Allowances, Exemptions and Deductions under Income Tax Act for Salaried Individuals

The contribution of salaried employees towards the overall tax collection is quite significant owing to their large numbers. Allowances and deductions allow them to reduce their taxable income, and ultimately their net tax outgo.

This article covers some key allowances and deductions that can be claimed by salaried persons.

1.     House Rent Allowance (HRA)

Salaried individuals with rented accommodation are entitled to claim House Rent Allowance (HRA), provided that they have a proof of the rent paid. The least among the following can be claimed as an exemption:

–         Total HRA paid to you by employer

–         40% of the salary (Basic + D.A.)

–         Rent paid minus 10% of your salary (Basic + D.A.) 

2.     Leave Travel Allowance (LTA)

This allowance covers expenses of domestic travel during leaves by railway, public transport, or air travel. 

3.     Standard Deduction

This deduction is a replacement of Transport Allowance and Medical Reimbursement and amounts to a maximum of Rs. 50,000.

4.     Books, Periodicals and Mobile Reimbursements

A Salaried individual is provided reimbursement of expenses incurred on mobile/telephone use, newspapers, books, etc. allows an employee to claim a tax-free reimbursement of the expenses incurred. The amount of reimbursement allowed to an employee is the actual bill amount or the amount given with the salary for the same, whichever is less.

5.     Deduction on Medical Insurance (Section 80D)

Under this section, salaried people can claim deductions on medical expenses paid for themselves, parents, or family. The limit is Rs. 25,000 for self and family, whereas for senior

6.     Interest on Loan for Higher Studies – Section 80E

Income Tax Act also provides deductions on the interest of education loan, taken from the bank in India or abroad by the person or his children or spouse

7.     Deductions under Section 80C, 80CCC and 80CCD (1)

Here, individual or HUFs who invest in stipulated tax-saving instruments like Life insurance premium, PPF, EPF, NSC, annuity, etc, can claim deductions up to a maximum of Rs. 1,50,000

8.     Interest on Home Loans (Section 24 and Section 80C)

Salaries homeowners can claim deduction on home loan’s interest with an upper limit of Rs. 2, 00,000. Apart from this one may also get a deduction on the principal component of repayment of the loan up to Rs. 1, 50,000 under Section 80C.

9.     Income from Savings Account Interest – Section 80TTA

Under section 80TTA, and individual or HUF can claim a deduction of Rs. 10,000 on the income earned from interests on savings accounts deposits. Beyond Rs. 10,000, income would be taxable.

10.                       Donations- Section 80G

Here, the taxpayer can avail of a deduction if he has donated a certain amount towards charity. The deduction varies from 50% to 100% depending upon the charitable organization receiving the donations

11.                       Relocation allowance

Since the transfers of a salaried individual are common nowadays with growing locations of business, the IT Act, 1961 allows deductions on expenses like car transportation cost and its registration charges, rent brokerage, school fees pf children, packing charges, accommodations charges, travel tickets.