions in Form 16

  • Allowances like leave travel allowance, medical reimbursement, house rent allowance (if an individual lives in a rented accommodation) and transportation allowance, etc are exempt from taxes.
  • Allowances not exempt include allowances like special allowance. It also includes the house rent allowance (HRA) if the individual owns a house and lives in it.

For example  let’s take a look at salary structure of Mr Verma

  • Basic:  1,44,400
  • House rent allowance : 72,000
  • Special allowance : 96,720
  • Transport Allowance : 9,600
  • Medical Reimbursement : 15,000
  • Leave travel allowance : 15,000
  • Bonus :1,80,000

Salary includes your basic salary and the bonus earned during the course of the year. In the case of Mr. Verma, the basic and bonus amount to Rs 3,24,000.

Allowances not exempt include allowances like special allowance. It also includes the house rent allowance (HRA) if the individual does not live in his own house.

If  Mr. Varma lives in his house, then his HRA is taxable. The total of his special allowance (Rs 96,720) and HRA (Rs 72,000) works out to Rs 1,68,720. The income chargeable to tax under this head,Income from Salary works out to Rs 4,92,720.

If Mr. Verma lives  in a rented house then his HRA ,72,000, will be exempt and would have to be shown under Allowances to meet expenditure incurred on house rent under section 10(13A) in Income Tax Return ITR2.

His Leave travel allowance of Rs 15,000 if claimed will be exempt and would be shown under Travel concession/assistance received is under section 10(5) in ITR2

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Note: We are planning to have a Google Hangout session on a Sat (date not decided yet) to give overview of Income Tax process. If interested please drop an email to bemoneyaware@gmail.com

Please check that details of Schedule S in ITR2 are filled property for Exempt Allowances, whether you file it yourself or you get it filled with someone. Income tax laws are becoming stricter and stricter , so please verify your ITR to avoid notice from Income Tax Department.

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