2022 Private Company Employee Income Tax Calculation: Refund, PF, Gratuity, HRA, LTA
Tax calculation for employees of a private company 2022: how reimbursement, provident fund, gratuity, HRA, LTA components of CTC are taxed
Calculation of income tax for employees of a private company 2022: The annual CTC of a person working in a private company has various components. These include LTA, HRA, provident fund and gratuity contribution, reimbursements for entertainment, telephone bills, transportation, books and periodicals, etc. Although the denomination of CTC components may vary from one company to another, the tax rules that apply to them remain the same. For good tax planning, it is important to understand the tax implications of the various components of CTC.
Here we look at how gratuity, provident fund, housing allowance (HRA), LTA and reimbursements are taxed.
Experts say that some salary components are fully taxable and others are fully exempt. Certain components benefit from a partial exemption from income tax.
Income tax on HRA
HRA is an important part of CTC, providing a tax benefit to employees living in rented accommodation. HRA is taxable if the employee does not live on rent.
Under Article 10(13A), at least the following can be claimed as exempt from tax:
(i) Actual amount received
(ii) 50% of salary if you live in metropolitan cities (i.e. Mumbai, Delhi, Chennai and Kolkata) and 40% of salary otherwise.
(iii) Rent paid greater than 10% of salary.
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Income tax on refunds
Companies provide various allowances for transportation, books and periodicals, entertainment, telephone and internet, etc.
Under Section 10(14) of the Income Tax Act, allowances paid to employees are exempt from tax if such expenses are actually incurred.
The transport allowance is exempt to the extent of the expenses incurred.
Reimbursement of telephone/mobile and internet charges are also exempt under Rule 3(7)(ix) of the Income Tax Act.
Reimbursement for books and periodicals may be claimed as an exemption under Article 10(14).
The representation allowance is fully taxable in the case of private employees. However, it can be claimed as an exemption if the entertainment expenses are incurred for business purposes.
To receive the tax benefit on reimbursements, employees are required to pay original expense invoices.
Provident fund income tax
The contribution to the provident fund is eligible for deduction under Section 80C of the Income Tax Act.
Income tax on gratuity
The gratuity received during employment is fully taxable. On retirement, the gratuity tax benefit can be used if the employer is covered by the gratuity payment law. Under Section 10(10) of the Income Tax Act, at least the following are exempt:
a. Actual amount received
b. Rs 20 million
vs. 15 days salary based on the last salary received for each full year of service or part thereof beyond 6 months
For the calculation of the gratuity, the salary means the basic salary + the dearness allowance.
If the employer is not covered by the Gratuities Payment Act, the least of the following are exempt:
a.Actual amount received
vs. Half a month’s salary for each year of service completed. (i.e. ½ * average salary pm
Income tax on LTA
To claim a tax exemption on travel allowances, the following conditions must be met:
a. The actual trip is undertaken by the taxpayer
b. Only domestic travel is considered
vs. The exemption is available for the employee alone or with his family, including spouse, children, dependent parents, siblings of the employee. However, the exemption is not available for more than 2 children born after October 1, 1998. (Read more details)