Learn to report salary components under Section 17 for ITR-2 filing. Essential for matching Form 16 when income exceeds Rs 50 lakh.
Individuals who earn a salary and have a total income exceeding Rs. 50 lakh are required to file their income tax returns using ITR-2. This form mandates a specific breakdown of various salary components as prescribed by the Income Tax Department.
Below is an explanation of the salary breakup required when filing Form ITR-2 for the Financial Year 2024-25 (Assessment Year 2025-26).
Reporting Salary Components under Section 17(1)
For AY 2025-26, the ITR-2 form necessitates that taxpayers provide a detailed split of their salary earnings.
The salary structure generally consists of several elements such as Basic Salary, House Rent Allowance (HRA), Leave Travel Allowance (LTA), Gratuity, and other specific allowances like conveyance or medical allowances. Each of these must be reported individually in the tax return. While these components are typically taxable, certain allowances such as HRA and LTA may be partially or fully exempt under the Income Tax Act, provided specific conditions are met. Employers grant these allowances to cover particular expenses and help optimize the employee’s tax liability.
Example Scenario:
Consider Mr. A, a salaried individual. His compensation package includes the components listed below. Note that specific portions of these allowances are tax-exempt. These figures must be reported separately in the ITR.
| Allowances | Component of Salary Package | Exemptions Allowed under Section 10 |
|---|---|---|
| House rent allowance | 1,50,000 | 1,20,000 |
| Leave travel allowance | 60,000 | 50,000 |
| Gratuity | 4,00,000 | 3,50,000 |
| Leave encashment | 80,000 | 80,000 |
Details regarding the various exempt allowances provided to an employee can typically be found in Part B of Form 16.
Perquisites Defined under Section 17(2)
Perquisites are non-monetary benefits extended by an employer to employees. Examples include rent-free accommodation, company vehicles, low-interest loans, or stock options. These benefits are provided either free of charge or at a concessional rate and are taxable under the “Salaries” head. The monetary value of each perquisite must be disclosed separately in the ITR.
Example Scenario:
Mr. B receives a salary package that includes the following perquisites:
| Perquisites | Component of Salary Package | Amount Recovered from Employee | Value under Section 17 |
|---|---|---|---|
| Accommodation | 1,80,000 | 20,000 | 1,60,000 |
| Car | 60,000 | 10,000 | 50,000 |
| Gas, electricity, water | 30,000 | – | 30,000 |
| Interest-free or concessional loan | 20,000 | 5,000 | 15,000 |
| Gifts, vouchers, etc. | 5,000 | – | 5,000 |
Detailed information on perquisites is available in Form 12BA, which serves as an annexure to Form 16. Employees can aggregate this data from Form 12BA. If the necessary information is not available in Form 16, the employee should refer to their pay slips or employment contract.
Profit in Lieu of Salary per Section 17(3)
“Profits in lieu of salary” refers to payments received by an employee either instead of or in addition to their regular salary. This category includes severance pay, proceeds from a Keyman Insurance Policy, or joining bonuses. Under Section 17(3) of the Income Tax Act, these amounts are fully taxable as salary and must be reported distinctly during ITR filing.
Example Scenario:
Mr. B receives the following payments from his employer:
| Profits in Lieu of Salary | Value under Section 17 |
|---|---|
| Compensation received on modification of terms of employment | 1,00,000 |
| Sum received under a keyman insurance policy | 50,000 |
| Amount received before joining employment | 50,000 |
These details are also documented in Form 12BA, supplementing Form 16. If a taxpayer has worked for multiple employers within a single financial year, these details must be provided for each employment.
The table below summarizes the broad salary components and where to find them:
| Components of Salary | Source of Information |
|---|---|
| Salary, including all allowances | Annexure to Form 16 |
| Perquisites | Form 12BA (Statement showing particulars of perquisites and profit in lieu of salary) |
| Profits in lieu of salary | Form 12BA (Statement showing particulars of perquisites and profit in lieu of salary) |
Why a Salary Breakup is Necessary in the New ITR-2
The ITR-2 form requires taxpayers to furnish a granular breakdown of salary, allowances, perquisites, and profits in lieu of salary. It also asks for specific data on allowances claimed as exempt under Section 10. This detailed disclosure allows the Income Tax Department to verify exemption claims against the reported salary components and reconcile the income with the TDS certificate (Form 16) issued by the employer.
Overview of Required Details for ITR-2
The following table outlines the specific details required in ITR-2 for each salary component:
| Components of Salary | Details Required in ITR-2 |
|---|---|
| Salary, including all allowances | Basic salary; Dearness allowance; Conveyance allowance; House rent allowance; Leave travel allowance; Children education allowance; Other allowance; Employer’s contribution to pension scheme; Deemed income in respect of contribution to Employee Provident Fund; Annuity or pension; Commuted value of pension; Gratuity; Fees or commission; Advance of salary; Leave encashment; Others. |
| Perquisites | Provision of Accommodation; Cars/other automotive; Sweeper, gardener, watchman, or personal attendant; Gas, electricity, water; Interest-free or concessional loans; Holiday expenses; Free or concessional travel; Free meals; Free education; Gifts, vouchers, etc.; Credit card expenses; Club expenses; Use of movable assets by employees; Transfer of assets to employee; Value of any other benefit/amenity/service/privilege; Stock options (non-qualified options); Tax paid by employer on non-monetary perquisite; Other benefits or amenities. |
| Profits in lieu of salary | Compensation due/received by an assessee from his employer or former employer regarding termination or modification of employment; Any payment due/received from an employer or provident fund, including Keyman insurance policy sums; Any amount due/received before joining or after cessation of employment; Any other sum received. |
These details must be entered in Schedule S – Salary of the ITR-2 form.
