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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