7th Pay Commission: Govt employees alert! Do you know these income tax aspects of your TA, DA, HRA and salary

7th Pay Commission: Each day there is some buzz over 7th Central Pay Commission recommendations. Under 7th CPC, the government had hiked salaries and allowances for over 1 crore employees and pensioners under its ambit. It was the most awaited development, which improved the lifestyle of government employees significantly. A new 7th pay commission pay matrix was approved under 7th CPC, which is very simple and quite transparent. Hence, it becomes very important for the government employees to understand how much is their 7th Pay salary. 
While the 7th pay commission pay scale for current serving employees saw a maximum increase of 16% in their salaries, interestingly, it is pensioners that gained the most as their income was hiked by 23.63%. 

Apart from these, even host of allowances were cleared under 7th Pay Commission. Some of the most basic and major allowances were House Rent Allowance (HRA), Dearness Allowance (DA) and Travelling allowance (TA). 

However, did you know that there are also some level of taxes levied on the above-mentioned allowances? Hence, it becomes very important to be vigilant and alert in making claims or filing for ITR. 

HRA benefits

House rent allowance (HRA) has been fixed at 24%, 16% and 8% for X, Y, Z cities respectively. HRA not to be less than Rs 5400, Rs 3600 and Rs 1800 for X, Y, Z cities. Earlier it was at 30%, 20% and 10% of minimum pay of Rs 18,000. 

Moreover, 7th CPC recommended revision of HRA when Dearness Allowance reaches 50% and 100%, the government has decided to revise rates when DA crosses 25% and 50% respectively. 

Not all amount is tax exempted in House Rent Allowance (HRA). Notably, HRA cannot be more than 50% of your basic salary. Tax claims under HRA are done - to those whose actual rent paid is less than 10% of their basic salary, 50% of basic salary is staying in metro cities and 40% of basic salary if living in non-metro areas. 

For example, if you stay in Mumbai and pay rent of about Rs 12,000 per month during the fiscal year 2017-18 (the assessment year of 2018-19). Your basic salary stands at Rs 40,000 with an HRA of Rs 20,000 per month from his employer. 

Then your actual HRA for that year would be Rs 2,40,000 (Rs 20,000 X 12). Meanwhile, your rent paid in the same period would come around Rs 96,000 [(12,000 x 12) - 10% of basic salary {(40,000 x 12) X 10%}]. Furthermore, as you live in Mumbai a metro city, then your 50% of basic salary would come around Rs 2,40,000 [(Rs 40,000 x 12) X 50%]. 

In the above three calculations, you can claim the least amount as tax benefit which in this case would be rent paid.  

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Dearness Allowance

Last year, the government hiked this allowance by another 2% taking overall DA at 9% from previous 7%.

No matter whether you are a government employee or a non-government employee, every dearness allowance you earn is taxable.

These DA paid to employees are fully taxable with salary. Also the Income Tax Act, also recommends that tax liability for DA along with salary must be declared in the filed return.

Traveling allowance

Travelling allowances under the 7CPC are of two types namely A/A1 cities and other cities.

Travelling allowance aka conveyance is a type of allowance which the majority of organisations offer their employees in their basic pay. Notably, there is no limit on the conveyance that a company can provide to its employee, however, a certain amount is only allowed for tax exemption under the Income Tax Department. 

Under section 10(14)(ii) of Income Tax Act, an employee can receive up to Rs 19,200 per annum tax exemption on conveyance which would come in Rs 1,600 per month. 

Let’s suppose if your travelling allowance is Rs 2,500 per month - then under this, only Rs 1,600 will be tax exempted while remaining Rs 900 shall be taxable.