Tax on Salary – Popular Exemptions & Deductions

Salaried employees form the major chunk of the overall taxpayers in the country and the contribution they make to the tax collection is quite significant. Here we shall cover major deductions and exemptions available to salaried employees under the Income Tax to reduce their tax.

Exemptions:

House Rent Allowance:

An Individual having a rented accommodation can get the benefit of HRA to the least of the following-

  1.  Total HRA received from your employer
  2.  Rent paid less 10% of (Basic salary +DA)
  3.  40% of salary (Basic salary + DA) for non-metros and 50% of salary (Basic salary + DA) for metros

Leave Travel Allowance:

LTA exemption to salaried employees, restricted to travel expenses incurred during leaves by them and their family. LTA can be claimed twice in a block of four years.

LTA covers only domestic travel

The mode of such travel must be either railway, air travel, or public transport

Food Coupons:

Food coupons provided by employer are taxable as perquisite in the hands of the employee but are tax exempt up to Rs 50 per meal.

Relocation Allowance:

This allowance is available when employee needs to shift to a different city for business reasons. Expenses reimbursed by employer towards relocation of employee are tax exempt. These expenses include- Travel, accommodation for 15days, packaging, car transportation and registration, house brokerage and school admission fee.

Children Allowance:

For education-Employee can claim exemption of maximum Rs. 100 per month or Rs. 1200 per annum. This is allowed for a maximum of 2 children.

For Hostel Expenditure- Rs.300 per month per child upto a maximum two children.

Transport allowance granted to physically disabled employee:

To meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty.

Deductions:

Professional/Employment tax

As levied by the State Govt.

Standard Deduction:

A Standard deduction of Rs. 50,000 is available to salaried employees and pensioners. This is deducted from the gross total income and was introduced in the Budget of 2019 replacing transport allowance and medical allowance offered to employees.

Deductions under Chapter VIA:

Section 80C, 80CCC, 80CCD(1b)

A total deduction of upto Rs.1.5L can be claimed against investments or spends in tax-saving avenues. These include-

  • Life Insurance premium
  • Equity Linked Savings Scheme (ELSS)
  • Employee Provident Fund (EPF)
  • Annuity/ Pension Schemes (Sec 80CCC)
  • Principal payment on home loans
  • Tuition fees for children
  • Contribution to PPF Account
  • Sukanya Samriddhi Account
  • NSC (National Saving Certificate)
  • Fixed Deposit (Tax Savings)
  • Post office time deposits
  • National Pension Scheme – Additional deduction of up to Rs 50,000 is available over and above Rs 1.5L (Sec 80CCD (ib))

Sec 80D

Deduction on medical expenses, medical insurance premium paid for self / family / dependent parents

Rs 25,000 for premiums paid for self/family.

Rs. 50,000 for premiums paid for senior citizen parents.

Additionally, health checkups to the extent of Rs 5,000 are also allowed and covered within the overall limit.

Deduction upto Rs. 50,000 with respect to medical expenditure incurred by the senior citizen (60 years or above) or towards senior citizen parents, provided they are not covered under any medical insurance policy.

Deduction for Loan for Higher Studies (Section 80E)

Deduction for interest on education loans taken from a bank or a financial institution for pursuing higher studies (in India or abroad) by the individual himself or his spouse or children is available under the IT Act. Deduction may be claimed from year in which the loan starts getting repaid and up to the next seven years (i.e. total of 8 assessment years) or before repayment of the loan, whichever is earlier. Even a legal guardian could avail this income tax deduction.

Donations (Section 80G):

Donations made to charitable organizations are eligible for deduction upto 50%/100% depending on the organization.

Deductions on Interest from Savings Account (Sec 80TTA):

Deduction of up to Rs. 10,000 on income earned from savings account interest is available for Individuals and HUFs.

Interest on Home Loan:

Section 24

Up to Rs. 2L as a deduction for interest on home loan for self-occupied property can be claimed. If the house property is let out, a deduction for the entire interest pertaining to such a home loan can be claimed.

However, the loss from house property that can be set off against other sources of income has been restricted to Rs. 2L. The balance amount can be carried forward for 8 Assessment Years.

Sec 80EE

Additional deduction over and above Sec 24 is available in Sec 80 EE on interest amount of home loan up to Rs.50,000. However, following conditions need to be complied with-

The loan must not be for more than Rs 35,00,000

The value of the property must not be more than Rs 50,00,000.

The individual must not have any other property registered under his name at the time the loan is sanctioned.

