The Buyt Desk
You may consider allowances as financial benefits that a salaried employee gets from his employer which assists the former in dropping its tax load. Allowances are partitioned into several categories. An employee can claim the allowances every month. They will find these allowances helpful when filing income tax returns (ITR).
The ITR has details like a complete view of gross taxable income, net tax liability, and claiming of tax deductions. It is essential for taxpayers to file an ITR every year. Since the New Year has started, it is crucial to know about various allowances and their tax benefits for reducing income tax liability when filing ITR.
Remember that allowances are of three types – taxable, non-taxable, and partly taxable. Most people don’t aware of which allowance will help them claiming maximum benefit. The most popular allowance is one which comes under section 10. Its details are given in Form 16 which salaried employees get from their employers.
Form 16 is a certificate with information on tax deducted at sources (TDS), salary breakup, and exempted allowances under section 10. Form 16 is essential for filing ITR on a scheduled period. For the fiscal year 2022-2023 or the assessment year 2023-24, taxpayers need to file their ITR by 31st July of the present year.
What is an Allowance?
Salaried people make the most contribution towards complete tax collection. In their salaried part, a monetary benefit given over the basic salary is known as allowance. For tax liability, claim more allowances. Some expenses are partially taxable while some are exempted.
7 Different Allowances and their Benefits for Tax Saving
In this post, you will find 7 important allowances you can opt for to save your tax.
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House Rent Allowance (HRA) (Sec. 10(13A))
This allowance is for a salaried employee who live in a rented house. They can claim tax exemption on this allowance. The exemption amount shall be lower for various things. The total HRA amount will be received. 40% of salary when living in non-metro cities or 50% of salary including dearness allowance and basic salary when living in metro cities. Excess of yearly paid rent over 10% of year salary including dearness allowance (DA) and basic salary.
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Children Education Allowance
In this allowance, an applicant receives up to INR 100 on a monthly basis for each child. It will be exempted up to a maximum of 2 children.
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Books and Periodical Allowance
An employee receives a tax-free reimbursement based on the income tax law on the investments made towards journals, books, newspapers, periodicals, journals, etc. The reimbursement given is the lower of the bill amount / the amount given in the salary package.
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Leave Travel Concession or Assistance (LTC/LTA) (10(5)):
Under LTC/LTA allowance, an employee gets a tax-free expense for the traveling costs incurred on a leisure trip in India. Hence, they can take a leave from work and travel on vacation in the country. The fare costs incurred would be allowed by the employer as a tax-free allowance. The traveling transportation mode could be public transport, air, or railway. But, note that just two journeys in a block of four calendar years will be exempted. Also, this exemption is restricted to LTA given by the employer.
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Uniform Allowance
The investment in keeping or buying the office or employee’s duties uniform is exempted from the limit of the real amount spent.
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Helper Allowance
When the employer facilitates you to appoint a helper for performing the official duties, you will receive the helper allowance.
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Relocation Allowance
Many companies ask employees to switch to another city for official or business purposes. The expenses made on various relocation aspects such as car registration charges, starting 15 days accommodation, car transportation costs, train/air tickets, and packaging charges are reimbursed by the employer. All of these reimbursements are tax exempted.
Rounding Up
All of these allowances and many others can assist salaried employees to make the most of their income tax deductions. So, be sure when you have interaction with your employer next time, you will receive the salary structure with more allowances included, which are completely tax exempted.
