How do I calculate my income tax in India, when I am new to all salary components?
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Based on the information provided in the salary, your total CTC is 703028 and your gross salary is Rs 605468 and your basic salary is Rs 281400. Now, before we proceed on to your income tax incidence, let’s first simplify the terms so you can understand the answer properly.
- Basic Salary: Basic salary is the amount paid to an employee before any extras are added.
- Gross Salary: Gross salary is basic salary along with the allowances such as travel allowance, HRA etc. which can be claimed as deductions.
- CTC: CTC is the total amount your employer is spending towards you including the basic salary + deductible allowances + your employee benefits such as health insurance, life insurance, and EPF contribution.
1. HRA: House Rent Allowance. HRA is an essential component of the salary provided by the employer to his/her employees for paying the rent of the apartment you live in. In case you live in a rented apartment or accommodation, you can claim the applicable HRA as deductions from your taxable income.
Your HRA calculation depends on four factors
- Actual HRA
- Rent paid
Now, the least of the four conditions is taken as HRA exemption
- Actual HRA provided by the employer.
- Actual Rent Paid: The HRA exemption also depends on the actual rent paid. In such case, the exemption will be calculated as total rent paid (in a year) – the 10% of annual basic salary (Rs. 281400 in your case).
- Location of your Rented Residence: The location decides whether you can claim 40% or 50% of your salary as HRA deduction. 50% of the basic salary for metro cities and 40% for others.
2. SPL Allowance: SPL ALLOWANCE is usually the leftover component of the salary after allocations are divided into basic, LTA, transport allowance, HRA and so forth. This amount, in case all the other allowances have been already provided, is taxable.
3. Transport allowance: Travel allowance or Conveyance allowance, also called Transport Allowance is what an employer offers to the employees to compensate for their travel from residence to and from respective workplace location. The following allowance is capped at Rs 1600 per month as properly structured in your salary. This amount can be claimed as a deduction.
Talking about gratuity, it will be available only when you retire given you work for at least 5 years with the company. You won’t have to pay tax for the gratuity amount mentioned in your salary slip as long as you don’t receive it. Once you receive it, you might have to pay tax if the gratuity amount exceeds the limit of Rs 10 lakh.
Also, the Med Reimb (Rs 15,000 annually) mentioned in your salary slip can be claimed as a deduction in case you incur medical expenses. Medical Reimbursement is an arrangement under which employers reimburse the portion of the health expenses incurred by the employee. However, as per the Union Budget 2018-19; the transport allowance of Rs 19, 200 annually and Medical Reimbursement of Rs 15, 000 annually has been replaced by a standard deduction of Rs 40, 000 per year. Remember this while planning a claim.
After all these allowances, your basic income is Rs 281400 which is still taxable as per the 5% tax slab. So, what can you do to save tax? The answer is claim deductions under section 80C. Section 80C allows an individual to claim Rs 1.5 lakh annually as a deduction from the taxable income as a part of savings.
However, as per your salary slip, Rs 35, 172 (annually) as a part of PIL and Rs 33, 768 (annually) as PF deduction is being claimed as a deduction. Yet, you are still eligible and can claim an additional deduction of Rs 53, 940 per year owing to the max limit of Rs 1.5 lakh under section 80C by investing that sum in 5 year FD schemes or other investment schemes. That will reduce your basic income and bring it down in the tax exempted category.