Understanding Section 10: How Do You Calculate Total Tax Exemptions on Your Salary Slip?

To calculate the total exemption under Section 10, you need to consider all the eligible deductions and exemptions as per the provisions of that particular section. This may include exemptions related to investments, allowances, or income from specific sources that are exempt from tax. It is essential to carefully review the details mentioned in Section 10 of the Income Tax Act to accurately determine the total exemption amount applicable in a given scenario. If you require further assistance or clarification on this matter, please feel free to ask.

Components of Allowances Under the Income Tax Act

As per the Income Tax Act and practices, we are using some components like Medical Allowance, Uniform Allowance, Children Education Allowance, Housing Rent Allowance, and Conveyance Allowance.

First, please confirm which components your employer is using.

Details of Allowances

- Medical Allowance: Up to Rs. 1,500 yearly (requires a medical bill) is exempt.
- Uniform Allowance: Exempt to the extent of expenditure incurred for official purposes (e.g., factory worker).
- Children Education Allowance: Up to Rs. 100 per month per child, up to a maximum of 2 children, is exempt.
- Housing Rent Allowance: As per eligibility.
- Conveyance Allowance: Up to Rs. 1,600 per month (Rs. 3,200 per month for blind and handicapped employees) is exempt.

Regards,
Nagesh More

Dear Mukesh, please find the attached House Rent Allowance (HRA) exemption calculation. If you're a salaried individual, you can claim House Rent Allowance (HRA) to meet your rented accommodation-related expenses. Salaried individuals who live in a rented house can claim this exemption and bring down their taxes. HRA can be fully or partially exempt from tax. Our HRA exemption calculator will help you calculate what portion of the HRA you receive from your employer is exempt from tax and how much is taxable. If you don’t live in a rented accommodation but still get house rent allowance, the allowance will be fully taxable.

The entire HRA received is not always fully exempt from tax. The least of the following three will be taken to exempt from tax:

- HRA received from your employer
- Actual rent paid minus 10% of salary
- 50% of basic salary for those living in metro cities
- 40% of basic salary for those living in non-metro cities

For example:

Mr. ABC lives in Mumbai. His basic salary: Rs 50,000 per month, Rent he pays: Rs 15,000 a month. The HRA exemption he would get would be the least of the following:

"Head Amount
1.) 50% of basic salary Rs 25,000
2.) HRA received Rs 15,000
3.) Excess of rent paid over 10% of salary Rs 1,75,000

The least of the above three is exempt. Hence, exemption would be Rs 15,000."

Regards,
Nagesh More