Provisions for Income Taxes in India Applicable for Salaried People.

What are the Income Tax deductions available for salaried employees?

• When it comes to income tax, the good news is that there are several avenues where you can save a lot of money, especially if you are a salaried individual.
• Understanding the provisions provided for salaried professionals can help you plan all your investments well to make sure that you do not end up paying huge taxes each year.
• The technical terms for these provisions are tax exemptions and deductions.
• These provisions vary depending on the nature of employment and other conditions mentioned in the Income Tax Act.

The Difference Between Tax Deduction and Exemption

1. First, you need to understand what the two terms mean so that you can claim them while filing your tax returns.
2. An income tax deduction is an amount that is deducted from the final taxable income.
3. As a result, you end up paying a smaller tax amount.
4. These deductions are covered between Section 80C and 80U of the Income Tax Act.
5. An income tax exemption is a type of income upon which a tax is not levied.
6. So, it does not get added to your total tax liability.
7. These exemptions are covered under section 10 of the Income Tax Act.

List of Tax Exemptions and Deductions

• Listed below are all the current tax exemptions and deductions that can be enjoyed by salaried professionals.

House Rent Allowance Exemption

1. Salaried professionals who live in a rented house have the advantage of the House Rent Allowance.
2. This amount may be exempted partially or fully.
3. In case you do not live in rented accommodation, but your company provides an HRA, then the amount is taxable.
4. To get a full exemption, you should be able to provide rent receipts to your company or your organisation while filing returns.

Standard Deduction

• In the Union Budget of 2018, a collective standard deduction of up to Rs.40000 was provided to salaried employees.
• This standard deduction covers transport allowances and any medical reimbursements.
• This limit was increased to Rs.50000 in the 2019 Interim Budget.
• With the standard deduction, salaried professionals get an added exemption of Rs.6800 in comparison to the exemptions for transport and medical reimbursements that were calculated separately.

LTA or Leave Travel Allowance

1. Most companies provide a Leave Travel Allowance to employees which covers any travel expenses that they may have incurred while on leave.
2. The exemption covers individual costs of travel, excluding shopping, leisure, entertainment, food, and shopping.
3. It covers domestic or international travel by air, railways, or any other mode of public transport.
4. Each year, salaried professionals are given two LTAs. If this amount is not used, it can be carried over to the next block.

Mobile Reimbursement

1. Any mobile or telephone expenses incurred by an employee at his or her residence is reimbursed by the company.
2. Salaried professionals can claim this reimbursement based on the conditions listed in their salary package.
3. This reimbursement is 100% tax-free.

Periodicals or Books

• Any expense that a salaried professional incurs on periodicals, books, journals, etc. is eligible for tax-free reimbursement.
• The reimbursement conditions are mentioned in the salary package provided.

Food Coupons

1. Meal coupons are quite common in most companies today.
2. If you are eligible for these coupons, you can get an exemption of up to Rs.50 per meal.
3. Considering 22 working days a month and two meals each day, you can get an exemption of Rs.26,400 each year.

Section 80C, 80CCC and 80CCD

• This is one of the most commonly used IT deductions.
• Individuals or HUFs (Hindu Undivided Families) can get a deduction of up to 1.5  Lakhs under this section of the Income Tax Act.
• These deductions are based on certain investments made by the individual.
• You can make use of tax-saving instruments like NPS or PPF to enjoy the benefits of this provision.
• However, income from any capital gains is not eligible for these deductions.

Some instruments that are eligible for a tax deduction are as follows:

1. Life insurance premium
2. Employee Provident Fund
3. Equity Linked Savings Scheme
4. Employee Provident Fund
5. Pension Schemes
6. The principal amount on home loans
7. Children’s tuition fees
8. PPF contribution
9. National saving Certificate
10. Sukanya Samriddhi Accounts
11. National Saving Certificate
12. Fixed Deposits
13. National Pension Scheme
14. Post Office Time Deposits

Deduction on Medical Insurance

• According to section 80D, salaried professionals can claim deductions on medical insurance premiums paid for the self or dependants.
• The maximum limit on these deductions is Rs.25000 for the self or family.
• For senior citizens or dependent parents, deductions of up to Rs.50000 may be claimed.
• Even if your employer pays your medical insurance, it is eligible for deductions.

