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Gross Salary

Gross salary is the monthly or yearly salary which is received by a person without any tax deductions. The components of gross salary include: basic salary, house rent allowance, leave travel allowance, provident fund, medical allowances, professional tax etc. The difference between gross and net salary is that, net salary is the total income received by the wage-earner after the total expenses are deducted, the salary calculated without any deductions is considered to be the gross salary.

Steps for payment of taxes using credit card

  1. Aadhar number must be linked with UAN

  2. The Aadhar card and bank details must be verified by the employer

  3. UAN must be active before applying for EPF withdrawal

  4. You must be registered in the EPFO’s member portal

Once you’ve met all these conditions, you need to download form 19-UAN and form 20C-UAN. Post downloading these forms you need to fill them up by providing details like name, PAN, Aadhar Number, UAN and your reason for leaving the service. You need to make sure that the details provided by you are verified, else, it could lead to failure or delay of the withdrawal process.

Basic Salary

Basic salary is the salary which is devoid of any deductions or fringe benefits. The basic salary depends on the pay-scale of an employee. Depending on the overall performance and the professional duties performed by the employee, the basic salary is calculated. The basic salary differs based on the nature of the industry. Since basic salary is the core of salary received by an employee, it can be used to calculate other constituents of the salary. Other constituents of the salary received depend on the grade of the employee and the salary structure of the company.

How to calculate basic salary

If the gross salary of an employee is ₹40,000 and the sum of allowances received by him/her amounts to ₹15,000, then the basic salary would be ₹(40,000-15000)=₹25000. Experts suggest that the employees at a lower grade of pay-scale generally have a higher basic salary than the employees at a higher pay scale.

Basic Salary: Tax Liability

Basic salary received by an employee is always subject to taxes, and hence, it is suggested that it shouldn’t exceed 40% of the cost to company. As discussed earlier, an employee with a higher basic salary will have to pay a larger quantum of taxes.

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Medical Reimbursement

According to the Union Budget 2018, a standard amount of 40,000 is deduced from all the salaried employees in lieu of medical reimbursements and travel allowances.

Section 80 of the income tax act allows the employees to claim various exemptions and deductions in the amount of tax paid. These exemptions can be extended to the medical expenses that are incurred by an employee or his/her family during the financial year. Medical bills generated in the process are not taxable. A person can claim tax exemption in such a scenario. Expenses incurred to self or extended family members who are completely dependent on the employee can also be claimed as a part of medical reimbursement.

Cost Inflation Index

The cost inflation index is a mens to measure inflation in an economy, which is ultimately used in measuring the net long-term capital gains with respect to sale of assets. Due to inflation, the price of any asset keeps on increasing over a period of time, which leads to a large discrepancy between the cost and the sale price of the asset. Larger is the difference between the cost and sale price, larger is the capital gains to the owner of the asset. These capital gains earned are liable to taxation. So, larger quantum that a person earns by the sale of a particular asset, the higher amount of taxes he/she is supposed to pay for it. But the tax paid by the person could be minimised by indexing the sale price of the asset with inflation. When an asset-owner uses the cost inflation index to standardise the present value of an asset, he/she minimises the amount of taxes that he/she pays over it.

How to Calculate Cost inflation Index

Firstly, the cost of acquisition of the asset has to be multiplied with the cost of inflation of the year in which it was transferred. The figure has to be divided by the cost inflation index for the year in which it was acquired. If the asset has been purchased before 1981, the CII must be taken into consideration for 1981. In situations where the asset owner has made improvement in the asset, then the CII has to be adjusted by multiplying the value by CII of the year in which the improvement was made. Here is a CII chart to provide you with information regarding CII for FY 2018-2019.

Conveyance Allowance

It is a type of allowance offered to the employees of a company to commute between work and home. These allowances are the fringe benefits that are received by the employees over and above their basic salary and it may not be taxable as per the Income Tax Act. However, Conveyance allowance is paid by the employer only when the transportation is not provided by the employer. In situations where the employer offers transportation to the employees, conveyance allowance is not provided.

Taxability of Conveyance Allowance

Since conveyance allowance is provided to the employee over their basic salary, the employee enjoys an exemption of upto 19200 Rs per Annum. Such an exemption is applicable under section 10 of the Income Tax Act and ruled to BB of Income Tax rules. Earlier, Handicapped people used to receive a higher amount of conveyance allowance , ie, Rs. 19200 per year but the exemption limit was made uniform for all the categories of taxpayers post 2015.

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Dearness Allowance

Due to rising level of inflation in India, most of the commodity prices has increased. An employee takes a direct hit since his/her purchasing power decreases. Dearness Allowance or DA protects the employees from the negative effects of inflation since it is linked with the consumer price index. In the public sector, salary paid by the employers is divided into various components with DA being one of them. It was introduced after World War 2 and was initially known as Dead-Food Allowance. However, it was later linked to the consumer price index and became one of the major component of the salary received by wage earners.

Industrial Dearness Allowance (IDA) is the type of DA which is applicable to the public sector employees. According to the Union Budget-2018, there has been a raise of 2% in the DA of government employees. This move of the central government will benefit 50 lakh central government employees and around 55 lakh pensioners.

Difference between DA and HRA

DA is calculated as a specific percentage of the basic salary and it is added to the basic salary along with other allowances such as medical allowance, transport allowance and house-rent allowance (HRA) which together sums up to form the gross salary of an employee. HRA is a component of the gross salary given by an employer to meet the expenses of the rent paid by an employee for leasing a house for residential purposes. The Pay Commission of India plays an important role in modifying the DA for employees in both public and private sector. Reviewing and modifying the multiplication factor is also under the purview of the Pay Commissions.

Leave Travel Allowance

It is one of the major part of the gross salary received by employees which also helps in saving income tax when an employee produces his/her travel related bills they can save on the taxable income. The LTA depends on the salary structure of the company and also on factors such as job title, pay scale, etc.

How to calculate LTA

An employee can file LTA claim for a total of two journeys in a span of four years. These four years are known as block years and are different from financial years. If an employee fails to make any LTA claim in 4 years (a particular block year), then the tax exemption gets moved to the next block. In order to claim the LTA, an employee needs to fill applicable forms, attach the travel bills and send it to the HR or Accounts Team. Documents that are required for claiming LTA are travel tickets, boarding passes and an application to the HR claiming tax exemption under LTA.

Gratuity

Gratuity is the sum of money paid by an employer for the services rendered in the company by an employee. However, it is only applicable for employees completing 5 or more years in a company.

Eligibility criteria for receiving Gratuity

An employee needs to fulfil a few conditions in order to be eligible.

  1. He/She Must be eligible for superannuation.

  2. If he/she is retiring

  3. Resigns after working for 5 yrs with a company

  4. On an employees demise.

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