What does, however, ‘salary’ include? Salary includes basic salary, bonus, wages, pension, fees, commission, gratuity, encashment of leave salary, advances and arrears, profits in lieu of salary, allowances and perquisites.  Salary income is taxable in the hands of an individual in the year of receipt or earning of salary income, whichever is earlier. Here are some of the safe components of your salary structure which can minimse your tax burden and help you plan your Salary Structure –

  • If you live in a rented an accommodation and are entitled to a house rent allowance (HRA), the same is exempt to the extent of least of the following; 50 or 40 per cent (depending on the city of accommodation) of the basic salary, excess of rent paid over 10% of basic salary, actual HRA received. However, you cannot take benefit of HRA, if you live in a rent-free accommodation or live with your family or in your own house.  House Rent Allowance (HRA) taxability, working / calculation
  • Provident Fund: Under Section 80C, provident fund contribution deducted from the employee’s account is exempted from tax up to an amount of Rs. 1.5 lakh or 12% of the employee’s salary. Taxability of Provident Fund -Recognized, Unrecognized & Statutory
  • Conveyance allowance for commuting between home and office is exempt up to Rs 1600 per month. This allowance is exempt only up to financial year 2017-18.
  • Children’s Education Allowance is exempt up to Rs 100 per month per child up to a maximum of two children.  Also, Rs. 300 per month per child up to two children is allowed if they are in hostel.
  • The value of any travel concession or assistance received by or due to you from your employer for yourself and your family in connection with proceeding on leave to any place in India subject to prescribed conditions.
  • Leave encashment while in service is taxable both for government and non- government employees, but is fully exempt at retirement for government employees, and for non – government it is exempted subject to prescribed limits and conditions. If leave encashment is done on the termination of employment through superannuation, then it is fully taxable for both government and non government employees. Leave Salary encashment Exemption, Calculation, Download calculator
  • An allowance to the extent actually incurred to meet the cost of travel on tour or on transfer, expenses incurred on conveyance in the performance of official duties, expenditure on helper engaged in the performance of duties, daily charges on account of absence from normal place of duty on tour are exempt.
  • Reimbursement of health insurance premium by your employer for you and your family is exempt.
  • Actual expenditure incurred/reimbursed on your medical treatment or any of your dependents is exempt up to Rs 15,000 per annum (up to A.Y 2018-19) as medical reimbursement subject to provision of bills. If you are paid a medical allowance instead of reimbursement, the same is fully taxable.
  • In case you are entitled to a free or concessional company-provided accommodation, the same would be valued based on stipulated conditions.
  • If the company provides you a car for personal and official purposes and reimburses the fuel, insurance, maintenance and driver’s salary, the taxable value shall be: in case the cubic capacity of the car is less than or equal to 1.6 litres – Rs 1,800 per month (plus Rs 900 for the driver) and in case the cubic capacity of the car is greater than 1.6 litres – Rs 2,400 per month (plus Rs 900 for the driver).
  • In case you use your own car for official and personal purposes and the company reimburses the running and maintenance cost, the taxable value shall be: in case, the cubic capacity of the car is less than or equal to 1.6 litres – actual amount met or reimbursed by the employer less Rs 1,800 per month (plus Rs 900 for the driver) and in case the cubic capacity of the car is greater than 1.6 litres – actual amount met or reimbursed by the employer less Rs 2,400 per month (plus Rs 900 for the driver).
  • The reimbursement of telephone expenses including a mobile phone actually incurred by you on behalf of your employer is not taxable in your hands.  Telephone facility received by Employee at his residence provided by employer is also not taxable in hand of employee as against Telephone Allowance.
  • Dearness allowance to be added as a part of your retirement benefits as it will reduce your tax incidence with respect to HRA, provident fund, gratuity, etc.
  • The reimbursement of health club, sports club membership fees and similar facilities provided uniformly to all employees would not be taxable in your hands.
  • Free meals provided to you through paid vouchers, not transferable and usable only at eating joints to the extent of Rs 50 per meal are safe.
  • Uniform Allowance – Uniform allowance is not considered as Perquisite U/s. 10(14). This however needs to be a uniform not a civil dress.
  • Asset assistance given by your employer. For example, provision of a computer or laptop owned by the company and provided to you or any member of your household is not taxable in your hands.
  • Professional Tax: If a professional tax is being deducted from the employee’s salary, it can be reduced from the annual salary income to arrive at the taxable salary.
  • Get pension or gratuity commuted to the maximum permissible limit up to which it is exempt from tax.

(Republished with Amendments)

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71 responses to “Must components in your Salary to minimise tax burden”

  1. Chetan says:

    Transport allowance is abolished now…the article is misleading to that extent

  2. Bhadkamkar Avinash Vishnu says:

    An employee uses his own car of cubic capacity of 1.6 litres, for personal and official purpose. The Company pays him Rs.40000/- per month as car allowance for running and maintenance expenses. The taxable value will be (40000 – 1800)=38200 per month. He is not paid any conveyance allowance. Will he get benefit of Rs.40000/- towards Standard deduction?

  3. vicky says:

    Hi Sir,
    I lost my Job but my wife is working, i have housing loan on my name and also the flat is in my name only. As i cant claim housing loan and get its tax benefit, at the same time can my wife claims HRA ? Since neither i personally claim HRA nor housing loan and get its tax benifit..as i take money from wife to repay the loan amount…in such scenario is it possible for my wife to claim HRA, as she cant claim loan because neither property is her name nor loan ?

  4. Suraj says:

    Sir I have a confusion in hra and rent free accommodation so plz tell me how it will be taxable

  5. venkat says:

    hi i want to sale my land its actual cost 10 lakh for black money i can sell it for Rs.15 lakh in andhra pradesh
    if any one want please mail me : kosuritax@gmail.com

  6. Pavan says:

    If one couldn’t declare the fuel expense in salary break-up with employer, and hence couldn’t take benefit of tax deduction at source (but was qualified to take tax benefits), is it still possible to deduct Rs 1600*12 from B1 (Income from Salary) component while filing ITR??

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