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Income Tax Exemptions for Salaried Employees_WC

7 min 22 Mar 2023
Income Tax Exemptions FY 2023-24
Highlights:
  • HRA or House Rent Allowance
  • Exemption on Leaves Encashed
  • Tax Exemption Available on Leave Travel Allowance
  • Tax Exemption Available of Gratuity
  • Tax Exemptions Available on Pension
  • Income Tax Benefit on Home Loan
  • Income Tax Exemption Available in the Case of Voluntary Retirement
  • Income Tax Exemption on Other Allowances

Every citizen of India must pay taxes. The Government of India uses these taxes to run welfare schemes for the needy as well as provide basic infrastructure and facilities to all. Taxpayers must also know that the Government of India offers certain tax exemptions that borrowers can use to reduce their tax burden. Though these tax benefits are available to both self-employed and salaried individuals, salaried individuals enjoy more favours. In this article, we look at the 8 income tax exemptions that salaried people can use to reduce their tax burden.  

Income Tax Exemptions Available to Salaried People  

HRA or House Rent Allowance

Many employers want their employees to live in a good home, in a good locality. Thus, they include a house rent allowance component in the employer's salary. Taxpayers can claim tax exemption on a certain percentage of one's house rent allowance. The house rent allowance exempt from tax liability depends on four factors: the taxpayer's salary, their place of residence, rent paid by them and the HRA received. All taxpayers must claim HRA as it usually makes up a hefty sum and allows borrowers to save a considerable amount of taxes each year.  

Also Read: How to Claim Home Loan Tax Exemptions and HRA Together 

Exemption on Leaves Encashed

All salaried individuals are allowed to take a specific number of paid leaves each year. In case the borrower does not avail of these leaves, they can encash them and claim a tax rebate on a certain percentage of this amount.  

Tax Exemption Available on Leave Travel Allowance

It is crucial for the mental and physical welfare of human beings that they take leaves and spend time with their families. This is why most employers offer to leave travel allowance and one can claim a tax rebate on a certain percentage of this allowance. However, do keep in mind that one can claim these tax benefits only when they have used the money to travel in India and have all the bills related to travel.  

Tax Exemption Available of Gratuity

Gratuity refers to a gift made by an employer to an employee. A part of the gratuity that the borrower receives is exempt from tax mandates. However, the amount of tax exemption that one can claim depends on whether the employee falls under the government employee and employees of local authorities category, employees covered under the Payment of Gratuity Act, 1972 or none of the above.  

Tax Exemptions Available on Pension 

Most employers also give their employees a pension on retirement. In some cases, this salary comes from the pocket of the employer and in some cases, this pension is saved or purchased by the employee in the form of an annuity. A salaried employee's pension can be commuted or uncommuted. When one opts for the former, they get their entire pension in one go whereas when one opts for the latter, they receive their pension in the form of monthly instalments. In both cases, a certain part of the total pension is exempt from tax deductions.  

Income Tax Benefit on Home Loan

This tax exemption is available to both salaried as well as self-employed individuals. Under Section 80C of the Income Tax Act, borrowers can claim up to a maximum of Rs.1.5 Lakh on payments made towards interest repayment and up to a maximum of Rs.2 Lakh on payments made towards interest repayment. The best part about a Home Loan is that if one avails of a Home Loan with a co-borrowers, all co-borrowers who are also co-owners can claim income tax benefits on the home loan separately. Thus, a husband and wife can claim up to a maximum of Rs.7 Lakh under various sections of the Income Tax Act. Home Loans allow borrowers to save a considerable amount of money over an extended period. If you don't understand how much a Home Loan can help you save each year in the form of tax exemptions, use an income tax calculator to do the calculations for you.  

However, if you are planning to avail of a Home Loan so that you can build an asset while saving on taxes, remember to negotiate hard and go with the lender offering you the lower housing loan interest rate. This way, not only will you save a lot of money, but you will also find it easier to repay your loan in a stress-free and hassle-free manner.   

Income Tax Exemption Available in the Case of Voluntary Retirement 

Sometimes, some employees decide to retire before the designated age of 60. In this case, some employers choose to give money to borrowers as pension and a certain section of the pension is received in case of  

VRS is exempt from tax deductions under Section 10(10C) of the Income Tax Act. 

Income Tax Exemption on Other Allowances

Over and above the tax exemptions mentioned above, borrowers can also claim tax exemption on various other allowances given to employees by employers. Some of these allowances on which one can claim tax exemption are transport allowance and children's education allowance. 

Read Also: Income Tax Slabs in New Regime 

Final Words

All responsible citizens of India must pay taxes on time. However, they must also use the various tax exemptions available to them to save as much tax as they can.  

There are a few things that taxpayers must know at this point. The above-mentioned tax exemptions are not the only tax exemptions available to salaried employees. There are more. However, the above-mentioned 8 tax exemptions are the most popular and most easy to claim. If your yearly tax liability is turning out to be too high, talk to a tax expert or a Chartered Accountant and they will help you understand how you can save more taxes.  

Further, if your tax liability is exorbitantly high, consider availing a housing loan. Home Loans come with several benefits. In fact, in the case of joint Home Loans, a husband and wife who are both earning can claim up to a maximum of Rs.7 Lakh as tax exemption under various sections of the Income Tax Act. 

People Also Read: Joint Home Loan Tax Benefits 

Blog-Intro-Disclaimer

DISCLAIMER:

While care is taken to update the information, products, and services included in or available on our website and related platforms/websites, there may be inadvertent errors or delays in updating the information. The material contained in this website and on associated web pages, is for reference and general information purposes, and the details mentioned in the respective product/service document shall prevail in case of any inconsistency. Users should seek professional advice before acting on the basis of the information contained herein. Please take an informed decision with respect to any product or service after going through the relevant product/service document and applicable terms and conditions. Neither Bajaj Housing Finance Limited nor any of its agents/associates/affiliates shall be liable for any act or omission of the Users relying on the information contained on this website and on associated web pages. In case any inconsistencies are observed, please click on contact information.

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