Understanding Salary Components: How Do They Affect Your Income Tax?

Understanding Salary Components and Income Tax

Salary components on which income tax (p.tax) is based include basic salary, allowances, bonuses, incentives, commissions, and any other taxable earnings. Income tax is calculated based on the total taxable income derived from these components.

Typically, income tax is deducted at source by employers based on the applicable tax rates and tax slabs. The components of a salary package determine the taxable amount on which income tax is levied. It is essential for employees to understand how each component contributes to their taxable income and the corresponding tax implications.

If you have any specific questions regarding the breakdown of salary components for tax purposes, feel free to ask for further clarification.

Professional Tax Deduction

Professional tax is deducted from the salary. For deducting the amounts, the salary slab is notified by each state. Kindly check the PT slab for your state.

Understanding Professional Tax on Earnings

Professional tax is not merely based on basic salary because it is a tax on the earnings of any person who earns income, either in the form of salary or in any other form, such as fees (doctors, lawyers, etc.) or sales turnover (establishments). Therefore, if you are a salaried person, you should pay professional tax on your total earnings. The only component that you can exclude is your reimbursements.

If you get reimbursement of travel expenses met by you, that can be excluded. If you get reimbursement of rent paid by you, that can be excluded. However, all other components of salary, which are fixed, should qualify for professional tax.

If you have a component called HRA and it is not based on any condition as to whether the employee resides in their own house or not, then that shall also be considered as part of salary and professional tax paid for that component. Invariably, the professional tax shall be paid on earnings by way of bonus and incentives also.

Professional Tax Payment

Professional tax should be paid by every employee based on the slab prescribed by the concerned authorities. Earnings include all components like HRA, TA, WA. You can't exclude any of the components.

Regards, Mani.K