In India, salaried employees form the majority of taxpayers, and their contribution to the national tax coffers is substantial. To help salaried individuals reduce their overall tax burden, the Income Tax Act of 1961 offers several deductions and exemptions on their gross income. By availing these deductions, salaried individuals can reduce their income tax payments substantially.
This guide lists out the significant income tax exemptions allowed for salaried persons under the ITA.
The Interim Union Budget presented in 2019 allows a standard deduction of Rs. 50,000 from the total gross income for all salaried taxpayers. This standard deduction amount is deducted from the total income while calculating the taxable income.
2.Exemption on HRA (House Rent Allowance)
Most companies offer their employees HRA (House Rent Allowance) to pay for the rental needs of the employee. A salaried individual living in a rented apartment or house can avail HRA deduction, either partially or totally. To claim income tax deductions on HRA received, the taxpayer has to furnish rent receipts or a copy of the rental agreement.
However, note that HRA deductions are not permitted for salaried individuals living in their own property. A salaried individual living in a rented property can claim the lowest of the following amounts as HRA exemption on their gross income:
Total HRA received from the employer
40% of salary (Basic pay + Daily allowance) for non-metros or 50% of salary (Basic pay + Daily allowance) for metro cities
Rent paid minus 10% of salary (Basic pay + Daily allowance)
3.Exemption on LTA (Leave Travel Allowance)
According to the ITA, salaried persons can claim exemptions on the travel expenses incurred during leaves from work. However, note that deductions are not permitted for covering the other costs incurred during the trip like entertainment, shopping, food expenses, leisure expenses, etc.
Here are a few points to keep in mind while claiming a tax deduction on the LTA:
It covers only the cost of domestic travel and not overseas travel
The mode of travel can be rail, air or road
The LTA exemption can be claimed twice in four years
4.Deductions on Telephone/Mobile, Books and Periodicals, and Food Coupons
Salaried employees can claim reimbursement for the following work-related expenses:
Telephone/mobile costs incurred at residence
Books, newspapers, journals, periodicals purchased for work
Meal coupons provided by the employer up to a maximum of Rs. 50 per meal. It works out to Rs. 26,400 annually.
5.Deductions under Section 80C, 80CCC, 80CCD (1)
Section 80C is one of the most used ways to reduce overall taxes. Salaried individuals can claim tax deductions up to a maximum of Rs. 1.5 lakhs for investments that are permitted under Section 80C. By allowing various deductions under Section 80C, the Indian Government aims to increase the savings and the retirement corpus of individuals.
Some of the investments that are permitted under Section 80C, 80CCC, 80CCD(1) are:
NPS (National Pension Scheme)
PPF (Public Provident Fund)
ELSS (Equity Linked Savings Schemes)
EPF (Employee Provident Fund)
Life insurance premiums
Sukanya Samriddhi Account
Tuition fees for children
Post office time deposits
Tax-saving fixed deposits
NSC (National Savings Certificate)
6.Deductions under Section 80D
Individuals can claim deductions on premiums paid on medical insurance for self, spouse, children and dependent parents under Section 80D. The maximum limit for deductions under Section 80D is Rs. 50,000. Besides, the premiums individuals can also claim exemptions up to Rs. 5000 for personal health check-ups.
7.Deductions on Home Loan Interests under Section 80C and Section 24
Salaried individuals who have availed a home loan can claim deductions on the interest repaid. The maximum deduction permitted is Rs. 2 lakhs. However, note that you can claim this deduction only for self-occupied properties and not for homes that you have rented out.
8.Deductions under Section 80E on Loans taken for Higher Education
Individuals who have availed a higher education loan in India for pursuing higher studies in the country or overseas are eligible for this deduction. Note that parents or legal guardians who have taken education loans for their children/wards can also claim this deduction.
9.Deductions under Section 80G for Donations
Individuals who make charitable donations to approved organisations can claim deductions of 50% or 100% of the total amount donated.
10.Deductions under Section 80TTA on Interest Earned in Savings Accounts
Individuals and HUFs can claim deductions up to Rs. 10,000 on the interest earned from savings account deposits. If the interest earned is lesser than Rs. 10,000, the total amount is deductible.
11.Deductions under Section 80EE on Home Loan Interest
Besides the deductions available for home loans under Section 24, individuals can also claim an additional deduction of up to Rs. 50,000 on the interest component of the home loan. To avail this deduction, the individual must not have any other property registered in his/her name at the time of availing the home loan.
Besides these standard deductions, salaried individuals can also avail the following deductions on gross income:
Tax exemptions on relocation allowance including car transportation costs, car registration costs, packaging charges, temporary accommodation, train/air tickets, brokerage fees, and children’s school admission fees. However, note that these expenses are only valid for up to 15 days of relocation. Anything beyond that is taxable.
Deductions on notice pay and joining bonus.
Tax exemptions on cab facility offered by the employer for travel to and from the office, health club facility, gifts or vouchers provided by the employer, medical expenditures incurred by the employee outside India while on office work.
Make use of the Available Deductions & Exemptions to Reduce your Tax Burden
Salaried individuals in India enjoy multiple concessions on their income tax payments. Make sure to be aware of the different deductions and exemptions permitted by the Income Tax Act of 1961 to reduce your income tax payments significantly. Make sure to use the various deductions available under Section 80C to minimise taxes as well as to build your savings in the long-term.