The term Salary signifies any consideration given to an employee by his employer. Any income is known as salary if the relationship between Payer and Payee is that of Employer & Employee.
The breakup of your Salary
1. Basic Salary – Basic Salary is the minimum salary given by the employer to the employee, keeping in mind his qualifications, experience, and technical skills. Usually, a grading system determines the amount of basic salary to be given to a particular employee. This basic salary component 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. Employed 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 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 the taxpayer is residing in a metro city.
d) 40% of basic salary in-case where the taxpayer is living 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. Conveyance allowance was exempt up-to Rs.19,200 p.a. u/s 10 of Income Tax Act 1961. However, in the budget announcement of 2018, this was moved to a broad section called Standard Deduction, which covered deductions and exemptions under conveyance allowance and medical reimbursement.
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 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 through 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 a portion of the medical costs incurred by the employee. The employer can also reimburse medical expenses on dependents. However, along with conveyance allowance, medical reimbursements were broadly included in a single category called Standard Deductions in Budget 2018.
6. Special Allowance – The amount of special allowance is fully taxable in your salary.
7. Bonus – Any bonus paid to employees as a performance incentive is based on company policies and is fully taxable. These form a part of the employees’ gross salary and are therefore fully taxable in the hands of employees on a receipt basis.
8. Employee contribution to Provident Fund – The employer and employee both have to contribute 12% of the employee’s basic salary every month towards an Employee Provident Fund (EPF). The fund provides a retirement pool that employees can benefit from at a later date. The portion contributed by employees towards their provident fund is available for deduction under Section 80C.
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 collected by a State is Rs 2,500. The State Government receives this tax as a deposit made by the employer, who, in turn, deducts the same from her employees. 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