Income from Salary: Understanding the Basics

 As an employee, you earn a salary for your work. This salary is your income from salary. Income from salary includes your basic salary, allowances, bonuses, and any other benefits that you receive from your employer. In this article, we will discuss various aspects of income from salary, including the difference between CTC and take-home salary, understanding salary slips and their format, retirement benefits, tax implications, and more.

Difference between CTC and Take-Home Salary

CTC stands for Cost to Company, which includes all the components of your salary. It includes your basic salary, allowances, bonus, PF, and other benefits. On the other hand, take-home salary is the amount you receive in your bank account after all the deductions. These deductions include tax, PF contribution, and any other deductions as per company policy. Hence, the take-home salary is always less than the CTC.

Understanding Salary Slip and its Format

A salary slip is a document that shows your earnings and deductions for a particular month. It contains details like your basic salary, allowances, bonus, PF contribution, tax deductions, and more. The format of a salary slip varies from company to company, but it generally includes the following details:

• Employee details: Name, employee ID, designation, and department.
• Earnings: Basic salary, allowances, bonus, and any other earnings.
• Deductions: PF contribution, tax deductions, and any other deductions.
• Net Salary: The amount you receive after all the deductions.

Retirement Benefits

As a salaried employee, you are entitled to certain retirement benefits. These benefits include:

• Pension: Pension is a retirement benefit that provides a fixed income after retirement. The amount of your pension depends on your years of service and the salary you received.
• Gratuity: Gratuity is a lump-sum payment made by the employer to the employee on retirement. It is calculated based on your years of service and last drawn salary.
• Leave Encashment: Leave encashment is the amount you receive for the leaves that you have not taken. This amount is generally paid when you resign or retire.
• Voluntary Retirement Scheme: Voluntary Retirement Scheme (VRS) is a scheme offered by companies to encourage employees to retire voluntarily. Under this scheme, the employee receives a lump-sum payment based on their years of service.

Relief Under Section 89

Section 89 of the Income Tax Act provides relief to employees who receive arrears or advance salary. If you receive arrears or advance salary, the tax liability will be higher as it will be calculated on a higher income. However, under Section 89, you can claim relief and pay tax on the actual income.

Why Should Salaried Person File ITR?

Filing an income tax return (ITR) is mandatory for all salaried individuals whose total income exceeds the basic exemption limit. Even if your income is below the basic exemption limit, it is advisable to file ITR as it helps in creating a financial record, and you can claim refunds if you have paid excess tax.

Which ITR should a Salaried Person File?

As a salaried person, you need to file ITR-1 or ITR-2, depending on the nature and amount of your income. If you have only income from salary, house property, and interest income, you can file ITR-1. However, if you have income from capital gains or business/profession, you need to file ITR-2.

How to Calculate the Tax on Income from Salary?

The tax on income from salary is calculated based on the income tax slab rates. The tax rates applicable for income from salary depend on the income tax slab rates. The income tax slab rates for the financial year 2022-23 are as follows:

Income Tax Slab	Tax Rate
Up to Rs. 2,50,000	No tax
Rs. 2,50,001 to Rs. 5,00,000	5% tax
Rs. 5,00,001 to Rs. 7,50,000	10% tax
Rs. 7,50,001 to Rs. 10,00,000	15% tax
Rs. 10,00,001 to Rs. 12,50,000	20% tax
Rs. 12,50,001 to Rs. 15,00,000	25% tax
Above Rs. 15,00,000	30% tax

Document Checklist for Filing ITR for Income from Salary

To file ITR for income from salary, you need to have the following documents:

• Form 16: This is a certificate issued by your employer, which shows your salary details, tax deductions, and TDS.
• Salary Slips: Keep your salary slips for the financial year to cross-check your Form 16.
• Bank Statements: Keep your bank statements to check your income from interest, if any.
• Investment Proofs: Keep the investment proofs such as LIC, PPF, NSC, and others to claim deductions.
• Rent Receipts: If you are paying rent, keep the rent receipts to claim the HRA deduction.
• PAN Card: A valid PAN card is required for filing ITR.
• Aadhar Card: Aadhar card is mandatory for linking with PAN and filing ITR.

FAQs

Q1. Is HRA a part of the salary?

Ans: Yes, HRA (House Rent Allowance) is a part of the salary and is given by the employer to employees to meet the expenses of rent paid for accommodation.

Q2. Can an employee claim both HRA and home loan interest deductions?

Ans: Yes, an employee can claim both HRA and home loan interest deduction if he/she is paying rent and has taken a home loan.

Q3. Can an employee change the tax regime from old to new?

Ans: Yes, an employee can change the tax regime from old to new or vice versa every year before the due date of filing the ITR.

Q4. Can an employee claim LTA (Leave Travel Allowance) every year?

Ans: No, LTA is not an annual allowance. An employee can claim it twice in a block of four years.

In conclusion, understanding the basics of income from salary, tax implications, and retirement benefits is essential for every salaried employee. Proper documentation and compliance with income tax laws will ensure a smooth and hassle-free tax filing experience.

Also Read:

Decoding Your House Rent Allowance (HRA) Exemption under the Income Tax Act