What are the common deductions and exemptions allowed to salaried taxpayers filing their income tax returns?

Salaried employees constitute a significant portion of the overall taxpayers in the country, making a substantial contribution to tax collections. Income tax deductions provide a wide range of opportunities for tax saving among the salaried class.

Salaried individuals can take advantage of significant deductions and allowances to reduce their income tax liability. These deductions and allowances offer opportunities to lower the overall taxable income.

The major exemptions allowed to salaried taxpayers include:

Exemptions Allowed

House rent allowance

Salaried individuals who reside in rented accommodation can avail of the House Rent Allowance (HRA) benefit, which may be partially or completely exempt from income tax. However, if someone receives HRA but does not live in rented accommodation, it becomes taxable. In case you couldn't provide rent receipts to your employer as proof for claiming HRA, you can still claim the exemption while filing your income tax return. It is essential to retain rent receipts and evidence of any rent payments made.

The HRA exemption can be claimed based on the least of the following amounts:

• The total HRA received from the employer
• Rent paid minus 10 per cent of the basic salary + DA
• 40 per cent of the salary (Basic salary + DA) for non-metro cities and 50 per cent of the salary (Basic salary + DA) for metro cities.

Standard deduction

Starting from FY 2022-23, the standard deduction limit in the old regime is Rs. 50,000. According to the Budget 2023, this standard deduction of ₹50,000 is now also available to salaried taxpayers in the new tax regime, beginning from FY 2023-24.

Leave travel allowance

The Income Tax Act, 1961 provides a Leave Travel Allowance (LTA) exemption to salaried employees, limited to travel expenses incurred during their leaves. However, it's important to note that this exemption does not cover expenses related to the entire trip, such as shopping, food, entertainment, and leisure activities, among others.

During a block of four years, you can claim LTA twice. If, for any reason, an individual does not utilise this exemption within a block, they can carry it forward to the next block. It's important to note the following restrictions that apply to LTA:

• LTA can only be claimed for domestic travel and does not cover the expenses of international travel.
• The eligible modes of travel for claiming LTA include railway, air travel, or public transport.

Mobile reimbursement

Taxpayers often bear expenses related to mobile and telephone usage at their residences. Under the Income Tax Act, employees are eligible to claim tax-free reimbursement for such expenses.

The reimbursement can be claimed for either the actual bill amount paid or the amount specified in the salary package, whichever is lower.

Reimbursement on books and periodicals

Employees frequently have expenses related to books, newspapers, periodicals, journals, and similar items. Fortunately, the income tax law permits employees to claim tax-free reimbursement for these expenses.

The employee is eligible to claim reimbursement, and the approved amount will be the lower of either the actual bill amount or the amount specified in the salary package.

Food coupons are tax exempt

If your employer provides meal coupons like Sodexo, it is considered a taxable perquisite for the employee. However, there is a tax exemption on such meal coupons up to ₹50 per meal.

Based on 22 working days with two meals a day, the monthly benefit comes to ₹2,200 (22 * 100). Therefore, the annual exemption amounts to ₹26,400.

Relocation allowance exempt from tax

In today's business landscape, companies often operate in multiple locations across the country. Consequently, employees may be required to relocate to different cities for business purposes. Such relocations can entail various expenses, including shifting to a new house, transporting furniture and cars, covering car registration charges, enrolling children in new schools, and more. Fortunately, these expenses are typically covered by the employer, and sometimes the employer directly makes payments to cover these costs.

Education allowance for children

As part of your salary, the employer may offer an education allowance for your children's education. Fortunately, this allowance received from the employer is exempt from taxation.

However, there is a maximum exemption limit of ₹100 per month or ₹1,200 per annum that the employee can claim. The exemption is applicable for a maximum of two children.

Deductions Allowed

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

Section 80C of the Income Tax Act is widely utilised as a tax-saving option in India. Under this section, both individuals and Hindu Undivided Families (HUFs) can claim a deduction of up to ₹1.5 lakh for investments or expenditures made in specified tax-saving avenues. The Indian government encourages savings and retirement planning by supporting various tax-saving instruments such as Public Provident Fund (PPF), National Pension System (NPS), and others.

However, it’s important to note that expenses or investments made under Section 80C of the Act cannot be claimed as a deduction from income generated through capital gains. In other words, if an individual's income solely comprises capital gains, they cannot use Section 80C to save on taxes. Below are some of the eligible investments that can be claimed for an exemption under Section 80C, 80CCC, and 80CCD(1) up to a maximum of ₹1.5 lakh.

