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Income tax entitlements

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A list of provisions provided for planning savings and investments as part of your Income Tax planning. This is a beginner's guide to introduce yourself to several possible provisions.

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Income tax entitlements

  1. 1. Uday Chava, December 2020 Income Tax Entitlements List of provisions to save on Income Tax
  2. 2. Salaried employees form the major chunk of the overall taxpayers in the country and the contribution they make to the tax collection is quite signi fi cant. Income tax deductions offer a gamut of opportunities for saving tax for the salaried class. With the help of these deductions and exemptions and, one could reduce his/her tax substantially.
  3. 3. Entitlements Provisions for exemption 1. Exemption of House Rent Allowance 2. Standard Deduction 3. Leave Travel Allowance (LTA) 4. Mobile reimbursement 5. Books and periodicals 6. Food coupons 7. Section 80C, 80CCC and 80CCD(1) 8. Medical Insurance Deduction (Section 80D) 9. Interest on Home Loan (Section 80C and Section 24) 10.Deduction for Loan for Higher Studies (Section 80E) 11.Deduction for Donations (Section 80G) 12.Deduction on Savings Account Interest (Section 80TTA) 13.Additional Deduction for Interest on Home Loan (Section 80EE) (Section 80TTA) 14.Income tax exemption on relocation allowance 15.Tax treatment on Notice Pay and Joining Bonus 16.Cab Facility transport provided by employer 17.Health club facility provided by employer 18.Gifts or vouchers provided by employer 19.Medical expenditure incurred outside India on employee
  4. 4. House Rent Allowance A salaried individual using rented accommodation can get HRA (House Rent Allowance) bene fi t. This could be totally or partially exempted from income tax. If you are living in any rented accommodation and still continue to receive HRA, it will be taxable. If you couldn’t submit rent receipts to your employer as proof to claim HRA, you can still claim the exemption while fi ling your income tax return. So, please keep rent receipts and evidence of any payment made towards rent. You may claim the least of the following as HRA exemption. a. Total HRA received from your employer b. Rent paid less 10% of (Basic salary +DA) c. 40% of salary (Basic+DA) for non-metros and 50% of salary (Basic+DA) for metros Read more about how to claim HRA exemption.  
  5. 5. Standard Deduction Rs 50,000 per annum Standard deduction amounting to Rs. 40,000 for salaried employees. Replaces transport allowance (Rs. 19,200) and medical reimbursement (Rs. 15,000). Salaried people can avail an additional income tax exemption of Rs. 5,800 in FY 2018-19. The limit (of Rs.40,000) has been increased to Rs. 50,000 in the Budget 2019.
  6. 6. Leave Travel Allowance Twice in every four years LTA exemption to salaried employees is restricted to travel expenses incurred during leaves. The exemption doesn’t include costs incurred for the entire trip such as shopping, food expenses, entertainment and leisure among others. You can claim LTA twice in a block of four years. In case an individual doesn’t use this exemption within a block, he/she could carry the same to the next block. Below are the restrictions which are applicable to LTA: • LTA only covers domestic travel and not the cost of international travel. • The mode of such travel must be railway, air travel, or public transport.
  7. 7. Mobile Reimbursement Device + Bills A taxpayer may incur expenses on mobile and telephone used at residence. Income tax law allows an employee to claim tax free reimbursement of expenses incurred. Employees can claim reimbursement of the actual bill amount paid or amount provided in the salary package, whichever is lower.
  8. 8. Books and Periodicals Employees incur expenses on books, newspapers, periodicals, journals and so on. Income tax law allows an employee to claim a tax free reimbursement of the expenses incurred. The reimbursement allowed to an employee is the lower of • the bill amount for the books or • the amount provided in the salary package.
  9. 9. Food Coupons Rs 26,400 per annum Your employer may provide you with meal coupons such as Sodexo. Meal coupons are tax exempt up to Rs 50 per meal. A calculation based on 22 working days and 2 meals a day results in a monthly bene fi t of Rs 2,200 (22*100). Consequently, the yearly exemption works up to Rs 26,400.
  10. 10. Section 80C, 80CCC and 80CCD(1) Deductions up to Rs 1,50,000 Section 80C is the most extensively used option for saving income tax. An individual or a HUF (Hindu Undivided Families) who invests or spends on stipulated tax-saving avenues can claim deduction up to Rs. 1.5 lakh for tax deduction. Expenditures/investment u/s 80C isn’t allowed as a deduction from income arising due to capital gains. It means that if the income of an individual comprises of capital gains alone, then Section 80C cannot be used for saving tax. • Life insurance premium • Equity Linked Savings Scheme (ELSS) • Employee Provident Fund (EPF) • Annuity/ Pension Schemes • Principal payment on home loans • School fees for children • Contribution to PPF Account • Sukanya Samriddhi Account • NSC (National Saving  Certi fi cate) • Fixed Deposit (Tax Savings) • Post of fi ce time deposits • National Pension Scheme
