Due date of filing return of income is on the way and if you are a salaried person and looking for ways to reduce tax burden by using your salary components, then this article is worth reading to save your money.
As you are aware that there are many salary components which reflects in your Form 16 also, which can help you reduce your tax burden.
However, some of these components are fully or partially taxable, some may be fully exempt from tax.
Here are 10 components that can be used by an employee to minimize their tax burden and plan their salary structure accordingly.
1. Employees’ Provident Fund (EPF)
EPF is a retirement benefit scheme that is available to all salaried employees. A part of your salary is deducted monthly as your contribution towards EPF. Employee with basic salary more than Rs.15,000 per month are eligible for PPF scheme.
Both employer and employee have to contribute a minimum 12% of Basic Pay and Dearness Allowance.
The contribution deducted from the employee’s account is exempted from tax up to Rs 1.5 lakh. This deduction is provided under section 80C of the income tax Act.
2. Leave Travel Allowance (LTA)
An employer provides LTA to employees to help them meet travel expenses incurred for travel with family to any place in India. Here, family includes spouse and children and parents, brothers and sisters who are wholly or mainly dependent on the employee.
The benefit of LTA component can be availed by an employee by submitting travel bills/tickets to his employer.
However, one can avail this benefit in respect of two journeys performed in a block of four calendar years. The ongoing block is the calendar year 2018-2021.
3. House Rent Allowance (HRA)
This component of salary helps take care of rent paid by an employee for the premises in which he lives.
In order to avail the claim of deduction, it is necessary that it forms a part of one’s salary. Amount paid as HRA can be claimed as tax exempt, subject to certain limits, terms and conditions.
As per Income Tax Act ,the lowest of the following amounts will be tax-exempt:
- Actual HRA received;
- Rent paid in excess of 10 percent of salary plus dearness allowance;
- 50%of salary plus dearness allowance in case of a house located in metro cities (Mumbai, Kolkata, Delhi or Chennai); 40% of salary plus dearness allowance in case the house is located in non-metro cities.
The tax benefit is available to the person only for the period in which the rented house is occupied.
4. Food coupons
Food allowance can be given by the employer through the provision of food at working hours or through pre-paid food vouchers/coupons.
Vouchers (not transferable) are tax-exempt to the extent of Rs 50 per meal. As a estimated calculation of 22 working days a month and 2 meals per day, approx Rs 26,400 can be availed as a deduction by an employee annually.
5. Car maintenance allowance
Reimbursement of car expenses (used partly for official and partly for personal purposes) to an employee could be exempt up to specified limits.
However, exemption will be depend on whether the car is owned by the employer or by the employee.
As per provisions of Income tax,
- If the car is owned/leased by the employer, the employee using that car will pay tax on a perquisite of Rs 2,700 per month (car with engine capacity up to 1,600 cc) or Rs 3,300 per month (car with engine capacity more than 1,600cc) in respect of the aggregate of the actual lease rent, driver’s salary, maintenance expenses and fuel expenses borne by the employer.
- If the employee owns the car, he will be entitled to an exemption of Rs 2,700 per month or Rs 3,300 per month in respect of the driver’s salary, car maintenance expenses and fuel expenses borne and reimbursed by the employer.
6. Children education allowance
An education allowance of Rs 100 per month or Rs 1,200 per annum child paid to an employee by an employer is allowed as deduction from taxable income to the employee.
The benefit of such deduction is available up to a maximum of 2 children for the employee.
Along with this, you can also claim deductions for tuition fees paid for your children under section 80C of the income tax Act
7. Hostel expenditure allowance
Hostel expenditure allowance of Rs 300 per month or Rs 3,600 per annum per child paid to an employee is also allowed as a deduction from taxable income towards meeting hostel expenditure for the child. This deduction is granted up to a maximum of 2 children for the employee.
8. Phone bill reimbursement
Many companies offer the reimbursements of bills to specific employees. It includes both telephone and mobile phone bill reimbursements. This also covers expenses of telephone including a broadband Internet connection.
Expenses on telephones including mobile phones incurred by the employer on behalf of the employee are not taxable. The law does not prescribe any limit, but the expenses should be reasonable considering the salary/ grade of the employee,”
9. Uniform allowance
This covers allowance granted by the employer to the employee to meet the cost of purchase and/or maintenance of uniform worn during the performance of the duties of employment.
Cost actually spent by the taxpayer in purchase and/or maintenance of official uniform worn is allowed as an exemption.
10. Gift voucher
The value of a gift, or voucher, or token provided by an employer, the aggregate value of which does not exceed Rs 5,000 annually, is tax-free in the hands of an employee.