Salaried or self employed tax exemption in your PF, HRA, LTA, special allowances and much more
Currently, Income tax rates for salaried employee below 60 years of age - stands NIL on below Rs 2.5 lakh income, 5% between Rs 2.5 lakh to Rs 5 lakh income, 20% between Rs 5 lakh and Rs 10 lakh income and 30% above Rs 10 lakh income.
Either salaried or self-employed you are obligatory to pay taxes from your income to the Income Tax Department. However, considering the burden of tax slabs can be heavy on employees, the department provides various reliefs to them via allowances, benefits, etc. Currently, Income tax rates for salaried employee below 60 years of age - stands NIL on under Rs 2.5 lakh income, 5% between Rs 2.5 lakh to Rs 5 lakh income, 20% between Rs 5 lakh and Rs 10 lakh income and 30% above Rs 10 lakh income. Notably, the NDA government has proposed a tax rebate of Rs 12,500 for salaries up to Rs 5 lakh under section 87A and standard deduction of Rs 50,000 in interim Budget. While this measure will provide relief to salaried and self-employed in paying their taxes, but there are exemptions available on other factors in their salaries.
Here's how a salaried and self-employed can save taxes on their income, as per Ramki Gaddipati, Co-founder and CTO, Zeta.
HRA: Known as House Rent Allowance, HRA comes with some exemptions under Section 10(13A) of the Income-Tax Act, 1961. To claim this exemption, you’ll need a proof of your rent receipts. For metros, it is 50 percent of salary and 40 percent for non-metros ii) Amount of HRA received -- you can negotiate for a higher HRA if you wish to match the amount with your house rent.
LTA: This is another popular tax-saving allowance, known as LTA or leave travel allowance. It is paid to cover your holiday expenses, such as train tickets or air travel, etc. This tax saving benefit is only available on domestic travel.
Allowance or Benefits: As a salaried employee, you may also get other allowances such a dearness allowance, conveyance, mobile phone, internet, car allowance, and so on. Most of these allowances are non-taxable. The only requirement is that these allowances must be defined under the Income Tax Act. Also, one must note that some allowances may or may not be part of your Gross Salary. You may, however, request your employer to include the same in your salary structure to cut down the taxes.
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PF contribution: At present, the PF contribution stands at a fixed figure of 24 percent of your basic pay. Here, you make a contribution of 12% towards your PF account. This figure is deducted every month from your salary. Alongside, your employer will contribute the remaining 12%. Your income from the PF account is eligible for tax deduction under section 80C of the Income Tax Act, 1961.
Tax savings on the amount spent
Some spends such as donations are exempted from tax under section 80C. These donations can be made towards certain NGOs and political parties. However, these donations need to fulfil some criteria. And, if it does, NGOs will most likely inform you at the time of donations.
In addition to to your acts of kindness, you can also save taxes on your daily essential spends such as food, travel, house loan, auto lease allowance, spends towards mobile phones and internet. All this falls under the benefit allowances offered by your company. This is where you can claim benefits up to Rs 80,000. And, to make the best of this, you need to negotiate with your HR to understand the employee tax-saving benefits.
Tax saves for business owners:
As a salaried employee, one is at the advantage of claiming benefits through their organisation. However, for business owners life isn’t so glum. Just like any other salaried individual, you can avail tax saving benefits on home and education loan, health insurance premiums, LIC and PPF savings, mutual fund investments and more.
In addition to this, you can save taxes by ensuring that you limit your cash payments to up to Rs 20,000 in a single day. Further, you get multiple benefits for additional depreciation on your assets under section 35AD, etc.