Salaried employees play a major role in total tax collection.  A point of relief for those salaried employees, Income tax deductions has offered various opportunities for you to save tax on your hard-earned money.

Interested to know about those exemptions? Follow us through the article where we have mentioned major deductions and allowances that can help you to reduce your income tax liabilities.

Useful income tax exemptions for the salaried employees:

Useful income tax exemptions for the salaried employees

1. Increased Standard Deduction

The finance minister during the Union Budget 2018 announced standard deduction of Rs 40,000 for the salaried employees. Due to which salaried employees were benefited with an additional tax exemption of Rs. 5800 in the FY 2018-19. But you will be amazed to know that standard deduction limit has been consequently increased from Rs. 40,000 to Rs. 50,000 as per the union budget 2019. It can immensely help taxpayers to reduce their tax outgo.

2. House Rent Allowance (HRA)

A salaried employee living in rented accommodation can avail the benefits of House Rent Allowance. Under this, they can claim HRA to get a total or partial exemption from the income tax. However, if an individual is not living in any rented accommodation and still continues to receive HRA, it would be taxable for the individual.

In case an individual is unable to submit the rent receipts as proof to claim HRA, he can claim the exemption while filing ITR. Therefore, it is important to keep rent receipts and payment evidence made towards the rented accommodation. An employee can claim least of the HRA exemption given as follows:

  • Actual HRA received from the employer
  • Rent paid less than 10% of the Basic salary +DA
  • 40% of the salary (Basic +DA) for the non-metros city employees and 50% of the salary (Basic +DA) for metro city employees

3. Tax Exemptions under section 80C:

Section 80C is the most helpful way to save income tax. Under this, an individual or Hindu Undivided Family who spend or invests on tax-saving avenues can claim a tax deduction up to Rs. 1.5 lakh. Government of India too supports the tax-saving instruments like Public Provident Fund, National Pension System, etc. to encourage people to save and invest for their retirement.

There are few limitations under section 80C due to which if the income of a person comprises of capital gains alone, then he cannot use Section 80C for saving income tax.

The investments that are eligible for tax exemption under the Section 80C, 80CCC, and 80CCD (1) are given as follows:

  • Life insurance premium
  • EPF or Employee Provident Fund
  • Equity Linked Savings Scheme (ELSS)
  • Contribution to Public Provident Fund Account
  • Pension Schemes
  • Principal payment on home loans
  • National Saving Certificate or NSC
  • Fixed Deposits
  • National Pension Scheme or NPS
  • Tuition fees for children
  • Sukanya Samriddhi Account
  • Post office time deposits

4. Exemption on Leave Travel Allowances: 

The income tax law provides an exemption to the salaried employees for an LTA- received by employees from the employer to travel on leave. The exemption does not include extra expenditure like food expenses, shopping, entertainment and leisure among others.

An individual can easily claim to Leave Travel Allowances twice in a four-year block. In case an employee does not claim LTA within a block, they carry it to the next block.

Following are conditions applicable to claim LTA:

  • Only domestic travel is covered under LTA an employee cannot get LTA exemption on the cost of international tours.
  • The transportation mode to claim LTA must include railway, airways, or public transports.
  • LTA exemption is available for the individuals traveling alone or with family. The family can include his spouse, children, parents, and siblings.
  • The exemption is only available on the actual journey.

5. Exemption on donations: 

Charity is a noble gesture and you should not be taxed for it. As per the section, 80g and 80GGA of the Income Tax Act, 1961, the tax deductions are offered to an assessee who makes any kind of donation to the NGOs or charitable trusts. Tax deduction varies on the basis of receiving organisations. An employee can avail a deduction of 50% to 100% amount donated, with or without any restriction. The deduction can be claimed if paid via cash, cheque or a draft. Contributions such as medicines, clothes, food, etc. are not applicable to get exemption under 80G.

6. Tax exemption for the loan on higher studies: 

Under the Income Tax Act, 1961 deduction can be claimed on the interest of education loans. But to claim the deduction, it is mandatory that the loan should be taken from a financial institution or a bank by an individual to pursue his higher studies in India or foreign countries. An individual can claim the deduction right from the beginning years in which he started to repay the loan until the next seven years or before the repayment of the loan. Parents of the individual can also claim this tax deduction.

7. Deduction on home loans: 

Owners can save up to Rs. 2 lakh by claiming a deduction on the interest on home loans provided on the self-occupied properties. In case the property has been rented, an individual can claim deduction on the entire interest of the loan. The deduction is further limited to Rs.30,000/- if an individual fails to meet any of the below-given conditions:

  • The home loan should be for the purchase and construction of the self-owned property.
  • The loan should be taken on or after the date of 1st April 1999.
  • The purchase or construction of the place should be completed within the 5 years from the end of the year in which the home loan was taken by the individual.

Other than this to claim the deduction, an individual should have the interest certificate for the interest payable on the home loan.

So, this was all about the useful tax exemption for the salaried employees. Note that the due date to file your income tax returns for financial year 2018 to 2019 is 31st August 2019.

Author Bio

Qualification: LL.B / Advocate
Company: Enterslice Ites Private Limited
Location: Noida, Uttar Pradesh, IN
Member Since: 17 Jun 2019 | Total Posts: 4
The author is Akash Kumar, working as Legal Associate with Enterslice Ites Private Limited, a Chartered Accountancy firm helping Startup & companies in setting up the business and complying with various tax laws applicable to Indian & foreign companies while establishing their business. View Full Profile

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June 2021