Budget 2022: Salary component - All about minting money

House Rent Allowance (HRA)

This is the most common CTC component. Those staying in rented accommodation can avail of an exemption against the HRA received and only the balance will be taxable.

Budget 2022: Read all the post-Budget analysis and updates

The exemption is limited to the lowest among

1. Rent paid less 10% of salary, where salary means basic salary and dearness allowance

2. 50% of salary if the house is situated in Delhi, Mumbai, Kolkata or Chennai OR 40% of salary in other cities

3. Actual HRA received

* If your CTC doesn’t contain HRA, deduction for rent paid is available from gross taxable income, subject to various limits (maximum deduction 5,000 per month).

* If you live in a house you own, the HRA component is fully taxable.

Leave Travel Concession (LTC)

LTC exemption is allowed on two domestic journeys taken in a block of four years. The new block commenced on January 1, 2022. Restrictions apply. For example, if you are travelling by air, it is limited to economy class airfare for the shortest route to your destination. No exemption is available for hotel and local conveyance expenses.

Work from home expenses
If you are working from home fulltime and your employer is reimbursing certain expenses such as telephone, internet, printing and stationery expenses you need not pay tax on these reimbursements. You may need to provide the requisite bills to the employer for claiming these reimbursements, as per the corporate policy.

While computers and laptops provided by employers do not give rise to any taxable perquisite, provision of any other asset say a swivel chair, computer desk or printer, would be taxed as a perquisite as per Rule 3 (7) (vii) in the hands of the employee, at the rate of 10% of the original cost of the asset, reduced by any charges recovered from the employee.

Employee Provident Fund

(EPF)

EPF used to enjoy an EEE (Exempt-Exempt-Exempt) status historically. However, from April 1, 2020, employer’s contribution to the National Pension System (NPS) account, superannuation fund and EPF account of an employee on an aggregate basis in a financial year in excess of 7.5 lakh will become taxable in the hands of the employee. Further, the accretion of interest, dividend or any other amount of similar nature on this excess employer’s contribution would also be taxable. This came into effect from April 1, 2020.

From April 1, 2021, interest on employee’s contribution to EPF in excess of 2.5 lakh in a financial year also became taxable in the hands of the employee.

Gratuity
Gratuity received under the Payment of Gratuity Act after completion of 5 years of continuous service is eligible for exemption of up to 20 lakh. But remember, the exemption is the cumulative of all gratuity payments received by an individual in his/her lifetime.

(With inputs from EY)

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