Income Tax Benefit Deductions From Final Paycheck

Nowadays CTC or take home salary are making more rounds since these terms will help you understand how much salary you would be getting in hand. In this article, we will see as to how many benefits are deducted from your salary.

EPF (Employees Provident Fund)

EPF is mainly a retirement benefit wherein the employer will also contribute an amount equal to employee’s contribution. Employee’s contribution is deducted from the salary till the time he is in employment. This would mean that salary received for every month will be net of employee’s contribution to the PF. Accumulated contribution from the employer and employee will be built up as a retirement corpus with interest accruals at periodic intervals. This is one of the most important and popular deductions from monthly salary since

  • Contribution from employee’s salary is eligible for tax deduction under section 80C, so in turn, this contribution reduces the tax burden to the extent of such contribution. This is particularly beneficial for those in lower tax slabs, who are unable to invest separately for saving tax.  

  • This contribution is accumulated and is made available at the time of retirement. So, those who are in liquidity crunch or are in lower income tax slabs, this makes up for most of their retirement goals.

EPF-copy

Must Read: – Tax Saving Tools for Corporate Employees

Profession Tax (PT)

Profession tax is payable by every employee working in any employment as prescribed under the Act. As per the Act, every individual earning income for salary or from any profession is liable to pay Profession Tax. However, this PT has to be deducted from the employee’s salary and paid to the treasury of the government. This PT contributed from the employee’s salary is exempted under income tax and hence no employee pays tax on Profession Tax Paid.

PT

Interest on Housing Loan

Interest on housing loan can be set off and adjusted against income from house property and salary income under section 24b. If you submit your housing loan interest certificate to your employer, then your Form 16 will show reduction to the extent of interest from your gross income. This will result in low tax liability since salary is reduced to the extent of interest paid on the loan principal. So, interest paid on housing loan serves two purposes

  1. It leads to reduction in salary income
  2. It leads to tax saving due to reduction in salary income

home-loan-easy-middle-class-india-loanadda

Entertainment Allowance

This allowance is basically structured for government employees and quite a few time to private sector employees. This is an exempt allowance only with respect to government employees, wherein the allowance will first be included in the salary and later deduction or exemption will be allowed to exempt the same. This means that the employee need not pay tax on exempt part of the Entertainment Allowance.

Capital-Gains-Tax

Must Read: – Get tax exemption for 3 years for your business – Know how?

Medical Reimbursement or Allowance

This allowance is generally structured in salary and is liable to tax, however exempt to certain conditions. This allowance is exempt to the extent of Rs.15000, however, you need to submit evidence of medical bills, consultancy bills from the doctors etc. This allowance can be exempted only if your employer approves the evidence. Employee himself cannot claim the exemption in the return of income. Hence, the point to be remembered is to submit the proofs to the employer for verification and approval.

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TDS (Tax Deducted at Source)

This is the most important component for your return of filing. The employer will calculate income tax payable based on the income from salary, as well as income from other heads (if the employee submits the income details), deductions allowed, losses sustained (especially under the head house property- interest on housing loan for the self-occupied property). This tax payable will be deducted from the salary for each month and will be deposited in the government treasury. At the time of filing return, this TDS credit is used to set off and adjust the tax liability if any.

tax-deduction

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