Ask New Question Search for questions, people, and topics
Tax Deductions Taxes
Components
Income Tax Policy
Sign In
Income
Income Taxes
Tax Policy
Salaries and Wages
What are the basic components in a salary statement? How do I calculate income tax on it? Also, can someone explain these terms: Basic pay, Net pay, Gross pay, PF, DA, HRA, LTA in simple terms? How do they affect my salary?
Related Questions How do I avoid paying taxes? In a legal fashion that would not land me in jail. E.g. loopholes. How do I calculate the basic salary for a half-pay leave for a DA arrear? Do IAS officers pay income tax?
Ad by Amazon
Maximum PF can be saved with basic pay?
What are the best deals on Amazon home improvement products?
How do I pay income tax?
New deals. Everyday. Shop our Deal of the Day, Lightning Deals, more daily deals and
Do I need to pay income tax?
limited-time sales.
Will I pay income tax after paying a service tax?
Shop now at amazon.com
Do I have to pay income tax? Is income tax charged on the gross salary or basic +Da?
11 Answers Preeti Khurana, Chief Editor at www.cleartax.in, Chartered Accountant
Can someone pay income taxes with coins?
Answered Jan 20 2015 · Author has 158 answers and 453.3k answer views Ask New Question
Congratulations on your first job! I fully understand your questions and apprehensions about income taxes and I will take a shot at addressing them. There are a few terms you must understand before we go ahead - What’s your Tax Year or the ‘Previous Year’? Previous year or financial year or your tax year is the 12 month period that begins on 1st April and ends on the 31st March of the next year. No matter when you start your job, your tax year closes on 31st March and a new tax year starts on 1st April. You have to plan your taxes for each financial year. Assessment Year is a term you’ll often hear, it is the financial year after the previous year. So assessment year is 2015-16 for the current previous year 2014-15. Assessment year is the year in which you will file your return for the previous year. For example – if you start your job on 1st January 2015, your tax year closes on 31st March 2015. 2014-15 is your previous year and your assessment year is 2015-16. You will be filing your return in assessment year 2015-16, for which the last date will be 31st July 2015. What is Total Income on which you pay Tax? Besides the salary income you receive, you may be earning an income from several other sources. Your Total Income is the sum total of all heads of income below. Please note your Income Tax is always calculated on your total income as below. Income from Salary - Salary, allowances, leave encashment, basically all the money you receive as a result of rendering your job or by virtue of your employment agreement. Income from House Property - Income from house, which may be self occupied or vacant or rented out. Income from Capital Gains - Income from sale of a capital asset is taxed under this head. Income from Business & Profession - Income or loss that arises from carrying on a business or profession is taxed under this head. Income from other sources - This is the residual head, income from savings bank account, income from interest on fixed deposits, family pension etc. What is TDS ? TDS means Tax Deducted at Source. Your employer deducts TDS on your salary based on the Income Tax Slab rates for the financial year. If your income is more than Rs 2,50,000 (the minimum amount which is exempt under Income Tax), the employer has to deduct TDS on your Income. You can choose to disclose all your Incomes (for example rent from house property etc) and employer will calculate and deduct TDS based on your total income. This saves you the effort of paying taxes to the government yourself. In case you have interest income from FDs TDS may also be deducted (by the bank) on those if your total income from this type of interest exceeds Rs 10,000 in a year. Fortunately you can find out all the details of TDS which has been deducted from any of your income by viewing your Form 26AS How to view your Tax Credit Statement? | Viewing your Form 26AS
Now once you understand these basics of Income Tax, let us look the topics you want to know in detail about Basic pay - this is also known as Basic Salary. This is the usually the first component of your CTC and it is fully taxable. Many companies use your basic as a measure to calculate your other payments - several other components may have been set as a % of your Basic. Gross Pay - This would mean the sum total of all your payments under salaries before making any deductions of PF and Tax. Net Pay - Net Pay is your Gross Pay less Deductions (Tax & PF) DA - DA is usually paid to Govt employees HRA - or House Rent Allowance Most employees receive HRA as part of their salary. The intention is usually to meet cost of a rented accommodation that you may be living in. In case you pay rent, a portion of the HRA may be exempt from tax for you. If you do not live in a rented house, the entire amount will taxed as part of your salary each month, at the applicable tax rates. Here is how exemption on HRA is calculated House Rent Allowance HRA - The clearTax Blog
LTA or Leave Travel Allowance - Here is everything you want to know about LTA All about LTC Exemption - The clearTax Blog I highly recommend you read through our post on understanding your CTC and your taxable salary here Understanding your CTC and your Take Home Salary - The clearTax Blog
Now to coming to the very important aspect of Paying Income Tax. There are various ways in which you can save tax, Claiming an exemption on HRA if you live on rent. There are a host of Section 80 Deduction you can claim. Basically these are allowed as Deduction from your Gross Income and therefore they reduce your Income and a lower tax is payable by you. Here is a Guide to Section 80 Deductions . Section 80C is the most popular of all these deductions and Section 80C can give you a deduction of Rs 1,50,000 from your Income when utilised fully. Use our Income Tax Calculator by ClearTax to find out how much tax you need to pay and also see how deductions can save you tax. A store house of articles/topics related to Income Tax are on The clearTax Blog and you can use 'search' on the page to go through topics of your interest. Here's wishing you all the best for your career! Good Luck! 72.9k Views · View Upvoters · Answer requested by Sree Hari M Your response is private.
