Budget 2019: Explained - Why it is important for your salary; know how to calculate income tax on your pay scale

Union Budget 2019 expectations: While the Indian government prepares a budget for the country every year, this also comes as a key day for salaried employees across the regions. Union Budget is very important for employees, as many eye the tax reforms taken by the government in regards to their salary. Why? Every year, a plan and tax rates are announced by the centre which an employee needs to follow in that particular fiscal. It is the Union Budget, where government makes changes in tax either hike, cut or status quo.

Now that we are barely are few weeks away from Union Budget 2019-20 on February 01, 2019, here’s what you need to know in terms of your salaries:-

Every employee’s gross salary is a sum of Basic salary + HRA + Special Allowance + Transport Allowance + any other allowance.

There are various tax exemptions on facilities offered under your pay scale such as medical reimbursements, telephone bills reimbursement. Even the rent you pay from your salary has tax benefit. 

After Union Budget 2018-19, an employee is liable to pay 5% tax on their pay scale between Rs 2.5 lakh to Rs 5 lakh, whereas a 20% tax is levied on salaries between Rs 5 lakh to  10 lakh.

The maximum tax bracket is 30% for employees who earn beyond Rs 10 lakh. Meanwhile, no tax is levied for salaries below Rs 2.5 lakh. 

HRA benefits

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.  

Traveling allowance

Travelling allowance aka conveyance is a type of allowance which 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 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. 

Here’s an example given by ClearTax on how to calculate income tax on gross salary. 

Let's understand income tax calculation by means of an example. Neha receives a Basic Salary of Rs 50,000 per month. HRA of Rs 25,000. Transport Allowance of Rs 8,000 per month. Special Allowance of Rs 5,000 per month. LTA of Rs 20,000 annually. Neha pays a rent of Rs 20,000 and lives in Delhi.

(Image Source: ClearTax)

The above-mentioned calculation is carried on Budget FY18 reforms, and hence, employees must keenly eye for tax slab changes in this upcoming Budget FY19.