As you all know that you have to file income tax return of salary income for the A.Y.2016-17 for the period of 1-4-2015 to 31-3-2016. The last date to file salary income tax return is 31st July, 2016 as per the date mentioned in the Income Tax Obligation Calendar for A.Y.2016-17.
If you are earning salary and want to understand its components and learn how you can save tax on your salary income – this article is for you.
Section I: Understand Your Salary Slip
The first step to understanding taxes should start with knowing the components of your payslip. Your monthly payslip will show you what’s been paid to you and what deductions have been made.
1. Basic Salary
This is a fixed component in your pay check and forms the basis of other portions of your salary and hence the name basic salary. It is usually a large portion of your total salary. HRA is also defined a percentage of this Basic Salary. Your PF is deducted at 12% of your Basic Salary.
2. House Rent Allowance
Salaried individuals who live in a rented house/apartment can claim House Rent Allowance or HRA to lower taxes. This can be partially or completely exempt from taxes. The allowance is for expenses related to rented accommodation.
If you receive HRA and dont live on rent your HRA shall be fully taxable.
Solution: Mrs. Laxmi can pay rent to her parents and claim the allowance provided they own the place they currently live in. All she has to do is enter into a rental agreement with her parents and transfer money to them every month.
This way Mrs. Laxmi can make a nice gesture and give back to her parents, and two, save some taxes.
But remember: Mrs. Laxmi’s parents will have to show the rent she paid in their income tax returns. But as a family may be saving up.
3. Medical Reimbursement
If your company provides you with medical reimbursement of Rs.15,000 towards medical expenses, you must submit bills to your employer to claim this. These expenses could be incurred towards consultation with a doctor, medicines, medical tests etc.
Deductions can also be claimed against medical expenses of your dependents. Please check about this with your company.
Make sure to keep all the bills safely and submit them timely to your employer for reimbursement.
The Rs.15,000 you can claim is for each tax year that starts on April 1 and ends on March 31 next year.
Example : My company provides me with ‘medical reimbursement’ of Rs. 15,000 as part of my salary. I have only claimed medical expenses worth Rs. 8,000 during the year. How much tax will be deducted if I don’t submit medical proofs for the remainder of the Rs.15,000?
The I-T Department allows medical reimbursement of up to Rs.15,000. You must however furnish the necessary bills to your employer to claim this. The remaining unclaimed amount from Rs.15,000 is added to your taxable salary and your taxable salary is taxed at the slab rate you belong to. The bills must be between April last year to March this year.
4. Conveyance Allowance
Conveyance allowance is given to employees to meet travel expenses from residence to work. The conveyance allowance for up to Rs.19,2000 per annum (starting from FY 2015-16) is exempt from tax.
5. Leave Travel Allowance
Salaried employees can avail exemption for a trip within India under Leave Travel Allowance. The exemption is only for shortest distance on a trip.
This allowance can only be claimed for a trip taken with your spouse, children and parents, but not with other relatives.
This particular exemption is up to the actual expenses, therefore unless you actually take the trip and incur these expenses, you cannot claim it. Submit the bills to your employer to claim this exemption.
Bonus is usually paid once or twice a year. Bonus, performance incentive, whatever may be its name is 100% taxable. Performance bonus is usually linked to your appraisal ratings or your performance during a period and is based on the company policy.
7. Employee Contribution to PF
Both employer and employee contribute a 12% equivalent of the employee’s basic salary every month toward employee’s pension and provident fund. An interest of about 8.5% gets accrued on it. This is a retirement benefit that companies with over 20 employees have to provide.
8. Special Allowance
Any number in your salary by the name of ‘special allowance’ is fully taxable. This is usually the left over component of your salary, after allocating to Basic, HRA, LTA, Transport Allowance etc.
9. Professional Tax
Professional tax or tax on employment is a tax levied by a state, just like income tax which is levied by the central government. The maximum amount of professional tax that can be levied by a state is Rs 2,500. It is usually deducted by the employer and deposited with the state government. In your income tax return, professional tax is allowed as a deduction from your salary income.