Private Company Employee Income Tax Calculation 2022: The annual CTC of a person working in a private company has various components. These include LTA, HRA, contribution to Provident Fund and Gratuity, reimbursements for entertainment, telephone bill, conveyance, books and periodicals and more. While the naming of CTC components may vary from company to company, the tax rules that apply to them remains the same. For proper tax planning, it is important to understand the tax implications of various components of CTC.

Here we take a look at how Gratuity, Provident Fund, House Rent Allowance (HRA), LTA and Reimbursements are taxed.

Experts say that some components of salary are fully taxable and some are are fully exempt. Some components enjoy partial exemption from Income Tax.

Income Tax on HRA

HRA is an important part of CTC, providing tax benefit to employees living in a rented accommodation. HRA is taxable if the employee is not living on rent.

Under Section 10(13A), minimum of the following can be claimed as exempt from tax:

(i) Actual amount received

(ii) 50% of salary if living in metro cities (i.e. Mumbai, Delhi, Chennai and Kolkata) and 40% of salary in other cases.

(iii) Rent paid in excess of 10% of salary.

Income Tax on Reimbursements

Companies provide various allowances for conveyance, books and periodicals, entertainment, telephone and internet etc.

Under Section 10(14) of Income tax Act, allowances provided to employees are exempt from tax if such expenses are actually incurred.

Conveyance Allowance is exempt to the extent of expenditure incurred.

Reimbursement for telephone/mobile and internet is also exempt under Rule 3(7) (ix) of Income Tax Act.

Reimbursement for books and periodicals can be claimed as exemption under Section 10(14).

Entertainment allowance is fully taxable in case of private employees. However, it can be claimed as exemption if entertainment expense is incurred for business purpose of the company.

To claim tax benefit on reimbursements, employees are required to pay original bills of expenditures.

Income Tax of Provident Fund

Contribution towards Provident Fund qualifies for deduction under Section 80C of the Income Tax Act.

Income Tax on Gratuity

Gratuity received during employment is fully taxable. On retirement, tax benefit on gratuity can be availed if the employer is covered under Payment of Gratuity Act. Under Section 10 (10) of the Income tax Act, least of the following are exempt:

a. Actual amount received

b. Rs 20 lakh

c. 15 days salary based on salary last drawn for every completed year of service or part thereof in excess of 6 months

For gratuity calculation, salary means basic Pay + Dearness Allowance.

In case the employer is not covered under Payment of Gratuity Act, then least of the following is exempt:

a.Actual amount received

b. Rs. 20,00,000

c. Half month’s salary for each completed year of service. (i.e. ½ * Average Salary p.m

Income Tax on LTA

For claiming tax exemption on leave travel allowance, following conditions need to be fulfilled:

a. Actual journey is undertaken by the taxpayer

b. Only domestic travels is considered

c. Exemption is available for employee alone or with his family, including  spouse, children, dependent parents, brothers and sisters of the employee. However, exemption is not available for more than 2 children born after 1 October 1998.

Source: https://www.financialexpress.com/money/income-tax/private-company-employee-income-tax-calculation-2022-reimbursement-pf-gratuity-hra-lta/2450783/