Is this answer still relevant and up to date? Yes
No
Promoted by Atlassian
Jira official site. One tool is enough to track issues & release great software. Try Jira for free. Free trial at atlassian.com
Related Questions
More Answers Below
How do I avoid paying taxes? In a legal fashion that would not land me in jail. E.g. loopholes. How do I calculate the basic salary for a half-pay leave for a DA arrear? Do IAS officers pay income tax? Maximum PF can be saved with basic pay? How do I pay income tax? Ask New Question Adhil Shetty, CEO, Bankbazaar.com Answered Jul 29 2016 · Author has 833 answers and 4.5m answer views
Here are the basic components in a salary statement: Basic salary The basic salary is the fixed part of your salary income based on which rest of your perquisites and allowances are calculated. The basic salary is computed as per the employment terms or the grade basis. Basic salary is fully taxable. Allowances Allowances are the grants allowed by the employer over and above the basic salary for specific purposes. Some important grants are mentioned below: Dearness allowance (DA): It helps the employee mitigate the impact of inflation. It’s fully taxable. City compensatory allowance (CCA): To meet the higher cost of living when an employee is transferred from a small city to bigger one. It’s fully taxable House rent allowance (HRA): Employers allows HRA to meet the expenses incurred for living in a rental home. It can taxable partly or fully, depending on the case. Special allowances for employee’s personal requirements: Allowances such as child education allowance, hostel allowance, travel allowance etc. are covered in this. Fully exempt allowance: There are some allowances which are fully exempt with a limit of amount actually spent. To calculate tax, you have to add the basic salary, taxable allowances, perquisites and retirement benefits to arrive at the gross salary. Adjust the entertainment allowance (if a govt. employee) and professional tax from it. The final figure would be your final taxable salary. The income tax is payable on your taxable salary in the 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 Here are two articles you could find useful Things To Know Before Filing Your Income Tax Return (ITR) 6 Tips That Can Help You Save A Lot More Tax If you have any other personal finance queries, feel free to reach out - Adhil Shetty 15.4k Views · View Upvoters
Promoted by Columbia Business School Exec Ed
Learn investment principles used by Warren Buffett. A two-month online program that teaches one of the most successful investment strategies ever developed. Apply now at emeritus.gsb.columbia.edu
Pavan Jayaprakash, Chartered Accountant- Life beyond numbers Answered Jan 23 2015 · Author has 154 answers and 1.2m answer views
Firstly, Congratulations on your first Job! Tax planning is one of the most important aspects of personal finance. Taxes causes leaks in your salary, they can eat up large chunk of your salary. First salary is what is all takes to set right your budgeting done. Unless one understand the basic components in salary there is no way having an adequate tax plan.
