Your salary comprises of different incomes heads. This can be basic salary, bonus, gratuity, encashment of leave, advances or arrears, pension, commissions if any, HRA, perquisites, shift allowances, etc. The total income of all these heads will be considered as the salary income. This salary income is taxable as per the individual tax slabs.
How to reduce minimize your Tax Burden?
- HRA - House Rent Allowance, this allowance is provided to employees who live in a rented accommodation. HRA is exempt to certain amounts only, the least of the following is exempt: Either 50% of the basic salary, or excess of rent which has been paid amounting to over 10% of basic salary, or the actual HRA you have received.
- Provident Fund - An amount of up to Rs. 1 lakh or 12% of your salary is exempt from tax, for the contribution made towards provident fund. This exemption is allowed under section 80C of the Income Tax Act of 1961.
- Leave encashment - This is a taxable component, but on retirement this is tax exempt to a certain amount. Tax exemption is available as per section 10(10AA) of the IT Act for both government employees and other employees. Government employees are fully exempt from tax, for leave encashment. Other employees get the least of the following as exemption, actual leave encashment received, or 10 months average salary, or Rs. 3 lakhs, which is the amount specified by the government.
- Reimbursement of telephone bills - Many employers are now providing this component in their employee’s salary. This expense will be borne by you on behalf of your employer is not taxable for you. And therefore, it can be minused from your taxable income.
- Travel or conveyance allowance - This is exempt to the extent of actual travel expenses incurred on a tour, cost of travel on tour or while on a transfer to another city, state, or even country.
- Free meals - Coupons or meal vouchers constitute to another component that can help you save on your tax, and many companies are providing this component to their employees in a bid to help them save tax.
- Dearness allowance - This is generally added as a part of your retirement benefits, and helps in reduction of your tax. DA, will help reduce tax, when it comes down to your, HRA, provident fund, gratuity, etc.
Make sure your employer has included these components when you receive your salary structure. These components help in reducing your taxable income helps you save on your taxable amount payable to the government.