Tax Exemptions & Deductions for Salaried Employees | AU Small Finance Bank
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Know Income Tax Exemptions and Deductions for Salaried Employees

    Taxes play a significant role in the lives of salaried employees. If you plan it correctly, you can significantly reduce your tax liabilities. As a salaried employee it is crucial that you are aware of the basics of tax laws and understand the tax exemptions.

    Here are some of the tax exemptions for salaried employees-

     

    Income Tax Exemptions for Salaried Employees

    1. House Rent Allowance (HRA)

    Salaried employees living in a rented home can claim total or partial HRA exemption. However, the allowance will be taxable if you receive HRA and don’t reside in rented accommodation.

     

    2. Leave Travel Allowance (LTA)

    The LTA received by salaried employees is also eligible for tax exemption. The LTA income tax exemption for salaried employees can be claimed twice within a block of 4 years.

     

    3. Standard Deduction

    The transport allowance and medical reimbursement were replaced by standard deduction in Union Budget 2018. Salaried employees can now claim a standard deduction of INR 50,000 from their taxable salary every financial year.

     

    4. Interest on Home Loan

    Under Section 24 of the IT Act, you can claim a deduction of up to INR 2 lakhs on the interest paid on a home loan if the property is self-occupied. If the property is let out on rent, the entire interest amount paid against the home loan can be claimed as a salaried tax exemption.

     

    5. Professional Tax

    Most states levy a professional tax of up to INR 2,500 on salaried employees. Under Section 16 (iii), professional tax paid by the employees can be claimed as a deduction from their gross salary.

     

    6. Employees’ Provident Fund (EPF)

    Employers with more than 20 employees should contribute at least 12% of their salary to the Employees’ Provident Fund (EPF). Contributions of up to 12% to EPF are eligible for tax deductions with tax exemption under 80C

     

    7. Children’s Allowance

    If you receive an allowance for children’s education from your employer, you can claim income tax exemptions of up to INR 1,200 per annum for up to two children in a financial year.

     

    8. Reimbursement for Mobile and Telephone Expenses

    Some employers reimburse mobile and telephone expenses which can be claimed as tax-exempted income. The lower amount between reimbursement received by an employee and the actual mobile/telephone bill can be claimed as an exemption.

     

    9. Relocation Allowance

    If an employee is asked to relocate by their employer, some relocation expenses, like transportation, accommodation, travel, rental brokerage, etc., are eligible for tax exemption.

     

    Allowable Deductions as per different sections of Income Tax.

    1. Section 80C

    Investing in certain financial instruments makes salaried employees eligible to claim tax deductions of up to INR 1.5 lakhs in a financial year under Section 80C of the IT Act. You can also claim tax exemption under 80CCC and Section 80CCD, which are sub-sections of Section 80C.

    Here are some of the investments eligible for deductions under Section 80C and its sub-sections-

    • Employees’ Provident Fund (EPF)
    • National Pension Scheme (NPS)
    • Sukanya Samriddhi Yojana (SSY)
    • Life Insurance premium
    • Equity-Linked Savings Scheme (ELSS)

    Read More: Tax Implications under 80C

     

    2. Section 80D

    Salaried employees can claim a deduction on Health Insurance Policy premiums paid for self, spouse, parents, and children with tax exemption under 80D.

    Deduction of up to INR 25,000 in a financial year is available for policyholders below 60 years. The deduction limit for seniors is up to INR 50,000.

     

    3. Section 80DD

    Taxpayers who’ve incurred medical treatment costs for listed medical conditions on behalf of a disabled dependent, like spouse, children, parents, and siblings, can claim tax exemption under 80DD.

    The deduction limit is up to INR 75,000 if the disability is 40%-80% and INR 1.25 lakhs if the disability is 80% or higher. Additional tax exemption under 80DDB is available for expenditure incurred on treating specific diseases for self, spouse, children, parents, or siblings.

     

    Making the Most of Your Tax Savings

    Apart from planning your taxes carefully, it is also important to make your tax savings work for you. With higher interest rate and monthly interest payouts, a high interest-bearing Savings Account or Fixed Deposit or Recurring Deposit from AU Small Finance Bank can be a great option to park your surplus funds.

    We offer a host of digital channels including AU 0101 App / NetBanking, AU Video Banking, and WhatsApp Banking to make banking easier and more accessible than ever.

     
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