Tax (Photo credit: 401K)
In the previous post we came to know about what is income tax,who is suppose to pay income tax in india and to whom.
Now we will get into tax on salary income
What is considered as Salary income?
Whatever is received by an employee from an employer in cash, kind or as a facility [perquisite] is considered as Salary.
Now Total Salary of an employee given by an employer can be divided into two parts
1) Fixed Pay: Fixed pay is fixed component of the salary which is given every month.
2)Variable Pay: Variable pay is the part of the total salary which is not fixed and which depends on the company and employee variables like company growth,employer performance,overall growth of the sector,company policies etc.. This pay may be given monthy,quarterly or bi annually and which varies from company to company.
The Fixed Component of the salary comprises of various components
1) Basic Salary
2) HRA-House Rental Allowance
3) Allowance-Meal Allowance,LTA,
4) Bonus
5)PF-Provident Fund
6)CONVEYANCE
Now some parts of these components are taxable while some parts are non taxable
Taxable components:
1) Basic Salary
2) HRA-House Rental Allowance
3)Allowance.
4) Bonus
Non Taxable Components:
5)PF-Provident Fund
6)CONVEYANCE
Now when the income tax is calculated ,it is calculated on total salary/earnings(Fixed + variable pay) – exemptions based on the financial year. ie 1 st April to 31st March.
There are the various exemptions provided such as
1) CONV EXEMPTION
2) HRA EXEMPTION
3)LTA
4) MEDICAL…etc
So,
TOTAL SALARY=GROSS SALARY- EXEMPTIONS.
Now TOTAL TAXABLE SALARY is calculated for a given financial year
TAXABLE SALARY= TOTAL SALARY- DEDUCTIONS (under 80C,80D)
I now end my post here…
In this post we understood the various components of the salary and taxable components.
In the next post we will go deep into each components and exemptions and deductions.
