When you receive your salary payslip, you may have observed that your salary has a break-up of different components. These components include allowances that help with your day-to-day expenses and also give you the opportunity to save up on your tax out-gos if you make timely claims.
To make the most of tax exemptions allowed by the Income Tax Department in India, here are the 5 most common components in a salary that come with this benefit.
In India, the employee and employer, each, are required to contribute 12 percent of the employee's basic salary and dearness allowance towards Employees' Provident Fund (EPF). The share of employee's contribution is fully exempt from income tax under section 80C within its slab of Rs 1.5 lakh.
2. House Rent Allowance
If your employer has made HRA a part of your salary, it is partially exempt from income tax.
A minimum of the following amount will be exempt from tax:
- Actual HRA received
- Rent paid minus 10 percent of basic salary + dearness allowance
- 40 percent (50 percent if you live in a metro city) of basic salary + dearness allowance
3. Leave Travel Allowance
LTA, also known as Leave Travel Concession, is provided by employers to help with travel expenses made by the employee to travel to with his/her family to any place in India.
The tax exemption comes under section 10(5) and can only be claimed by the employee on submitting bills/tickets to the employer.
However, this benefit cannot be claimed every year. The exemption is available on only 2 trips in a block of 4 years. The ongoing block period is calendar year 2018 to 2021.
Family in this context will be spouse, children, parents, and brothers or sisters wholly dependent on you. Further, the exemption can only be availed on travel expenses and not on hotel or food charges.
4. Children’s Education Allowance
Education allowance received from employer is exempt from taxable income up to Rs 100 per month or Rs 1,200 per annum per child. One can also claim deductions for tuition fees paid towards child's education under section 80C.
Hostel Expenditure Allowance received is exempt up to Rs 300 per month or Rs 3,600 per annum per child to meet expenses of hostel accommodation of the child.
Note that exemption on these allowances are only limited to 2 children of the employee.
5. Food Coupons
While some employers provide provision to employees during working hours, some provide vouchers like Sodexo coupons. These vouchers are tax-exempt to the extent of Rs 50 per meal. On calculation of 22 working days in a month and 2 meals per day, these are tax exempt up to Rs 2,200 per month and Rs 26,400 annually.
Some other allowances
- Allowance received for mobile or internet bill on usage for work purposes are exempt from tax.
- Gift vouchers provided by employers are tax exempt up to the extent of Rs 5,000 per year.
- Uniform allowances up to Rs 24,000 per year are allowed to those employees who need to wear uniform to work.