Do you have to pay tax on your entire salary? Is your entire salary taxable? Most professionals have these questions in mind. Here is demystifying the maze of income tax.
Your salary is a combination of various heads including basic salary, dearness allowance, bonus, house rent allowance and other categories. Some of them are taxable and some are not. Let us have a detailed look at the various heads.
Basic salary is taxable. So is dearness allowance. All the amounts you get as a bonus or commission is also counted as your taxable income.
However, the house rent allowance you are entitled to is not taxable because it is an expense, not income. The exemption is conditional. House rent allowance is not factored in while computing your taxable income. If you are entitled to a city compensatory allowance, that is taxable.
Categories such as medical allowance, overtime allowance, holiday allowance and cash allowance are considered to be taxable. When central and state governments provide accommodation facilities to their employees free of cost, an amount equal to the licence fee for allotting the house may be taxed.
If you are given a stock option by your employer, that is also taxable. The value of a gift cheque or food coupons is also considered for taxing purpose.
When you encash your earned leave, the amount is taxable. You have to add up all these categories to determine your taxable income.
What is exempted
If you are eligible for children's education allowance, the component is not counted as income and you do not have to pay tax for it. However, the exemption is only applicable for two children. Monthly fee of up to Rs 100 is exempted from tax. Another Rs 300 can be exempted as hostel fee for two children.
You do not have to pay tax for the travel allowance and conveyance allowance given by the employer. If you avail of uniform allowance even that is not considered taxable income.
Unfortunately, you may be required to pay tax even if you have not been getting paid the salary you are eligible for. For instance, if you were going without pay for some reason, the Income-Tax department will still tax you for the income you are eligible for. When you get the salary dues at a later point, you will not have a tax liability on it.