Income Tax: Which Salary Components are Taxable?

Taxable components of Salary: Salary is not an one amount. It is the bundle of components like basic pay, gratuity, bonus, perquisites, pension, Advance of Salary, Leave Encashment, Provident Fund, House Rent allowance, city allowance, transport allowances, internet reimbursements etc. Different company has different salary structure. However, there is one drawback to the all the salary structure. The disadvantage or drawback is that the monthly payout will be lower because of the taxability of various components of salary. In other words, a person may have a high Cost To Company (CTC) but in hand he must be having very less due to the Taxable components of Salary.

There are two regimes for calculating income tax on salary – Existing and New. Since only few exemptions and deductions are available in new regime. one must check what’s the total tax coming under both the regime and opt the regime accordingly. The Taxable components of Salary in this article is based on existing or old regime. Read Also: Important points to decide between New Income Tax Rate and Old Tax Rate regime

Taxability of components of Salary are divided into 3 parts:

Tax Free
Fully taxable
Partly Taxable and partly tax free

Taxability of Salary Components

Salary Components	Taxability
Basic Salary	Fully Taxable
Dearness allowance	Fully Taxable
Commission	Fully Taxable
Bonus	Fully Taxable
Arrears of salary	Fully Taxable
Leave Salary during employment	Fully Taxable
Advance Salary	Fully Taxable
Gratuity during employmemt	Fully Taxable
House Rent Allowance	Partly Taxable and partly tax free. Exempted HRA : 50% of the Basic Salary (40% HRA if an individual has rented a house in a non-metro)
Car Maintenance used for both office and personal purpose.	They are Tax free if bills are submitted up to Rs 1,800 every month for the car that is less than 1600 CC (i.e. Rs 2,400 every month in case of bigger cars) in addition to Rs 900 every month for the driver salary.
Remuneration for Additional Work	Fully Taxable
Lunch Facility	Tax free till Rs 50 per meal
EPF Contribution by EMployer	Tax Free up to 12% of the Basic Salary
NPS (Employer Contribution)	Tax Free up to 10% of the basic salary
Phone & Internet Bill Reimbursement	It is Tax Free if bills are submitted
Uniform Allowance	It is Tax Free if bills are submitted
Conveyance allowance	It is Tax Free if bills are submitted
Tansport Facility	Fully Taxable
Gift voucher	Tax free upto Rs 5000
Gift in cash	Fully Taxable

Some Tax Beneficial points to consider

Employees may have the option of making a to both EPF and NPS.
Companies purchased and owned Cars provide much more Tax benefit.
Tax Planning through Tax Deductions is also a Great way to save income tax on hard earned money. Since amount invested anywhere will be returned but tax once paid cannot be returned.

Tax Deductions:

Section 80CCD(1B) (Rs 50,000): Investment in the NPS (Shall you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?)
Section 80C/80CCC/ 80CCD (Rs 1,50,000): The Investment in the EPF, PPF, The Pension Plans, ELSS, FD, NPS, NSC, SCSS, Life Insurance, SSA and NPS. Also includes Tuition Fees, Home Loan’s Principal repayment, Stamp Duty
Section 80E: The Interest paid on the Education Loan. There is no upper/lower Limit! (Tax Benefit on the Education Loan (Sec 80E))
Section 24: The Interest paid on the Home Loan for the Self-occupied homes. No Limit for the Rented house.
Section 80D: The Premium payment for the medical insurance for an individual and his parents. It further includes Rs 5,000 limit for the preventive health checkup (Thus Making Sense of the Tax Benefit on the Health Insurance under section 80D)