One of the most important deductions from salary is income tax. Tax is deducted at source at the taxable income at the end of the financial year. Professionals, who get paid for the work they do, usually pay around 10% income tax, which is deducted at source. Salaried employees, on the other hand do not have to pay any such upfront tax. However, at the end of the financial year, they have to file an income tax return, where exemptions and income tax waiver is allowed. Because of this reason, employees have to be very careful while filing income tax return. The tax deduction at source is reduced, if the salaried employee has made some kind of acceptable investments during that financial year.
How to apply for tax waiver?
All of the salaried employees have to submit declaration to their employers about the prospective investments to be made by them during that financial year. This information has to be submitted as soon as possible, so that it can be taken into consideration by the employer before they deduct any income tax. However, there is no restriction to the date on which the employee makes an investment. He can do it any time prior to 31st of March. In case, an employee fails to declare any kind of investment, by that time, the subject income tax would be deducted without any exemption and then the employee would have a tough time getting the tax money back, the next financial year.
The next major reduction every month is towards Provident Fund. Half of this contribution is made by the employee and the other half is contributed by the employer. It is for the financial security of the employee, when he resigns from the service. You can get this accumulated money back after the end of service with that employer.
Cafeteria or mess deduction
Some other deductions include cafeteria or mess deduction, where companies offer mess services and food to the employees.
Deduction for transportation facilities
Companies also deduct for the transportation services they offer.
Apart from that, there is another kind of income tax known as professional tax levied by the state governments. This tax is for professional services, trade, employment and calling. Its deduction can be filed under section 16 of Indian Income Tax Act. This is also a kind of income tax, but the only difference between the income tax and professional tax is that the former is levied by the central government, whereas the later is charged by the state government.
ESI is a deduction, which is for the medical services provided by the employer. Under this facility, the employees can get standard medical services from the designated ESI hospitals and can also get medicines free or at very low rates.
Employees Old-age Benefits Institution (EOBI)
Employees’ Old-age Benefits Institution (EOBI) is another deduction by the employers. This deduction is used for the old age benefits to be provided by the concerned institutions later on.
The other deductions are leave deductions. In the employment contract, the employer allows a certain number of leaves to be taken in a financial year. Exceeding this limit, the employees are deducted a certain amount from their salaries, which depends upon the number of leaves taken.