Dear All,
Every individual who earns an income in India is entitled to pay Tax on the Income earned by him during that financial year to the government of India. Calculation of the Income Tax to be paid by an individual is a cumbersome process. The government of India provides certain benefits to its citizens who earn an income in the country by means of deductions, exemptions etc.
The Heads of Income includes the types of income earned by an individual that would qualify as Income for which he/she needs to pay tax. These include the components that would be earned by an individual through employment with an organization/company. They are:
1. Salaries & Wages
2. Bonus & Commissions
3. Other Perquisite benefits
Deductions on Income:
As per the IT regulations, there are certain deductions that are allowed on the income earned by an individual. These amounts can be subtracted while arriving upon the net taxable salary of an individual. They include:
1. Housing Rent Allowance (HRA) – The HRA is usually a part of the salary/wages paid out to an employee by the employer. The deduction on HRA is eligible to any individual who is residing in a rented house and is paying rent to the house owner. There are some rules that govern the limit till which HRA can be deducted from your taxable income. Out of the below mentioned 3 items whichever is LEAST will be considered for the purpose of deduction under the HRA component.
a. Actual amount of the HRA paid by the employer (As part of Salary) Or
b. 50% of Basic salary in case of Metros (Delhi, Bombay, Calcutta & Chennai) or 40% of Basic salary in case of non Metros. Or
c. Actual rent paid by the individual – 10% of Basic salary
For e.g., your monthly Basic salary is Rs. 12,000/- and the HRA component as per your salary is Rs. 6000/- and the actual rent you are paying is Rs. 6000/- in Chennai then the amount you would be eligible for HRA exemption is Rs. 4800/- (Actual rent – 10% of Basic salary) per month.
2. Leave Travel Allowance (LTA) – LTA also is usually a part of the salary paid out to an employee as part of his employment. As per the Indian tax laws you are eligible to claim an amount that less than or equal to the total LTA paid out to him by his employer. This would cover the expenses incurred in travel of self with/without dependents. (Dependents would include spouse, children and dependent parents) There are some conditions which need to be satisfied for an individual to claim exemption under LTA. They are:
a. LTA can be claimed only twice in a block of 4 financial years. You cannot claim LTA every year.
b. Only Transportation expenses would be considered for LTA. Accommodation & food expenses are not considered.
c. For an employee to be eligible for claiming LTA, he/she should have taken at least 3 days of earned leave from the employer
3. Medical Allowance – Medical allowance is also a part of the salary paid out to an employee. The maximum amount eligible for this component is either Rs. 15,000/- or the actual amount paid out to you as part of Salary. To claim exemption under this you need to provide medical bills to substantiate your claim of having incurred medical expenditure. The medical bills can be in the name of the individual or his spouse or children or dependent parents.
4. Transportation Allowance – The IT laws permit a deduction of Rs. 9,800/- as a standard transportation allowance to all resident individuals who pay income Tax. This amount is standard irrespective of the job/industry the individual is employed. Also this amount does not change irrespective of the means of transport you use to commute to your office.
5. Interest Paid on housing loan – The IT laws permit an individual who has taken a home loan from a recognized bank for the purpose of construction or purchase of a residential property to claim exemption on tax on the interest part of the loan taken by the individual. There is a limit to this exemption which is as follows.
a. If the property is occupied by the individual then the maximum eligible amount under this is Rs. 1,00,000/-
b. If the property is rented out and the rental income is included in the total income earned by the individual then there is no maximum amount. The actual interest paid on the home loan can be used for deduction from total salary considered for the purpose of income tax.
Note: Exemption is available on home loans taken to purchase residential property only. Home loans taken to purchase land do not qualify for income tax exemption.
The Income Tax laws allow all individuals who are assessed for income tax to claim exemption from income tax under the following heads.
1. Section 80C – The section 80C of the IT laws provide exemption from income tax on amounts that are invested by the individual. This usually includes the amount the individual invests in certified instruments that are exempt from tax.
