4 min
25-Feb-2025
Income from salary refers to the remuneration received by an individual from their employer in exchange for services rendered. This includes basic salary, allowances, bonuses, and other benefits. In India, salary income is taxable under the Income Tax Act, 1961, with tax liability determined based on various deductions and exemptions. Employees can optimise their tax outgo by claiming deductions under relevant sections such as 80C, 80D, and HRA exemptions. Understanding the components of salary and tax deductions is essential for effective financial planning and compliance with tax regulations. Proper salary structuring can help employees maximise their take-home pay.
Basic salary – This is the fixed portion of an employee’s salary and forms the foundation for other salary components. It determines contributions towards provident fund (PF) and gratuity.
Allowances – These are additional benefits provided over the basic salary, such as house rent allowance (HRA), dearness allowance (DA), and travel allowance. Some allowances are fully taxable, while others enjoy partial or full tax exemptions.
Perquisites – Perquisites or perks are benefits in addition to salary, such as rent-free accommodation, employer-provided car, or stock options. Some perquisites are taxable as perquisite tax.
Deductions – Deductions include provident fund contributions, professional tax, and income tax deducted at source (TDS). These reduce taxable income and are essential in tax planning.
Reviewing salary slips – Monthly salary slips provide a breakdown of earnings, allowances, deductions, and tax withheld. Employees should check their payslips to verify the accuracy of tax deductions and seek clarifications from their employer if discrepancies arise.
Form 16 and income tax portal – Employers issue Form 16 annually, detailing the total salary paid and TDS deducted. Employees can cross-check their tax deductions by logging into the income tax portal and viewing their Form 26AS, which reflects tax credits available against their PAN.
Components of salary
A salary comprises multiple components, including basic pay, allowances, and deductions. Each component impacts an employee’s taxable income and overall earnings. Understanding these elements can help individuals plan their finances better. Below are the key components of a salary structure:Basic salary – This is the fixed portion of an employee’s salary and forms the foundation for other salary components. It determines contributions towards provident fund (PF) and gratuity.
Allowances – These are additional benefits provided over the basic salary, such as house rent allowance (HRA), dearness allowance (DA), and travel allowance. Some allowances are fully taxable, while others enjoy partial or full tax exemptions.
Perquisites – Perquisites or perks are benefits in addition to salary, such as rent-free accommodation, employer-provided car, or stock options. Some perquisites are taxable as perquisite tax.
Deductions – Deductions include provident fund contributions, professional tax, and income tax deducted at source (TDS). These reduce taxable income and are essential in tax planning.
Ways to check your tax deductions from salary
Tax deductions from salary impact an employee’s net take-home pay. Employers deduct tax at source (TDS) based on salary slabs and exemptions claimed. Below are two ways to check salary tax deductions:Reviewing salary slips – Monthly salary slips provide a breakdown of earnings, allowances, deductions, and tax withheld. Employees should check their payslips to verify the accuracy of tax deductions and seek clarifications from their employer if discrepancies arise.
Form 16 and income tax portal – Employers issue Form 16 annually, detailing the total salary paid and TDS deducted. Employees can cross-check their tax deductions by logging into the income tax portal and viewing their Form 26AS, which reflects tax credits available against their PAN.
