Income Tax Exemptions for Salaried Employees / Individuals

Updated on 10th July 2014 : budget day

Every year most of the people eagerly wait for the budget proposals to be announced for various reasons. The most important one is on the Exemptions permitted for salaried employees and individuals.

As income tax is major component of the salary, the change in income tax rates has major impact on the savings and expenses of salaried employees as they have a fixed source of income. Income tax exemptions and deductions are introduced to boost savings of employees on one side and save tax on the other side.

Income tax exemptions for salaried employees are revised every year in the budget proposals but the changes are not significant as compared to change in tax slabs.

Standard Deductions that were applicable upto Year 2006 has been converted to Basic Exemption, and the amount allowable under this basic exemption has been raised in almost every budget.

Income tax slab for FY 2014-15
Income Tax Slabs for Resident Senior Citizens (FY 2014-15) above 60 years of Age
S. No. Income Range Tax percentage
1 Up to Rs 3,00,000 No tax / exempted
2 3,00,001 to 5,00,000 10%
3 5,00,000 to 10,00,000 20%
4 Above 10,00,000 30%
Income Tax Slabs for FY 14-15 Others & Men (AY 2015-16) below 60 years of age
1 Up to Rs 2,50,000 No tax / exempted
2 2,50,001 to 5,00,000 10%
3 5,00,000 to 10,00,000 20%
4 Above 10,00,000 30%

Apart from the above-mentioned exemption, there are some more Statutory exemptions available for salaried employees applicable under Section 10.

The total exemption limit for savings under under section 80c is revised from Rs 1,00,000 to Rs 1,50,000 in the budget presented by Finance Minister Arun Jaitley on July 10th 2014. These exemptions include savings in ELSS, children tution fee, PPF, housing loan interest, NSC, ULIP, Life insurance premiums etc ( see details here: section 80C deductions)

HRA Exemption

HRA allowance received by the employee Or Actual rent paid – (10% of Basic + D.A.) Or 50% of (Basic + D.A.) incase the location is (Mumbai, Kolkata, Chennai, Delhi) or 40% of (Basic + D.A.) in case of other cities. Or whichever is less of the above three.

Conveyance Exemption

Maximum Exempted u/s 10 upto Rs.9600 p.a. (i.e. @ Rs. 800 per month when paid along with the salary)

Medical Exemption

Maximum Exempted u/s 10 upto Rs.15000 p.a. based on the bills produced by the employee (i.e. @ Rs. 1250 per month when paid along with the salary)

Education Exemption

Maximum Exempted u/s 10 upto Rs.2400 p.a. based on no of dependent children’s declared by the employee (i.e. @ Rs. 200 per month when paid along with the salary)

Telephone Exemption

Maximum Exempted u/s 10 upto Rs.18000 p.a. based on the bills produced by the employee

(i.e. @ Rs. 1500 per month when paid along with the salary)

Petrol and Vehicle Maintenance Exemption

For Car: Rs. 1200 p.m. * 12 months = 14,400

For Driver: Rs. 600 p.m. * 12 months = 7,200

These are the sum total of all the exemptions allowable for Salaried Employees. However there are many Deductions, Tax Benefits & Tax Breaks under various sections, which are permissible for computation of Income Tax. This will be dealt in a separate article.

LTA Exemption

LTA is exempt to the tune of ecomony class airfare for the family to any destination in India, by the shortest route. For Assessment Year 2010 – 2011 the applicable Block is Year 2006 – 2009. LTA can be claimed twice in a block of 4 calendar years. The Next block is from Jan 2010 to Dec 2013.

31 comments to Income Tax Exemptions for Salaried Employees

  • Hi Munish,
    I have query pertaining to Telephone Exemption. Actually we have about 35 employees in our company and who are highly paid.Currently in the salary structure we do not have Telephone allowance,however we realize to add this component,so that the majority can save tax. Kindly advise if it’s useful to add this component now as we have already in Aug’14 now.
    Also advise if the bills has to be on Employees’ name only?
    Also clarify whether this exemption is for official bills or only on personal bills?
    Thanks for your advise in advance.

    Best Regards,
    Nivedita Agarwal
    HR-Generalist

    • Financial Advisor

      All allowances are taxable but reimbursements are not. IF you give telephone allowance to employees it will be fully taxed. If your employees claim reimbursement of telephone expenses for office use then the reimbursement is tax free and this amount reimbursed is added in the company expenses.