So lets me try to explain the basic components in salary. Gross Salary: Gross Salary is the agreed/committed compensation your Organisation agrees to pay on a monthly(periodic) basis aginst your services for that period. Net Salary: Net Salary is gross salary less the deductions which are made on account of statutory compliances (like Provident fund, Employee state Insurance, Income Tax, Professional Tax) and other dues (Like Loans and Advances taken) which you owe to the Company and Legal dues if any. It is something you get in hand and commonly refer to as 'Take Home Pay'. Allowances: It is the amount received by an individual paid by his/her employer in addition to salary to meet some service requirements such as dearness allowance (DA), house rent allowance (HRA), leave travel assistance (LTA), lunch allowance, conveyance allowance, children’s education allowance, and city compensatory allowance etc. a) Dearness allowance: The Dearness allowance (DA) is a cost of living adjustment allowance paid to Government employees, Public sector employees (PSU) and lately to private sector employees too, Dearness Allowance is calculated as a percentage of an basic salary to mitigate the impact of inflation on people. Tax exemption: There is no tax beneift if you are getting DA b. House Rent Allowance: House rent allowance is given by an employer to employee to meets his expenditure towards rental accommodation. Tax exemption:
Image courtesy: Cleartax. in Note: If the HRA is not part of your salary, you can still claim deduction on the rent paid. The deduction is the least of the following: (a) rent paid less 10% of taxable income, (b) 25% of the taxable income or, (c) Rs 2,000 a month. c. Leave Travel Allowance: Leave travel allowance (LTA) is a common form of tax exemption given to the employees by most employers. Though it is quite simple, it often brings about a lot of questions among those claiming exemption on it. Tax exemption: Tax exemption on LTA can only be claimed if you have applied for leave from your company for travel and if you actual make a journey. LTA exemption is limited to the amount of LTA paid to the employee as part of the CTC. One cannot claim exemption beyond the actual LTA amount being provided. Leave travel allowance: 10 things you must know - NDTV d. Provident Fund: Employee Provident Fund is a retirement benefit applicable only to salaried employees. It is a fund to which both the employee and employer contribute 12 per cent of the former's basic salary amount each month. This percentage is pre-set by the government. Tax exemption: Salaried income tax employees are eligible for deduction under section 80C on the total amount that is expected to be deducted towards EPF during the financial year. The total amount deducted from the employee’s salary will be eligible for tax deduction under Section 80C upto a maximum limit of 1,00,000/- Things you should know about your employee provident fund e. Professional Tax: Professional Tax is the tax charged by the state governments in India.Any one earning an income from salary or any one practicing a profession such as chartered accountant, lawyer, doctor etc. are required to pay this professional tax, different states have different rate and method of collection. Tax exemption: Upto contribution of 2,500/- is exempt from service. how to calculate income tax? Best way to calculate income tax is to use the Official Income Tax India website to calculate the same. 'Income and Tax Calculator '. One can also take help of various other professional websites like http://cleartax.in , http://finotax.com , which is easy to understand. Conclusion: Income tax is not any easy subject, it requires constant reading and followups. Do have a Chartered Accountant or a Tax practitioner who can assist you preparing your tax planning. Further reading: 1. Deductions from Taxable Income 2. Page on howtobuybest.in 26.7k Views · View Upvoters · Not for Reproduction Your response is private.
Is this answer still relevant and up to date? Yes
No
Hiral Vakil, Chartered Accountant at Quicko.com Updated Mar 29 2017 · Author has 86 answers and 559k answer views
Hi, from taxability point of view it is very important that you understand your salary structure. The salary structure may vary from employer to employer. Taxable Salary Income can be calculated in the following manner: Step 1: Add up all the amounts you received from your employer, be it in the form of remuneration, wages, gratuity, commission, allowances, perquisites etc... Step 2: Deduct all the allowances to the extent they are exempt u/s 10 like House rent allowance (HRA), Transport allowance, Medical Allowance, Uniform Allowance etc... Step 3: Deduct the employment tax and entertainment allowance Step 4: This resulting figure will be your taxable salary income. In your Form 16 Part B, this figure will be reflected against the line no. 6 “Income chargeable under the head Salaries” Now lets try and understand the components of salary slip. Basic Pay: This is the major component of your salary and it forms the basis for some of the other components of the salary structure. It is a part of your take home salary and is 100% taxable. Gross Pay: It is a sum of your basic pay and all the allowances given to an employee such as DA, HRA, Medical Allowance etc. And