Tax Calcualtion for Salaried Individual

Basic

Dearness Allowance (DA)

House Rent Allowance (HRA)

Conveyance allowance

Children Education Allowance and Hostel expenditure allowance

Leave Travel Concession (LTA)

Perquisites



Basic

Your basic salary is fully taxable


Dearness Allowance (DA)

DA is fully taxable

Rent Allowance (HRA)

HRA is given by an employer to an employee to compensate towards any rent he may be paying towards house accommodation. But this element is tax-free only if you are actually paying rent. To ensure this, the income tax laws restrict the exemption that you can get on the HRA to the lowest of the three conditions:

Mumbai/Kolkata/Delhi/Chennai	Other Cities
HRA actually received	HRA actually received
Rent paid in excess of 10% of salary	Rent paid in excess of 10% of salary
50% of salary	40% of salary

(Salary = basic + DA + commission if paid as a fixed percentage of sales)

How to calculate taxable amount

Step 1 - Take the figure of HRA received during the year

Step 2 - Calculate the lowest of the three amounts mentioned in the table above according to the city you are staying in

Step 3 - Deduct Step 2 from Step 1

The balance is taxable


Conveyance allowance

This is an allowance that an employer gives his employee to meet the expenses that he incurs to commute from his home to the place of work. An amount of up to Rs 800 per month is exempt from tax. Any amount paid over and above this is taxable. In case the employee is orthopaedically handicapped, the tax-free limit
on this allowance is Rs 1,600.


Children Education Allowance and Hostel expenditure allowance

The employer can pay an amount of Rs 100 per month per child for up to two children to his employee towards children\'s education. He can also pay Rs 300 per month per child for up to two children towards hostel expenditure. Both these would be tax-free.


Leave Travel Concession (LTA)

This is a concession that an employer may pay his employee as reimbursement towards any travel expenses within India that the employee may incur while he is on leave. The travel expenses maybe incurred for the employee and his family. The nature of taxation of this particular concession is slightly complicated.


While this concession or allowance can be paid to the employee every year, it is treated as tax-free only for two journeys in a block of four years. The 'block of four years' has been defined by the income tax laws. They are 1998-2001, 2002-2005, 2006-2009 and so on. These are calendar years.

Let us explain with an example. Suppose your employer pays you Rs 10,000 every year as LTA. Suppose the 'block of four years' is 2002 to 2005. During this period of four years, you can make two journeys, which are tax-free. You can make both journeys in any one of the four years or spread out the journeys over the four years. For any journeys in excess of these two, any reimbursement or allowance paid will be taxed.


The reimbursement would be restricted to actual travel expenses. However, there is an overall ceiling on this, which is restricted to:

Air travel	Economy fare of national carrier(India Airlines or Air India)
Rail travel	First class AC fare
Road	Public transport - First class or deluxe classIf there is no recognized transport - Equivalent of first class AC fare

So what happens if the first time you are receiving LTA is in the year 2005? In order to claim it as tax-free, you must make the journey in the same year to get a tax exemption. You can make two journeys in the same year if you cannot exhaust your limit in one.


Medical re-imbursement

An employer can re-imburse the expenditure incurred by the employee on himself and his family. This amount would be tax-free to the extent of Rs 15,000 per annum.


Perquisites

What are perquisites?

Perquisites or perks as they are commonly referred to are benefits that an employer gives to his employee in addition to his regular salary. These are usually in the form of kind such as accommodation or motorcar or even concessional loans and so on.

These are not part of the monthly salary of the employee, and hence cannot be taxed directly. But they are benefits that the employee receives instead of a cash salary and hence form a
part of taxable income.

Which are the perquisites that are taxed?

The Income Tax laws have identified certain categories of assets or benefits that will be considered as part of income and therefore taxed. The main categories are:

• Residential accommodation provided by the employer to the employee
  
• Use of motor car
  
• Services such as that of a gardener, watchman, sweeper or any personal attendant that the employer provides to his employee
  
• Provisions such as gas, electricity or water that the employee uses in his house but which is paid for by the employer
  
• Any free education or concessional education provided to the employee or his family
  
• Interest free loans
  
• Reimbursement of holiday related travel or accommodation
  expenses
  
• Festival gifts or vouchers
  
• Individual club membership
  

How is tax on perquisite calculated?

The tax on perquisite is calculated on the basis of a value attached to each item. The calculation of this value varies from category to category. Nevertheless, the thumb rule across all categories is that only those benefits that the employee uses for his personal purpose will be considered as perquisites. Further, if the employee pays any amount towards using these facilities, such amount would be reduced from the perquisite value before the tax is calculated. The total of
all perquisite values will be added to the salary income and tax will be calculated on the usual slabs.