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Once the components of a salary are named, the next question is how the law treats them. Some items form part of taxable salary in full. Some are exempt only if stated conditions are met. Some benefits that do not appear as cash are nonetheless valued and taxed as perquisites. Deductions against salary — notably the standard deduction, and certain contributions — then reduce the figure on which slab rates or the rebate is applied. This article describes that sequence. It is not a substitute for the return-preparation software or for professional advice on an unusual benefit.
Basic salary, dearness allowance where paid, bonus, and most general or special allowances are included. House-rent allowance is included, and an exemption may then be computed if the individual pays rent and is eligible under the regime selected. Leave travel concession is exempt only for specified journeys and subject to conditions that have been narrowed over the years. Reimbursements of official expenditure, supported by evidence and permitted by the rules, are generally not treated as income. Informal “reimbursements” without evidence are not a reliable method of reducing tax.
A perquisite is a benefit provided by the employer that has a value even where no cash is credited. Rent-free or concessional accommodation, a motor car used for personal journeys, interest-free or concessional loans above prescribed thresholds, and certain stock-based benefits are common examples. The Income-tax Rules prescribe the method of valuation. The value so computed is added to salary. A benefit that is not listed on the monthly payslip may still appear in Form 16 at the end of the year. Readers who receive such benefits should read that form, not only the monthly credit.
A standard deduction is allowed from salary and from family pension in the manner prescribed for the year. Under the default new tax regime applicable for financial year 2025–26, the standard deduction for salaried individuals and pensioners is ₹75,000. Under the old regime, where that regime is validly opted for, the standard deduction has remained ₹50,000. The figure should be confirmed for the year of filing.
The employee’s own contribution to provident fund is a deduction under the old regime within the overall limit of section 80C. Under the new regime, chapter VI-A deductions of that kind are generally not available. Employer contributions to the National Pension System under section 80CCD(2) remain relevant under the new regime, within the percentage of salary prescribed. Professional tax levied by a State is deductible where paid.
Health-insurance premiums, housing-loan interest on a self-occupied property, and house-rent allowance exemption are discussed with the choice of regime in the following article, because their value depends on that choice.
Form 16 is the employer’s certificate of salary paid and tax deducted. It is the starting document for the salary head of the return. It is not always complete as to income under other heads. Interest on deposits, rent, and capital gains must still be gathered by the individual. Discrepancies between the Form 16 and the annual information statement should be reconciled before the return is filed.
The annual information statement and Form 26AS record tax deducted and specified transactions. They do not replace the need to classify each receipt under the correct head. They are a checklist, not a computation.
Suresh, who is employed in Rewari, treated his monthly credit as his only salary income and filed on that basis. Form 16 included a valued perquisite for accommodation which he had not seen on the payslip. The difference was not an error by the employer. It was a benefit the rules required to be valued. Once he read the form in full, the return matched the certificate and the refund he had expected was revised to a small payable balance.
Salary taxation is a sequence: inclusion of cash and of valued benefits, then exemption where the conditions are met, then the deductions the selected regime permits. Skipping a step produces a figure that will not survive comparison with Form 16.
Assuming that every amount described as a reimbursement is outside taxable salary. The description on an internal spreadsheet does not bind the assessing officer. The rule and the evidence do.