Many employees donot know or are not aware of the various allowances which are part of their salary . But donot worry ,you have ended up at the right place. Here, we will explain the various parts of your salary by breaking them up part by part.
A salary or pay slip contains basic information like the
company's name, employee's name, designation and the
employee's code.
Salary's components primarily fall under income or Earnings and
Deductions.
Tax Deducted at Source (TDS):
It is the amount the employer deducts on behalf of the income
tax department. It is based on the gross tax slab of the
employee. One can reduce this by investing in tax-exempt
investments like equity funds, equity-linked saving schemes,
Public Provident Fund (PPF), National Pension Scheme (NPS)
and tax-saving fixed deposits. It appears on the deductions side
of the salary slip. Hence, investing in section 80C instruments of
the Income Tax Act increases your take-home salary. One can
invest in mutual funds (ELSS), submit investment proof to the
company and claim TDS returns.
Professional Tax:
Professional tax is a small tax levied by state governments on
earning professionals. It is payable only in a few states. Namely,
Karnataka, West Bengal, Andhra Pradesh, Telangana,
Maharashtra, Tamil Nadu, Gujarat, Assam, Chhattisgarh, Kerala,
Meghalaya, Orissa, Tripura, Jharkhand, Bihar, and Madhya
Pradesh.
It is not only levied on professionals but also on those who earn
a living through a medium. This amount is deducted from the
taxable income. Also, it usually amounts to just a few hundred
rupees each month and is subject to the gross tax slab. It
appears on the deductions side of the salary slip.
Dearness Allowance:
It is paid to offset the impact of inflation on one's pay. It is
usually 30-40 per cent of the basic pay. Dearness allowance is
directly based on the cost of living. Hence it is different for
different locations. For income tax, basic and DA are considered
as pay. Therefore it is taxable. It appears on the earnings side of
the pay slip right after the basic pay.
Special Allowance in Salary:
Special allowances include performance-based allowances.
These are usually given to encourage employees to work better.
Basic Pay:
It is the basic component of the salary. It constitutes 35-50 per
cent of the salary. It forms the basis of other components of the
salary. At junior levels, the basic tends to be high. As the
employee grows, other allowances tend to be higher.
Organisations tend to keep the basic component low so the
allowance pay won't be topped. The salary is 100 per cent
taxable in the hands of the employee. Basic is the first
component on the earnings side of the salary slip.
House Rent Allowance:
House Rent Allowance (HRA) is given to employees living in
rented facilities. The HRA depends on the city of residence of
the employee. HRA is 50 per cent of the basic pay for a metro
city. It is 40 per cent of the basic pay for all other cities.
Medical Allowance:
Medical Allowance is the amount an employer pays an
employee for medical expenses during the term of the
employment. One can save income tax on medical allowance.
However, the employee only receives this amount on submitting
medical bills as proof. If the employee fails to submit evidence
of medical bills, they will receive the Allowance, but it will be
fully taxed. It appears on the earnings side of the salary slip.
Leave Travel Allowance:
Employers give it to cover the cost of employee travel while on
leave. It also includes the travel expenses of the employee's
immediate family members. Proof of the journey is required to
avail deduction subject to certain limits. Any expenses incurred
during the trip apart from travel do not count towards the leave
travel allowance tax exemption. The exemption applies only for
two journeys undertaken in a block of four calendar years. It
appears on the earnings side of the salary slip.
Conveyance Allowance is the amount an employer pays an
employee to travel to and from work. It is an allowance. Hence is
exempt from tax up to a specific limit. It appears on the earnings
side of the salary slip. One can save income tax on conveyance
allowance
Many employers make use of the not so strict laws of the government and donot pay the employees a proper salaray which they deserve. It is the failure of the government to make quick and effect laws to protect the rights of the employees as often it is seen that employers exploit the lower salaried persons and not pay them proper allowances.
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