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

Medical expenditure and insurance premium under Section 80D

You can claim a deduction under Section 80D for medical expenses, specifically on medical insurance premiums paid for yourself, your family, and your dependent parents.

The deduction limits for Section 80D are as follows:

• ₹25,000 for premiums paid for self and family.
• ₹50,000 for premiums paid for senior citizen parents.

You can also claim a deduction of up to ₹5,000 for health checkups, which is included within the overall limit. Moreover, individuals can avail of an additional deduction of up to ₹50,000 for medical expenses incurred by senior citizens aged 60 years or above, or for medical expenses of senior citizen parents, provided they do not have coverage under any Mediclaim policy.

Your employer has the option to pay the premium for your medical insurance and deduct it from your salary. This premium payment made by your employer is also eligible for deduction under Section 80D of the Act.

Interest on home loans under Sections 80C and 24

Another significant tax-saving opportunity arises from the interest paid on home loans. Homeowners have the privilege to claim a deduction of up to ₹2 lakh for the interest on home loans for self-occupied property. In case the house property is let out, you have the advantage of claiming a deduction for the entire interest related to the home loan. However, it’s important to note that the loss from the house property that can be set off against other sources of income is now limited to ₹2 lakh.

Moreover, besides the interest deduction, you can also claim the principal component of the housing loan repayment as a deduction under Section 80C of the Act, with a maximum limit of ₹1.5 lakh.

Deduction on loan for higher studies under Section 80E

Under the Income Tax Act, individuals can claim a deduction for interest on education loans. To be eligible for this deduction, the loan must have been taken from a bank or a financial institution to support higher studies, either in India or abroad, pursued by the individual, their spouse, or their children.

The deduction can be claimed starting from the year in which the loan repayment commences and continues for the next seven years (a total of eight assessment years) or until the loan is fully repaid, whichever occurs earlier. This deduction is also available to legal guardians.

In summary, the Act allows for a deduction on education loan interest for those who meet the specified conditions, facilitating financial support for higher education.

Deduction on donation under Section 80G

Section 80G of the Income Tax Act, 1961 grants income tax deductions to taxpayers who contribute donations to charitable organisations. The deduction amount varies depending on the recipient organisation, allowing individuals to claim either 50 per cent or 100 per cent of the donated amount, with or without restrictions.

Deduction on savings account interest under Section 80TTA

Under Section 80TTA of the Income Tax Act, 1961, Individuals and HUFs can claim a deduction of up to ₹10,000 on the income earned from savings account interest. If the income from bank interest is below Rs. 10,000, the entire amount will be allowed as a deduction.

However, if the income from bank interest surpasses ₹10,000, the amount exceeding the limit will be taxable.

Deduction on interest on home loan under Section 80EE

Homeowners can avail of an additional deduction of ₹50,000 under Section 24 on the interest component of their home loan EMI under Section 80EE of the Act. However, this deduction is subject to the following conditions:

• The loan amount must not exceed ₹35,00,000.
• The value of the property must not exceed ₹50,00,000.
• The individual should not possess any other property registered in their name at the time the loan is sanctioned.

Exemptions on perquisites received

The employer provides cab facility transportation

Employers typically offer cab facilities for commuting between the office and employees' residences. This service is not treated as a taxable perquisite for the employee. Instead, it is considered an expense for the employer.

According to the Indian Income Tax Act, if a company or employer provides any vehicle for an employee's journey from their residence to the office or any other place of work, it is not considered a taxable perquisite, regardless of whether it is provided free of cost or at a concessional rate.

Furthermore, any gifts or vouchers provided by an employer in cash or in kind are eligible for tax exemption up to ₹5,000 per year.

Medical expenses incurred by an employee outside India are eligible for reimbursement

In instances where the employer incurs medical treatment expenses outside India for:

• The employee.
• Any member of the employee's family.
• Travel and accommodation abroad for the employee or any member of the family in connection with the medical treatment.
• Travel and accommodation abroad for the patient and one attendant accompanying them for medical treatment.

The above expenses would be exempt from tax for the employee, subject to the following conditions:

• The expenditure on medical treatment and stay abroad shall be exempted only to the extent permitted by the Reserve Bank of India.
• The expenditure on travel shall be excluded from the perquisite only if the employee's gross total income, as computed before including the said expenditure, does not exceed ₹2 lakh.

The last date for filing the ITR is July 31 this year, thus, implying the need to have all documents concerning income, expenditures, deductions, and exemptions in place to be able to file the ITR form on time.