From India, Hyderabad
19Every individual who earns an income in India is entitled to pay Tax on the Income earned by him during that financial year to the government of India. Calculation of the Income Tax to be paid by an individual is a cumbersome process. The government of India provides certain benefits to its citizens who earn an income in the country by means of deductions, exemptions etc.
The Heads of Income includes the types of income earned by an individual that would qualify as Income for which he/she needs to pay tax. These include the components that would be earned by an individual through employment with an organization/company. They are:
1. Salaries & Wages
2. Bonus & Commissions
3. Other Perquisite benefits
Deductions on Income:
As per the IT regulations, there are certain deductions that are allowed on the income earned by an individual. These amounts can be subtracted while arriving upon the net taxable salary of an individual. They include:
1. Housing Rent Allowance (HRA) – The HRA is usually a part of the salary/wages paid out to an employee by the employer. The deduction on HRA is eligible to any individual who is residing in a rented house and is paying rent to the house owner. There are some rules that govern the limit till which HRA can be deducted from your taxable income. Out of the below mentioned 3 items whichever is LEAST will be considered for the purpose of deduction under the HRA component.
a. Actual amount of the HRA paid by the employer (As part of Salary) Or
b. 50% of Basic salary in case of Metros (Delhi, Bombay, Calcutta & Chennai) or 40% of Basic salary in case of non Metros. Or
c. Actual rent paid by the individual – 10% of Basic salary
For e.g., your monthly Basic salary is Rs. 12,000/- and the HRA component as per your salary is Rs. 6000/- and the actual rent you are paying is Rs. 6000/- in Chennai then the amount you would be eligible for HRA exemption is Rs. 4800/- (Actual rent – 10% of Basic salary) per month.
2. Leave Travel Allowance (LTA) – LTA also is usually a part of the salary paid out to an employee as part of his employment. As per the Indian tax laws you are eligible to claim an amount that less than or equal to the total LTA paid out to him by his employer. This would cover the expenses incurred in travel of self with/without dependents. (Dependents would include spouse, children and dependent parents) There are some conditions which need to be satisfied for an individual to claim exemption under LTA. They are:
a. LTA can be claimed only twice in a block of 4 financial years. You cannot claim LTA every year.
b. Only Transportation expenses would be considered for LTA. Accommodation & food expenses are not considered.
c. For an employee to be eligible for claiming LTA, he/she should have taken at least 3 days of earned leave from the employer
3. Medical Allowance – Medical allowance is also a part of the salary paid out to an employee. The maximum amount eligible for this component is either Rs. 15,000/- or the actual amount paid out to you as part of Salary. To claim exemption under this you need to provide medical bills to substantiate your claim of having incurred medical expenditure. The medical bills can be in the name of the individual or his spouse or children or dependent parents.
4. Transportation Allowance – The IT laws permit a deduction of Rs. 9,800/- as a standard transportation allowance to all resident individuals who pay income Tax. This amount is standard irrespective of the job/industry the individual is employed. Also this amount does not change irrespective of the means of transport you use to commute to your office.
5. Interest Paid on housing loan – The IT laws permit an individual who has taken a home loan from a recognized bank for the purpose of construction or purchase of a residential property to claim exemption on tax on the interest part of the loan taken by the individual. There is a limit to this exemption which is as follows.
a. If the property is occupied by the individual then the maximum eligible amount under this is Rs. 1,00,000/-
b. If the property is rented out and the rental income is included in the total income earned by the individual then there is no maximum amount. The actual interest paid on the home loan can be used for deduction from total salary considered for the purpose of income tax.
Note: Exemption is available on home loans taken to purchase residential property only. Home loans taken to purchase land do not qualify for income tax exemption.
The Income Tax laws allow all individuals who are assessed for income tax to claim exemption from income tax under the following heads.
1. Section 80C – The section 80C of the IT laws provide exemption from income tax on amounts that are invested by the individual. This usually includes the amount the individual invests in certified instruments that are exempt from tax.
From India, Hyderabad
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