This is how you know which income tax slab your income falls under

NIshtha Sharma (Manager) (33 Points)

15 December 2018

Income tax is the unfortunate reality of income. Once you start earning, you’re on cloud nine, devising innumerable ways of where to spend, and where to save money. We also realise how precious our hard toiled money is. If paying taxes were a choice, most of us wouldn’t want to pay it.

But we should, because income tax is the major source of revenue for our government. You should take pride in it, because you’re one of the 1.5% of Indians who pay tax. While the government asks you to pay tax, it also allows you to legally save on tax. Tax saving is a reality, if executed legally.

Suppose you earn 8 lakhs per annum. You must then try and understand what Income Tax Slab you fall under. To determine a tax slab, you should consider these steps:

Step 1: Subtract the exemptions of HRA, conveyance and medical expenses from your gross salary.
Step 2: Add the extra income of interest, commission and bonuses, if any.
Step 3: Add Rental Income, if any.
Step 4: Add Capital Gains, if any. (eg. sale of house, car, etc.)

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Why is understanding salary slip important?

Most of the people throw the salary slip in the dustbin as they think that it is only important for the one who has to either apply for a loan or for a credit card. Probably, the only thing that matters to them is the money they earned along with how much amount is deducted from their salary.

However, it’s important to understand your salary slips. While every company has to provide you salary slips, few companies even give a print paper of salary slip to their employee or email salary slip in PDF format to their employee so that the employees can download the salary slip anytime.

The employee salary slip is very important as it is the legal proof of the earning and the deductions. That’s why according to the law, it is your right to ask for the salary slip if your company is not issuing it. The tax amount which you need to pay totally depends on the salary slip and the income tax return amount, which you claim from the government. Moreover, salary slip is important for applying loans, credit card, mortgage of houses and lands and for receiving the government benefits such as subsidy and medical benefits.

We understand that it is complicated to figure out the salary slip as an employee it contains a lot of information. Further, the format of salary slip is different for different employers and for different countries.

I found a full step by step guide article on Salary Slip with all components with examples

Step-by-Step Guide to Build The Best Retirement Plan

invest your salary part, invest a fixed portion of your salary

The amount could be less if you begin early, for example, 20% of your gross salary. As soon as you start nearing your 40s or 50s, you should probably increase the percentage to 25% and then to 30%. After all, the more you save, the more financially independent you would be in your later years.

Another option is putting money in a tax-advantaged account like Public Provident Funds (PPF) which allows contributions up to 1.5 lac a year, and you could claim tax benefit under section 80C. This can be opened at any posts office, nationalized banks or a few private banks. Other schemes like National Pension Scheme (NPS) also offer great reductions in the tax. Just find the right scheme for yourself and start investing today!

However, that may require some hard decisions on cutting spending to put more of your salary directly into the best retirement plan for savings. But you know it is all worth it, don’t you?

Source: Sqrrl Blog