Understanding Tax-Deductible Allowances: What Can Be Included in Your Salary Breakup?

Hi Roopal,

Please provide me with details of the allowances that can be included in the salary breakup, which are tax-deductible or eligible for tax rebates.

Regards,
Roopal

Hi Roopal,

Yes, you have asked a very relevant question, but can you give us a CTC figure of which you have to prepare a break-up.

Anyways, the Basic would be approximately 40 - 50% of the gross, and 40 - 60% of that would be HRA. Conveyance Allowance is fixed at 800/- and is exempted from Tax. Educational Allowance is approximately 450 per child and is restricted up to 2 only. Medical allowance is 1250/-, which is also exempted from tax. LTA that you may include in gross or better leave it out from gross as you may pay it on an actual basis. Other allowances make up the remaining amount to complete the Gross salary, i.e.,

Other Allowance = Gross - (Basic + HRA + CA + Medical + Edu All)

So, we can say Gross Salary = Basic + HRA + CA + Med + Edu + Other Allowance.

Out of this, only two components may be deducted: one is PF, which would be 12% of Basic, and ESI 1.75% of the gross if the Gross is below 10,000/-.

Regarding TDS, with this financial budget, the ceiling has been increased from 1,00,000/- to 1,10,000/-.

Above, I have explained only regarding the Gross/Month. Regarding CTC, you have to do some more exercise -

First, Calculate Gross/Annum = 12 * Gross/Month,

then add Ex-Gratia or Bonus in a lump sum; it will now become AFGC (Annual Fixed Gross Cost).

Then, add PF contribution and ESI 4.75% of Gross if applicable from the employer's side per annum, then it comes to your CTC or ATC.

It means CTC = Gross/Annum + Ex-Gratia + PF & ESI contribution.

If any other benefits are being provided from the company's side, then you should also add them to conclude your CTC.

Hope it is now very clear to you. If you have any queries, feel free to revert.

Regards,

Amit Seth.

Hi Amit,

The details given by you are very clear and understandable. Thanks!! If you could also help us know the formula for calculating income tax, then it would be really great.

Regards,
Jyoti

Dear Amit,

Let us assume employee X's salary details are as follows:
Basic: 20000
HRA: 10000
Conveyance: 800
Children education allowance: 200
Special allowance: 19000

Benefits:
P.F.: 780
Medical: 1000

Total cost to company: 6,21,360.

Kindly let me know all tax-deductible items and for the above, how much tax will be deductible? Another thing to mention is, what if X is living in their own house? How does HR treat this case?

Regards,
RGS.

Dear RGS,

Out of this structure, most of the components come under tax slabs. Only HRA, Conveyance, Educational Allowance, and PF are exempted from taxes up to the specified limit. It would be better to include more flexible components to save taxes.

Regards,

Amit Seth.