Income Tax Allowances and Deductions Allowed to Salaried Individuals

Introduction

Understanding the various allowances, deductions, and exemptions available under the Income Tax Act can help salaried individuals optimize their taxes and maximize savings. Let's break down the essential elements of income tax exemptions, reimbursements, and deductions to help you file your tax return with ease

New Tax Regime Exemptions

The new tax regime introduced in FY 2023-24 offers lower tax rates by eliminating most of the traditional exemptions and deductions. However, a few allowances and deductions remain available under the new regime, including:

• Conveyance Allowance: Received to meet expenditure on travel as part of employment.

• Exemption on Voluntary Retirement (Section 10(10C)), Gratuity (Section 10(10)), and Leave Encashment (Section 10(10AA)).

• Interest on Home Loan (Section 24): Deduction on interest paid for a home loan on let-out property.

• Employer’s Contribution to NPS (Section 80CCD(2)).

• Standard Deduction of ?50,000 for salaried individuals.

• Deduction under Section 57(iia) for family pension income.

• Agniveer Corpus Fund under Section 80CCH(2).

Old Tax Regime Exemptions

Under the old tax regime, taxpayers can avail themselves of various exemptions and deductions. Let's explore these:

• 1. Standard Deduction

Every salaried individual is eligible for a standard deduction of ?50,000 from their salary income.

• 2. Allowable Deductions

Here’s a detailed breakdown of various allowances that can be claimed for tax exemption under the old regime:

• House Rent Allowance (HRA): If you receive HRA and pay rent for accommodation, you can claim an HRA exemption. The exemption is the minimum of:

• Actual HRA received.

• 50% of annual salary (basic + dearness allowance) if residing in a metro city, or 40% if residing elsewhere.

• Excess of rent paid over 10% of annual salary.

• Note: If no rent is paid, the entire HRA is taxable.

• Leave Travel Allowance (LTA): Can be claimed for travel within India. Exemption is available on two journeys in a block of four years, covering only travel expenses for the shortest route to the destination.

• Children Education Allowance: An exemption of ?100 per month for up to two children. Additional exemption is available for hostel expenses up to ?300 per month.

• Other Allowances (Section 10(14)(i)): Includes attire, telephone, vehicle, and helper allowances, which are exempt to the extent of actual expenditure incurred.

• 3. Medical Expenditure and Insurance Premium (Section 80D)

• Medical Insurance Premium: You can claim a deduction of up to ?25,000 for insurance premiums paid for yourself, spouse, and dependent children. An additional ?50,000 deduction is available for senior citizen parents.

• Medical Expenditure: For senior citizens without health insurance, medical expenses of up to ?50,000 can be claimed.

• 4. Interest on Home Loan (Section 80C and Section 24)

• Section 80C: Deduction up to ?1.5 lakh for principal repayment of home loan.

• Section 24: Deduction up to ?2 lakh on interest paid for a self-occupied property. If the property is let out, there is no upper limit.

• 5. Deduction for Loan for Higher Studies (Section 80E)

  Interest paid on education loans for higher studies can be claimed as a deduction under Section 80E. This benefit is available for up to 8 years or until the interest is fully repaid.

  6. Deduction on Savings Account Interest (Section 80TTA)

  Interest earned on savings accounts up to ?10,000 is exempt under Section 80TTA. For senior citizens, the exemption limit under Section 80TTB is ?50,000.

  7. Tax Treatment on Notice Pay and Joining Bonus

• Notice Pay: The amount paid by an employee to the employer for not serving the full notice period is taxable as salary income.

• Joining Bonus: It is treated as a part of salary income and is fully taxable.

Conclusion

Understanding the various exemptions and reimbursements available to salaried individuals can significantly reduce your tax liability. Whether you opt for the old or new tax regime, proper planning and documentation are key to maximizing your tax benefits.

If you need expert guidance on tax planning, filing, and management, Anil D'Souza & Associates (ADCA). is here to assist. Our team of professionals can provide tailored solutions for all your tax-related needs. Get in touch with us today for a seamless tax filing experience.

FAQs

1. What is the exemption limit for reimbursement?

The exemption limit for reimbursements depends on the type of allowance or reimbursement. For instance, medical reimbursements are tax-free, up to ?15,000 per year, while HRA exemption varies based on salary, rent, and location.

2. Is reimbursement of salary taxable?

Reimbursements that are directly related to employment expenses and are supported with valid bills and receipts (e.g., travel, telephone) are generally not taxable. However, excess or unsubstantiated reimbursements are taxable.

3. Is tax deducted on reimbursement?

Employers usually deduct taxes on taxable reimbursements, such as LTA or non-allowable expenses, as part of the salary income. Non-taxable reimbursements do not attract TDS.

4. How do I claim tax reimbursement?

Tax reimbursement is claimed by providing necessary proofs (e.g., rent receipts, travel tickets) to your employer. They will then adjust your taxable salary. You can also claim these during ITR filing if missed through the employer.

5. How do I claim my reimbursement?

Submit the required documentation (receipts, bills, etc.) to your employer to claim the reimbursement. Ensure all expenses are genuine and related to your work.