What is the difference between Exemption and deduction?
If an income is exempt from tax, then it is not included in the computation of income. However, the deduction is given from income chargeable to tax. Exempt income will never exceed the amount of income. However, the deduct may be less than or equal to or more than the amount of income.
Download and prepare at a time 50 employees Form 16 part B for F.Y.2016-17 [ This Excel utility can prepare at a time 50 employees Form 16 Part B for F.Y. 2016-17 & A.Y.2017-18]
Allowances available to save tax on salary income-
First, let us consider the allowances which give you an exemption in your salary.
1) Mobile/Telephone Reimbursement-If your employer offering you the mobile/telephone connection or internet connection which requires for work, then you can claim 100% of such cost. However, you have to produce the bill. Only the postpaid connections are allowed for reimbursement.
2) Medical Allowance-This is the allowance provided to the employee to meet the treatment cost to him or his family. The maximum limit per year is Rs.15,000. Anything more than that will be taxable income to the employee.
3) Leave Travel Allowance-The bills for your travel against LTA can be claimed for exemption. It is allowed to be claimed twice in a block of four years. The current block is 2014 to 2017. You can carry forward your unclaimed LTA to the next year. You can request your employer to not deduct tax on it and allow you to claim it next year.
4) Entertainment Allowances-You may be getting this allowance. However, the exemption is available only for Government employees. The amount of exemption is least of the following.
a) Rs 5,000
b) 1/5th of salary (excluding any allowance, benefits or other perquisites)
c) Actual entertainment allowance received
5) House Rent Allowance (HRA)-This is the famous exemption which is used by many salaried individuals. However, the wrong belief is that whatever the rent they pay is actually exempted from their income. The reality is different. The amount of exemption is least of the following.
a) Actual HRA Received
b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Madras)
c) Rent paid minus 10% of salary
(Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission)
6) Children Education Allowance-If your employer providing this allowance, then you can take exemption up to Rs.100 per month per child (maximum of up to 2 children). Therefore, monthly you can save Rs.200 from this allowance. The exemption may seem so low. But why to pay the tax?
7) Hostel Expenditure Allowance-If your employer providing this allowance, then you can take exemption Up to Rs. 300 per month per child up to a maximum of 2 children is exempt. Therefore, you can save around maximum of Rs.600 from this allowance.
8) Transport Allowance-This allowance is provided to you to meet expenditure on commuting between place of residence and place of duty. The extent of exemption is Rs.1,600 per month. For blind and handicapped employees is Rs.3,200 per month.
9) Conveyance Allowance-This is the different allowance than transport allowance. It is the expenditure granted to an employee to meet the expenses on conveyance in performing of his office duties. There is no limit for this. If such conveyance allowance is Rs.5,000 a month, then the whole allowance is exempt. Hence, you may this may be exempt to the extent of expenditure incurred for official purposes.
10) Any Allowance to meet the cost of travel on tour or on transfer-Here also no limit. The employee can claim exempt to the extent of expenditure incurred for official purposes.
11) Allowance to meet the cost of travel on tour or on transfer-Here also no limit. The employee can claim exempt to the extent of expenditure incurred for official purposes.
12) Daily Allowance-If you are not placed in normal duty place, then your employer may provide you such allowance. The employee can claim exempt to the extent of expenditure incurred for official purposes.
These are the major allowances, which can be utilized to save tax on salary income. There are few other allowances also to claim the exemption. But many of such allowances are not so famous. Hence, I left them to list.
Download and prepare at a time 100 employees Form 16 Part B for F.Y.2016-17 [ This Excel Utility can prepare at a time 100 employees Form 16 part B for F.Y.2016-17 or A.Y.2017-18]
Deductions available to save tax on salary income-
1) Sec.80C-This is the famous section which often used by all of salaried. The maximum limit for the current year is Rs.1,50,000. Therefore, up to Rs.1,50,000, you can save tax on salary income from this section alone. The different investments you do and can also be claimed under Sec.80C are listed below.
- Life Insurance premium (Paid by an individual, spouse, and child. In the case of HUF, on the life of any member of HUF).
- EPF-Employee contribution can be claimed for deduction.
- Public Provident Fund (Paid by an individual, spouse, and child. In the case of HUF, on the life of any member of HUF).
- National Savings Certificate (NSC).
- Sukanya Samriddhi Account
- ELSS or Tax Saving Mutual Funds.
- Senior Citizen Savings Scheme.
- 5-Years Post Office or Bank Deposits.
- The tuition fee of kids.
- Principal payment towards home loan.
2) Sec.80CCC-Contributions to certain pension plans of LIC or any other insurers. The limit is Rs.1,50,000.
3) Sec.80CCD–
Sec.80CCD 1-Employee’s up to 10% of Basic+DA and the maximum limit of Rs.1,50,000 can be claimed under this section. For self-employed, the limit is 10% of their annual income and the maximum limit is Rs.1,50,000.
Note-The combined limit of Sec.80C, Sec.80CCC and Sec.80CCD1 is Rs.1,50,000 per year.
Sec.80CCD 2-This will not be part of Sec.80C, Sec.80CCC, and Sec.80CCD. This section is helpful only for employed individuals. Because an employee can claim employer’s deduction of what they paid towards NPS. However, there is some condition to it. The lowest of the below 3 can be claimed by an employee under this section.
a) Amount contributed by an employer
b) 10% of income from salary (Basic+DA)
c) Gross Total Income
Sec.80CCD 1(B)-From financial year 2015-16, an additional benefit of Rs.50,000 is available for NPS contributors. This will not form the part of Sec.80 CCD 1.
