Understanding Salary Exemptions: How Do HRA, Conveyance, and Other Allowances Affect Your Taxes?

Sir,

There are many components in a person's salary, so I wanted to know what exemptions are available in the Income Tax for the following salary heads:

1) HRA
2) Conveyance
3) Medical Allowance
4) Uniform Expenses
5) Tuition Fees
6) Other Allowance
7) Vehicle Allowance

Also, please let me know the percentage of basic salary from the gross salary.

Dear Santosh,

Mentioned below are the Salary Components:

1. Basic - 100% of the gross salary
2. HRA - 50% of basic in metro and 40% in non-metro areas
3. Conveyance - $800 fixed per month
4. Medical Allowance - $1250 fixed per month
5. LTA (subject to company policy and entitlement) - 8.33% of Basic
6. Superannuation (Subject to company policy) - can be 3% - 6% of basic
7. PF (Subject to company policy) - 12% of basic (employee contribution)
8. Flexi Basket - a fixed amount for driver utilization, petrol reimbursements, books & periodicals, home furnishing, business attire, etc. (this is non-taxable)

Formula to calculate basic is 100 + 50 + 8.33 + 3 + 12 = 173.33. For example, for a salary of $25,000 per month, after deducting fixed amounts like conveyance, medical, and flexi, the calculation would be: $25,000 - $800 - $1250 = $22,950. Therefore, basic = $22,950 / 173.33 * 100.

HRA = basic * 50% ...

... soonnnnnnnnnnnnnnnnn

Umakant

Hi All,

Calculation of basic differs from organization to organization. There is another way to calculate the basic salary too. The current scenario is if the basic pay is less than Rs 3500, the employer has to pay the minimum statutory bonus ranging from 8.33%. Hence, the employer makes the minimum basic of Rs 3600 and above. With the effect of the new parliamentary note of basic revision to Rs 10000 towards the statutory bonus is still to be worked out. However, here are a few tips:

1. Basic salary would depend on the designation level of the person.
2. Basic is usually fixed depending on the CTC. This can range from 20 to 60%.
3. Once the basic pay is fixed, we can fix the other components with the required percentages (HRA, Other allowance, Medical, LTA, Reimbursements, etc.).

I hope this may help you.

First, read the question to understand what he wanted to know before commenting. He is inquiring about tax exemption on these salary heads, not just the salary breakup.

Sanjay,
Advocate

Hi,

Tax exemption is as follows:

1. Basic - 100% of the gross salary - Taxable 100%
2. HRA - 50% of basic in metro and 40% non-metro - Taxable, subject to a minimum of the following:
1) Actual rent paid.
2) Rent paid in excess of 10% of Salary.
3) 50% of basic in metro & 40% non-metro.
3. Conveyance - 800 fixed per month - exempted up to 800 p.m.
4. Medical Allowance - 1250 fixed per month - exempted up to 15,000 p.a.
5. LTA (subject to company policy and entitlement) - exempted for 2 trips in a block of 4 years. As per company policy, subject to rule 2AB of the Income Tax Act.
6. Superannuation (Subject to company policy) - can be 3% - 6% of basic.
7. PF (Subject to company policy) - 12% of basic (employee contribution) - exempted.
8. Flexi Basket - it's a fixed amount for driver utilization, petrol - was exempted, but after budget prerequisite valuation rule shall apply or not still is a question.

This is with regard to the Labour Welfare Fund. If the company is situated in Madhya Pradesh and has a Regional Marketing Office in Chennai, Tamil Nadu, is the employer required to pay the labour welfare fund on behalf of Chennai employees as well? Is it mandatory to pay the same fund in TN too? Is there any specific clause regarding this? Please explain.

Regards,
P. Dakshinamurthy.

Please advise on the applicability of Welfare Fund deductions of Rs. 3 from employees and Rs. 6 from the employer.

As per my understanding, employees below the position of Supervisor and Manager, drawing a salary of up to Rs. 3500, are subject to the deduction for the Social Welfare Fund. Am I correct?

Thank you.