To calculate salary after tax deduction, we have to first understand the basic components of salary or income. We have tried to elaborate it a little, so that you can calculate it yourself. For everything, that’s beyond the scope of this blog, you can refer to you chartered accountant.
Salary and its taxable components
Gross salary is the sum total of basic salary, taxable allowances, incentives and commissions, retirement benefits such as PF etc and taxable perquisites. You have to deduct the allowances that are given for certain official expenditures such a conveyance allowances, which should be less than Rs. 800 in this case. The rest is all salary income and income tax is applicable on it.
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Total taxable income: The taxable income includes salary components such as bonuses, commissions, dearness allowances (paid to counter the impact of inflation), incentives and commissions, bonuses, area specific allowances such as city compensation benefits, overtime, breakfast or meals allowances apart from basic salary. All these components are taxable.
Conveyance (transport) allowance: If it’s less than Rs 800/ month, it is tax exempt.
Leave travel allowance: This is a benefit a company offers related to your travel expenses when you travel inside India during your leaves. Even if your company pays you leave travel allowance every year, LTA would be tax exempt only for two trips in a span of four years. So, these trips can either be in a single year or happen anytime in those four years.
House rent allowance (HRA): When you are actually paying house rent, HRA is partially exempted.
The lowest of three viz.:
i. the actual HRA offered
ii. If the rent happens to be more than 50% of your basic salary (40% for non-metros), or
iii. If it exceeds 10% of basic salary,
would decide how much income tax would be exempted. The rest is exempted from tax.
Medical allowance: The cost of medical treatments incurred by you and your family is tax-exempt, if it’s less than Rs 15K per annum. However, these reimbursements can be claimed when valid bills or related documents/prescriptions are produced.
Perquisites. These are the additional benefits your organization offers you apart from your regular salary. So, these benefits may include accommodation, company car or loans at discounted interest rates etc. All of these perquisite benefits are added to the salary and usual slabs are used to calculate tax on it.
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Insurance premium. Premium paid by your organization towards group insurance or medical insurance is exempt from tax. It’s simple to calculate through a Form 12 BB provided by your company, which will mention the amount of it as a salary component.
Tax Deduction at Source. A Form 16 is generally provided, where you can find the ‘income chargeable under the chief salary components’ along with tax deduction at source, which mentions all the deductions and allowances. In the absence of any kind of TDS, you will be provided a certificate of salary received in a particular financial year, and no Form 16.