Tax Planning for Salaried Employees - Know the Rules on Allowances

Tax Planning for Salaried Employees - Know the Rules on Allowances Salaried employees can save taxes by meticulously utilising the gamut of exemptions and deductions available under various sections in the Income Tax India Act , 1961 . This part covers the exemption of allowances . A House Rent Allowance ✔ What is allowed ? EE F BwE Any payment towards rent is allowed as an exemption , the salaried individual has to produce rent receipts / Leave and License agreement to claim this exemption . How much is allowed ? The least of the following is allowed as HRA exemption : 1. Total HRA received from your employer . II . Rent paid less than 10 % of Salary * III.40 % of salary for non - metros and 50 % of salary for metros . * Salary for the purpose of HRA calculation is defined as Basic salary + Dearness Allowance as per the Income Tax India Act , 1961 . Who is eligible ? Any salaried individual who stays in rented accommodation can benefit from HRA . C Leave Travel Allowance ( LTA ) : ✔ What is allowed ? PASSPORT LTA covers domestic travel and not international travel . You can claim LTA two times in a block of 4 calendar years . There is an option to carry forward one out of the two journeys in the next LTA block period . How much is allowed ? LTA is restricted to the travel expenses incurred during the travel . The mode of travel should be either through railway , air travel or public transport . Available for employee and his family . E Who is eligible ? A salaried employee who has travelled by availing leaves at his workplace . Children Tuition Fee Allowance SCHOOL TUITION BUS EEE E ww M ₹ TAX B Standard Deduction D ☆ What is allowed ? The standard deduction is a flat deduction from the total salary . It was introduced in place of transport and medical allowance . The standard deduction is allowed from salary income only if the taxpayer files for taxes under the old regime . It is not allowed to the taxpayer for filing of return in the new tax regime . ✔ What is allowed ? TAX How much is allowed ? 50,000 is allowed as a standard deduction for all salaried individuals and pensioners . Who is eligible ? Salaried individuals and pensioners are eligible to claim the standard deduction by default . There is no requirement of any proof to claim this allowance . Food coupons This is a form of perquisite which is extended by the employer , it could be in the form of meal coupons . These food coupons are taxable as perquisites in the hands of the employee . How much is allowed ? Meal coupons are exempt up to ₹ 50 per meal , on a per - day basis . Who is eligible ? Salaried individuals whose employer provides food coupons are eligible to claim this allowance . What is allowed ? Any education allowance for your children received as part of your salary will be allowed for an exemption . The allowance has to be provided by the employer as part of your salary stack . How much is allowed ? The employee is allowed to claim a maximum of 100 per month as exemption or 1200 per annum . The exemption is available for a maximum of 2 children . Who is eligible ? Salaried employees who are provided education allowance as part of their salary by the employer are eligible . Please consult a tax advisor / consultant to better understand income tax rules , applicable basis individual circumstances . Sources : 1. https://www.financialexpress.com/money/income-tax/top-10-list-of-income-tax deductions - for - ay - 2021-22 for - salaried - employees - tax - benefits - on - payments - investments - and - incomes / 2291512 / 2. https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1 This is an investor education and awareness initiative by PGIM India Mutual Fund . Mutual Fund investments are subject to market risks , read all scheme related documents carefully .