How to save more tax on your salary?

NEW DELHI: To save on taxable part of your salary, first you should understand the component of your package. Check your payslips to understand what's been paid to you and what deductions have been made.

Components of your salary

1) Basic Salary
The basic salary is a fixed component of your package which also includes HRA (house rent allowance). 12 per cent of your basic salary is deducted as the PF contribution.

2) HRA

A House Rent Allowance allows employees to claim

tax

benefit on the money paid as house rent provided they submit the rent receipt. In case, you receive HRA and don't live on rent your HRA shall be fully taxable. But you can still save on that in case the property is on your parent's name. You can get into a rental agreement with your parents and pay them money as rent to claim the benefit. However, your parents will have to show this money in their income tax returns.

3) Medical Allowance

Some companies also provide Medical Reimbursement where you can submit your medical bills to claim the reimbursement. In case you don't submit the bills, this amount will be added to your taxable income. These medical reimbursements are valid for each financial year i.e. between April to March.

4) Conveyance allowance

Conveyance allowance is another part of salary component given to the employees to meet travel expenses from residence to work. You can submit your fuel bill, cab or transport bill to claim it.

5) LTA

Salaried employees can also avail exemption for a trip within India under Leave Travel Allowance (LTA). You can only claim LTA for a trip taken with your spouse, children, and parents. You need to submit the bills to your employer to claim this exemption.

6) Special Allowance
Special allowance is nothing but the leftover component of your salary, after allocating to basic, HRA, LTA, and transport allowance. It is fully taxable and added to your taxable income.

7) Variable or bonus

Variable or bonus is a performance based incentive which is paid once or twice a year. This amount is also 100 per cent taxable.

8) Contribution to PF

Both employee and employer contribute 12 per cent of employee's basic salary every month towards employee's pension fund and provident fund.

Now that you understand the different components of your salary, click here to read about the Income tax saving tips for salaried employees.