40 interview questions with concise answers on "Income from Salary

 Here are 40 interview questions with concise answers on "Income from Salary" under the Indian Income Tax Act:

 Basic Level (Conceptual Understanding)

  1. Q: What is "Income from Salary" under the Income Tax Act?
    A: Income received by an employee from an employer in cash, kind, or as a facility is taxable under the head "Salaries".
  2. Q: What is the basis of charge for salary income?
    A: Salary is taxable on due or receipt basis, whichever is earlier.
  3. Q: What are the components of salary?
    A: Basic pay, DA, bonus, commissions, perquisites, allowances, and retirement benefits.
  4. Q: What is the tax treatment of advance salary?
    A: Advance salary is taxable in the year of receipt.
  5. Q: What is the treatment of arrears of salary?
    A: Taxed in the year of receipt; eligible for relief under Section 89(1).

 Allowances

  1. Q: Are all allowances taxable?
    A: No. Some allowances are fully taxable, some are fully exempt, and some are partially exempt under Section 10.
  2. Q: Name a few fully taxable allowances.
    A: Dearness Allowance, City Compensatory Allowance, Overtime Allowance.
  3. Q: Which allowances are partially exempt?
    A: HRA, Children Education Allowance, Transport Allowance (for disabled employees), Hostel Expenditure Allowance.
  4. Q: What is HRA exemption rule?
    A: Under Section 10(13A), least of the following is exempt:
    • Actual HRA received
    • 50% of salary (metro) or 40% (non-metro)
    • Rent paid – 10% of salary
  5. Q: Is medical allowance exempt?
    A: No. Medical allowance is fully taxable. (Reimbursement up to ₹15,000 was earlier exempt but now withdrawn.)

 Perquisites

  1. Q: What are perquisites?
    A: Benefits provided by the employer in addition to salary, e.g., rent-free accommodation, car, concessional loan.
  2. Q: Are all perquisites taxable?
    A: Most are taxable except those specifically exempt under rules.
  3. Q: Give an example of tax-free perquisite.
    A: Medical facility in employer’s hospital or health insurance premium paid by employer.
  4. Q: What is the taxability of rent-free accommodation?
    A: It is a taxable perquisite; valuation depends on whether the employer is government or private.
  5. Q: What is the taxability of use of motor car?
    A: It depends on car ownership, usage (official/personal), and expenses borne.

 Provident Funds and Retirement Benefits

  1. Q: Is employer contribution to PF taxable?
    A: Employer contribution up to 12% of salary to Recognized PF is exempt. Excess is taxable.
  2. Q: What is the treatment of interest on PF?
    A: Interest >9.5% p.a. on Recognized PF is taxable.
  3. Q: Is gratuity taxable?
    A: It is exempt up to ₹20 lakhs for non-government employees covered under the Gratuity Act.
  4. Q: What is tax treatment of leave encashment?
    A: Fully exempt for government employees. For others, exemption up to ₹3,00,000 u/s 10(10AA).
  5. Q: What about commuted pension?
    A: Fully exempt for government employees. For others, partially exempt under Section 10(10A).

 Deductions and Reliefs

  1. Q: Can Standard Deduction be claimed under salary?
    A: Yes, ₹50,000 is allowed as a standard deduction u/s 16(ia).
  2. Q: What is Professional Tax treatment?
    A: Deductible from salary income under Section 16(iii), up to ₹2,500 p.a.
  3. Q: What is Section 89(1) relief?
    A: It provides tax relief on arrears/advance salary/pension to reduce additional tax burden.
  4. Q: Are voluntary retirement benefits exempt?
    A: Yes, up to ₹5 lakhs under Section 10(10C).
  5. Q: Is employer's contribution to NPS taxable?
    A: Contribution up to 10% of salary is exempt u/s 80CCD(2) (14% for government employees).

 Computation & Taxability

  1. Q: What is the formula to compute Gross Salary?
    A: Gross Salary = Basic + DA + Allowances + Perquisites + Bonus + Others.
  2. Q: What is Net Salary?
    A: Net Salary = Gross Salary – Deductions under Section 16.
  3. Q: Under which head is family pension taxed?
    A: Taxable under Income from Other Sources, not Salary.
  4. Q: Is leave travel concession (LTC) taxable?
    A: Exempt twice in a block of 4 years, subject to actual travel and limits.
  5. Q: Is notice pay taxable?
    A: Yes, notice pay received or paid is taxable under "Salaries".

 Advanced/Application Based

  1. Q: What is salary for HRA exemption?
    A: Salary includes Basic + DA (if part of retirement benefits) + Commission (as % of turnover).
  2. Q: Is bonus taxable?
    A: Yes, bonus is fully taxable.
  3. Q: Can pension received by a retired employee be taxed under salary?
    A: Yes, uncommuted pension is taxable under "Salaries".
  4. Q: Is uniform allowance exempt?
    A: Exempt if used wholly and exclusively for duty.
  5. Q: What if an employee receives gifts from employer?
    A: Taxable if value exceeds ₹5,000 in a year.

 New vs Old Tax Regime

  1. Q: Is standard deduction available under the new regime?
    A: Yes, ₹50,000 standard deduction is available under both regimes from AY 2024–25 onwards.
  2. Q: Can an employee opt for the new tax regime every year?
    A: Salaried employees can choose between old and new regimes every year.
  3. Q: What are the main differences between the old and new tax regimes?
    A: Old regime allows deductions and exemptions; new regime offers lower tax rates but no major deductions.
  4. Q: Is HRA exempt under the new tax regime?
    A: No, exemption for HRA is not available under the new regime.
  5. Q: Which is better: old or new regime?
    A: Depends on individual income, exemptions, and deductions claimed. If deductions are high, old may be better.

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