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
Read Also: Income Tax Filing for Freelancers
Taxability of Salary Components
|Basic Salary||Fully Taxable|
|Dearness allowance||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|
Read Also: Everything about Form 16 under Income Tax
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.
Read Also: TDS on Salary : How to calculate TDS on salary as per section 192 of Income Tax
- 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)
Read Also: Save Tax : 20 Ways to save Income tax in India
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