Private Company Employee Tax Calculation 2022: How Reimbursement, Provident Fund, Gratuity, HRA, LTA components of CTC are taxed
A person’s yearly CTC at a private firm is made up of several components. LTA, HRA, Provident Fund and Gratuity contributions, reimbursements for entertainment, telephone bills, conveyance, books and magazines, and more are among them. While CTC components may have different names depending on the organisation, the tax regulations that apply to them are the same. Understanding the tax consequences of various CTC components is critical for efficient tax planning.
Gratuity, Provident Fund, House Rent Allowance (HRA), LTA, and Reimbursements are all taxed differently.
According to experts, some aspects of a paycheck are totally taxable while others are fully exempt. Some components are excluded from paying income tax in part.
HRA Income Taxes
HRA is an important component of CTC, as it provides a tax credit to employees who live in leased housing. If the employee does not pay rent, the HRA is taxed.
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A minimum of the following items can be claimed as tax-free under Section 10(13A):
- The amount actually received
- 50% of pay if residing in a metropolis (e.g., Mumbai, Delhi, Chennai, and Kolkata), and 40% of salary in all other circumstances.
- Rent that exceeds 10% of one’s wage.
Reimbursement Income Tax
Companies offer varied allowances for transportation, literature and magazines, amusement, phone and internet use, and so on.
Allowances offered to employees are tax-free if such expenses are genuinely incurred, according to Section 10(14) of the Income Tax Act.
Conveyance To the extent that expenditure is incurred, allowance is excluded.
Reimbursement for telephone/mobile and internet usage is likewise deductible under Income Tax Act Rule 3(7) (ix).
Section 10 allows you to claim reimbursement for books and magazines as an exemption (14). Reimbursement Income Tax
Companies offer varied allowances for transportation, literature and magazines, amusement, phone and internet use, and so on.
In the case of private employees, the entertainment allowance is totally taxable. However, if the entertainment expense is incurred for the company’s business purposes, it might be claimed as an exemption.
Employees must pay original bills of expenditures in order to claim a tax benefit on reimbursements.
Provident Fund Income Tax
Section 80C of the Income Tax Act allows for a deduction for contributions to a Provident Fund.
Income Tax on Gratuity
Gratuities obtained while working are fully taxable. If your employer is covered by the Payment of Gratuity Act, you can get a tax break on your gratuity when you retire. The following items are exempt under Section 10 (10) of the Income Tax Act:
- The amount actually received
- 20 lakh rupees
- For each completed year of service or part thereof in excess of 6 months, a 15-day salary is paid based on the salary last drawn.
Salary is defined as basic pay plus Dearness Allowance for the purpose of calculating gratuities.
- If the employer is not covered by the Payment of Gratuity Act, the following are the exemptions:
- Amount actually received
- Rs. 20,00,000
- A half-compensation month’s for each year of service completed. (i.e. 12 * Average Monthly Salary p.m.)
LTA Income Taxes
The following are the steps to take in order to get a tax break on your leave travel allowance.
The following requirements must be met:
- The taxpayer is responsible for the actual journey.
- Only domestic travel is taken into account.
- Employees may be exempt on their own or with their family, which includes their spouse, children, dependent parents, siblings and sisters. However, more than two children born after October 1, 1998 are not eligible for the exemption.
