Tax on Salary

Not every salaried person is required to pay tax on salary. People below the taxable bracket are not required to pay any tax. 

In order to calculate income tax on salary, the first thing you need to do is to calculate your total taxable income. 

If you see your salary slip provided by the employer, you will notice the word CTC. It stands for Cost to Company. This component comprises all the elements of a salary structure such as

  • basic salary,
  • house rent allowance (HRA),
  • basic allowance,
  • travel allowance,
  • medical benefits,
  • provident fund contribution (your and company’s contribution),
  • pension fund,
  • incentives, if any,
  • variable pay, if applicable.

When you subtract the gratuity and employee provident fund (EPF) component of your salary from Cost To Company (CTC), the amount left is your gross salary.

Taxable income can be calculated by adjusting all the available deductions and exemptions such as Leave Travel Allowance (LTA), House Rent Allowance (HRA), etc. which are part of your gross salary. 

If apart from your salary, you have other sources of income too, the same should also be added to your taxable income for calculating your tax liability. 

 Once you have calculated your taxable income, the next thing that you must do is to see if your salary falls in the income tax bracket and if it does, then in which slab. Accordingly, tax is to be calculated.

Salary Tax Calculation Formula

Basic salary

  + HRA

  + Special Allowance 

  + Transport Allowance 

  + any other allowance

  ————————————–

  Gross income from salary 

  (-) Deductions

  ————————————–

  Net income 

  (Tax calculated according to the income tax slab)

 

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