Exemptions on Salary allowances

Hello, In this post, we will discuss exemptions on salary allowances. We will look at the following topics:

• What is an Allowance?
• Exemption of allowances in salary allowance
• House rent allowance
• Standard Deduction
• Conveyance allowances
• Leave Travel Allowance (LTA)
• Mobile reimbursement
• Books and Periodicals
• Food coupons
• Relocation allowance
• Children Allowances
• Hostel allowances

In any organisation, you will get various components in CTC apart from your basic salary. Some of  these components are allowances. employees may get HRA, Special allowance, LTA, mobile reimbursement and other allowances as per their job roles and responsibilities.

What is an Allowance?

As per the Income Tax Act, allowance is a fixed amount that is given in addition to their salaried employee to fulfil the specific requirements or expenses. All allowances are taxed under the head of income from salary.
For more information on allowances, read: Types of allowance in salary slip. 

Exemptions on salary allowances for payroll calculation

There are some exemptions on salary allowances that come under the Income Tax Act. In the below sections, we will discuss these exemptions.  –

House rent allowance

House rent allowance is for salaried employees whose expenses are related to rented accommodation they can claim for HRA. That could be partially or exempted from the income tax.

There are the following exemptions that you can claim

• 50% of salary in metro cities and 40% in non-metro cities.
• Actual received rent
• Actual paid rent is less than 10% of the salary.

Note: If you are paying rent less than 1L, then you need to show the PAN details of the landlord to the employee.

• Under section 80GG deduction, you can claim certain conditions. If HRA is not received from the employer,
• An employee can avail and deduct the HRA benefits simultaneously for interest paid and principal repayment of the home loan.
• If you are paying rent more than Rs.1 lakh, then you need to show/submit the PAN details of the landlord.

Standard Deduction

• The Union Budget 2018 introduced the benefits of a standard deduction from the salary of Rs.40,000 for salaried employees in place of medical reimbursement and transport allowance.
• Earlier, medical reimbursement was exempted up to Rs.15,000, and transport allowance was exempted up to Rs.1,600 Per month, i.e. 19,200 PM. Therefore, salaried employees can make an additional tax exemption of Rs. 5,800 from the standard deduction.

Conveyance allowances

Conveyance allowance is paid to the employee by the employer for travelling from home to office. An amount is payable up to Rs.1,600 per month if expenses will be more than it is taxable.

In case it is given to a handicapped person, the exemption for CA is 3200.

Leave Travel Allowance (LTA)

The Income Tax Act provides the exemption on LTA to salaried employees, and it is restricted to travel expenses incurred during leave by them. And the exemption doesn’t include the costs pursued the entire trip, such as shopping, entertainment, food expenses and others. For LTA, you can claim twice in four years in case you can’t utilise it, then you can carry forward for next year or the future.

There are certain conditions of LTA –

• Ways of travel need to be Public transport, Railways, and Air travel.
• LTA will be responsible for covering up only domestic travel.

Mobile reimbursement

A taxpayer may incur expenses on mobile or telephone used for office/business purposes. Then the employee can claim for mobile reimbursement of the actual bill or for that amount, which is provided in the salary.

Books and Periodicals

An employee can claim expenses towards books, magazines, periodicals, newspaper or book subscriptions and others. And the amount is provided in CTC or an actual bill.

Food coupons

Usually, an employee provides the benefits on food to the employee in the form of meal coupons which are taxable as benefits in the hands of the employee. But, those coupons are tax-exempted up to Rs. 50 or more per meal, such as Sodexo.

So, if you see the calculation, you will get 25 working days and 2 meals per day. Therefore, monthly benefits will be Rs. 2,500 (25*100).

Relocation allowance

As per the business needs, you may have to relocate to another office location for work, different shifts or other reasons. And these relocation processes will cause expenses, such as transportation charges, shifting charges, car registration charges, ticket charges, if you have kids, then kids admission charges, and other charges. So, for all these expenses, employers will provide them through direct payment or include them in your salary.

Children Allowances

Usually, every employer provides education allowances to their employee for children’s education as part of their salary and that allowance received by the employer as regards children’s education is exempted from tax, and for this exemption an employee can claim up to Rs.200 per month or 1,200 annually.

Hostel allowances 

Every employer provides hostel allowances to their employees to meet their children’s hostel expenditure as part of their salary. And it is exempted from tax. For this exemption, an employee can claim a maximum of Rs.300 per month or 3,600 annually, up to per two children.

This is the end of our discussion on exemptions on salary allowances. Let’s know your other questions and opinions on this topic. Mention below the comment box.

Also, you can see the referred posts.

Section 80EE and 80EEA Interest on housing loan deduction

Types of allowances