Understanding Income Tax Basics: How Can I Start Saving on My Taxes?

I have been working in a private firm for the past 4 years. However, I don't know anything about income tax. Could someone please help me understand income tax from the basics and provide me with some ideas to save on income tax? Thanks in advance.

The first step is understanding how your salary is designed.

Salary Components for Tax Savings

HRA is a highly tax-saving component in the salary structure. Other components include:
- Conveyance: ₹800
- Medical: ₹1,250
- Sodexo: ₹2,200
- Telephone: ₹1,500
- Car, Meal Coupons, LTA, Uniform Allowances, CEA

These are the salary components, and you can save income tax on these.

Investments for Tax Exemption

- Section 80(C): Up to ₹1 lakh in tax is exempted for policies, PF, PPF, fixed deposits, tuition fees, home loan principal, NSC, and shares.
- Section 80E: Education loan interest is fully exempted from tax.

Regards.

Hi Aditya, thanks for the information. My payslip has the following components:

- Basic: 16,446
- HRA: 8,223
- Special Allowance: 1,505
- Other Allowance: 12,268
- STATUTORY BONUS: 700

Additionally, I have the following deductions:

- PF: 1,974
- Professional Tax: 200

Could you please advise on my taxable income and the maximum exemption I could receive? I would appreciate any information you could provide.

Thanks,
Prabaharan

Understanding Taxable and Non-Taxable Components of Salary

Basic salary is fully taxable.

House Rent Allowance (HRA)

HRA can be availed if you are staying in a rented home by submitting proof of rent paid. To calculate the benefit, I need the rent amount.

Other allowances, special allowances, and bonus amounts are all fully taxable.

Provident Fund (PF) Contributions

PF contributions, including the total amount and interest earned, are tax-free.

Professional Tax (PT) is also tax-free.

Regards.