Components of Salary and their Tax Benefits

Components of Salary and their Tax Benefits

1) Basic Salary

Basic Salary is usually 40-50%of the total CTC. Basic Salary is entirely taxable.

2) House Rent Allowance

House Rent Allowance is offered to salaried individuals to cover their rented accommodation expenses. HRA is exempted from Income Tax (the lowest amount of the following)
a) Actual rent paid minus 10% of basic salary.
b) 50% of the basic salary if the house is in metro cities or 40% of basic salary if the house is in any other city
c) Actual HRA received.

HRA exemption is NOT applicable for those living in a rent-free accommodation or their own house.

3) Conveyance or transport allowance

Conveyance or transport allowance is applicable for the commute between home and office. You can get a tax exemption of up to Rs. 1,600 per month on conveyance expenses. This is application for FY 2017-18.

4) Fuel reimbursement

Fuel reimbursement can be claimed on petrol/diesel expenses by producing actual bills. To claim fuel reimbursement, it is compulsory to have the vehicle in your own name.

5) Children Education Allowance

Children’s education allowance provides a tax break of Rs 100 per month per child towards educational expenses and Rs 300 per month per child towards children’s hostel expenses.

6) Medical reimbursement

Medical reimbursement is the amount paid to an employee upon submission of medical bills. You can get an income tax exemption of up to Rs 15,000 per year for medical reimbursements. This is application for FY 2017-18.

7) Telephone/mobile expenses

Telephone/mobile expenses are fully exempted from income tax, based on actual bills submitted to the employer.

8) Food Coupons

Food coupons or meal vouchers provided by the employer are tax exempt up to the limit of Rs 50 per meal.

9) Leave Travel Concession

Leave Travel Concession (LTC) is a tax exemption provided on the actual travel costs of the employee as well as their dependents. LTC is applicable only on travel within India.

10) Employees Provident Fund

Employees Provident Fund (EPF) is a compulsory saving component EPF contributions are made both by the employer and the employee.
The employer’s share of contribution is an employee’s Provident Fund is entirely tax-free.

11) Tax Deduction

Tax deducted at source or TDS is the income tax deducted by your employer, a compulsory requirement of the government. TDS is calculated on the basis of average income tax rates for the financial year.

12) Education cess

is a tax levied by the government to fund primary and secondary education initiatives. Education cess is 3% of the tax payable over and above the income tax liability.

13) Professional Tax

Professional Tax is a tax levied by the state government. The amount varies by income with a maximum deductible limit of Rs 2,500.

Note that for FY 2018-19, Standard deduction for Salaried individuals to Rs 40,000 in place of transport allowance and Medical reimbursement.

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