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Introduction to basic components of salary

Annu Agarwal 
on 03 May 2014

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We are surrounded by people working with a handsome salary.What if they are made more smarter with an introduction to some of the basic components of their salary.

Hope the readers find it useful!!

Sr.  No

What are We Talking About

Tax Implications

01.

Basic Salary: We all work for a salary. Our Basic Salary

Is Taxable under the head ”Income From Salary”

02.

Bonus: We work hard through out the year to earn BONUS

Is  Again Taxable under the head ”Income from salary”

03.

House Rent Allowance: We receive House Rent allowance i.e. HRA if we put up in a rented accommodation

HRA is taxable though exempt to some extend:

Exemption is available to the least of below:

1) Actual HRA

2) Rent paid in excess of 10% of Salary

3) 50% of rent if property is in Delhi, Mumbai, Kolkata and Chennai (40% in case of other cities)

So,we can say that HRA is dependant on our salary,rent paid and the place where we live on rent and ofcourse the amount of HRA.

04.

Bank Interest: We all keep our hard earned money in our saving bank account.We earn a interest thereon  the credit balance.

The Interest is taxable under the head”Income From Other sources” but the same is exempted upto 10,000 u/s 80TTA

05.

Fixed Deposit Interest: Calls from banks to make Fixed deposit with them,tend us to actually make the investments with banks which earns us an interest income.

The Interest is taxable under the head”Income From Other sources” .TDS is deducted by the bank once the amount of F.D interest exceeds 5000/-

06.

Housing Loan:We all dream of buying our own House.And Most of us are lucky enough to buy one.The dream is fulfilled with the help of a housing loan in most of the cases.

The Installment paid by us for repayment of the Loan consist of two elements-the interest element and the Principal Amount.

A deduction is allowed of the amount of principal u/s 80C(2)(xviii),once the property is completed.

With respect to the interest amount a deduction can be claimed of the pre construction period and also post construction period  once the property is constructed under the head “Income FromHouse Property”

07.

Medicalim Policy:Health issues take a hell lot of our time and money.We all take a medical policy covering our family and pay a premium for the same.

Medical Premium paid is exempt upto 15,000 in case the policy is in name of self,wife,children.Also for our health consciousness we are allowed an amount of 5000 as exemption on any  preventive health checkup taken up by us within the 15,000 limit.

An additional exemption is available for a separate policy taken up for parents upto Rs 15000/-

08.

PPF Investment:Our safest investment option-Public Provident Fund

The exemption is available upto an amount of Rs 100,000 of contribution made to PPF u/s 80C(2)(v)

09.

Life Insurance:The most precious investment-Life Insurance “Zindagi ke saath bhi,zindagi ke baad bhi”

Though a deduction is available of the amount of premium paid on a Life Insurance Policy.But there is a ceiling of 20%  deduction of the sum assured in case of Insurance policies taken before 31.03.2012.In case of policies after 01.04.2012 premium is allowed as deduction to the limit of 10% of the sum assured.(Refrence-Section 80C(2)(i) read with Sec 80C(3),3(A) and 4(a)

10.

Golden Period deduction:You are special if you have taken a housing Loan between 01.04.2013-31.03.2014

A deduction of interest is available to the extend of 1,00,000 subject to certain  conditions.(Reference :Section 80EE)

Some of the conditions are that the amount of Loan does not exceed 25 lakhs whereas the amount of Residential Housing property does not exceed 40 Lakhs.Reference:section  80EE

11.

Rent deduction:Special deduction for rent who could not claim HRA

A deduction for rent paid is also available for those who couldnot or do not receive HRA.Deduction of lower of the following amounts is available:

1) Rent Paid-10% of total Income

2) Rs 2000/-

3) 25% of Total Income

12.

Tax rebate:Relief Under Section 87A

Where the Total income of a individual is upto 5,00,00 he shall be allowed a rebate of 2000/- or the amount of tax payable(which ever is less).The deduction was made available from  A.Y 2014-2015

13.

PPf Interest:Interest on PPF 

Our Public Provident fund  investment earns a interest of 8.7% per annum. The interest is exempt U/S 10(11)

14.

RPF Contribution:Employers contribution to Recognized Provident Fund

Contribution to the RPF by employer is taxable beyond 12% of salary and the interest thereon  beyond 9.5% is taxable.

15.

Taxable Income:Income on which Tax is Payable

The income tax is charged on taxable income which is Gross Total Income Less: Deductions   (u/s 80C to 80U)

Taxable Income

16.

Income Slabs:Income above which Tax payable

There is a limit under income tax laws ,if your taxable income is below that limit,then NO TAX for you.

Below is a table showing different income slabs and corresponding tax slabs .

For Individual(Male,Female  who are below 60 years)

Taxable Income Slab

Rate

Income is less than or equal to 2,00,000

Nil

Above 2,00,000 but less than equal to 5,00,000

10% of Income in excess of 2,00,000

Above 5,00,000 but less than equal to 10,00,000

30,000 +20% on Income in excess of 5,00,000

Above 10,00,000

1,30,000 +30% on Income in excess of 10,00,000

       

The above components discussed above  are the ones which generally form part of everybody’s salary.Hope they made things a bit more clear.yes


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