Allowances And Deductions Available To Salaried Persons & Documents Need To Submit To Avail Them

Salaried taxpayers primarily earn their income from salary. The salaried are normally offered a salary package or CTC (cost to company). The taxability of the salary income is determined by the employer. The employer also deducts a tax (TDS) on the salary paid to them. Thus, the monthly salary receipts would be credited after the tax deduction.

The salary package consists of various components. Many employers offer the option to structure the salary components to their employees. While certain components are fixed, employees can claim tax benefits on other components included in the salary package. Salaried employees can claim the benefit of the components by submitting proofs to their employer.

Latest Updates

The CBDT has issued guidelines for the calculation of taxable income if the annual premium of ULIP is more than Rs 2.5 lakh. 

In the last Budget 2021 the government had announced that proceeds from ULIP shall be taxable if the annual premium exceeds Rs 2.5 lakh in any year of the term of the policy.

Typically, a salary package would look like:

• Basic salary
• House rent allowance (HRA)
• Leave travel allowance (LTA)
• Telephone reimbursement
• Books and periodicals
• Meal coupons

The basic salary of every employee is fixed and credited to the account of the employee subject to a tax deduction. Meal coupons are provided by the employer on an amount calculated for two meals per working day. The annual allowance for meal coupons works out to be Rs 26,400 and is tax-exempt in the hands of the employee.

With respect to the other components, the employee has to submit proof of incurring the corresponding expense to the employer. Upon submission of the proof, the employer calculates the tax exemption on the allowance. The balance of the component (non-exempt portion) is taxed along with the basic salary of the employee.

New Tax Regime Exemption 

The new tax regime has paved the way for the removal of the existing deduction and exemptions. Taxpayers incentivised by lowering their tax rates and slabs who have opted for the new tax regime by giving up most of the exemptions and deductions. From FY 2023-24 onwards, a new tax regime has been made the default tax regime, and this leaves the taxpayer without much hassle on investment declaration.

However following deduction or exemption is still applicable if you choose the new tax regime 

• Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
• Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA).
• Interest on Home Loan on the let-out property (Section 24)
• Deduction for employer’s contribution to NPS account [Section 80CCD(2)]
• Standard deduction of Rs 50,000 under the New Tax Regime applicable from FY 2023-24
• Deduction under Section 57(iia) of family pension income
• Amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2)

Old Tax Regime Exemptions

Let us have a look at the various proofs to be submitted to claim the tax exemptions under the old tax regime:

There are certain other tax benefits or tax deductions that you can claim beyond the salary package:

• Life insurance premium (LIC premium), children’s tuition fee, and housing loan repayments.
• Investments in Public Provident Fund (PPF), National Savings Certificate (NSC), mutual fund Equity-Linked Savings Scheme (ELSS), tax saver fixed deposits.
• Contributions made to National Pension Scheme (NPS), Sukanya Samriddhi Yojana (SSY).
• Interest on home loans.
• Medical insurance premium.
• Donations.
• Interest on loan taken for higher studies.

The proofs that can be submitted for claiming the tax benefits or tax deductions are:

Standard deduction and staff benefits from the employer: Apart from the above tax exemptions and deductions claimed by an employee, the employer also allows a standard deduction to every employee. The standard deduction is Rs 50,000 for the financial year 2023-24 (AY 2024-25). Separately, employers can gift to their employees or provide them with gift vouchers. Such gifts are tax-exempt up to Rs 5,000 annually. In respect of gifts and any other staff welfare payments made by the employer, the employee is not required to submit any proof to the employer.

Income tax exemptions claimed in specific cases: The employer calculates the tax exemption on the retirement and resignation benefits mentioned below. The balance of the component (non-exempt portion) is taxed along with the basic salary of the employee.

You can use our Income tax calculator to help you make decisions on which tax regime is beneficial for you.

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