Understanding the allowances and deductions available to salaried individuals is crucial for effective tax planning. The Assessment Year (AY) 2024-25 brings several important provisions that can help taxpayers reduce their taxable income and maximize their savings. This article will guide you through the key allowances and deductions that you can claim, ensuring you make the most of the benefits available under the Indian tax system.
Allowances for Salaried Individuals in AY 2024-25
House Rent Allowance (HRA)
House Rent Allowance (HRA) is a significant component of a salaried individual’s income, which can provide substantial tax relief.
Eligibility Criteria
- Employees who live in rented accommodation.
- HRA must be part of the salary package.
The exempted amount is the minimum of:
- Actual HRA received from the employer, or
- 50% of salary (basic + DA) for metro cities or 40% for non-metro cities, or
- Actual rent paid minus 10% of ( Basic salary + DA).
Documents Required
Rent receipts, Rental agreement, Landlord’s PAN if annual rent exceeds Rs. 1 lakh.
Leave Travel Allowance (LTA)
Leave Travel Allowance covers expenses for travel within India.
Eligibility and Exemptions
- Available for travel costs incurred during leave.
- Only two journeys in a block of four years are exempt.
- Mode of travel must be either railway, air , or public transport with the shortest route to the destination.
- LTA can only be claimed for travel expenses incurred on self and family members.
- It covers expenses such as airfare, train fare, or bus tickets but does not include other expenses like hotel accommodation or local conveyance.
How to Claim LTA
- Submit travel proofs like tickets and boarding passes.
- Ensure trips are within the specified block period.
Standard Deduction
Standard deduction is available to all salaried employees without the need for any specific. A flat deduction of Rs. 50,000 from the gross salary expenditure.
The standard deduction simplifies the tax calculation process for salaried individuals, providing a straightforward reduction in taxable income. This benefit is automatically applied to the salary, making it easier for taxpayers to manage their tax obligations.
Special Allowances
Some of the special allowance are fully taxable, some are partially taxable and some are fully exempt. here is the
- Children Education Allowance– Exemption of Rs. 100 per month per child up to a maximum of two children.
- Hostel Expenditure Allowance-Exemption of Rs. 300 per month per child up to a maximum of two children.
- Transport Allowance for Disabled Individual– Exemption of Rs. 3,200 per month.
- Dearness Allowance (DA)– DA is provided to offset inflation and is partially taxable.
- Entertainment Allowance-Fully taxable for private employees. Partially exempt for government employees.
- Overtime Allowance– Fully taxable.
- Medical Allowance-Exempt up to Rs. 15,000 against medical bills.
- Uniform Allowance-Fully exempt if actually spent.
- Mobile reimbursement– An employee can claim the expenses incurred on mobile and telephone. Employee can claim the lower of the actual expense incurred or the allowances provided in the salary.
- Books & Periodicals – Employee can claim the lower of the bills of books & periodicals , newspaper etc. or the allowances received for books & periodicals as part of salary.
- Food coupons– There’s a tax exemption of up to Rs 50 per meal for the food coupons. it can be calculated based on 22 working days and 2 meals per day, Employee can get a monthly benefit of Rs 2,200 (22 days * 100 Rs per day). This adds up to a yearly tax exemption of Rs 26,400.
- Relocation allowances – When relocating for work, your employer often covers various expenses, which can have different tax implications. Costs for transporting your car are tax-exempt when reimbursed or paid directly by your employer. Car registration fees are also tax-exempt if covered by your employer. Expenses for packing and moving furniture are tax-exempt. Up to 15 days of temporary accommodation expenses are not taxable. Travel costs for you and your family are tax-exempt. However, reimbursed brokerage fees for finding a rental are taxable, as are reimbursed school admission fees for your children.
Deductions Available for AY 2024-25
Section 80C/80CCC/80CCD(1)
Section 80C/80CCD and 80CCD(1) allows deductions up to Rs. 1.5 lakh for various investments.
Investment Options
- Contribution to Public Provident Fund (PPF).
- Contribution to Pension fund ( Section 80CCCC)
- Contribution to NPS– According to Section 80CCD(1) the maximum allowable deduction is 10% (Salary +DA) subject to the ceiling limit of 1.5 lakh
- Employee Provident Fund (EPF).
- Life Insurance Premiums.
- National Savings Certificates (NSC).
- Tax-saving Fixed Deposits.
- Equity Linked Savings Scheme (ELSS).
- Tuition fees for children
- Sukanya Samriddhi account
- Principle amount paid for Home loan ( Deduction of Interest paid on home loan is available under section 24 (b) under the head Income from House property. Maximum 2 lakh deduction can be claimed on the Interest on home loan availed on self- occupied property.)
