Budget 2023: Salary allowances which can reduce your tax burden
These allowances are offered on a monthly basis and have to be filled up when filing income tax returns (ITR).
- Jan 6, 2023,
- Updated Jan 6, 2023 1:34 PM IST
A salaried employee can avail of many financial benefits to cut down their personal tax burden that are offered to them in the form of allowances. These allowances are offered on a monthly basis and have to be filled up when filing income tax returns (ITR). Allowance, such as House Rent Allowance (HRA), Leave Travel Concession or Assistance (LTC or LTA), Children's Education Allowance, and others, which are all under Section 10 of the Income Tax Act, are offered, so that with these deductions and exemptions and, one could reduce his/her tax substantially.
1. House Rent Allowance (Sec. 10(13A)):
Salaried individuals who live in a rented house can claim tax exemption on HRA. The amount of exemption shall be lower of the following:
The total amount of HRA received
- 40 per cent of salary (Basic salary + Dearness Allowance) for non-metro cities; 50 per cent, if the house is situated in Mumbai, Calcutta, Delhi, or Chennai
- Excess of rent paid annually over 10 per cent of annual salary (Basic salary + DA)
- Salary = Basic + DA (if part of retirement benefit) + Turnover based Commission
HRA is
- Fully Taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent
- It is mandatory for employees to report the PAN of the landlord to the employer if the rent paid is more than Rs 100,000.
2. Leave Travel Concession or Assistance (LTC/LTA) (10(5)):
Employees can cover the traveling costs incurred for his/her leisure trip in India as a tax-free expense. To avail of this concession, employees have to take a leave from work and travel anywhere within India, and the costs incurred for fare, which depend on the total salary package, would be allowed as a tax-free allowance by the employer.
The mode of travel can be anything: railway, air, or public transport.
3. Education Allowance for children: While submitting income investment proofs end of the year, employees should note that the employer gives up to Rs. 100 per month per child up to a maximum of 2 children. All this is tax exempted.
4. Uniform Allowance: If one’s job requires maintaining or purchasing the uniform for office hours, the employer will provide a particular amount, which is tax exempted.
5. Books and Periodical Allowance: According to the income tax law, tax-free reimbursement is provided for purchasing books, newspapers, periodicals, journals, etc. The amount can differ from person to person and is mentioned in the annual salary package provided to the employees.
6. Relocation Allowance: Much before the Covid era, companies used to provide relocation allowance when they asked employees to shift to a different city for business reasons. This is different from the business trip allowance.
The employer is bound to offer the expenses made on car transportation costs, car registration charges, packaging charges, initial 15 days accommodation, and train/air tickets. All these allowances are tax exempted.
7. Helper Allowance: The helper allowance is granted in those cases where the employer allows you to appoint a helper to perform official duties of the office, like in the case of high-rank government officials.
Special allowances
Besides the above-mentioned allowances, the Central government also allows employees to avail of certain allowances for working under a certain set of conditions while on duty.
These are:
1. Allowance for working in hilly areas
These allowances are offered for working in areas of high altitude or hilly areas, also known as climate allowances.
For working in hilly areas of HP, UP, J&K, and North East, the allowance is Rs.800
For Siachen, it is Rs 7,000 per month
2. Scheduled or tribal or agency areas allowance
For working in tribal areas in Karnataka, West Bengal, MP, Assam, Orissa, Tamil Nadu, Bihar, UP, and Tripura, the employers allow an allowance of Rs 200 to the employees.
3. Allowance for duty in the border area or remote areas or any difficult/disturbed areas.
These allowances range from Rs 200 to Rs 1,300 per month and are exempted from any tax under Rule 2BB.
4. Island Duty allowance: This is granted to armed forces in Andaman & Nicobar and Lakshadweep. The allowance is fixed at Rs 3,250 per month.
5. Transport allowance to physically disabled employees on duty to travel to work. The allowance is Rs 1,600 per month.
6. Transport allowance for commuting between work and residence: Rs 1,600 per month.
A salaried employee can avail of many financial benefits to cut down their personal tax burden that are offered to them in the form of allowances. These allowances are offered on a monthly basis and have to be filled up when filing income tax returns (ITR). Allowance, such as House Rent Allowance (HRA), Leave Travel Concession or Assistance (LTC or LTA), Children's Education Allowance, and others, which are all under Section 10 of the Income Tax Act, are offered, so that with these deductions and exemptions and, one could reduce his/her tax substantially.
1. House Rent Allowance (Sec. 10(13A)):
Salaried individuals who live in a rented house can claim tax exemption on HRA. The amount of exemption shall be lower of the following:
The total amount of HRA received
- 40 per cent of salary (Basic salary + Dearness Allowance) for non-metro cities; 50 per cent, if the house is situated in Mumbai, Calcutta, Delhi, or Chennai
- Excess of rent paid annually over 10 per cent of annual salary (Basic salary + DA)
- Salary = Basic + DA (if part of retirement benefit) + Turnover based Commission
HRA is
- Fully Taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent
- It is mandatory for employees to report the PAN of the landlord to the employer if the rent paid is more than Rs 100,000.
2. Leave Travel Concession or Assistance (LTC/LTA) (10(5)):
Employees can cover the traveling costs incurred for his/her leisure trip in India as a tax-free expense. To avail of this concession, employees have to take a leave from work and travel anywhere within India, and the costs incurred for fare, which depend on the total salary package, would be allowed as a tax-free allowance by the employer.
The mode of travel can be anything: railway, air, or public transport.
3. Education Allowance for children: While submitting income investment proofs end of the year, employees should note that the employer gives up to Rs. 100 per month per child up to a maximum of 2 children. All this is tax exempted.
4. Uniform Allowance: If one’s job requires maintaining or purchasing the uniform for office hours, the employer will provide a particular amount, which is tax exempted.
5. Books and Periodical Allowance: According to the income tax law, tax-free reimbursement is provided for purchasing books, newspapers, periodicals, journals, etc. The amount can differ from person to person and is mentioned in the annual salary package provided to the employees.
6. Relocation Allowance: Much before the Covid era, companies used to provide relocation allowance when they asked employees to shift to a different city for business reasons. This is different from the business trip allowance.
The employer is bound to offer the expenses made on car transportation costs, car registration charges, packaging charges, initial 15 days accommodation, and train/air tickets. All these allowances are tax exempted.
7. Helper Allowance: The helper allowance is granted in those cases where the employer allows you to appoint a helper to perform official duties of the office, like in the case of high-rank government officials.
Special allowances
Besides the above-mentioned allowances, the Central government also allows employees to avail of certain allowances for working under a certain set of conditions while on duty.
These are:
1. Allowance for working in hilly areas
These allowances are offered for working in areas of high altitude or hilly areas, also known as climate allowances.
For working in hilly areas of HP, UP, J&K, and North East, the allowance is Rs.800
For Siachen, it is Rs 7,000 per month
2. Scheduled or tribal or agency areas allowance
For working in tribal areas in Karnataka, West Bengal, MP, Assam, Orissa, Tamil Nadu, Bihar, UP, and Tripura, the employers allow an allowance of Rs 200 to the employees.
3. Allowance for duty in the border area or remote areas or any difficult/disturbed areas.
These allowances range from Rs 200 to Rs 1,300 per month and are exempted from any tax under Rule 2BB.
4. Island Duty allowance: This is granted to armed forces in Andaman & Nicobar and Lakshadweep. The allowance is fixed at Rs 3,250 per month.
5. Transport allowance to physically disabled employees on duty to travel to work. The allowance is Rs 1,600 per month.
6. Transport allowance for commuting between work and residence: Rs 1,600 per month.