Income Tax and Salary Breakdown
Every person in India who gets a salary or is a white collar worker knows that the ideal breakdown of your salary can sometimes save you a great deal on your taxable income.
Income slabs in India are basically:
i. Income up to Rs 2,50,000 is completely tax-free
ii. Income between Rs 2,50,000 and Rs 5,00,000 has a tax rate of 5 per cent (down from 10 per cent previously)
iii. Income between Rs 5,00,000 and 10,00,000 is taxable income at 20 per cent p.a.
iv. Income above Rs 10,00,000 is taxable income at 30 per cent p.a.
There is also an additional surcharge of ten percent of income tax, where the entire income is more than Rupees fifty lakhs up to Rupees one crore and a surcharge that is 15% of income tax, where the full income is more than Rs.1 crore.
For all individuals below the age of sixty, this is the case.
Who Can Avail This? HRA Exemption 2016-17
All salaried workers who get an ‘HRA’ as part of their pay can avail this. Salaried workers who do not get House Rent Allowance can still receive some tax benefits if they look at conditions under Section 80GG of Indian Tax Law.
Moreover, self-employed people who live on rented premises can also avail some relief on rent under this section of India’s laws.
Parts of Your Salary
If you look at your payslip carefully, then you will see a division:
- The ‘basic pay’: For an annual income below 2.5 lacs this is entirely non-taxable and above it is completely taxable.
- The ‘house rent allowance’: For anyone who lives on rent (not in a self-owned property), this allows some amount of rebate. Those who do not get house rent allowance can still apply for a rebate under tax law.
- Conveyance Allowance: This is non-taxable up to an annual amount of Rs. 19,200
Tax Exemption and House Rent Allowance
The exempt amount for HRA is the minimum of the following
- Actual HRA received
- Actual rent paid reduced by 10% of salary
- 50% of basic salary if you live in a metro city
- 40% of basic salary if you live in a non-metro city
As is obvious from the above, you may be obliged to pay tax on some of your HRA or rental amount.
This tax exemption is still possible if you live in your parent’s house and pay rent to them (as long as you have rent receipts that are submitted in order) but not possible if you live with your spouse and pay rent to them.
Calculating House Rent Allowance Exemption
How to calculate HRA in salary with an example: suppose your basic pay is 2.8 lacs per annum, and your monthly HRA is eight thousand rupees. If you actually pay, say, seven thousand rupees monthly on rent, and live in a non-metro city, what would be your tax exempted house rent allowance?
- Your annual HRA= 8000*12= 96000
- Your actual annual rent, reduced by ten percent of salary= (7000*12)-(10 per cent of 2.8 lacs)=56000
- 40% of your basic salary=40 per cent of 2.8 lacs= 112000
The least of these is your annual rent reduced by a ten percent portion of your salary. This is the amount which is tax exempt.
If you pay the same rent throughout the financial year, then HRA exemption calculation can be done annually. However according to house rent allowance rules and regulations, if rent amount changes (whether an increase or decrease) then calculation has to be done monthly, or for whichever method gives the accurate actual annual rent paid value.
Simple Procedure
Many salaried workers will find that the financial section of their own company will let them know what their exemption is. Nevertheless, when filing your ITR, it is wise to hire an expert accountant or do the calculation yourself as no one will be as careful about saving your money as you are.
Moreover, it should be noted that by HRA deduction rules if you own your own house and are paying a housing loan but it is rented out, and you are living on rented premises then you may be eligible for both tax exemption on the interest paid on your loan, as well as tax savings on your HRA.
Get more income tax savings news and update click and like– Policybazaar Facebook Page