Tuesday, June 7, 2011

Good News for Salaried Employees of India

Yes, you read the title right. There is indeed some good news for Salaried Employees of India. The government has recently released a notice that is good news for the salaried class of India. Read on to learn more!!!

Before We Begin:

I have written many articles on Indian Income Tax. You can read them to familiarize yourself with the Indian Tax Laws by reading them. To read them “click here”

What is the Good News?

Well, the good news is the fact that

“No Income Tax Returns is required for Salaried Individuals whose annual taxable income is upto 5 lakhs”

How is this Good?

Below are some reasons why this is good:

1. People who have annual income of upto Rs. 5 lakhs need not file any tax returns
2. Companies don’t have to deduct TDS (Tax Deducted at Source) for their employees whose annual incomes are less than 5 lakhs
3. Employees will get their full salary without any tax deductions (If their annual income is less than 5 lakhs)
4. The government does not have to process tax returns for people whose salaries are less than 5 lakhs and they can concentrate on the higher income group

How many people will be affected/benefited by this?

Approximately 85 lakh salaried individuals in India are expected to gain benefits because of this ruling. Note that, this number is just an approximation and the actual number might be higher or lower than this 85 lakhs.

From when is this effective?

This ruling is effective from financial year 2011-2012. i.e., for this financial year starting April 2011 and ending March 2012, people whose salaries are less than 5 lakhs need not file their tax returns in June 2012.

Points to Note:

Though this is good news, there are some things that we need to keep in mind:

1. The annual income comprises of the individuals salary and any other income that he/she may earn through bank interest, dividend income from Mutual Funds, Capital Gains from Shares etc
2. If your annual income including all the above mentioned entities is more than 5 lakhs, you need to file tax returns even if your salary is less than 5 lakhs.
3. Filing your tax returns is always a good idea if you are thinking of buying a home. Banks often ask for the past 2-3 years of IT Returns when you apply for a home loan and hence, it’s a good idea to file your returns to show that you are a responsible citizen as well as to cement the fact that you are earning legal income and can afford to repay the home loan EMI


There is still not much clarity about this 5 lakh limit. Does this cover only people whose annual income is less than 5 lakhs or does this cover people whose annual taxable salary is less than 5 lakhs.

Lets say an individuals annual salary is 7.5 lakhs. He gets a 1 lakh exemption under Section 80C (Investments) and another Rs. 1.5 lakh exemption on his home loan interest and another Rs. 15000 on Medical expenses. If we deduct all these exemptions (amounting to 2.65 lakhs), this individuals net taxable income is only Rs. 4.85 lakhs.

So, in this case, should this person file his returns or not?

Well, unfortunately, there is not much clarity on this front. Experts feel that, this ruling is applicable for these individuals as well, but it isn’t confirmed yet. If there is any clarity on this topic, as you might already know, we will cover that in my blog as always!!!

That’s it for now. Happy Tax Filing!!!


  1. Hi anand i will be following u r blog regularly....I am getting lots of basic knowledge by reading u r blogs....I want to know about book value and how it is calculated and how much it is important in choosing a stock?

  2. Hi anand....I came to USA for onsite..Does i need to pay tax to indian government if i transfer money to india?

  3. @Anonymous

    No. You need not pay tax to Indian government if you paid tax in USA where you earned it. No need to pay tax for transferring money. But, you may be asked to provide source of income by the bank when you transfer the funds for regulatory reporting purposes

  4. Book value - Refers to the net value of a company on book.

    Book Value = Net Assets of the company - Net Liabilities

    A company with a good value is always better than one with low book value. though not the most important factor in choosing a stock, it is still a good factor to consider when you choose a companys stock

  5. hi anand plz try to post weekly 3 or 4 topics.....so that we can gain lots of knowledge.....plz try to provide about futures,options ....

  6. Hi anand plz try to post on what is GDP?

  7. Hi anand Plz try to explain why the gold has been increasing day by day?

  8. hi anand what are open end and close end funds?

  9. @ Anonymous - As someone who is commenting frequently in my blog, I would really appreciate it, if you could write your name. While posting comments you can choose Name/URL and enter your name.

    That will atleast help me know who is asking questions.

    Thanks in advance.

  10. @ Anonymous - About Open & Close ended funds:

    An open ended fund is one that continuously accepts fresh investments from investors whereas a close ended fund does not accept funds beyond the initial offering period.

    more details on mutual funds can be found by clicking here

  11. @ Anonymous

    Details as to why gold prices are going so high can be found in one of my articles. you can search the list of articles in this blog and find many useful topics.

    however you can find it easily by Clicking Here

  12. Hi anand i want to know about debentures?

    1. See this article to learn about Debentures - http://anandvijayakumar.blogspot.com/2013/05/debuntures-demystified.html


  13. @Manjula

    Debuntures are a type of debt instrument that are similar to bonds. They are used by corporate companies to raise cash for their operations. So purpose wise they are very very similar to bonds.

    If possible i will try to write up an article about them.

  14. Hi Anand, am coming to US on an onsite project. So the current company in india told the salary in india will be stopped. Mainly i like to know the taxation in US i.e whether its a falt rate of 30% or different slabs like india? Also can u give me some idea about the place called milwaukee.

  15. @ Ram Ananth

    1. Yes, your salary in India will be stopped. only your Provident Fund contribution will be made directly to your PF acc. rest will be paid in US Dollars to you in USA

    2. Taxation in USA is pretty straight forward. It differs from state to state. You will pay two kinds of taxes - one federal tax and one state tax. roughly it will be 25-30% of your total salary. although, approximately 15-20% of your tax amount will be refunded by the end of the tax-year.
    If you are married you get some extra benefits in terms of tax limits and if you got kids the same applies.

    However, i am not too aware of either milwaukee or the exact tax percentages applicable right now in USA.

    So apologies my friend.

    Best wishes for your onsite assignment.

  16. Hi Anand,
    Can you please clarify my doubt.
    If I am a salaried employee and my annual salary is 3 lacs, does my employer/company need to deduct any amount from my salary, if my total income for a year does not exceed 5 lacs.

  17. @ Shine

    There is still not much clarity about this. On the safer side, the employer will deduct a small amount of TDS


  18. Hi Anand,

    I came to US on 25 Sep 2011.Since then I have been working in USA.While I am in US,I get paid salary in USA and file my taxes here.

    I received Form 16 from my employer for the period Apr-Sep based on my income in India.Now when I file Income tax in India,do I need to include US salary income from Oct-March 2012?

    1. Hi Anonymous,
      No. You need not include your US Income in the tax returns filed here. As you have already paid taxes in the country where you are earning that income, you are not required to declare the same in India.

      India does not have double taxation.


  19. Hi Sir..
    I appreciate your efforts of creating a blog like this. I am doing my icai intermediate level...Can you provide some difference of Taxation of Salaried Employees between Indian Income tax law and similar law of Vietnam

    1. Anonymous,
      Taxation in Vietnam is a totally different subject and I have absolutely no idea of the same. So, it is better you consult an expert in international taxation or check out vietnams local websites about taxation in the country.



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