Is heavy tax bothering you? Don’t worry, income Tax Exemptions and deductions, give you plenty of opportunities to save tax. By using these exemptions and deductions wisely, you can reduce your tax substantially. In fact, exemptions and deductions reduce the tax liability in lacs. In this post, I am listing the available exemptions and deduction under income tax act. Use these and enjoy the tax saving.
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Exemptions on Allowances Under Section 10 of Income Tax Act
1. House Rent Allowance (HRA)
You may have not noticed but HRA tax exemption may give you maximum benefit. I am missing this deduction after the self-employment. However, this exemption is a real necessity. It is justified You get a job and shift to another city. Because of your job, you live in a different place. You are forced to live in a rented accommodation. The rented flat is not by choice but because of the duty. Hence, the expense on rent is because of your job. You can’t avoid this, even if you wish. Therefore, government exempts the rent from income tax. However, you are not entitled to get this exemption automatically. Rather, your employer should pay the House rent allowance with the salary.
The HRA paid by the employer is considered for the exemption. I don’t get the HRA exemption because I don’t have an employer who can pay HRA. However, full HRA is not considered for income tax exemption. It is given according to the following formula.
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HRA Exemption Formula
Exemption of HRA is a minimum of these three.
1. Actual HRA received.
2. Rent paid less 10% of salary.
3. 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi). In this case, salary is basic plus dearness allowance (basic+DA).
Download Automatic House Rent Exemption Calculator
Leave Travel Allowance
If your employer also gives you an allowance for the vacations, It is also entitled to the income tax exemption. Employers give Leave travel allowance to its employees. you can claim LTA only if you have actually traveled. You must be on leave during this travel. Only travel fare is considered for the exemptions. Hotel stay and the food are not entitled. You can claim income tax exemption only on the travel of yourself and family. The LTA can be claimed only twice in a three-year block. You have to produce the proof of traveling.
Transport Allowance
You go to your office or workplace from your house. You also spend on the local transport. This expenditure is also forced upon you. Therefore, the government has exempted transport allowance from the income tax, provided your employer gives you the transport allowance. You don’t need to give any receipt of this local travel. However, the tax exemption is limited to Rs 1600/month.
Children Education Allowance
Children Education allowance is also exempted from income tax. Your employer must give this allowance for availing the tax exemptions. It is Rs. 100 per month per child up to a maximum of 2 children.
Hostel Subsidy
This is another tax exemption related to your child’s education. It is Rs. 300 per month per child up to a maximum of two children. Your employer must give this allowance.
Other Allowance Eligible For Income Tax exemptions
Uniform Allowance, Special Compensatory Allowance, High Altitude Allowance, allowances applicable to North East, Compensatory Field Area Allowance, Counter Insurgency Allowance, High Active Field Area Allowance, island duty allowance, tribal allowance etc. These allowances are tax-free, but you need to produce the proof of the actual expense in some cases.
Income Tax Exemption on Interest Paid on Housing Loan
This Exemption is also related to your accommodation because of the job. After shifting to a different place, you may opt for your own house instead of rented accommodation. If you take the home loan for the house, the interest payment is tax exempted. You can get maximum exemption of Rs 2 lakh on housing loan interest. There are some conditions for this exemption.
The house should be self-occupied. You may get this exemption if your home is under construction. however , he construction should complete within 3 years.
