How to maximise your monthly income
Your income is from five broad sources:
1. Salary
— Income from an employer, including value of perks and allowances.
Deductions available: HRA, medical expense reimbursement, LTA, conveyance allowance etc
2. House
— Gain or loss from the real estate you own
Deductions available: Standard deduction (30% of income post house tax), and interest paid on loan for buying/construction of the property.
3. Business
— Net profit from any business or profession
Deductions available: Expenditure for business or profession, and losses from previous years
4. Capital gains
— Profit/loss from sale of a capital asset (property, shares, jewellery, mutual fund units).
Deductions available: Depends on asset, holding term, indexation, losses carried forward and investment in specified options
5. Other— Any income other than the four mentioned
Deductions available: Dividends are tax free. As are gifts from specified relatives or received on certain occasions. Interest from NRE accounts, PPF account etc
This is your income too
A taxpayer has to pay tax on certain income even if he/she has not earned it:
a: Income earned through investments in the name of a child (below 18 years). In this case, the minor's income is clubbed with that of the parent who earns more
b: Income from investments made from the taxpayer's income in spouse's name
c: Income deemed to be earned from letting out a second property even if it is lying vacant
House rent allowance (HRA)This is the most common CTC component. Those staying in rented accommodation can avail an exemption against the HRA received and only the balance will be taxable
1. The exemption is limited to the lowest of:
a: Rent paid less 10% of salary*
b: 50% of salary* where the house is situated either in Delhi, Mumbai, Kolkata or Chennai, and 40% of salary in other cities
c: Actual HRA received
(Salary* means basic salary and dearness allowance)
2. If your CTC doesn't contain HRA, deduction for rent paid is available from gross taxable income, subject to various limits (maximum deduction 5,000 per month)
3. If you live in a house you own, the HRA component is fully taxable
What if accommodation is provided by the employer?
Tax implications depend on:
a: Type of accommodation - hotel, serviced apartment, leased accommodation
b: Whether the property is owned by the employer or leased by the employer for you
c: Whether the accommodation is furnished or not
d: Your salary level
Depending on a combination of factors, you may check with a tax advisor which is more beneficial to you — claiming HRA or living in flat provided by employer.
Reimbursements
Reimbursements such as medical expenses of up to Rs 15,000 per year or your telephone expenses, including data charges, are exempt. There is no cap on the maximum amount that can be claimed for phone expenses. However, your employer may pose an internal cap. In addition, if you get meal vouchers, such as Sodexo coupons, these are exempt from tax to the extent of Rs 50 per meal.
Leave travel concession (LTC)You and your family's travelling expenses on an annual holiday within India are eligible for a tax break. For eg, if you are travelling by air, it is limited to economy class airfare for the shortest route to your destination. No exemption is available for hotel and local conveyance expenses. Keep the bills handy.
1. Salary
— Income from an employer, including value of perks and allowances.
Deductions available: HRA, medical expense reimbursement, LTA, conveyance allowance etc
2. House
— Gain or loss from the real estate you own
Deductions available: Standard deduction (30% of income post house tax), and interest paid on loan for buying/construction of the property.
3. Business
— Net profit from any business or profession
Deductions available: Expenditure for business or profession, and losses from previous years
4. Capital gains
— Profit/loss from sale of a capital asset (property, shares, jewellery, mutual fund units).
Deductions available: Depends on asset, holding term, indexation, losses carried forward and investment in specified options
5. Other— Any income other than the four mentioned
Deductions available: Dividends are tax free. As are gifts from specified relatives or received on certain occasions. Interest from NRE accounts, PPF account etc
This is your income too
A taxpayer has to pay tax on certain income even if he/she has not earned it:
a: Income earned through investments in the name of a child (below 18 years). In this case, the minor's income is clubbed with that of the parent who earns more
b: Income from investments made from the taxpayer's income in spouse's name
c: Income deemed to be earned from letting out a second property even if it is lying vacant
House rent allowance (HRA)This is the most common CTC component. Those staying in rented accommodation can avail an exemption against the HRA received and only the balance will be taxable
1. The exemption is limited to the lowest of:
a: Rent paid less 10% of salary*
b: 50% of salary* where the house is situated either in Delhi, Mumbai, Kolkata or Chennai, and 40% of salary in other cities
c: Actual HRA received
(Salary* means basic salary and dearness allowance)
2. If your CTC doesn't contain HRA, deduction for rent paid is available from gross taxable income, subject to various limits (maximum deduction 5,000 per month)
3. If you live in a house you own, the HRA component is fully taxable
What if accommodation is provided by the employer?
Tax implications depend on:
a: Type of accommodation - hotel, serviced apartment, leased accommodation
b: Whether the property is owned by the employer or leased by the employer for you
c: Whether the accommodation is furnished or not
d: Your salary level
Depending on a combination of factors, you may check with a tax advisor which is more beneficial to you — claiming HRA or living in flat provided by employer.
Reimbursements
Reimbursements such as medical expenses of up to Rs 15,000 per year or your telephone expenses, including data charges, are exempt. There is no cap on the maximum amount that can be claimed for phone expenses. However, your employer may pose an internal cap. In addition, if you get meal vouchers, such as Sodexo coupons, these are exempt from tax to the extent of Rs 50 per meal.
Leave travel concession (LTC)You and your family's travelling expenses on an annual holiday within India are eligible for a tax break. For eg, if you are travelling by air, it is limited to economy class airfare for the shortest route to your destination. No exemption is available for hotel and local conveyance expenses. Keep the bills handy.
Leave encashment
If you haven't availed of your entitled leave, you may have an option to get it encashed. With an increasing realisation that employees who avail of annual leave are more productive, most employers permit such encashment only on retirement or resignation. The maximum aggregate exemption available in a lifetime is Rs 3 lakh.
Car perquisites
If you haven't availed of your entitled leave, you may have an option to get it encashed. With an increasing realisation that employees who avail of annual leave are more productive, most employers permit such encashment only on retirement or resignation. The maximum aggregate exemption available in a lifetime is Rs 3 lakh.
Car perquisites
The perquisite value of a car benefit provided by an employer to you depends on who owns the car, the capacity of the engine, whether you or the employer pays for its maintenance, running cost (including fuel), driver, and if the use is official or personal. Some employers also offer car on lease, which could bring down your income tax significantly Transport allowance: Any such allowance paid by employer to meet your daily conveyance needs between office and home is tax-exempt up to Rs 1,600 per month.
Employee Provident Fund (EPF) and gratuityPF withdrawal after rendering 5 or more years of continuous services is taxfree. However, if you withdraw prior to completion of 5 years of service, the withdrawal becomes taxable under various heads of income. There are a few other scenarios where the PF withdrawal is tax-free such as termination on account of ill health etc. You will be entitled to receive gratuity after rendering 5 years of services and any such payment on termination or retirement is tax exempt up to a maximum of Rs 10 lakh in a lifetime.
Employee Provident Fund (EPF) and gratuityPF withdrawal after rendering 5 or more years of continuous services is taxfree. However, if you withdraw prior to completion of 5 years of service, the withdrawal becomes taxable under various heads of income. There are a few other scenarios where the PF withdrawal is tax-free such as termination on account of ill health etc. You will be entitled to receive gratuity after rendering 5 years of services and any such payment on termination or retirement is tax exempt up to a maximum of Rs 10 lakh in a lifetime.
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