Welcome to my world of financial planning. I wish to start this journey with helping you how to calculate your own salary income. I selected this topic, as these few months are hectic to salaried to know their tax liability.
Here I will start with basic things, then in future I will update as and when I find important and informative information. This will make all of you familiar with calculation of your salary income.
In Salary Income, there are mainly three components, which are as below
1) Salary Payments
However, today I will make you familiar with Salary Payments and allowances.
In Salary Payments, again there are sub categories like taxable, partially taxable and fully exempt salary payments. The list of all those are as follows.
1) Fully Taxable Salary payments:-
- Advance Salary
- Arrears of salary
- Contractual Bonus
- Annuity (Pension)
- Remuneration for extra work
- Salary in lieu of notice period
2) Partial Taxable Salary Payments
- Gratuity (Gratuity received during the period of service is fully taxable and any death cum retirement for Govt Employees is fully exempt).
- Leave Salary (Leave Salary received during the period of service is fully taxable and any death cum retirement for Govt Employees is fully exempt).
- VRS-To calculate it few conditions are there which I will deal with them in my future posts.
- Leave Travel Concession-Is partial but again few conditions are there to satisfy that.
3) Fully Exempt Salary Payments
- Any payment from Approved Superannuation Fund
- Salary from UNO
- Salary to NRI Technicians
- Remuneration to consultants and to employees of such consultants
- Remuneration to foreign citizen
However, generally fully exempt salary payments are not applicable to many.
Here also few are fully taxable, partial and fully exempt. Let us categorize them.
1) Taxable Allowances
- Dearness Allowances
- Overtime Allowances
- Fixed Medical Allowances
- City Compensatory Allowances
- Interim Allowances (to meet increased cost of living in cities)
- Servant Allowances
- Project Allowances
- Tiffin/Lunch/Dinner Allowances
- Any type of Cash Allowances
- Warden Allowances
- Non Practicing Allowances
2) Partial Taxable Allowances
- HRA-If you are residing in your own house or not paying any rent then it is taxable. However, you are residing in rental then the calculation is as follows.
Note:-Salary for calculating HRA is Basic+DA (If it is provides in terms of employment for retirement benefit) +Commission as a percentage of turnovers.
Least of the following is exempt.
1) Allowance actually received
2) Rent Paid-(minus) 10% of salary for the relevant period
3) 50% of salary for the relevant period (For residents of Delhi, Kolkata, Mumbai and Chennai) for others it is 40% of Salary
3) Allowances, which are exempt to the extent of amount, received or the specified limit whichever is less.
- Children Education Allowance-Rs.100 per child per month but maximum for two children;
- Hostel Exp Allowance-Rs.300 per child per month and maximum for two children;
- Transport Allowance-Rs.800 per month and for handicapped Rs.1600 per month.
I have not listed the other such allowances because I found them not that much relevant.
4) Allowances that are exempted either the amount received or amount spent whichever is less.
- Travelling Allowance-Expenses on tour or on transfer;
- Daily Allowance-Expenses, which allowed to meet while not on the place of work;
- Conveyance Allowance-Meet the expenses of conveyance in performing the duties of an office;
- Helper Allowance;
- Allowance granted to meet the academic, research and training pursuits in educational institutions;
- Uniform Allowance
Hope I covered most part of Salary Income. In future, I try to share the remaining part.