  11. 11. Medical Insurance (Section 80D) Rs 50,000 + Rs 5000 Section 80D is a deduction you can claim on medical expenses, and medical insurance premium paid for the health of self, family and dependent parents. The limit for Section 80D deduction is Rs 25,000 for premiums paid for self/family. For premiums paid for senior citizen parents, you can claim deductions of up to Rs 50,000. Additionally, health checkups to the extent of Rs 5,000 are also allowed and covered within the overall limit. Your employer may pay premium on your behalf and deduct it from your salaries. Such premium paid is also eligible for deduction under section 80D
  12. 12. Interest on Home Loan (Section 80C and Section 24) Rs 2 lakh on interest, Rs 1.5 lakh on Principal Homeowners have the option to claim up to Rs. 2 lakh as a deduction for interest on home loan for self- occupied property. If the house property is let out, you can claim a deduction for the entire interest pertaining to such a home loan. The loss from house property that can be set off against other sources of income has been restricted to Rs. 2 lakh. In addition to the above, one can also claim the principal component of the housing loan repayment as a deduction under 80C up to a maximum limit of Rs 1.5 lakh.
  13. 13. Deduction on Education Loan (Section 80E) Full Exemption of Interest on EMIs Income Tax Act provides a deduction for interest on education loans. The loan should have been taken from a bank or a fi nancial institution for pursuing higher studies (in India or abroad) by the individual himself or his spouse or children. One may begin claiming this deduction beginning from the year in which the loan starts getting repaid and up to the next seven years (i.e. total of 8 assessment years) or before repayment of the loan, whichever is earlier. Even a legal guardian could avail this income tax deduction.
  14. 14. Deductions for Donations (Section 80G) 50-100% with conditions Section 80G of the Income Tax Act, 1961 offers income tax deduction to an assessee, who makes donations to charitable organizations. This deduction varies based on the receiving organisation, which implies that one may avail deduction of 50% or 100% of the amount donated, with or without restriction.
  15. 15. Deductions on Savings Account Interest Section 80TTA) Deduction of up to INR 10,000 on income earned from savings account interest. This exemption is available for Individuals and HUFs. In case the income from bank interest is less than INR 10,000, the whole amount will be allowed as a deduction. In case the income from bank interest exceeds INR 10,000, the amount after that would be taxable.
  16. 16. Additional Deduction for Interest on Home Loan Section 80EE Homeowners to claim an additional deduction of Rs.50,000 (Section 24) for interest component of the home loan EMI. The loan amount must not be for more than Rs 35,00,000 and the value of the property must not be more than Rs 50,00,000. Furthermore, the individual must not have any other property registered under his name at the time the loan is sanctioned.
  17. 17. Deductions on Relocation Expenses whether reimbursed to the employee or directly paid to the transporters are exempt from tax for the employee. - Car Transportation - Car Registration - Packaging - Accommodation for 15 days - Train/Air Tickets - Brokerage paid on rented house School admission fees is taxable as salary income of the employee. Any expenses incurred beyond the period of 15 days will be taxable.
  18. 18. Notice Pay and Joining Bonus Notice Pay: TDS refund is allowed. Joining Bonus: TDS refund is allowed.
  19. 19. Cab, Health Club Facility, Gifts Employers generally provide cab facility to and from the of fi ce and residence of the employees. Such a facility is not taxed as a perquisite for the employee. The facility would be an expense for the employer. As per the Indian Income Tax Act, use of any vehicle provided by a company or an employer for a journey by the employee from his residence to his of fi ce or another place of work, shall not be regarded as a taxable perquisite, even if provided to him free of cost or at a concessional rate. In the case of a health club facility provided by employer uniformly to all employees, the facility is not taxable as a perquisite in the hands of the employee. Gifts or vouchers given by an employer in cash or in kind are tax exempt up to Rs 5,000 per year.
  20. 20. Medical Expenditure outside India In a case where the employer incurs expenditure on medical treatment outside India: • On the employee. • Any member of the family* of such employee. • Travel and stay abroad of employee or any family member in connection with medical treatment. • Travel and stay abroad of one attendant accompanying patient in connection with treatment. The above expenditure would be exempt from tax for the employee subject to conditions a. The expenditure on medical treatment and stay abroad shall be exempted only to the extent permitted by the Reserve Bank of India; and b. The expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed two lakh rupees. *Family means spouse and children of the individual. Also parents, brothers and sisters of the individual, wholly or mainly dependent on the individual.

A list of provisions provided for planning savings and investments as part of your Income Tax planning. This is a beginner's guide to introduce yourself to several possible provisions.

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