Basic is a fixed component in your Salary and forms the basis of other portions of your CTC. It is usually a large portion of your total salary. As per Industry Standard – it’s about 40-60% of your CTC.
B. House Rent Allowance
Salaried individuals, who live in a rented house/apartment, can claim house rent allowance or HRA to lower tax outgo. This can be partially or completely exempt from taxes. The income tax laws have prescribed a method for computing the HRA that can be claimed as an exemption.
The deduction available is the least of the following amounts:
a. Actual HRA received;
b. 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or
c. Actual rent paid less 10% of basic salary + DA
C. Leave Travel Allowance
Salaried employees can avail exemption for a trip within India under LTA. The exemption is only for the shortest distance on a trip. This allowance can only be claimed for a trip taken with your spouse, children, and parents, but not with other relatives. This particular exemption is up to the actual expenses, therefore unless you actually take the trip and incur these expenses, you cannot claim it. Submit the bills to your employer to claim this exemption.
An LTA exemption is available for only two journeys performed in a block of four calendar years.
The bonus is usually paid once or twice a year. Bonus, performance incentive, whatever may be its name, is 100% taxable. Performance bonus is usually linked to your appraisal ratings or your performance during a period and is based on the company policy.
E. Employee Contribution to Provident Fund (PF)
Provident Fund or PF is a social security initiative by the Government of India. Both employer and employee contribute a 12% equivalent of the employee’s basic salary every month toward employee’s pension and provident fund. This is a retirement benefit that companies with over 20 employees must provide as per the EPF Act, 1952.
F. Standard Deduction
Standard Deduction has been reintroduced in the 2018 budget. This deduction has replaced the conveyance allowance and medical allowance. The employee can now claim a flat Rs. 50,000 (Prior to Budget 2019, it was Rs. 40,000) deduction from the total income, thereby reducing the tax outgo.
G. Professional Tax
Professional tax or tax on employment is a tax levied by a state, just like income tax which is levied by the central government. The maximum amount of professional tax that can be levied by a state is Rs 2,500. It is usually deducted by the employer and deposited with the state government. In your income tax return, professional tax is allowed as a deduction from your salary income.
H. Income Tax
TDS is tax deducted at source. Your employer deducts a portion of your salary every month and pays it to the Income Tax Department on your behalf. Based on your total salary for the whole year and your investments in tax-saving products, your employer determines how much TDS has to be deducted from your salary each month.
For a salaried employee, TDS forms a major portion of an employee’s income tax payment. Your employer will provide you with a TDS certificate called Form 16 typically around June or July showing you how much tax was deducted each month.
ESI stands for Employee State Insurance managed by the Employee State Insurance Corporation which is an autonomous body created by the law under the Ministry of Labour and Employment, Government of India. This scheme is started for Indian workers. The workers are provided with a huge variety of medical, monetary and other benefits from the employer. Any Company having more than 10 employees (in some states it is 20 employees) who have a maximum salary of Rs. 15000/- has to mandatorily register itself with the ESIC.
Employee’s contribution rate (w.e.f. 01.07. 2019) is 0.75% of the wages and that of employer’s is 3.25% of the wages paid/payable. Employees in receipt of a daily average wage upto Rs. 137/- are exempted from payment of contribution.
J. Labour Welfare Fund
Labour welfare fund is a statutory contribution managed by individual state authorities. It is an aid in the form of money or necessities for those in need. It provides facilities to labourers in order to improve their working conditions, provide social security, and raise their standard of living.
The state labour welfare board determines the amount and frequency of the contribution. The contribution and periodicity of remittance differs with every state.