Understanding salary components and allowances

Understanding salary components and allowances

Your salary is more than just a monthly paycheck credited to your account. Understanding your salary is key to managing finances and saving on taxes. Here’s a breakdown of the salary components and allowances:


  • Basic Salary: Fixed part of your pay, the base for calculating allowances.

  • Dearness Allowance (DA): Covers inflation for government employees, fully taxable.

  • Employer's Contribution to Pension: Employer's contribution to pension fund.

  • Uncommuted Pension: Regular pension payments post-retirement, fully taxable.

  • Commission: Additional earnings based on performance and it is fully taxable.

  • Salary Advances: Salary paid in advance, taxed when received.

  • Salary Arrears: Unpaid salary amount due to you from previous periods, paid in a later year.

  • Other: Any other salary component not covered elsewhere.

  • House Rent Allowance (HRA): If you stay at a rented accommodation, HRA exemption can be claimed based on rent and location.

  • Leave Travel Allowance (LTA): Tax exemption for LTA can be claimed for certain domestic travel. 

  • Leave Encashment Allowance: Encashed unused leave; it is tax-exempt under specific conditions like retirement or termination.

  • Gratuity: Received after at least 5 years of service, exempt up to ₹20 lakh.

  • Commuted Pension: A lump-sum pension payment received at retirement, partially taxable.

  • Other Allowance: Any other allowance not covered above. 


Check out how to add your salary on Quicko here.


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