Deduction of Home Loan Interest

1. You can claim deductions of up to Rs.2 Lakhs on any interest paid towards a home loan.
2. This property must be self-occupied to claim the deduction.

Deduction on Education Loans

• Under Section 80E, the interest paid for an education loan is deductible.
• The loan must have been availed from a recognised financial institution to claim the deduction.
• This loan can be for the individual himself or herself or the spouse or children.
• Legal guardians are also eligible for this deduction.

Deduction on Donations

1. Any donation made towards a charitable organisation is eligible for an income tax deduction as per Section 80G.
2. The deduction amount depends upon the type of organisation that receives the donation.
3. You can get a deduction of 50-100% of the amount that is donated towards charity.

Deduction on Interest earned from Savings Account

• According to Section 80TTA, a deduction of up to INR 10,000 can be claimed for any income that is earned from savings account interest.
• However, if the amount is higher than Rs.10000, the differential amount is taxable.

Additional Home Loan Interest Deduction

1. Homeowners get an additional deduction of Rs.50000 on the interest paid towards the home loan EMI.
2. However, the loan amount should not be over Rs.35,00,000, and the value of the property should not exceed Rs.50,000,000.
3. It should also be the only property registered under the name of the individual when the loan is sanctioned.

Relocation Allowance Exemption

• There are chances that your company may require you to work from different locations from time to time.
• With MNCs, especially, it is quite common to transfer employees to other branches of the organisation.
• In that case, moving and the company provides a relocation allowance.
• It covers moving charges, packing charges, accommodation charges, school admission fees, transport charges, and brokerage charges in most cases.
• This amount is exempted from tax for salaried professionals.

Joining bonus and Notice Pay exemptions

1. Notice-pay or joining bonus is paid if the individual leaves an organisation before completing the full tenure of the contract.
2. If the new employer pays the notice pay, the former one cannot include the notice pay under total salary as the employee will not be eligible for a TDS refund.
3. Joining bonus must be paid back by the employee if he or she fails to complete the tenure.
4. The new company may reimburse this.
5. However, the employee will not be eligible for any TDS returns.

Transport facilities provided

• Most companies offer transport to their employees in the form of cabs.
• While this is an expense for the organisation, it is not a taxable prerequisite for the salaried professional.

Gifts and vouchers

1. Any gifts or vouchers presented to an employee as an incentive is exempted from income tax for up to Rs.5000.
2. When you are filing your IT returns, make sure that you take all these deductions and exemptions into account.
3. You will be surprised that close to 50% of your salary may be exempted from taxes if you have made the right investments and saved all the necessary transaction receipts.

Also Read:

Income Tax Rules for Non-Residential Indians (NRIs)

Why Do We Pay Income Tax in India? Importance, Applicability & more

ITR: Different Slabs, Exemptions, Eligibility & more.

FAQs

Q- How to claim HRA exemption?

Ans- At the time of filing your returns, provide proof of rent payments to your employer to claim the HRA exemption.

Q- If I made investments on 30th April 2020, for which year can I claim deductions according to Section 80C?

Ans- You will be able to claim the deduction for the financial year 2020-2021.

Q- Do these tax exemptions apply to a corporate or a small business?

Ans- These exemptions and deductions are solely for individuals and HUFs.

Q- Are Recurring Deposits eligible for tax deductions?

Ans- No. Recurring Deposits are not eligible for tax deductions.

Q- What are the taxable allowances given to salaried individuals?

Ans- Allowances like Overtime Allowance, Special Allowance, and City Compensatory Allowance are taxable.

Q- If we have a joint home loan, can both individuals claim a tax deduction?

Ans- Yes, if both of them are earning members, they can claim tax deductions up to Rs.2 Lakhs.

Q- What are the options to save tax on education loans?

• You can get tax benefits for any education loan taken for yourself, your spouse, or your children.
• The interest paid on the loan is eligible for a tax deduction as per Section 80E of the Income Tax Act.