Tax Deducted at Source (TDS): TDS is an amount deducted as a tax payable on behalf of the Income Tax Department by the employer of the company.It is calculated on the individual’s tax slab and is valid only in some states of India. It is applicable for employees, private tutors, traders.
Basically, 12% of the Basic Salary is deducted and deposited into this fund. On retiring, the employees are provided the lump sum amount that accumulated over the years. Employees Provident Fund (EPF): EPF is a fund of a scheme created for the employees to accumulate a certain amount of money deducted from the monthly salary.Using several allowable subtractions in the form of deposits, the net amount are lessened. These deductions are subtracted from the income by the company. Employers often categorize it under separate heads or combine them together under “Other Allowances”.Ī deduction is an expense deducted from the Gross income to trim down the actual amount which is subjected to tax. It also includes other sources of income like Bonus and Commission. Such allowances are- Children Education Allowance, Transport Allowance, and Car Allowance, Conveyance or Transport Allowance, Overtime Allowance, Leave Travel Allowance (LTA), Performance Bonus. Other Allowances: Apart from these, there are several other allowances provided by companies that are evenly added to the Basic Pay Salary before any deductions.As per section (10) of the Income Tax Act, one can claim it as a part of deduction as well. The income Tax file calculates it under their laws. This amount is added while calculating net remuneration on the payslip. If the employee lives in a house of rent, a certain amount of the rent is paid by the company itself. House Rent Allowance (HRA): Some well-established companies offer the allowance of house rent as per the location.
B) There is another type which is called Medical Reimbursement that only triggers if an employee meets any medical expenses in a financial year and submits proper proof of medical expenses. It is treated as fully taxable under and the head of ‘Income from Other Sources’. This type of medical allowance can not be claimed as a deduction from taxable income as reimbursement. During tax calculations, they are taken into account. This amount of money is also added with Basic Salary and DA.
On the basis of the basic salary, further calculations are done. This is the major element of the income as it comprises out about 40% of salary.
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