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Often people ignore their salary slip considering it to be just the take home amount, but there are many tax facts hidden inside it which have a big impact on your pocket. Many allowances are not completely tax free, take home is not actual taxable income, 80C deductions are not reflected in the slip and TDS is not your final tax. Only by understanding these hidden facts, you can decide how much tax can be saved from your salary and in which regime you will get the benefit.
New Delhi. At first glance, the salary slip appears to be a simple paper in which only things like basic, HRA or PF are visible. But there are many hidden elements inside it which can change your tax liability. Most people consider their slip as just a record of their monthly earnings, whereas it is the most important document for your tax planning.
The salary slip is divided into two parts. On one side there is a list of your earnings and on the other side there is a list of your deductions. But the biggest problem of this paper is that it never tells you openly which allowance is tax free, which deduction can save further tax and what is your actual taxable amount. For this reason, people suddenly have to pay more tax while filing ITR.
1. Not every allowance is completely tax free
HRA, LTA or Special Allowance clearly appear in a separate line in your slip, but it is not told how much of it is tax free. HRA will give exemption only when you pay the rent. LTA will be considered tax free only when there is proof of actual travel. Without these documents, all these allowances become fully taxable.
2. Take home amount is not your taxable income
People think that the money that comes into the bank is their taxable income. Whereas the actual taxable income includes the company’s PF contribution, car given by the company, food, perks, bonus and non-receipt but earned income. This difference is later visible in Form 16 and ITR.
3. 80C and other tax deductions are not visible in the slip
Your slip shows only PF, TDS and professional tax, but deductions like PPF, ELSS, Life Insurance, Health Insurance or Home Loan Interest are not present in the slip. If you do not give the documents to the company on time, then this benefit is lost for the whole year.
4. TDS is not your final tax
TDS deducted from salary is just an estimate. The actual tax is determined when you file ITR by adding up the income and deductions for the entire year. For this reason, many people get refund and some have to pay additional tax.
5. This slip does not indicate in which tax regime the tax is being deducted
It is not written anywhere in the salary slip whether your company is taxing you in the old regime or the new one. The old regime gives deductions whereas the rates in the new regime are lower. If you choose the regime without comparison, you may end up deducting more tax throughout the year.
