AND ITS TAX IMPLICATIONS

A fixed regular payment made by an employer

Paid mostly on monthly basis For professional or office work as opposed to

manual work In India, each component of salary has a separate tax treatment.

 Basic Salary Commissions/Incentives Dearness Allowance (DA) City Compensatory Allowance (CCA) House Rent Allowance (HRA) Conveyance Allowance Medical Allowance Telephone/Mobile Allowance Transport Allowance Leave Travel Allowance Lunch Allowance

 It is the fixed part of your compensation

structure The complete amount of basic salary becomes the part of your in-hand salary Many other components may be calculated based on this amount Many deductions are also dependent on the basic It is a taxable component of your salary.

 It is paid out depending on your performance

To reward employees for their better

performance. It is fully taxable.

 Paid out to compensate for increase in the

general cost of living due to inflation. It is calculated as a percentage of the basic salary

 It is paid to maintain the lifestyle and meet the

additional expenses called by. Offered to those employees living in metropolitan cities. The entire amount is taxable.

 Paid to employees to help them meet the cost

of rented accommodation. HRA gets special treatment in income tax laws, and is exempted to a certain level. The minimum of the following three is available as exemption from your income
The actual HRA received Actual rent paid by you for the house, minus 10%

of your salary(basic+DA) 50% of your basic salary (if you live in a metro) or 40% (if you live in a non-metro)

 lets take the following example:

Basic: Rs.15000 DA: Rs. 5000 HRA: Rs.9000 Rent paid: Rs.10000 (living in Mumbai) Now lets evaluate the rules 1) The actual HRA received from employerRs.10000 2) The actual rent paid , minus 10% of salaryThis would be RS.10000-10% of (Rs.15000+Rs.5000)= Rs.8000 3) 50%/40% of your basic salary50% of Rs. 15000=Rs.7500 The minimum of 1,2&3 is Rs.7500.Therefore, the amount of HRA exempt is 7500 per month.

 Paid out to meet your expenses on commute

related transportation. Conveyance allowance is paid out every month. Conveyance allowance up to Rs.800 per month (Rs. 9600 per year) is tax-free. Any amount over it is taxable.

 It is paid out to help you with the amount that

you spend on medical treatment and medicines It can be paid out monthly or yearly. It is basically a fully taxable component of your salary. However, if you receive the reimbursement of your medical expenses, such reimbursement is tax-free upto Rs.15000 per year.

 This is an allowance given to you so that you

can maintain a telephone. Cell phone allowance is tax free where

It is available to employees who can justify that it

is used primarily for business purposes.

If the allowance is a perk, this is taxable.

 It is a form of travelling allowance similar to

conveyance. It is a fixed sum paid every month. Rs.800 per month is the maximum exempted amount and receipt of transport allowance above Rs.9600 in a year is subjected to taxability.

 It is paid to encourage you to take periodic

vacations and travel with your family. It is usually adopted by employers to remunerate employees due to tax benefits attached to it. Paid out only once a year. It is partially taxable as only certain aspect of the allowance is exempted.

 Provided to the employees in form of lunch or

lunch coupons These are fully exempted from tax as long as they are not given in cash.

 It is fully taxable for all private sector

employees. However, government employees are eligible for exemption if the allowance is included in the gross salary.