Authored by – CA Anushka Saraogi

⇒Computation of Income from House Property- Deduction of Interest u/s 24(b)⇐

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TDS Under Section 194J(a) & 194J(b)

      No Comments on TDS Under Section 194J(a) & 194J(b)

The existing section code 194J (i.e. Fees for Professional or Technical Services) has been sub-divided now into two sections, 194J(a) and 194J(b), effective from August 7 2020. u/s 194J(a) of the Income Tax Act, is related to TDS deduction on fees for Technical Services, and u/s 194J(b) of the Income Tax Act is related to TDS deduction on fees for Professional Services. Every person excluding an individual or a HUF, making payment to a resident for notified services, will be covered u/s 194J(a) & 194J(b) in the Income Tax Act.

  • Payments that are being covered u/s 194J(a)

– Fees for Technical Services
– Call center
– Royalty for sale
– Distribution or exhibition of cinematographic films etc..

  • Payments that are being covered u/s 194J(b)

– Professional services
– Royalty etc…

  • Tax Deduction Rate

– Tax deduction rate for u/s 194J(a) is 2% and for 194J(b) is 10%
– In case of payee fails to furnish PAN, he will be liable to pay TDS at the rate of 20%

  • Threshold Exemption Limit

In case of payment does not exceed the directed Threshold exemption limits, TDS will not be deductible.
TDS is required to be deducted if the amount of payment in a year exceeds Rs. 30,000.
However, Threshold exemption limit is not available only in the case of Fees / Commission / Remuneration paid to director of the company, other than Salary.

⇒TDS / TCS Compliances for May 2021⇐

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TDS Returns Software for FY: 2021-22 Released

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Useful guidelines to avoid common mistakes while submitting TDS Statements

Following are some useful guidelines to avoid common mistakes, while submitting TDS Statements and you are requested to go through the following in detail.

Incorrect reporting of 197 Certificates:

Please refer to the following guidelines for correct reporting of 197 Certificates:

  • The Certificate Number should be of 10 digits with Alpha-numeric structure. Please refer to the following examples:
      • Correct Format 1111AA111A;
      • Incorrect Format: 1111AA111A/194C
    • Certificate Number should be valid during the period for which it is quoted.
    • The Certificate Number should be for the same PAN, Section Code and Section Rate for which it has been mentioned in the statement
    • Threshold limit Amount of the Certificate should not be exceeded.
    • Please ensure that the Certificate is not expired. Please refer to the following illustration:
      • Lower deduction Certificate under section 197, issued in April 2013 (e.g. Certificate Number-1) stands cancelled by Assessing Officer on 10/11/2013.
      • A fresh certificate Under Section 197 (e.g. Certificate Number-2) is issued with effect from 11/11/2013.
      • Deductor quotes Certificate Number-2 against the transactions recorded during the period from 01/11/2013 to 10/11/2013 in Q3 TDS statement.
      • Deductor should have quoted Certificate Number-1 for the transactions conducted till 10/11/2013.

Common errors resulting in Short Payment Defaults:

  • Typographical errors committed by deductor, in reporting the date 20032014    in the Tax Deducted column.
  • Total of Amount Paid / Credited reported in the Tax Deducted column of the statement. This results in short payment and Deductors need to ensure that the TDS/TCS Deducted/Collected amount should be equal to TDS/TCS Deposited Amount.

The above mistakes are illustrated below:

Amount Paid/ Credited

TDS Deducted

TDS Deposited

Remarks

1,55,000.00 1,55,000.00 15,500.00 Wrong TDS Deducted Amount
2,20,420.00 20032014.00 22042.00 Date mentioned in the TDS Deducted Column

 Actions to be taken:

  • CIN Particulars (BSR Code, Date of Deposit and Challan Serial Number) mentioned in the TDS statement should exactly match with the CIN Particulars as available on Challan Status at www.tdscpc.gov. in or Challan Status Enquiry at www.tin-nsdl.com
  • For BIN (Book Identification Number), the particulars (24G receipt number, Date of transfer voucher and DDO Serial Number) mentioned in the TDS statement by the Govt. Deductors should exactly match with the BIN Particulars as available on Challan Status at www.tdscpc.gov. in or BIN View at www.tin-nsdl.com
  • Amount of Tax deposited pertaining to different BINs/ CINs should not be clubbed together while reporting in the TDS statements.
  • Few other common mistakes in reporting dates are as follows:

Actual Date of Deposit 
(As per Challan)

Date of Deposit mentioned in TDS Statement

Observations

07/01/2014 (07th Jan 2014) 07/01/2013 (07th Jan 2013) Wrong Year (2013 instead of 2014)
07/01/2014 (07th Jan 2014) 01/07/2014 (01st July 2014) Wrong Date Format (MM/DD/YYYY)

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⇒TDS / TCS Compliances for May 2021⇐

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