Income Tax on Salary in india

Income Tax on Salary in india

After the completion of every month, the income acquired by an employee is taxed by the head of Income from Salaries. However, the salary is taxable whereby there exists an employer and employee relationship. As a result, it is integral for any individual to comprehend the salary slab they are categorized. Thereafter, the employee is required to present their statement regarding the planned investments. This is done to allow the employer can take into consideration the investment, prior to the deduction of the income tax from the employee's salary. If the taxes are declared beforehand, then the employee is not required to go through the prolonged procedure of filing for refunds from the Department of Income Tax. The salary may consist of :

1. Provident Fund,
2. Gross salary,
3. Labour Welfare Fund,
4. Leave pay,
5. Gratuity and Employee State insurance.

What is Gross Salary?

The summation of basic pay in addition to dearness stipend, house rent stipend, plus the transport allowance, special compensation as well as other allowance is termed as the gross salary. As mentioned in the Section 80C, an individual may invest an amount not exceeding Rs.1, 50,000. In case the entity is in a higher tax bracket, thereafter they may resuscitate up to Rs.45, 000 in tax. The home Loan monthly installment, Provident Fund, Equity Linked Savings Scheme, Life Insurance Premium, Infrastructure Bond, Pension Funds, Tuition fees, Unit Linked Insurance Plan and National Savings Certificate are some other areas where investment can be made. As per Section 80D, an entity may claim up to Rs.25, 000 to cover medical expenses. In addition, Rs.30, 000 can be requested by senior citizens. .

What are the lists of deductions applicable on House Rent Allowance ?

The list is as follows:

1. In case the employee lives in the metro area, then fifty percent of the central pay. However, in case of the employee who lives in an- metro area, then forty percent of the central pay.
2. In case of the extra rent paid which is higher than 10% of the employee’s salary.
3. When an individual has a residence of their own, he or she is not eligible to claim deductions for rent as well as a home loan interest payment. However, few people end up claiming both rents as well as home loan interest payment, when they own a property. In case of individuals, living in their parental homes, thereafter they have to prove that they pay rent to stay with their parents.
4. Thereafter, they can apply for the HRA. In case of people who own a house, but choose to reside in a rented place since the designated work place is situated quite far from the home, In that case, they can request HRA along with the deduction for the home loan interest expense.

Deductions that are applicable on Income from Salary

The deductions applicable on return from salary are categorized under the Section 16 as per the Income Tax Act. The deductions are as follows:

1. As per Section 16(ii), the deduction is permissible via entertainment allowance provided by an employer. Only Government employees are eligible for this deduction.The deduction can be the one- fifth of salary minus the benefits or privileges. Or else it can be Rs.5, 000 whichever is minor.
2. The non-government employees are not eligible to claim this deduction.
3. As per Section 16(iii), while calculating income from salaries, the Professional Tax can be considered as deduction.

How to?

If an individual’s Gross Salary is Rs.80, 450. then it will be calculated as

1. Basic Pay as 50,000
2. HRA as 20,000
3. Travel allowance as 1,000
4. Child's educational allowance as 200
5. Medical allowance as 1,250
6. Other allowance as 8,000

to clarify this further, Travel allowance will be Rs 1,000; Child's educational allowance will be Rs 200; Medical allowance will be Rs 1,250 granted only when the entity presents medical bills amounting Rs.1, 250. In case the entity owns a house, then the HRA will not be deducted. As a result, the person’s total discharge will be Rs.2, 450. Thus, the taxable gross income every year shall amount to - Rs. (80,450-2,450) x 12, which will amount to Rs.9, 36,000. However, when an individual declares a damage on House Property for which he is paying interest for the loan sought to purchase the house worth Rs.1,00,000, then the Gross total returns will amount to Rs.8,36,000 , i.e., 9,36,000 minus 1,00,000. As the entity uses Rs.1,00,000 as investment as per Section 80C along with Rs.25,000 as per Section 80D, then the total taxable income shall sum up to Rs.7,11,000 i.e., 8,36,000-1,25,000. This is the total sum of taxable income. In that case, the income tax rate shall be as follows- Initially, for Rs, 2, 50,000 it will be zero, thereafter for Rs.5, 00,000 it will be 5 percent or Rs.25, 000. In case of the balance of Rs, 11,000, the tax rate will be 20% or Rs.2, 200. If the person’s total tax on a yearly basis is Rs.53,766 i.e., Rs.52,200 including the educational allowance and higher education allowance on which 3% interest is imposed amounting to Rs.1,566. The tax on a monthly basis imposed shall be 4,480.50. Thus, at the starting of the tax year, it is wise to declare a list of all the investments to the employer; this will allow him/ her to make the required deductions. On failure to do this, heavy taxes will be deducted rest of the year. When an individual makes any investments, they claim the refund at the ending of the financial year. Thus, “Income Tax on Salary” provides the knowledge necessary calculation of tax. This helps in understanding the amount of tax, one is required to pay. In addition, it also informs about the ways through which one can save tax.