Core concepts
- 01Salary taxable on due or receipt basis whichever earlier.
- 02Allowances: HRA, LTA, Children Education, Transport — exempted under specific conditions.
- 03Perquisites: rent-free accommodation, motor car, ESOP, free meals (valuation rules in Rule 3).
- 04Standard deduction ₹50,000 (old regime) / ₹75,000 (new regime AY 2025-26).
- 05Gratuity, leave encashment, VRS, retrenchment compensation — partial/full exemptions.
Flowchart
Salary Components | Basic + DA + HRA + Bonus + Commission + Allowances + Perquisites | Less: Exempt allowances + Std Deduction (₹50K/₹75K) | Less: Professional Tax (Sec 16(iii)) | = Taxable Salary
Exam-critical pointers
- ⭐New regime (Sec 115BAC) default from AY 2024-25; opting out via Form 10-IEA.
- ⭐Leave encashment on retirement: non-govt limit ₹25 lakh (raised in Budget 2023).
- ⭐Employer's contribution to NPS (Sec 80CCD(2)): 14% of salary for govt employees, 10% for others.
- ⭐Reimbursement vs Allowance distinction critical for taxability.
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