Different components of salary on which tax is deducted by the employer

Every month, we receive our salary payslip and often wonder which component of salary tax is deducted and why?

In response to this question, we summarized taxation on different components of salary as follows:

(a) Basic salary - It is a fixed amount amount of salary paid by the employer and it is wholly taxable.

(b) Dearness allowance - this type of allowance is paid to government employee and it is taxable.

(c) Any type commission is taxable

(d) Any advance salary received is taxable in year of receipt, however, if any advance is given against salary then it will treated as loan from the employer

(e) Arrears of salary - If any arrears of salary is being paid then it will be taxed in the year in which such arrears is received by employee.

(f) Bonus - Any bonus paid is taxable in the month of receipt i.e., tax on bonus will deducted and remaining amount of bonus will be paid.

(g) Housing Rent Allowance - If the employee doesn't submit any proof for rent paid or if the employee is living in his own house then HRA received will be taxed.However, if employee stays in rented house and submits proofs for rent paid then employee can exemption upto

(i) 40%/50% *of salary or

(ii) Rent paid (-) 10% of salary or

(iii) Actual HRA received ,

whichever is lower

*50% for employees living in Mumbai, Chennai, Delhi and Kolkata and for other cites it is 40%.

(h) Leave travel allowance or Telephonic/Internet allowance- If employee submits proofs/bills of such expenses, then he can claim exemption for such allowances upto amount spent and bills submitted. however, if he is unable to submit the proofs/bills then tax is deducted on such allowances without any exemption.

(i) Transport allowance or Medical allowance or special allowance - This type of allowances are fully taxable However, Government has provided standard deduction of Rs. 50,000 for employees incurring expenses on transport and medical irrespective of actual amount spent.

(i) Any PF contribution - PF contributions made by employer / employee is not taxable. However if employer contributes more than 7,50,000 then it is taxable.

(J) Professional tax (PT) - Professional tax is deducted from the salary based on salary and PT deducted amount can be claimed as tax deduction in calculating Income of Individual.

Please note the above components are explained on the basis of old tax regime. however, if new tax tax regime is chosen then there will be different tax implications.

If you have any doubts then please provide in comments.

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