Exemptions on Allowances Under Section 10 of Income Tax Act as per Budget 2017

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 and required.

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.

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).

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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.

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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, and Phy.disable person can get the benefits Rs. 3200 P.M.

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.

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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, the construction should complete within 3 years.

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Tax Deductions Under Section 80C

The Government wants to encourage some certain types of investments and expenses. To achieve this goal it gives the benefit of tax deductions under section 80C. There are many investments and expenses under section 80C, 80CCC, and 80CCD. However, the total deductions under this section are limited to Rs 1.5 lakh.

· Employee Provident Fund

· Pension/ Annuity Schemes

· Life insurance premium

· Tax Saving mutual fund (ELSS)

· Home loan principal payment

· Sukanya Samriddhi Account

· Tuition fees of children

· PPF Account Contribution

· National Saving Certificate

· Tax-saving fixed Deposit

· Post office time deposits

Section 80CCC: Deduction For Annuity Plan

You can also get a deduction for the annuity plan of insurance companies. There are some limitations on this deduction.

· You can’t contribute more than 10% of your salary or gross income.

· You can’t enjoy the deduction of more than Rs 1 lakh in a year.

Section 80CCD(1) : Contribution For Pension Plan

Similar to annuities, contribution in pension plans is also eligible for tax deduction. For example contribution to National Pension Scheme (NPS) will get deduction benefit under this rule.

It is also limited to 10% of salary or 10% gross income (if not salaried).

Section 80CCD(2): Contribution To Pension Plan By employer

This section gives you extra tax saving opportunity. If your employer contributes into your pension plan, it would be also tax-free. This contribution does not come under the overall limit of 1.5 lakh.

You can ask your employer to contribute 10% of your salary into your pension plan. It will not affect your employer financially, but you would be able to save some more tax.

Section 80CCD(1B):- Additional deduction Max Rs.50 thousand

Deductions Under Chapter VIA of Income Tax Act

Tax Saving On The Health Insurance Premium of Your Family

You can get a tax deduction of maximum Rs 25,000 on the health insurance premium for self and family. If you are a senior citizen, you can claim the tax deduction on the premium of up to Rs 30,000.

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Tax Saving On The Health Insurance Premium of Your Parents

In Addition to above, you can further claim a tax deduction for the insurance premium of your parents. The maximum limit for this deduction is Rs 25,000. If the parents are a senior citizen, the maximum limit is 30,000.

Section 80D: Preventive Health Check Up Tax Deduction

The Max Limit for below 60 years Rs. 25000/- & Rs. 30,000/- for Sr.Citizen.There is another tax benefit under section 80D. You can also claim a tax deduction for the expense of health check up. The maximum deduction allowed under this provision is 5,000. Health checks up can be of yourself, your family or parents.

Section 80DD: Deduction For Maintenance of Disable Dependent

Under this section, one can get the extra tax deduction of Rs 50,000. To avail this deduction, you must fulfill some conditions.

1. A person with a disability must be dependent upon you. The disability may be physical or mental.

2. You must produce a certificate from the doctor.

3. You must incur the expense of treatment, rehabilitation, nursing, and training.

If you deposit any amount in any scheme for the disabled, it would be also eligible for tax deduction.

If a dependent person is with severe disability, you can claim deduction up to Rs 1,00,000.

Section 80DDB: Serious Illness Deduction

This deduction is for the treatment of serious illness. An assessee can get an income tax deduction of Rs 40,000 under this section.

1. The deduction is at the expense of illness of self or dependent.

2. The illness should be within the prescribed list.

3. There should be the real expense. Any reimbursements of insurance claims should be subtracted.

4. You must give a certificate from the government doctor.

5. For senior citizens, this deduction limit is Rs 80,000.

Section 80E: Deduction on Loan for Higher Studies

Like the home loan interest, one can also claim income tax deduction for education loan interest.

1. You must take education loan from a financial institution.

2. You can avail this tax deduction maximum of 7 years.

3. You can take the benefit of this deduction only for the higher education.

4. You can take this benefit only for the education of self, spouse or children. If you are the legal guardian of a student, you can also take this benefit.

Section 80G: Deduction for Donations

The donations specified in Section 80G are eligible for deduction. The deduction may of 100% of donation or 50%, It depends upon the type of receiver.

Section 80GG: Deduction on House Rent Paid

This deduction is for those, who don’t get the house rent allowance from their employer. Such person can avail this deduction according to the specified rules.

Deduction is the least of

1. Rent paid less 10% of total income

2. Rs. 5000/- Per Month, i.e. Maximum Deduction available is 60,000/- P.A.

3. 25% of total income

There are some conditions for this benefit.

· Assessee or his spouse or minor child should not own residential accommodation at the place of employment.

· He should not get a house rent allowance (HRA).

· He should not have self-occupied residential premises in any other place.

Section 80TTA: Saving Account Interest Deduction

Interest earned on a saving account is not added to taxable income if it is less than Rs 10,000 in a financial year.

Section 87A: Tax Rebate Rs. 2500/- who's Taxable Income not more than 3.5 Lakh.

Section 80U: Deduction For Disabled

Under section 80U a person with a disability gets an extra deduction from his/her taxable income. Such person can deduct Rs 75,000 from the taxable income. In case the disability is severe, the deduction is up to Rs 1,25,000. To avail, this deduction one should obtain a certificate from the government doctor.

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Income Tax Exemptions and Deductions For Salaried Persons as per Budget 2017-18 + Automated Form 16 for F.Y.2016-17