Major Exemptions & Deductions Availed by Taxpayers in India

Major Exemptions & Deductions Availed by Taxpayers in India

Exemptions & deductions provided under the Income Tax Act helps in reducing the tax liability of persons during each financial year.

A lot many of the individuals find the current taxation system as difficult to comprehend. The taxation rates for individuals is based on the income earned by an individual and his residential status. The Government of India, has over the years by way of amendments in the Finance Act has provided taxpayers in India more than 70 exemptions as well as deductions options through which the individuals can bring their taxation liability.

Major Exemptions availed by Taxpayers in India are:

– Standard Deduction
Standard Deduction was introduced by the then Finance Minister, Mr. Arun Jaitley through the budget of Assessment Year 2019-2020. This deduction replaced the transport allowance of 
₹19,200 and medical reimbursement of ₹15,000 per annum. It is deducted from the gross salary and the current amount of standard deduction has been increased from ₹40,000/- to ₹50,000/-

-House Rent Allowance
House Rent Allowance is an exemption under Section 10(13A) of the Income Tax Act, 1961. HRA can be availed by only those salaried individuals who are residing in rented house. The value amount of HRA is lowest of the following:
a) HRA amount specified by the company in salary structure
b) 10% of basic salary substracted by the actual rent paid
c) 50% of basic salary, in case of metro city
d) 40% of basic salary, in case of non-metro city

Also Read: Can I claim HRA even if I own a house?

– Leave Travel Allowance
Leave Travel Allowance is an allowance received by the employee from his employer for traveling on leave. This exemption is available solely for the actual journey within India. This exemption is available for travel of employee alone or with his family. Family includes the employee’s spouse, children and wholly or mainly dependent parents, brothers, and sisters of the employee. Further, such an exemption is not available for more than two children of an employee born after 1 October 1998.

– Mobile and Internet reimbursement
The expenses incurred by salaried individual on mobile and internet during the course of employment is fully exempted from tax.

– Food Coupons or Voucher
As per the provisions of the Income Tax Rules, the value of free food and non-alcoholic beverages or meal vouchers provided by the employer is exempt from income tax to the extent of 50 per meal.

– Company Leased Car
The car given by employer to its employee is exempted from tax. The EMI on car lease which is paid by the employer is reduced from the employee’s salary resulting in reduction of taxable amount. Further, reimbursement of expenses associated with the car (such as driver’s salary, fuel, repairs and maintenance) are also considered as non-taxable.

– Uniform Allowance
Uniform allowance is an exemption wherein the employee gets allowance for the expenses incurred in purchasing and maintaining the uniform to be worn during the course of employment.

– Leave Encashment
Leave encashment received by centre and state government employees at the time of retirement is fully exempted from tax. However, in case of other employees exemption is limited to the least of the following:
(a) Cash equivalent of unutilized earned leave (earned leave entitlement can not exceed 30 days for every year of actual service)
(b) 10 months average salary
(c) Leave encashment actually received. This is further subject to a limit of Rs 3,00,000 for retirements after 02.04.1998.

Major Deductions availed by Taxpayers in India are:

– Public Provident Fund
Public Provident Fund also known as PPF is a long term tax saving instrument. The interest as well as the return amount on PPF is free from tax. The deduction of PPF is covered under Section 80C of the Income Tax Act, 1961 and the maximum limit of deposit under this section is ₹1,50,000/-.

-Equity Linked Savings Scheme
Equity Linked Savings Scheme i.e., ELSS are tax saving mutual funds instrument. They are suitable for long term as well as short term investments, as the lock in period of just 3 years. They are also covered under Section 80C. Therefore, the maximum limit of deposit under this section is ₹1,50,000/-.

– Employees Provident Fund
Under the Employees Provident Fund, both the employer and employee make a contribution of 12% each from employees’ dearness allowance and basic salary. Amount withdrawn after five years of continuous service or amount withdrawn less than ₹50,000/- does not attract any TDS.

– Life Insurance Premium
As per Section 80C of the Income Tax Act, the premium paid towards life insurance policies up to the maximum limit of 1,50,000 is eligible for tax deduction and deductions are applicable if the amount of premium paid in a financial year is 20% of the sum assured amount of the policy. This is related only to the life insurance policies that have been issued before 31st March 2012.

For policies which were issued after 1st April, 2012, the tax deductions are applicable of the amount of premium paid in a financial year is 10% of the sum assured.

Also Read: Best Ways to Save Tax other than Section 80C

-Principal and Interest on Home Loan
The Income Tax Act, 1961 provides deduction for principal amount as well as interest on home loan. However, in order to avail such deduction, home loan must be taken for the purchase/construction of the house and the house must be constructed within 5 years from the end of financial year in which loan was taken. The interest portion of the EMI paid for the year can be claimed as a deduction from your total income up to a maximum of 2 lakh under Section 24 of the Act. From the Assessment Year 2018-19 and onwards, the maximum deduction for interest paid on Self Occupied house property is 2 Lakh. On the other hand, for let out property, there is no upper limit for claiming interest. However, the overall loss one can claim under the head of House Property is restricted to 2 lacs only. This deduction can be claimed from the year in which construction of the house is completed.

– Children Tuition Fees
Individual, being a parent can avail deduction on the amount paid as tuition fees to school/college/university or any other educational institution. Such deduction is available under Section 80C of the Income Tax Act, 1961 and maximum amount of deduction under this section is ₹1,50,000/-

– Health Insurance
Every year, an individual can claim a deduction of up to ₹25,000/- for health insurance of self/dependent children. If the individual or individual’s spouse is of 60 years or more, then deduction of up to ₹50,000/- can be availed.

– Pension Schemes
Investment in National Pension Scheme(NPS) was introduced by the government in the year 2004. Initially, only central government employees could avail the deduction of NPS but later on, it was amended and all the resident Indians can claim this deduction. This deduction is covered under Section 80C of the Income Tax Act, 1961.

– Savings Account Interest
Interest on savings account is exempted from tax up to a certain limit. As per Section 80TTA of the Income Tax Act, for individuals up to the age of 60 years, the maximum deduction available is ₹10,000/-. On the other hand, as per Section 80TTB, for individuals of 60 years or above age, the maximum deduction available is ₹50,000/-

Please note the above list of exemptions and deductions is not exhaustive. 

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