Income Tax Return | Salary slip needed for filing ITR: Basic salary, HRA and all components explained

 

Income Tax return filing deadline for Assessment Year 2022/23 is July 31, 2022. Apart from the relevant ITR forms, like Form 16 and Form 26AS, and Permanent Account Number (PAN) and Aadhaar, salaried taxpayers also need to provide their salary slips, or payslips, for filing returns.

A salary slip – provided by the employer/company to the employees – is generated every month after salaries are credited and usually carries the company’s name and address, the month and year of payment, and the employee’s name, code/ID, designation and department. It also mentions the employee’s PAN/Aadhaar number and bank account number and EPF account number and UAN (Universal Account Number) on the top.

Read More: Filing Tax Returns Early? Here’s What You Need To Know About Form 26AS

Apart from this information, the slip includes details of employees’ salary components that make it a required document while filing ITRs. These are basic salary, dearness allowance, house rent allowance, and deductions such as provident fund, etc.

To help you understand these components better, here is a breakdown of what each component means and what is its significance.

Earnings on a salary slip	Deductions on a salary slip
Basic Salary	Employees Provident Fund
Dearness Allowance	Professional Tax (Only applicable in certain states)
House Rent Allowance	Tax Deductible at Source
Leave Travel Allowance
Conveyance Allowance
Medical Allowance
Performance Bonus & Special Allowance
Other Allowances

> Basic Salary- A key component of the salary, it usually accounts for roughly 35 to 40 per cent of the total salary an employee receives. The first component on the earnings side of the pay slip – the basic salary forms the base for determination of other components of the salary.

> Dearness Allowance- This taxable component is paid to reduce the impact of inflation on the employee. Since DA is usually based on the cost of living, it is different for different locations.

Read More: Types of ITR forms in India

> House Rent Allowance – HRA is paid to employees for house rent. HRA ranges from about 40 to 50 per cent of the basic salary based on the location/city where the employee is working. Salaried employees who pay rent can claim HRA exemption to reduce their taxable salary – wholly or partially. You can claim HRA exemption by submitting proof of rent receipts to your employer or while filing your income tax return.

> Leave Travel Allowance – It covers the cost of travel undertaken by employees and their immediate family members while on leave. Income tax exemption (up to a certain limit) is available on submission of proof of the journey.

> Conveyance Allowance – It is given to an employee to cover the cost of travel to and from work and home. The conveyance allowance is exempted from tax up to an amount of ₹1,600 per month or ₹19,200 per annum.

> Medical Allowance- As the name suggests, it covers the medical expenses of the employee and is taxable if the amount exceeds ₹15,000 per year.

> Performance Bonus and Special Allowance – These are also taxable components, usually given to employees as a mode of encouragement.

> Other Allowances – Apart from the above-mentioned allowances, there may be certain allowances paid by employers to employees for different purposes. Companies can club these together under ‘Other Allowances’.

> Employees Provident Fund – EPF is a mandatory contribution by the employee towards the PF account held in his/her name. The employer pays 12 per cent of the employee’s basic salary towards the EPF account. However, an employee’s contribution towards the EPF is exempted from tax as per Section 80C of the Income Tax Act.

> Professional Tax (only applicable in certain states) – It is a tax payable based on the employee’s tax slab. This amount is deducted from the taxable income and it appears on the deduction side of the pay slip.