Salary Components from Quora

 Salary Components

Tax incidence is calculated considering the following components of salary:

Basic Salary

Basic salary is full taxable. All other perquisites and additional salary components are calculated on the basis of the basic salary.

House rent allowance (HRA)

The least of the following 3 conditions is taken as the exemption amount on HRA:

Actual HRA provided by the employer

Rent actually paid by you less 10% of your basic salary

If you live in a metro then 50% of your basic salary or 40% of basic salary for other cities

Details of other components are as follows:

• Special Allowance - Fully Taxable
• Transport Allowance - Exempt
• City Compensatory Allowance - Fully Taxable
• Fixed Medical Allowance- Fully Taxable
• Tiffin, Lunch, Dinner or Refreshment Allowance -Fully Taxable
• Servant Allowance- Fully Taxable
• Project Allowance- Fully Taxable
• Overtime Allowance - Fully Taxable
• Telephone Allowance- Fully Taxable
• Holiday Allowance- Fully Taxable
• Any Other Cash Allowance - Fully Taxable
• Gratuity - Exempt
• Medical Reimbursement - Up to Rs. 15000 exempt, provided that receipts are available
• Performance Linked Incentives - Taxable

Checklist of Income Tax e-Filing for Salaried Employee

When E-Filing Income Tax returns, people need accurate information on income, deduction and taxes they have paid. Here is a checklist for e-Filing your Income Tax returns for a salaried person.

• Form-16: This is the most important document for salarieds which employers provide them.
• Decide on the suitable ITR form: If a salaried employee does not have income from some of the other major heads such as PGBP or income from more than one house property, they have to generally fill up ITR-1 or ITR -2 when E-Filing their taxes.
• Form 26 AS: Form 26AS is a consolidated record of the various taxes deducted from your income and deposited with the Government. Form 26AS can be downloaded through netbanking if PAN is mapped to that particular account.
• Savings Bank Account and FD interest: Keep the following documents ready.

- Bank statement or passbook for interest on your savings account.

- Interest certificates or TDS certificates from banks and Post offices

• Details of bank accounts and IFSC codes: You also need to keep ready details of all your bank accounts and IFSC codes because you need to list them in the ITR form.
• Details of income from other sources: Income from other sources including, PPF interest, tuition fees, dividend income, Family Pension, Agricultural Income etc

You need to provide more information than what you have shared. Providing CTC is not sufficient information. Do you avail home loan or HRA? Did you invest in 80C benefits of PPF or LIC or what is your health insurance and also your investment in NPS? You need NET income or your take home salary to start calculating tax. Your first pay slip would be needed to calculate tax.

Components of CTC

Companies, offer various attractive components in the CTC to retain and boost the morale of the employees. Where some salary components are fully taxable some are fully tax-exempt. The composition of your CTC and a few of its components could be grouped as below.

1) Fixed Salary – This is the major part of your CTC and forms part of your monthly take home. It commonly consists of:

Basic Salary: The actual pay you receive for rendering services to the company. This is a taxable amount.

House Rent Allowance (or HRA): Paid to meet expenses of renting a house. The least of the following is exempt from tax.

• Actual HRA received
• 50% of salary (basic + DA) if residing in a metropolitan city, or else 40%
• The amount by which rent exceeds 1/10th of salary (basic + DA)

Special Allowance: Allowances provided over and above your basic salary and is fully taxable as per your tax slab.

Transport Allowance: Paid for daily commute expenses. Up to an amount of Rs 800 per month is exempt from tax.

2) Reimbursements – This is the portion of your CTC, paid as reimbursements through billed claims

Medical Reimbursements: Paid either monthly or yearly, for medicines and medical treatment. The entire amount is taxable. However, up to Rs 15,000 could be tax exempt, if bills are produced.

3) Retirement Benefits - This is available to you only on retirement or resignation.

PF or Provident Fund: Employers contribute an equal 12% to the provident fund account. This employer’s contribution though received only on retirement or resignation, is an expense incurred by the company every month and thus is included in the CTC.

Gratuity: Companies manage gratuity through a fund maintained by an insurance company. The payment towards the gratuity annually is sometimes shown in CTC.

4) Other Benefits and Perks

Contribution to ESI: Premiums paid by companies on behalf of employees for health, life insurance and Employees Pension Scheme, could form a part of the CTC.

I will provide you a format for calculating your income tax without you giving your information here in public domain. You can put all your info in this format and calculate it. Also, do remove your CTC information that you have provided. It is not appropriate to provide such info in a public domain.

On the basis of information provided by in the table, your tax incidence will be calculated while considering the following components:

Basic Salary

Basic salary comes under the full taxable category. All your perquisites and additional salary components are calculated on the basis of your basic salary.