Section 80CCD(1B)- Contribution to NPS
Section 80CCD(1B) offers an additional tax deduction of up to ₹50,000 for contributions to the National Pension System (NPS) on top of the ₹1.5 lakh deduction under Section 80C. This benefit is available to both salaried individuals and self-employed taxpayers. Investing in NPS not only helps in securing your financial future but also provides significant tax savings. This section encourages taxpayers to build a retirement corpus while enjoying tax benefits.
Section 80D-Health Insurance Premiums
Health insurance not only provides financial security in medical emergencies but also offers tax benefits. Ensure you keep all premium receipts and documentation to claim this deduction. Section 80D provides deductions for health insurance premiums.
- Up to Rs. 25,000 for self, spouse, and children.
- Additional Rs. 25,000 for parents below 60 years or Rs. 50,000 if parents are above 60 years.
- Preventive Health Check-up- Additional deduction of Rs. 5,000.
Section 80E- Deduction for Education loan
Interest on education loans is deductible under Section 80E. Deduction is available maximum for 8 Assessments Years. The deduction can be claim for the loan taken for the higher education of self, spouse or children or for a student for whom the individual is a legal guardian.
Section 80TTA- Deduction on Interest on saving accounts
Interest from savings accounts is exempt up to Rs. 10,000 under Section 80TTA. Savings account interest is often overlooked, but it can provide a small yet useful tax benefit. Ensure to include interest earned from all savings accounts to claim this deduction.
Section 80G- Deduction on donations
Donations to specified charitable institutions can be claimed under Section 80G.Charitable donations not only contribute to social causes but also offer tax benefits.
Section 80EE-Additional deduction of Rs. 50,000 for first-time homebuyers.
The additional interest on home loan upto Rs. 50000 can be claimed under section 24. However it should be the first House of the buyer and the loan must be of 35 lakhs or less and the value of the property must not be more than 50 Lakhs.
Deduction under section 80EE can be claimed only when the loan was taken between 1st April 2016 to 31st March 2017.
Section 80DD-Deduction for maintenance of disabled dependents.
Section 80DD of the Indian Income Tax Act allows tax deductions for resident individuals or Hindu Undivided Families (HUFs) who incur expenses on medical treatment, maintenance, and rehabilitation of a disabled dependent.
Dependents includes spouses, children, parents, siblings, or any HUF member, and must have a disability of at least 40%. The deduction is ₹75,000 for a dependent with 40% disability and ₹1,25,000 for a severe disability (80% or more). Please note that deduction under this section is allowed to the dependent and not the taxpayer itself. Also deduction is available only when deduction is not availed under section 80U.
Section 80U-Tax benefits for individuals with disabilities.
Section 80U of the Income Tax Act offers tax deductions for individuals with disabilities. To qualify, one must be certified by a medical authority. The deduction amounts are ₹75,000 for individuals with 40-80% disability and ₹1,25,000 for those with 80% or more severe disabilities.
This benefit helps reduce the taxable income, providing financial relief to affected individuals and their families. It’s essential to keep the medical certificate and Form 10-IA for verification when claiming this deduction.
Frequently Asked Questions (FAQs)
What Are the New Tax Slabs for AY 2024-25?
Tax slabs have been revised for different income levels. Tax slabs varies on the basis of the Regime (Old or new) is opted by the taxpayer.
Can Both HRA and Home Loan Interest Be Claimed Together?
Yes, both can be claimed if the individual satisfies the conditions for each.
You can claim both HRA and home loan interest if you meet the eligibility criteria for each. Proper documentation and understanding of the provisions are crucial for claiming these benefits.
How to Maximize Section 80C Benefits?
Invest in a mix of tax-saving instruments like PPF, ELSS, and life insurance to utilize the full Rs. 1.5 lakh limit.
Maximizing Section 80C benefits involves diversifying your investments. Consider a mix of safe and high-return options to optimize your tax savings and investment growth.
What Are the Key Documents Required for Claiming Deductions?
Documents like investment proofs, rent receipts, medical bills, and donation receipts are essential.
Maintaining accurate and comprehensive documentation is crucial for claiming deductions. Ensure you have all necessary proofs and receipts to substantiate your claims.
How Does the Standard Deduction Impact Senior Citizens?
The standard deduction benefits all salaried employees, including senior citizens, by reducing taxable income.
The standard deduction provides a flat reduction in taxable income, offering significant relief to all salaried employees, including senior citizens. This helps in reducing the overall tax burden.
Understanding the various allowances and deductions available to salaried individuals can significantly reduce tax liability and increase savings. Proper planning and documentation are key to maximizing these benefits.
