Salary income comprises of your monthly salary received from your employer plus your variable pay and other monetary benefits. However it will not include any amount received as reimbursements for all the expenses incurred by you during the course of your employment.
Easy way to calculate the taxable income under salary is obtain Form 16 from your employer (both Part A and B). This form details all the amount paid by your employer to you. Also you can cross check it with your Form 26AS or AIS. These two forms can be accessed in your Income Tax portal account.
Various Deductions available:
1. Standard Deduction of Rs 50,000;
2. Deduction for the Professional Tax Amount deducted from your salary;
3. Common Deductions available from salary:
a. House Rent Allowance (HRA): if you are receiving HRA as a salary component you can claim deduction from your salary. (If you don't receive HRA, you can claim upto Rs. 60,000 deduction under Section 80GG. But not both.)
It is calculated as below:
Least of below 3:
Actual HRA Received
50% of your basic salary
Actual Rent paid-10% of basic salary
b. Leave Travel Allowance: Lower of Amount received as LTA or actual spent on ticket amount for the trip. But it can be claimed only 2 times in a block of 4 years. The current block for claiming LTA is 2022 to 2025.
c. Children Education Allowance: Rs 1200 per annum per child, max for 2 children.
d. Flexi Benefits: Now a days lot of companies give flexi benefits such as Car Expenses, Professional Development expenses, Meal expenses etc. as part of employee salaries. These can be claimed as deduction subject to submission of actual amount incurred invoices.
e. Leave Encashment: Leave encashment received at the time of retrenchment from the service is exempt whereas amount received during the course of service is taxable.
Deductions under chapter VIA of Income Tax Act, 1961
1. Section 80C: Maximum deduction amount available is Rs 1.50 Lakhs for FY 23-24. Some of the common Deduction can be claimed for:
Contribution to Provident Fund whether as part of deduction from salary or voluntary contribution made to Public Provident Fund;
Amount invested in Tax saver Mutual Funds (Equity Linked Saving Schemes) which has a lockin for 3 years or more;
Amount spent on tuition fee (i.e. monthly school fee only. Admission fee can’t be claimed) of the Children (max 2);
Amount paid as premium for LIC or Term Insurance;
Amount deposited in Post Office for a term of 3 years or in Bank Fixed Deposits for 5 years
Principal amount repaid for housing loan. Etc
2. Section 80 CCD: Deduction of upto Rs 50,000 can be claimed for investment made in NPS (National Pension Scheme) over and above Rs 1.50 Lakhs of Section 80C deduction;
3. Section 80D: Deduction of Rs 5000 as medical expenditure in case no mediclaim insurance is taken. Incase Individual has taken Mediclaim: upto Rs 25,000 (subject to actual premium amount) for Self, Spouse and Children and upto Rs 25,000 for parents. However incase parents are senior citizens than the deduction amount increases to Rs 50,000.
4. Section 80G: Deduction for donations made to charitable trust or political parties. In case of charitable trust Individual can claim deduction of 50% of amount paid (it can be 100% depending upon the registration and nature of work of the trust) and 100% of the amount donated to political parties.
5. Section 80TTA: The maximum amount that can be claimed under this deduction of chapter VI A is ₹10,000. The section applies to interest on saving bank accounts. The limit doesn't apply to senior citizens.
These were some of the common deductions available for the Salaried employees, which can be availed at the time of Income Tax computations.
We will discuss about Profit & Gains from Business and Profession and Capital Gains in out next blogs.