House rent allowance (HRA)

The least of the following 3 conditions is taken as the exemption amount on HRA:

• Actual HRA provided by the employer
• Rent actually paid by you less 10% of your basic salary(Rs 281400 in your case)
• If you live in a metro then 50% of your basic salary or 40% of basic salary for other cities

Suppose, your actual rent is Rs 10000, and you live in Mumbai then the least of the following 3 conditions will be the deduction:

• Rs 140700 (Actual HRA by employer)
• 120000 less (10% of 281400)= Rs 91860
• 50% of 281400= Rs 140700

The taxable HRA amount would be Rs 140700 less Rs 91860 = Rs 48840

Special Allowance

Special allowance is fully taxable

Transport allowance

Exemption on transport allowance is allowed by Rs 1600 per month i.e. Rs 1600x 12= Rs 19200/ year. Therefore, no tax incidence will occur in your case under this category

Medical Reimbursement

Medical reimbursement up to Rs 15000 in a financial year is exempt from tax but, you have to submit the bills for the expenses.

Provident fund

Employer’s contribution to provident fund is exempt up to Rs 1.5 Lakhs in a financial year. Therefore, in your case the amount under PF will be exempt.

Based on the above components, you can easily compute the gross taxable income. The income tax is payable in following slab:

Up to Rs 250000 Lac: No Tax

Rs 250001 to Rs 5 Lac: 10 percent

Between Rs 500001 to Rs 10 Lac: 20 percent

Above Rs 10 Lac: 30 percent

Over and above the total tax amount, you also need to pay CESS at 3% on the tax amount.

You can find online calculators to help you compute tax.

Tax is calculated on Taxable Income. To calculate Taxable Income, ‘Net Taxable salary’ is required to be computed.

To arrive at ‘Net Taxable Salary’ followings are required to be deducted from Gross Salary (CTC):

• Employer’s contribution towards PF and ESIC
• Exempt allowances and perquisites
• You can claim an exemption under section 10 for various allowances such as House Rent Allowance, Children Education Allowance, etc. only if these allowances are components of your salary income.
• You can claim an exemption under section 17 for perquisites such as Rent Free Accommodation, Leave Travel Concession, etc. only if perquisites are components of your salary income.
• Other Exemptions and Deductions

If such a person is not having any other source of income then, ‘Net Taxable Salary’ is considered as ‘Gross Total Income’

To calculate ‘Taxable Income’ - Deductions under Chapter VI-A required to be deducted from ‘Gross Total Income’

And on such Taxable Income, the tax will be computed.

While computing Income tax followings points are required to be considered:

• Rebate Under section 87A – Applicable to a Resident Individual having taxable income not more than Rs. 5,00,000 (AY 2020-21). The amount of Rebate is equaled to 100% of Income-tax or Rs. 12,500 whichever is less
• Surcharge for Individual –
• Taxable Income - More than 50 lakhs up to 1 Crore – 10%
• More than 1 Crore up to 2 Crore – 15%
• More than 2 Crore up to 5 Crore – 25%
• More than 5 Crore - 37%
• Health & Education Cess – 4% of Income-tax and surcharge

Income from salary is taxed at the applicable income tax slab rate. Before we learn to calculate income tax on salary, let’s understand salary components.

Your gross salary is the CTC (cost to company) i.e the cost the company bears for an employee. It includes:

• Basic salary
• Allowances like HRA (House Rent Allowance), Conveyance Allowance, Dearness allowance etc.
• Allowances like HRA are partially exempt from income tax.
• Perquisites like Food coupons, mobile bill payments, transportation, etc.
• Bonus
• Employer’s contribution to retirement benefits like EPF

You can check the detailed breakdown of your salary in your Salary Slip or Form 16 Part B issued once the financial year ends (usually first quarter of the Assessment year)

Whereas, take-home salary is the amount employer deposits into your bank account after deducting

• TDS (Tax Deducted at Source): your employer will calculate and deduct TDS on a salary after considering the investment declarations you make based using your Form 12BB at the beginning of the financial year.
• Professional Tax
• EFP contribution

Usually, the employer will deduct and deposit the TDS on the salary income. In case excess TDS has been paid you can claim a refund when filing your Income Tax Return.

Note: Due to Covid-19 employees will receive Form 16 by 15th August 2020

Your Income Tax on salary will be calculated based on your CTC and declarations you make to the employer.

It’s fairly simple - Here are the parts of your breakup that are taxable/exempt

• Basic - Taxable
• HRA - Least of (Actual Rent paid) - (10% of Basic) /HRA mentioned by employer/50% of Basic in case you pay rent in a metro city, 40% for other cities. Either way, you need to submit rent receipt to your employer to claim HRA.
• Special Allowance - Taxable
• Transport Allowance - Exempt
• Gratuity - Exempt
• Medical Reimbursement - Up to Rs. 15000 exempt, need to provide receipts, otherwise taxable
• Performance Linked Incentives - Taxable
• PF - Employer’s contribution up to Rs. 1.5L exempt(Fully exempt in your case)

From the breakup that you provided, add up the parts that are taxable and enter them in the field “Income from Salary” in Income Tax Calculator

Enter the fields that you’re claiming for deductions under “Deductions” and you’ll be able to see your tax liabilities scrolling down.

If you’re still not sure about it and need help while filing your taxes - feel free to check out Quicko - You could simply upload your Form 16 and skip filling in all the details by yourself and file your return in 5 minutes!