Did you know that your salary has several taxable and non-taxable components?
While your basic salary is fully taxable, there are other benefits offered to the employees in the form of allowances and prerequisites. These allowances are offered to employees for the expenses they bear during work. There are three types of allowances:
Let’s see how these allowances can impact your take-home salary.
What is an Allowance?
Every salaried individual receives some allowances as a part of their net pay. For example, many organizations offer overtime allowance to employees for working more than the working hours.
This allowance may or may not be taxable. Below is a bifurcation of allowances in three categories. Read on to know which salary components are taxable, non-taxable, and partially taxable
Types of Allowances
Taxable Allowances
The fully taxable allowances are not exempted from Income Tax. You have to pay full tax applicable on these allowances.
Non-Taxable Allowances
The non-taxable allowances are exempted from the Income Tax fully. But, these are usually offered to the government employees.
Partially Taxable Allowances
The partially taxable allowances are exempted from the Income Tax to a limit. Let’s see what are these allowances.
Conclusion
All these allowances are included in the salary of the employee in some way or the other. If you have a choice to decide your salary structure, then you can adjust your allowances to reduce your tax liability smartly. But, for that, you need to understand the difference in taxable, non-taxable, and partially taxable allowances.
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