before any deductions such as Professional Tax, EPF, TDS. Net Pay: Net pay is nothing but your Gross Pay Less deductions such as Professional Tax, TDS, EPF etc. DA(Dearness Allowance): This allowance is paid to counter the inflation impact. It is calculated as a percentage of basic salary. Currently only Government employees have a fixed rate of allowance. There are no compulsion for a private or public company to pay Dearness allowance. It is a part of your take home salary and is 100% taxable. House Rent Allowance (HRA): For salaried individuals this is the allowance to pay the house rent. This may consist of 40% to 50% of your basic salary. You can use our HRA Calculator to know Exempt HRA. The lower of the following will be exempt from tax: 40% of your basic salary. Actual rent paid minus 10% of the basic salary. HRA actually received from the employer. If the person does not live in a rented premises but still gets the HRA, then the whole amount will be taxable. LTA (Leave Travel Allowance): This allowance allows the employee to take on a trip within India with family. The allowance is based on actual expenditure incurred and is allowed for the shortest distance on a trip. An employee can take two trips in a block period of four years. The exemption is allowed for the actual expenditure incurred for the trip subject to certain limits. Any expenditure incurred during the trip for the purpose other than travel will not be exempt as LTA. PF(Provident Fund): 12% of your basic salary goes towards Employee’s provident fund. This amount is matched by the employer subject to certain limits which may vary as per company policies. This is a forced investment since every company with over 20 employees, has to contribute towards PF. It is allowed as deduction from total income. Conveyance Allowance: This allowance is granted to cover the cost of travelling between home and work. The lower of the following will be exempt from tax:Rs. 1600 per month or Conveyance actually received So for eg. if you receive Rs. 2000 as conveyance allowance, than Rs. 1600 will be exempt and Rs. 400 will be taxable. Medical Allowance: This allowance is given to employees to cover the medical expenditures incurred during the employment period. These are usually in the form of a reimbursement so the employee has to submit the proof of expenditure incurred. Maximum Rs. 15,000 is exempt per annum subject to submission of proof of medical bills. Special Allowance & performance bonus: These allowances are over and above your basic salary. Performance bonus is usually linked to your past performance and is usually paid once or twice a year depending on the company policy. These allowances are 100% taxable. Professional Tax: It is a tax on employment which is levied and collected by different states. This tax is deducted from your salary by the employer and deposited to the state government. Professional Tax is allowed as deduction from your salary income. Professional Tax is allowed as deduction from your salary income. Tax Deducted at Source(TDS): Based on your total taxable income, your tax is calculated as per the applicable slab rate. This tax is deducted from your salary by your employer and deposited to the government on your behalf. You can find your TDS from form 16, part A which is generated by TRACES and provided to you by your employer. This amount represents the tax deducted from your salary and deposited to the government by your employer. This can be lowered by utilizing the deduction limits optimally. Here is an article to understand difference between CTC and Take Home Salary. You can also calculate your income tax liability by using our Income Tax Calculator. 9.3k Views · View Upvoters
Shrigopal Malani, Spreading knowledge about taxes....Ready to help Answered Jan 2 2016 · Author has 322 answers and 1.2m answer views
CTC is cost to company and the components are Basic +HRA +CONVEYANCE +MOBILE REIMBURSHMENT +MEDICAL reimbursement +All allowances +LTA +employer contribution of PF +Employer Contribution towards ESI +Total variable incentives +Perks & benefits + Insurance Premium (in case of Group insurance) Basic Salary is your Basic Pay and is fully taxable Gross Salary/ Gross Pay = salary paid after adding all benefits and allowances but before making any deductions of PF and Tax. Net Salary / Net Pay = Gross Salary – (PF & Taxes) Dearness Allowance (DA) - Dearness Allowance is fully taxable and is a cost of living adjustment allowance to mitigate the impact of inflation on people. it is paid to Government employees, Public sector employees (PSU) and lately to private sector employees too, Dearness Allowance is calculated as a percentage of a basic salary HRA: - HRA is given to meet the cost of a rented house taken by the employee for his stay. The Income Tax Act allows minimum of the following 3 as deduction in respect of the HRA paid to employees. – • Actual house rent allowance received from your employer • Actual house rent paid by you minus 10% of your basic salary • 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro Meaning of Salary for calculation the exemption of HRA • Salary means (Basic + D.A + Commission based on fixed percentage on turnover). • Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year. LTA or Leave Travel Allowance - employer