Guide to understand Salary Income

Salary Income Guide

The accounts department of the company sends the salary slips every month. For most people, the salary slip is important only when they apply for a loan or a credit card. It is important to understand different components of your salary slip. It will help you to save tax on your salary income. The terms are sometimes confusing and we will help you to understand it fully.

Salary-Slip

Understanding different terms in Pay Slip

Earnings

  • Basic Pay: It is a fixed component in your salary slip and forms most of your total salary. It is given this name because it forms basis for other components in the pay slip. Basic Pay is taxable. Your PF is deducted at 12% of your Basic Salary.
  • Medical Allowance: During the period of employment, if the employee faces any medical condition his/her medical expenses are covered by the employer under the medical allowance. Since it is a reimbursed expense and the employee has to give proof of the expenses.
  • House Rent Allowance: House Rent Allowance (HRA) is applicable to those employees who live in a house or apartment which is rented. Employees can claim HRA to lower the taxes. It compromises of 40 to 50% of your basic pay depending upon the location and may or may not be excluded from the tax.
  • Conveyance Allowance: The Company for which an employee is working pays the conveyance allowance for travelling from home to work and back. It is exempted from the tax if it is not more than Rs. 9600.
  • Special allowance and performance bonus: Special allowance is given to encourage and motivate the employee to perform even better. It helps to keep the employee motivated to perform better and thus improving the productivity. It is given over the basic pay and is taxable. Performance bonus is given by evaluating the employee’s past performance. Depending upon the company policy, it is paid once or twice a year.
  • Leave travel allowance (LTA): Leave travel allowance is the amount given by the employer to the employee to travel. Employee can claim LTA when he/she goes on vacations and then submit the actual bills to the employer. It does not include expenses for food or leisure activities. It includes travel expenses of your immediate family members as well.

 

Deductions

  • Tax deductible at source (TDS): As the very name implies TDS aims at collecting the revenue at the very source of income. TDS is deducted by the employer on behalf of the Income Tax Department depending on the overall tax structure. The employee can submit certain documents that provide the proof of tax-saving financial scheme. The pay slip also contains perks, exemptions and rebates.
  • Provident Fund: A provident fund is a form of retirement benefit scheme and social safety net maintained by Employees’ Provident Fund Organization. It is run by a government for the benefit of its citizens. In this employees contribute a portion of their salaries and the matching contribution is made by the employer. PF is generally 12% of the employee’s basic pay. It also earns an interest and is exempted from the tax under Section 80C. Depending upon the company policy, the deduction is limited to a certain amount. Employee can opt out of PF scheme or even can increase the contribution.
  • Professional Tax: Professional tax is same as income tax. The only difference is it is imposed at the state level rather than central level. The employer deducts the tax and deposits it with the state government. It is imposed only by certain states. It usually amounts to just a few hundred rupees each month. In your income tax return, professional tax is allowed as a deduction from your salary income.

Every Salary Income is liable to pay tax. File ITR online with TaxRaahi.

By | 2017-02-08T04:55:09+00:00 June 10th, 2016|Categories: Income from Salary|0 Comments

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