The moment the financial year comes to an end all the individuals start bothering about their tax returns. It is very important to know about the tax system, the income calculation and the slab rates so that the calculation of the tax amount becomes simpler. There are five heads of income –
Income from salary is the first head of income which is further subdivided into other components. You would first need to understand the components of the salary income and then you can find out the correct tax liability. To understand the salary you need to first understand the different components of the pay slip. Then you need to find out the difference between the CTC and take home salary, the retirement benefits deducted from the salary and then you can calculate tax.
So, let’s start with the pay slip components. These components include the following -
Let us now understand the difference between the CTC (Cost to Company) and take home salary. The company may entitle you with other benefits like food coupons, pick and drop facility, rent free accommodation, gratuity, etc. These benefits add up and form the total amount of hiring you for the company which is known as cost to the company. So, the CTC would include the salary paid every month, the retirement benefits which are payable when you retire or leave the organization and non-monetary benefits like free meals, free transport, etc.
Compared to CTC, the basic take home pay would include the gross salary paid to you after deducting the tax-free allowances like HRA, LTA, etc., and the income tax payable by you.
The salary also includes the retirement benefits which are payable to you. Let’s understand these benefits -
In calculation of taxation on your salary income a lot of tax benefit is given on the amount of money spent on planning for retirement. These benefits are known as retirement benefits. Let’s discuss all retirement benefits in details:
Taxable amount would be the leave encashment received after deducting the tax exemption using the above-mentioned rules.
After you calculate the taxable income from your salary, you can calculate your tax liability. However, the following should be kept in mind while calculating tax -
|Up to INR 2,50,000||No Tax|
|INR 2,50,000 – INR 5,00,000||5%|
|INR 5,00,000 – INR 10,00,000||20%|
|INR 10,00,000 and above||30%|
The above table is applicable for taxpayers up to 60 years of age. In case of taxpayers between the age group of 60 years to 80 years, the tax exemption limit is INR300000. For taxpayers above the age of 80 years tax exemption limit is INR 500000. 4% of the total amount of tax calculated is charged as the health and education cess.
Pension is included in your salary. Under the contract of employment pension is covered up and is taxed under the heading of salary. But if the pension is paid out of any insurance product then it is placed under the heading of income from other sources.
Perquisites are the benefits given to you because of your position. This amount is given beside the salary amount for example vehicle for your commute, accommodation which is rent free etc. Depending on the nature of the perquisites it is decided whether to tax it or not. Rule 3 of the Income tax defines the valuation of perquisites. No tax is deducted by the employer from your salary in case of calculation of the tax amount on the perquisites.
Yes the advance payment of the salary is taxed.
Loss from house property can be set off from the income from the salary. But loss from the business cannot be set off.
You can get into a housing rental agreement with your parents where every month from your salary you pay them rent. This way you will be able to take the benefit of the rent in calculation of the taxable income. However, your parents will have to show the rent amount in their income tax return file under the heading ‘income from other sources’. This amount is then taxed in your parents’ returns.
If your company does not deduct tax at the source then depending on the amount of the income and the taxation slab you should compute the tax amount and pay it to the government.
Complete guide covering all the basic tax related terms.So, that tax terms will not work as a road-stopper in your way!!
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