provides LTA to employee for Employee’s travel to any place in India alone or with their family. LTA exemption is limited to the extent of actual travel costs incurred by the employee.LTA exemption only in respect of two journeys performed in a block of four calendar years. Travel has to be undertaken within India and overseas destinations are not covered for exemption Provident Fund: Employer has to contribute 13.36% (of Basic + DA & Food concession allowance & retaining allowance, if any) towards PF deduction. It is divided as: i. Pension Fund : 8.33% ii. Provident Fund : 3.67% 12% iii. Employee Deposit Linked Insurance : 0.5% iv. Administrative Charges for PF Scheme: 0.85% v. Administrative Charges for EDLI Scheme: 0.01% All employees who earn up to INR 15,000 are now mandatorily required to get enrolled as members of the EPF. Employee Contribution = 12 % (of Basic + DA & Food concession allowance & retaining allowance, if any) Form 16:- If you are salaried employee in an organization, then you will get the salary after deducting tax by the employer. Therefore Form 16 is a certificate issued to you by your employer stating the details of the salary you have earned and the tax deducted on your behalf and paid to the government. TAX CALCULATION :- If you have other income as well apart from salary then sum up all the income like Income from renting of House property , capital gains from sale of assets , income from other sources like interest on bank deposits, RDs, FDs etc. Deduct tax benefit from the above computed income like investments made under NSC, LIC, tuition fees, PPF, and repayment of principal of housing loan under section 80C. Similarly, donations made to charitable institutions can be claimed under section 80G, and payment made towards premium of medical insurance policy can be claimed in section 80D. After summing up all income and deducting the tax benefits , the resultant computation will be taxable income. Now, calculate income tax on this taxable income using the IT slab rates for financial year 2014-15. Now you are all set for filing tax return. You can now visit the online tax filing site to file your INCOME TAX RETURN 6.3k Views · View Upvoters
Jitendra Prajapati, Bibliophilia, Night Owl, Epicure, Cinephille. Answered Jan 22 2015
Basic salary :It is the basic pay received by an employee without addition of any bonus or incentives etc. and it is fixed. Dearness allowance: It is calculated by taking a percentage (like 7% for government employee) from basic salary of the person to protect an employee from inflation Note: Generally we seen that government increase D.A and not Basic Salary because D.A. is depend on Inflation, and so it can be reduce or increase as per economical situation however once Basic Salary will increase after that if it will decrease that it spoil Government impact so Government generally increase or decrease D.A only as depending on Inflation. HRA: It is given in requirement of your house rent in addition to your basic pay by the employer,it is also calculated from percentage of basic salary. These extra allowances are given in addition to your basic salary to reduce your expenses if you are living outside of your city and to help you in managing your expenditure to salary in response to inflation. LTA or Conveyance Allowance : Many Conditions of LTA in income tax but basically it is allowed as travelling compassion to employee other than all mention above. (LTA - leave travelling allowance) PF: PF or provident fund is calculated as a percentage of your salary ( Basic pay and Dearness allowance if any). The present rate is 12% and the same will be cut from your salary and a matching contribution will be paid from your employer reduced by contribution to your pension fund. The amount will be refunded along with interest when you retire. If you are resigning you have the option of transferring the the PF balance and continue with the nre employer. Calculations: Example Basic Pay : 500000, DA: 10%, HRA received: 50000 (assume,Rs. 25000 is exempted, generally there is some formula to calculate HRA based on Basic and DA Amount.) & PF : 50000 Calculations Basic Salary: 500000 DA@10%: 050000 HRA: 050000 -------------------------------Gross Salary: 600000 -------------------------------Less: HRA Exemption (25000) PF (50000) --------------------------Net Pay: 525000.
Note: There are three ways to calculate the HRA :1. Actual HRA received 2. If you are living in metropolitan city, it should be 50% of basic, otherwise 40% of basic component of your salary 3. If you are paying rent & you have rent receipt, you should calculate "Rent paid-10% of basic" Now, HRA Exemption = Minimum return from the above three way calculation. 8.7k Views · View Upvoters
Related Questions Do I need to pay income tax? Will I pay income tax after paying a service tax? Do I have to pay income tax? Is income tax charged on the gross salary or basic +Da? Can someone pay income taxes with coins? Do IFS officers pay income taxes? How should I pay my income tax? What percent of Indians pay income tax? Do Muslims pay income tax? If the salary package is 4.2 LPA, then what will be the pay scale, grade pay and basic pay? Ask New Question
Sitemap: # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z About · Careers · Privacy · Terms · Contact
