The term ‘Salary’ signifies any consideration given to employee by his employer. Any income is known as Salary if relationship between Payer and Payee is of Employer & Employee.
Breakup of your Salary
1. Basic Salary - Basic Salary is the minimum salary given by the employer to employee keeping in mind his qualifications, experience and technical skills. Basic salary is always given under grade system. This is a fixed component in your salary portion or CTC package (cost to company).
2. House Rent Allowance (HRA) – House Rent Allowance or HRA is a component of the salary portion, which is provided by the employer to his/her employee. Employeed or Salaried Individuals who live in a rented house property can claim full or partial HRA exemption under section 10(13A). However, HRA is fully taxable in the hands of employees if they don't live in a rented accommodation.
HRA Exemption allowed will be least of the following:
a) Actual HRA Received
b) Actual Rent paid reduced by 10% of Salary
c) 50% of basic salary in case where taxpayer is residing in a metro city.
d) 40% of basic salary in case where taxpayer is residing in a non-metro city.
3. Conveyance Allowance – Conveyance allowance is to be given to the salaried individuals for meeting travel expenses from their residence to work/office. From FY 2015-16, the conveyance allowance has been exempted up to Rs.1600 per month or Rs.19,200 per annum u/s 10 of Income Tax Act’1961.
You can claim this exemption only if it is provided by your Employer and not at the time of filing Income Tax Return.
In Budget 2018, Standard deduction of Rs.40,000 has been proposed to replace Transport Allowance of Rs.1600 p.m i.e Rs. 19,200 p.a and reimbursement of miscellaneous medical expenses of Rs.15,000 p.a.
4. Leave Travel Allowance (LTA) – Leave Travel Allowance (LTA) is an allowance given to an employee from his employer for his travel expenses. LTA is also known as Leave Travel Concession (LTC). Salaried Individuals can claim exemption of LTA u/s 10(5) of Income Tax Act, 1961. Salaried employees are required to submit the proof of travel bills to their employer to claim the exemption. The exemption on LTA cannot be claimed in your Income Tax return. LTA can only be claimed from your employer.
5. Medical Reimbursement – A Salaried Individual can claim medical expenses up to Rs.15,000 for which you must submit bills to your employer. Under this Employers reimburse the portion of the medical expenses incurred by the employee. Deductions can be claimed for the medical expenses incurred on your dependents. Out of Rs.15000, unclaimed amount of medical reimbursement will be added to your taxable salary.
6. Special Allowance – The amount of special allowance is fully taxable in your salary.
7. Bonus – Any bonus paid to employees as performance incentive is fully taxable. This is all based on company polices. Bonus received by the employee is fully taxable in the hands of the employee on receipt basis and will be included in the gross salary of employee.
8. Employee contribution to Provident Fund – Employer and Employee both have to contribute a 12% of the employee’s basic salary every month towards Employee Provident Fund (EPF). This benefit is given to employees for their retirement. Employee’s contribution Deduction is available under Section 80C.
Amendment- In Budget 2018 proposals – EPF Contribution for women employees has been reduced to 8% from 12%. The contribution in respect of employer contribution remains same at 12%.
9. Professional Tax - Professional tax is a tax on employment, which is levied by a state. The maximum amount of professional tax that can be levied by a state is Rs 2,500. It is usually deducted by the employer and deposited with the state government. Professional tax is allowed as a deduction from your salary income while filing your Income Tax Return. No Professional Tax can be charged in Union Territories that is why there is no professional tax in Delhi.