If you are a salaried employee, you would be aware that your taxable salary is not the same as your gross salary. There are some components that are partially exempt from tax, and others that are tax-free salary components.
To help you better understand how your salary income is taxable, in this blog, let’s take a closer look at the taxable, non-taxable and partially taxable components of salary.
The basic salary is what you earn before adding any allowances or perks. It is the basic amount you get to take home each month, and it is on this sum that various other allowances are calculated. This component is fixed and is fully taxable. The tax on your basic salary is levied at the income tax slab rate applicable to you.
Allowances refer to specific monetary benefits or payments provided by an employer to employees in addition to their regular salary or wages. These additional payments can serve various purposes and may be structured differently depending on the organization and the nature of the job.
Below is a list of taxable allowances or taxable components in your salary in India:
Below is a list of partially taxable allowances or partially taxable components in your salary in India:
Below is a list of non-taxable allowances or non-taxable components in your salary in India:
In conclusion, understanding the various components of a salary and their tax implications is crucial for salaried employees. Additionally, certain allowances are fully taxed or partially taxed based on their utilisation for official purposes. Lastly, there are specific tax-free salary components for certain categories of individuals. It is essential for employees to be aware of these components and their tax implications to effectively manage their finances.
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Tax is calculated on salary after providing the necessary deductions and exemptions for the non-taxable components. In other words, you will only have to pay tax on the components that form a part of the taxable salary.
This depends on your salary structure and how much you earn. However, broadly speaking, the non-taxable components and partly-taxable components of your salary like house rent allowance, leave travel allowance and other such allowances are exempt from tax either completely or partially.
Some components of salary, such as the House Rent Allowance (HRA), conveyance allowance, special allowance etc. are partly exempt from tax.
The gross salary (minus the eligible deductions) is the taxable amount. Meanwhile, the net salary is what you get after deducting the income tax, pension, professional tax and other such amounts.
While you cannot make your salary entirely tax-free, you can maximise your tax savings by claiming all the deductions and exemptions offered under the Income Tax Act, 1961. If your total taxable income after these deductions is less than the basic exemption limit, you will not have to pay any taxes, effectively making your salary tax-free.