Income tax for salary earners is not that hard to understand or calculate. But claiming the best tax saving salary structure requires some contemplation.
Economic theory tells you that wage rates are determined by the additional output that a unit of labour, in terms of man-hours, is able to produce. Most governments do not let the free market decide wage rates lest society return to the state of 19th century England at the height of the First Industrial Revolution. Human Resource departments will tell you that your salary depends upon your experience, the level of skill involved in your work and how well you’re able to conduct yourself during a one-on-one interaction.
Your salary consists of the following essential components:
- Basic Salary.
- Retirement benefits or PF contributions.
ITR forms for salaried individual may include ITR-1 (SAHAJ), ITR-2
- The House Rent Allowance or HRA is one of the most well-known ways you can save tax. The maximum amount of HRA cannot exceed 50% of the basic component. For residents of non-metro locations rates are typically fixed at 40% of the basic. For providing proof of expenses under this head you must be able to show receipts with signatures, contract of rent and so on.
- Conveyance Allowance: The amount of expense that you can claim as exempt from income tax and as deduction in your income tax return file under this head is Rupees 1600 every month or Rupees 19,200 per annum.
- Leave Travel Allowance: Labour laws in India and most of the world mandate that employees are able to fulfil essential needs such as food, clothing and shelter and maintain a life of dignity, comfort and repose. You are allowed to have travelling expenses reimbursed or covered under this head but not that spent on food or lodging. Also only immediate family such as spouse or children (up to 2 children) are provided for under this head of allowance.
- Allowance for Medical Expenses: According to income tax law, you are allowed tax deductions of Rupees 15,000 every year towards expenses on treating illness or other medical conditions. This comes out to Rupees 1,250 per month. Proof of medical expenses include bills by pharmacist, doctors and hospitals.
- Tuition fees of Children: Parents of children attending school, college or university will get the benefit of tuition fees as an exemption to taxable income under Section 80C. School fee receipts are considered proof of expense to qualify for exemption.
- Home Loans/ Concessional Loans: For those who receive concessional loans or home loans from their employers as a perquisite, up to Rupees 20,000 of this amount is exempt from income tax and would qualify as a deduction in your annual income tax return e-filing. This part is mentioned in Rule 3A of the Income Tax Act, 1961.