The salaried employees are always in a frenzy about taxes and plans out ways to save it. The allowances and perquisites received by a salaried person is either fully taxable or partly taxable or exempt. The article below illustrates different ways in which salaried class can save their taxes.
1. Standard Deduction
Standard Deduction, re-introduced in 2018 budget, has replaced the conveyance allowance and medical allowance. A deduction of flat Rs. 40,000 (for FY 2018-19)/50,000 (for FY 2019-20) can be claimed by the employee from the total income, reducing the tax outgo.
2. House Rent Allowance
Any salaried employee who lives in a rented house can claim HRA. This can be partially or fully exempt based on the least of-
- Actual HRA received
- 50% of (basic salary + dearness allowance) for Delhi, Mumbai, Kolkata & Chennai and 40% of (basic salary + Dearness allowance) for non-metros
- Rent paid – 10% of (basic salary + dearness allowance)
If at any time, rent paid is more than Rs. 1 lakh, PAN card number if the landlord must be given to the employer.
3. An alternate to HRA- Deduction of rent paid u/s 80GG
If any person does not receive a House Rent Allowance and pays rent, he can claim a deduction of the rent paid under Section 80GG if he fulfills any of the following conditions-
- The payer is self-employed or salaried.
- The person has not received HRA in the year in which he is claiming deduction u/s 80GG.
- The person, his spouse or any of his minor children, HUF, does not own any residential accommodation in the same place where the person has a rented an apartment.
- If a person owns any residential property at any place, he cannot claim deduction u/s 80GG.
4. Leave Travel Allowance
Leave Travel Allowance can be claimed by the employee for any trip in India. One can claim LTA twice for two domestic trips with family in block of four years. The present block is 2018 – 2021.
- The exemption is available for the shortest distance on travel.
- The travel can be done either by the employee alone or with his blood relatives i.e. spouse, children, parents (dependent) and/or brother-sister (dependent).
- The employee can avail exemption on actual expenditure incurred by submitting the bills of the travel to the employer.
5. Meal Coupons
Meal coupons are exempt from tax up to Rs. 50 per meal. This includes 2 meals per day for 22 working days (assumption). Therefore, annual exemption comes up to Rs. 26400.
6. Gift Vouchers
Any gift received by the employer on birthday or anniversary is exempt up to Rs. 5000 per year.
7. Relief under Section 89(1)
Relief u/s 89(1) is allowed only if employee have received a portion of his salary in arrears or advance or have received family pension in arrears.
8. Other Allowances & reimbursement of expenses
These are some other allowances & reimbursements which could be used to save tax on salaries:
- Medical reimbursement
With the introduction of Budget 2018, medical reimbursement is no more exempted as it is now included in Standard Deduction of Rs. 40,000/50,000.
- Transport allowance
With the introduction of Budget 2018, transport allowance is no more exempted as it is now included in Standard Deduction of Rs. 40,000/50,000
- Mobile phone and internet bill reimbursement
Mobile phones and internet used for the official purpose is tax-free and an employee can claim reimbursement of such bill from the employer.
- Uniform allowance
Any company who has a dress code for its employees must reimburse the money spend on uniform by the employee. Amount up to Rs. 24,000 per annum spent on uniform is tax-free.
- Newspaper or journal reimbursement
On providing of bill for newspaper or journal, amount up to Rs. 12,000 per annum is exempt from tax.
- Educational Allowance
- Amount up to Rs. 100 per month per child up to a maximum of 2 children is exempt from tax.
- For hostel expenditure, expenditure is available to the extent of Rs. 300 per month per child up to a maximum of two children.
Note: This represents an illustrative list of deductions/exemptions that can be claimed for salary income.