Income from Salary

Understand your Payslip

- Basic Salary : This is the fixed amount of your pay slip which is the basic pay which your employer provides you. This also forms basis for calculation of other benefits such as provident fund (EPF) and House rent allowance (HRA).
- Dearness Allowance : Dearness allowance (DA) is an allowance which is paid to compensate for the rising inflation and chances in price level.
- Housing rent allowance : Salaried individuals who live in a rented apartment or house claim HRA benefit to reduce tax amount. A portion of this HRA can be claimed as deduction based on Income Tax Act rules.
- Leave Travel Allowance : Under LTA individuals can claim exemption for a trip within India. The allowance claim also includes cost for spouse, children and parents if travelling together. To avail the exemption you need to provide all the related documents associated with travel to your employer. LTA is allowed twice in a block of four calendar years.
- Bonus : The bonus is the performance based incentive generally paid once or twice a year by the employer. No exemption is allowed for bonus and it forms part of your taxable Income. Only travelling cost train/airfare can be claimed as deduction
- Employees’ Provident Fund (EPF): EPF is the security scheme of Government of India for salaried individuals where both the employee and the employer contribute 12% of the basic salary and dearness allowance on a monthly basis. The Interest is paid on this as rates notified by government periodically. Both Employee and employer’s contribution forms part of your CTC.
- Professional Tax : This tax is levied by the State Government of the employer’s location. The maximum amount that can be levied is Rs 2500. This is usually deducted by the employer while payment of salary.
- Special Allowance : Any other amount paid in the form of special allowance is fully taxable.

Retirement Benefits

- Leave Encashment Exemption : Leave encashment policy varies from company to company, some allow you to carry forward the leave days while some give you the option of encashment these leaves. The amount that you receive forms part of taxable salary with the benefit of following exemption.
  - For Central and State Government employees, leave encashment amount is fully exempt
  - For non-Government employees lower of the following amount is exempt:
    1. Average salary of the last 10 months before retirement
    2. Amount equal to salary for earned leaves (maximum 30 leaves per year of service)
    3. Actual leave encashment amount received
    4. Rs. 3,00,000
- Advance Salary : In case you have received advance or arrear salary, or got a family pension in advance, exemption Section 89(1) is provided.
- VRS (Voluntary Retirement Scheme) : Any compensation received on voluntary retirement or separation is exempt from tax as per the Section 10(10C).following conditions must be fulfilled to avail such exemption.

- - 1. Employee should not avail exemption u/s 89
    2. Maximum compensation received is Rs 5,00,000.
    3. Employer is an authority established under the Central or State Act, local authority, university, IIT, state government or central government, notified institute of management, or notified institute of importance throughout India or any state, PSU, company or a cooperative society.
    4. The payment is in compliance with Rule 2BA

- Pension : Pension amount received is liable to tax as per slab in the year it is received. The lump sum amount received would be tax-free under Section 10(10A) but the annuity (periodic) payments would be taxed in your hand at your tax slab when it is paid.
- Gratuity : Gratuity is a retirement benefit given by the employer post completion of 5 year service by the employee in the company. Gratuity received on retirement or death by a central, state or local government employee is fully exempt from tax for the employee or his family. The tax treatment of your gratuity is different, depending on whether your employer is covered by the Payment of Gratuity Act.

if your employer is covered by the Payment of Gratuity Act, the least of the following three is tax-exempt.

15 days salary based on the salary last drawn for every completed year of service or part thereof in excess of 6 months. (last drawn salary x number of years in employment x 15/26)
Rs. 20,00,000
Gratuity actually received

Most Popular Questions

Faq

What is Form 16?

Form 16 is a TDS certificate that contains all the information regarding the tax deductions made by the employer from salary on a monthly basis during the given financial year. The form has two parts. Part 1 contains details about the employer like the name, address, Pan Details etc. Part 2 contains details about the salary, deduction, other income etc.

What is Form 26AS?

AThis form is provided by the Income tax department containing details about the tax deducted (TDS) by the payer and also the amount of tax paid. The form is available on the website of the IT department and can also be downloaded from net banking of your bank’s website

What deductions are available to salaried employees?

ADeductions reduces taxable income and consequently taxes. Section 80 and section 10(10D) includes all the deductions that can be availed from gross taxable income. Planning your taxes in advance help you avail maximum benefit of these exemptions.