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Salary Components Which Reduce Taxable Income Research Team | Posted On Thursday, August 01,2019, 05:32 PM

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Salary Components Which Reduce Taxable Income



The salary structure is very important if you want to save tax. It helps maximize your take-home pay. The salary structure has several components which reduce taxable income. Some of the components of salary are fully tax exempt, while some are partially tax exempt. Get salary structured, to maximize take-home salary and minimize tax burden.

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Salary Components Which Reduce Taxable Income

1. Employee Provident Fund:

According to the EPF Act, 12% of your basic salary and dearness allowance is invested in EPF. Your employer also deposits an equal amount. Your contribution to the EPF enjoys a tax deduction under Section 80C, up to Rs 1.5 Lakhs a year. EPF enjoys the EEE benefit. Your contribution to EPF enjoys the Section 80C tax deduction, while the interest accumulated and money withdrawn at retirement is tax free.

See Also: All You Must Know About Tax Planning

2. HRA

House Rent Allowance or HRA is an essential component of your salary. It helps take care of employee rent. HRA must be part of your salary, to claim this deduction. Amount paid to you as HRA is tax exempt up to limits.

Take a Look at The Conditions:


Condition 1: Actual HRA received from employer.

Condition 2: Rent paid less 10% of salary.

Condition 3: 50% of basic salary if metro and 40% of basic salary if non-metro. (Metro cities are Delhi, Mumbai, Chennai, Kolkata).

The lowest among the three conditions is tax-exempt.

See Also: What are the Steps Involved in Tax Planning?

3. Food Coupons

Your employer gives food allowance through the provisions of food at working hours or even pre-paid food vouchers. The vouchers are tax-exempt up to Rs 50 a meal. Now, if you calculate 22 working days a month at 2 meals a day, this comes to Rs 2,200 a month or Rs 26,400 a year. You can avail Rs 26,400 a year as a tax deduction.

4. Children Education Allowance

The children education allowance of Rs 100 a month or Rs 1,200 a year per child is paid by the employer to the employee. This deduction is available for a maximum of 2 children.

5. Hostel Expenditure Allowance

The hostel expenditure allowance of Rs 300 a month or Rs 3,600 a year per child is paid by the employer to the employee. This deduction is available for a maximum of 2 children.

6. Phone Bill Reimbursement

This includes both telephone and mobile phone bill reimbursements. You would be reimbursed for telephone including broadband internet connection. Some employees get these benefits from certain Companies.

Telephone and mobile phone expenses incurred by your employer on your behalf (employee), is not taxable.

See Also: How To Reduce Income Tax In India?

7. Uniform Allowance

You get this allowance from the employer, to cover cost of purchase or maintenance of uniform, which you wear during the performance of certain duties. The amount you actually spend on purchase/maintenance of the uniform is allowed as tax exemption.

8. Gift Voucher  

If you get a gift or voucher from the employer, and if the aggregate value does not exceed Rs 5,000 a year, its tax free in employee’s hands.

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