In India, tax deductions from salary are governed by the Income Tax Act, 1961 and are calculated based on taxable income and the applicable tax slab. Exemptions can reduce taxable income.

In India, the tax system is governed by the Income Tax Act, 1961. It lays down the provisions for the taxation of income, the different tax slabs, the tax exemptions, and the Tax Deducted From Salary. The tax collected by the government helps fund various developmental activities and provide essential services to the country’s citizens. 

This article will discuss how much tax deducted from salary in India, the different tax slabs, and the various tax exemptions and deductions available to employees.

Tax Deduction from Salary

The salary received by an individual is subject to tax deductions as per the provisions of the Income Tax Act, 1961. The Tax Deducted From Salary are calculated based on the taxable income and the tax slab applicable to the individual. 

The taxable income is calculated after considering various exemptions and deductions available under the act. The employer is responsible for deducting the tax from the salary and depositing it with the government.

Calculation of Tax Deduction From Salary

The tax deductions from salary are calculated based on the taxable income and the tax slab applicable to the individual. The taxable income is calculated after considering various exemptions and deductions available under the Income Tax Act, 1961.

Exemptions and Deductions Available

Several exemptions and deductions are available under the Income Tax Act, 1961, which can help reduce taxable income and tax liabilities. Some of the important exemptions and deductions are:

• House Rent Allowance (HRA):

  HRA is the allowance paid by the employer to the employee for meeting the expenses of rented accommodation. The exemption on HRA is calculated based on the lowest of the following:

• Actual HRA received
• 50% of the basic salary for those living in metropolitan cities (40% for those living in other cities)

Rent paid minus 10% of the basic salary

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• Conveyance Allowance:

Conveyance allowance is the allowance paid by the employer for meeting the conveyance expenses. The exemption on conveyance allowance is capped at ₹ 19,200 per annum.

• Medical Allowance

  : Medical allowance is the allowance paid by the employer for meeting medical expenses. The exemption on medical allowance is capped at ₹ 15,000 per annum.

• Leave Travel Allowance (LTA):

  LTA is the allowance paid by the employer for travel expenses incurred while on leave. The exemption on LTA is available for two journeys in a block of four financial years. The amount of exemption is the amount actually spent on travel or the amount of LTA received, whichever is lower.

• Provident Fund (PF):

  The employee’s contribution to the provident fund is eligible for Tax Deducted From Salary under Section 80C of the Income Tax Act, 1961. The maximum limit of deduction under this section is ₹ 1,50,000.

• National Pension System (NPS):

  The employee’s contribution to the National Pension System is eligible for tax deduction under Section 80CCD of the Income Tax Act, 1961. The maximum limit of deduction under this section is ₹ 1,50,000.

• Equity Linked Saving Scheme (ELSS):

  Investment in an Equity Linked Saving Scheme is eligible for tax deduction under Section 80C of the Income Tax Act, 1961. The maximum limit of deduction under this section is ₹ 1,50,000.

• Interest on Home Loan:

  The interest paid on a home loan is eligible for tax deduction under Section 24 of the Income Tax Act, 1961. The maximum limit of deduction under this section is ₹ 2,00,000.

Conclusion

In conclusion, The tax slab applicable to an individual is based on their age and taxable income. The taxable income is calculated after considering the various exemptions and deductions available under the act. 

An individual can reduce their taxable income and liabilities by availing of the exemptions and deductions available. It is important to keep track of the various exemptions and deductions available and to plan one’s investments accordingly to minimize tax liabilities. Visit Vakilsearch to find more legal information.

FAQs

How much tax is deducted from employee salary?

The amount of tax deducted from an employee's salary depends on their income, applicable tax deductions and the prevailing income tax slabs. TDS on salary is not a fixed percentage.

What items are allowed under TDS exemption?

Items allowed under TDS (Tax Deducted at Source) exemption typically include certain specified allowances, deductions under various sections of the Income Tax Act and exemptions based on specific conditions and limits.

How much deduction can one claim under Section 80C when calculating TDS?

Under Section 80C of the Income Tax Act, an individual can claim a deduction of up to ₹1.5 lakh when calculating TDS. This section covers various investments and expenses, such as Provident Fund contributions, life insurance premiums, and more.

Can I claim HRA as a deduction while calculating TDS?

Yes, you can claim a deduction for House Rent Allowance (HRA) while calculating TDS. The deduction is subject to certain conditions and depends on factors like your actual rent paid and the HRA received.

What are allowances? Are all allowances taxable?

Allowances are payments made by employers to employees as part of their salary. While some allowances are taxable, others may be exempt. Common taxable allowances include special allowances, while exemptions can apply to allowances like HRA (House Rent Allowance) or conveyance allowance, subject to certain conditions and limits.

 

Read more:

• How to Calculate Income Tax on Salary With Example?
• How Much Tds Is Deducted on Salary per Month?
• Is Income Tax Deducted Every Month