Which Salary Components Are Tax-Free and Which Ones Aren't? Let's Discuss!

Dear All,

I would like to know the various components in the salary that are tax-free and the components that do not attract tax.

Look forward to hearing from you all.

Thank you,
Juliana

Hi Juliana,

Normally, companies formulate salaries by adopting various components. The typical components help in bifurcating the consolidated salary and then arriving at the cost to the company. The normal salary breakup for salary purposes includes: Basic + DA + HRA + Conveyance + Special Allowances, etc. All these components do not attract tax, but each component has certain limits. For example, HRA has certain limits where tax is evaded, and so on.

Therefore, first, ascertain the allowable limits for various components and then formulate the salary.

Regards,
Devarajan

There is a little scope that all your earnings should get tax exemptions. But there are some techniques you can follow,

1) If basic wages + DA are higher than some heads other than that, it will add figures to the gross salary. Actually, PF attracts a 12% contribution by the employer (+1.61 adm charges) which levies on basic wages + DA. On gross wages, ESIC is applicable, which is lower, i.e., 4.75, meaning you save taxes 7.25. Isn't it?

2) In ESIC, washing allowance is not liable for deduction (if your industry requires a washing allowance).

Regards,
Prashant Patil