4) Sec.80CCG-50% of an amount invested in Rajiv Gandhi Equity Savings Scheme (RGESS) will be claimed under this section. The maximum investable limit in RGESS is Rs.50,000. So one can claim the maximum deduction of Rs.25,000 only.
5) Sec.80D-Premium paid towards health insurance will be claimed for deduction under this section. Also, for preventive health check up of up to Rs.5,000 can also be claimed. I tried to explain the same in below image for your simplicity. You can save tax on salary income by buying health insurance for your family and parents.
6) Sec.80DD-You can claim up to Rs.75,000 as medical expenses on treatment of your dependents (spouse, parents, kids or siblings) who have 40% disability. If it is a severe disability, then the limit is Rs.1,25,000.
7) Sec.80DDB-An individual (less than the 60 years of age) can claim up to Rs 40,000 for the treatment of specified critical ailments. You can also claim on behalf of the dependents. For senior citizens, it is Rs.60,000 and for very senior citizens (above the 80 years of age) the limit is Rs.80,000.
For claiming deductions, you may obtain doctor Certificate or prescription from a specialist working in a Govt or Private hospital. Following diseases are eligible for claiming under this section as the deduction.
1) Neurological Diseases where the disability level has been certified to be of 40% and above;
(a) Dementia
(b) Dystonia Musculorum Deformans
(c) Motor Neuron Disease
(d) Ataxia
(e) Chorea
(f) Hemiballismus
(g) Aphasia
(h) Parkinson’s Disease
(b) Dystonia Musculorum Deformans
(c) Motor Neuron Disease
(d) Ataxia
(e) Chorea
(f) Hemiballismus
(g) Aphasia
(h) Parkinson’s Disease
2) Malignant Cancers
3) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;
4) Chronic Renal failure
5) Hematological disorders) Hemophilia
a) Hemophilia
b) Thalassaemia
8) Sec.80E-Educational loan taken on self, spouse, children or for the student of whom you are legal guardian can be claimed under this section for deduction. Only interest paid can be claimed but there is no benefit on the principal payout. If you took the loan from financial institutions or approved charitable trust for pursuing higher education, then only you can claim the deduction. Loan taken from relatives or friends will not be eligible for the claim. However, education may be in India or abroad.
9) Sec.24 (B)-Interest part of your home loan EMI will be claimed under this section. The maximum limit for the self-occupied property is Rs.2,00,000 per year. For let-out property, the entire interest payment of home loan can be claimed for deduction.
10) Sec.80EE-Earlier any interest payment towards home loans will be available for tax benefit under Sec.24 of IT Act up to Rs.2,00,000 in a financial year. Now this is raised to another Rs.50,000. However, this additional Rs.50,000 tax benefit on the interest of home loan will be available for below categories of loans.
- This deduction would be allowed only if the value of the property purchased is less than Rs. 50 Lakhs and the value of loan taken are less than Rs. 35 Lakhs.
- The loan should be sanctioned between FY 2016-17.
- The benefit of this deduction would be available up to the time the repayment of the loan continues.
- This Deduction would be available from Financial Year 2016-17 onwards.
11) Sec.80G-Donations to certain approved funds, trusts, charitable institutions/donations for renovation or repairs of notified temples, etc will form the part of this deduction. You have to pay either through cheque or DD if your contribution is more than Rs.10,000.
12)Sec.80GG- You can utilize this section to save tax on salary income if you are not getting HRA in your salary. Few highlights and eligibility criteria are as below. Max Limit Rs. 60,000/- P.A. or Rs. 5000/- P.M.
- This section is only applicable to Individual or HUF.
- Tax Payer may be either salaried or a self-employed. However, must not be getting HRA.
- Tax Payer may be either salaried or a self-employed. However, must not be getting HRA.
- Tax Payer himself or spouse/Minor Child/HUF of which he is a member should not own any accommodation at a place where he is doing a job or business
- If Tax Payer owns the house at a place other than the place noted above, then the concession in respect of self-occupied property is not claimed by him [Under Section 23 (2) (a) or 23 (4) (a)].Tax Payer has to file a declaration in
- Tax Payer has to file a declaration in Form No.10BA regarding the expenditure incurred by him towards the payment of rent.
If the above five conditions are satisfied, the amount deductible under Section 80GG is LEAST OF THE FOLLOWING.
- Rs.5, 000 per month (earlier it was Rs.2,000 per month. But from Budget 2016, it was raised to Rs.5,000 per month);
- 25% of total income of taxpayer for the year; or
- Rent Paid less 10% of total income (Rent Paid-10% of Total Income).
13) Sec.87A-Tax rebate in the case of an individual resident in India, whose total income does not exceed Rs.5,00,000. The limit of rebate shall be an amount equal to 100% of such income-tax or an amount of Rs.5,000, whichever is less.
15) Sec.80TTA-You can claim the deduction of up to Rs.10,000 on interest earned from your savings bank, post office, or co-operative society. However, please note that such deduction is not available for interest earned on your FDs. This is only for interest earned from SAVINGS account.
