Started your professional career? Know the taxes!

Updated on: Jan 13th, 2022


5 min read

social iconssocial iconssocial iconssocial icons

Getting your first job is one of the most important milestones in your life. It adds more responsibilities on your shoulders, and you must know everything related to your finances. If you are not aware of the taxability already, then you must get to know it soon. We have covered the following in this article:

Difference between CTC and take home salary

In your offer letter, you will find your CTC (the cost to the company), which is nothing but the cost incurred by the company to have you employed. CTC includes your in-hand salary, retirals (EPF or NPS contributions), food coupons, variable pay, incentives, bonus and all other components of your salary. 

On the other hand, your in-hand salary is the amount of money that gets credited to your account after all deductions, including applicable taxes. Therefore, you must be aware of the sum that will be taken home after all the applicable deductions are made on your salary. 

Components of a salary

The following are the most common components of a salary in India:

i) Basic Pay

Basic salary is the fixed pay that is dependent on the organisation and the employee’s profile. All allowances such as house rent allowance and dearness allowance would be a certain percentage of the basic salary.

ii) Allowances

Allowances are a fixed pay given by the employers to the employees to meet certain expenses. The most popular allowances are dearness allowance, house rent allowance and leave travel allowance. 

iii) Retirals

Retirals refer to the contributions made towards securing your retired life. In India, employees working with most employers are required to either subscribe under EPF or NPS. The monthly contributions made by both employee and employer are dependent on the basic pay of the employee. 

iv) Medical insurance

Most employers offer insurance to employees. The premiums payable are nominal and would be collected at the time of paying salaries. 

v) Professional tax

It is an indirect tax collected by state governments in India. The extent of personal tax levied varies across states and professions.  

Taxation of your income- income tax slabs

The income earned from your employment is termed as ‘salary’ and is taxed under the head of ‘income from salary’. The tax rate depends on your age, income, and tax system regime you choose to follow. 

The following table shows the income tax slabs under the old tax system:

Income Tax SlabIndividuals Below the Age Of 60 Years – Income Tax Slabs
Up to Rs 2.5 lakhNIL
Rs 2.5 lakh -Rs. 5 lakh5%
Rs 5 lakh – Rs 10 lakh20%
> Rs 10 lakh30%

The following table shows the income tax slabs new tax regime:

Income Tax SlabNew Regime Income Tax Slab Rates for FY 2020-21
(Applicable for All Individuals & HUF)
Up to Rs 2.5 lakhNIL
Rs 2.5 lakh – Rs 3 lakh5% (tax rebate u/s 87a is available)
Rs 3 lakh – Rs 5 lakh5% (tax rebate u/s 87a is available)
Rs 5 lakh – Rs 7.5 lakh10%
Rs 7.5 lakh – Rs 10 lakh15%
Rs 10 lakh – Rs 12.50 lakh20%
Rs. 12.5 lakh – Rs 15 lakh25%
> Rs 15 lakh30%

TDS on your salary<

Depending on the regime of tax system you choose to follow, your income tax liability will be calculated by your employer, and taxes will be deducted from your salary accordingly. TDS, or tax deducted at source, is the procedure of collecting taxes at the source. In the case of income from salary, your employer deducts TDS and deposits the same to the government on your behalf. 

TDS provisions exit as the government wants to eliminate tax avoidance and drive tax compliance among the country’s salaried class. Your employer would require you to declare other income sources such as income from bank deposits, rental income, capital gains and so on towards the end of the financial year. Most tax liability is collected and deposited to the government’s account on your behalf by the employer.

How to minimise taxes?

To minimise your tax outgo, you have to have a sound financial plan. You have to claim deductions and exemptions that you are eligible for, and doing so would help you reduce your taxable income. Section 80C covers a wide range of investment products that provide tax deduction of up to Rs 1.5 lakh a year. Read more to understand how to save taxes here

inline CTA
Invest in Direct Mutual Funds
Save taxes upto Rs 46,800, 0% commission

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use


ISO 27001

Data Center


SSL Certified Site

128-bit encryption