Learn about Allowances and Deductions available to a Salaried person

All salaried staff are eligible for some type of deduction when it comes to paying taxes. These vary in accordance to the hierarchy of the employees based on which they avail of different types of benefits. However, some deductions are applicable to all. These are better known as Standard income tax on employees. The Income tax Act of 1961 makes it mandatory for all employers to hold back taxes when they make payments to their employees. From the financial year 2020-21, salaried personnel have been offered two choices to file their taxes. They can file them under the old or new tax regime. If they file their returns under the new tax regime, they do not have to furnish any documents or proof of investments.

However, under the new income tax regime, the company considers the contribution of employees to the National Pension Scheme (NPS) in the process of calculating the taxes. If they choose the old tax regime option, the salaried persons will have to furnish all necessary documents of their respective investments. This article will give you a clear understanding of how salaried personnel can enjoy specific allowances and deductions. Please note that if your net taxable income for the financial year of 2021-22 does not exceed ₹5 lakh under the old or new tax regimes, you are not liable to pay taxes. In case your employer has not yet deducted tax as per the said requirements, you must furnish all the necessary documentation of your investments so that your employer does not deduct an excess amount of TDS.

Did you know?

In the new tax regime, the tax rate for high net worth individuals has not been reduced. This means, they will continue to pay 42.1%. This is the highest tax rate that is currently exercised in India.

Also Read: Basic Salary in India - Explained with Calculation

Special Allowances Exempt From Income Tax U/S 10 for Salaried Individuals

Salaried employees are able to benefit from various allowances under Section 10 of the Income Tax Act. There are some special allowances under Section 10 (14) that get exempted from taxation.

Section 10 (14)

Under this section, the allowance given for salaried employees is exempted on the following conditions:

The amount of allowance

The amount used for the purpose for which it was granted.

Section 10 (14) (i)

Under this section, salaried employees can avail exemption on the expenses they incur on specific office tasks. These include:

Leave Travel allowance

Employees who make business trips on behalf of the company are entitled to a travel allowance. These cover the cost of the travel, packaging, transportation, and transfer of personal items. This will not include your personal expenses like entertainment, sightseeing, shopping, and leisure activities.

Daily allowance

This allowance is given to meet the salaried persons daily expenses while travelling on behalf of the company.

Conveyance allowance

When salaried employees travel outstation on official work, they incur expenses on commuting.

Helper allowance

In the course of official work, if salaried employees require physical assistance of any kind, they are allowed to hire additional labour. The money they spend on the helpers can be later obtained in the form of helper allowance.

Academic or Research allowance

There are many individuals who pursue advanced studies during the weekend or attend night college. They can avail of academic or research allowance.

Uniform allowance

As the name indicates, salaried staff who spend on the purchase of company uniforms for themselves and incur expenses in the maintenance of the same can claim this type of an allowance.

As per the rules of the above section, it is not imperative for the salaried staff to provide details unless the management finds some discrepancy. They can simply make a declaration and avail of the allowances.

House Rent allowance

Salaried employees living on rent can avail of this type of allowance. The amount can be partly or fully exempted from the tax amount computed for you. In case you are living in a purchased property but receive HRA benefits, then that amount will be taxed accordingly. 

Section 10 (14) (ii)

This section entitles those employees to avail of distinct allowances if they are made to work under specific conditions. These include

Compensatory allowance

Salaried employees working at high altitudes or hi-risk areas can claim compensatory or climate allowance

Field area allowance

This is applicable in states of Sikkim, Manipur, HP, UP, AP, Nagaland as well as Jammu & Kashmir.

Counter insurgency allowance

This is applicable to all armed forces

Island duty allowance

Applies to armed forces personnel stationed in islands like Lakshadweep or Andaman & Nicobar.

Special Category of Salaried Employees

A distinct category of salaried employees who benefit from allowance exempted under Section 10 include:

• Allowances given to High Court Judges
• Allowances given to UNO employees
• High Court and Supreme Court Judges avail of Sumptuary allowances
• Government employees (Indian citizens) who work abroad 

Section 80D

Medical Insurance deduction

Under this section, salaried employees can ease their tax liability by way of investing in health insurance premiums. The premium could be paid by the employees for themselves, their families or parents who depend on them.

The limit for deduction amounts to ₹25,000 for insurance premium. However, if you are paying insurance premiums for your parents who are senior citizens, you can avail of a deduction of up to ₹50,000. In some organisations, the employer pays the premiums on behalf of their salaried employees and makes the deductions accordingly from individual salaries. In such situations, salaried individuals can claim deductions under Section 80D.

Also Read: All About Special Allowance - its Taxation & Calculation in India

Section 80C and Section 24

Home Loan Interest

 Salaried employees can claim deductions on the interest that they pay if they have taken loans to buy property. They can claim up to ₹2 lakhs in deduction.

Section 80TTA

• Deductions on the Interest obtained from Savings account:

In case salaried employees are earning some income from their savings accounts, they can claim deductions to the tune of ₹10,000. This is applicable for individuals and Hindu Undivided Families (HUF). If the income accrued from the interest is less than ₹10,000, the entire amount is eligible for deduction but if it exceeds this amount, it becomes liable to taxation.

Various Documents Needed to Avail of Specific Tax Deductions

Salary

Investments

All employers allow a standard deduction to their salaried employees. Standard deductions refer to that part of a salary or income which is not liable for taxation. This helps ease the burden of tax payments of salaried employees. In simple words, this is a fixed deduction made by employers from the salaries of their employees regardless of the designation they occupy in the organisation. This reduces the income which needs to be taxed and provides relief to the employees who are required to pay less amount by way of taxation. 

Conclusion

The details of this article give you an indication of the various allowances which salaried employees are eligible for. It also gives you an understanding of all the important documentation you need to maintain as proof to avail of these allowances. You can also seek professional advice and assistance from the company’s finance department or your own chartered accountant. Such professionals will guide you on the best investments to ease your tax burden.

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