  • p.mallick

    Besically,all salaride employees ambition to get more exemption in income tax . But it depends on government policy.However,the way employees are endeovering their services for the development of the country, they deserve to be exempted full income-tax.

  • hemen parekh

    To Be or not To Be ?

    Shakespeare would say , ” That is the question ”

    For Federal Reserve Board of Revenue ( Pakistan ) , that question was ,

    ” What to publish ? And what not to publish ? ”

    It seems , in Pakistan , only 1 million people [ out of a population of 140 million ] , pay income tax

    Finally , the Board published the names of those 1 million ( running into a 17,000 page directory ) , with the amount of tax paid by each

    To give to Pakistan , a loan of $ 6.7 billion ( approx Rs 41* Thousand * Crores ) , the International Monetary Fund ( IMF ) , insisted on such a publication

    Now , in India , we have 40 million people who pay personal income tax ( out of a population of approx 1220 million )

    Obviously , for India’s Income Tax Department , it would be an impossible task to publish their names in a directory – which could possibly run into 17,000*40 pages !

    Then again , India has no need for an IMF loan , what with its Personal Income Tax revenue amounting to , Rs 2.47*Lakh*Crores

    And if the incoming government at the Centre , dares to implement my suggestion of INVERSE TAXATION regime , that revenue could go up 100 times !

    Simply , ” Inverse ” the tax slabs as follows :

    > Up to Rs 2 lakhs………………… NIL
    > 2.1 – 5.0 lakhs…………………. 10 %
    > 5.1 – 10 lakhs………………….. 8 %
    > 10.1 – 20 lakhs…………………. 6 %
    > 20.1 – 50 lakhs………………… 5 %
    > 50.1 – 100 lakhs………………… 3 %
    > Above 100 lakhs…………………. 1 %

    What is likely to happen with such ” INVERSE TAXATION ” regime ?

    Following few things :

    > Total personal tax payer base will go up dramatically from current 4
    crores tax-payers

    > Total personal tax collection too , will rise dramatically

    > with this ” INVERSE TAX REGIME ” , there will be no incentive to evade
    taxes and to generate ” BLACK MONEY ”

    > There will be no resistance to accept ALL payments by cheque / electronic
    clearance !

    > The more you disclose as your income , the less you pay by way of taxes
    ( Of course , incrementally )

    > For a change , we will learn to reward honesty / efficiency / productivity !
    No need to bribe those Income Tax officers !

    > Lakhs of crores of BLACK MONEY , stashed away in bank
    lockers / gold / land – and , of course those Swiss bank accounts – will ,
    become ” WHITE MONEY ” , overnight !

    > There will be a huge surge in bank deposits ( – even with , the inevitable
    lower interest rates )

    > Banks will be awash with funds to finance businesses / infrastructure
    projects etc , encouraging entrepreneurs / self-employed to set up new
    businesses ( at 2 % interest rates of loans ) and generate millions of jobs

    > There will be a phenomenal rise in Capital Markets

    Only questions worth debating are :

    > To innovate or not ?

    > To think out-of-the-box or not ?

    > To feed poor or to teach them how to fish ?

    > To enable people to earn more or to subsidize their expenditure ?

    > To let people stand on their own legs or continue “Dependency Culture” ?

    * hemen parekh ( 18 April 2014 / Mumbai )

  • minhaj

    Dear sir,
    Me and my wife are working in same institution, can we both claim HRA exemption and we have 4 childrens can we show two children tution fee each. Plz reply sir
    Thanks sir.

  • Nitin

    If i have 2 phone connections (1 mobile and 1 landline) on my name, can I submit both of them? or only one will be considered for exemption?
    Although i know collectively it will eligible for maximum of Rs. 18000 only.

  • M C Goel

    I mean to ask the limit of investment in tax free bonds which will not attract income tax

  • Suvendu Samanta

    If any person have income from Tuition(356000), Interest Income(230000) with a salary income of rs. 96000 , how to calculate his/her total income and tax computation

    • Financial Advisor

      Your total Income will be Rs 356000+230000+96000 which comes out to Rs 6,82,000. You will have to calculate tax on this income as per applicable rates

  • Pals

    Can i submit the telephone bills that are on my husband’s name for tax exemption. He is not submitting those for tax saving himself.

  • pkbansal

    i m in govt service ,getting transport allowance of 6000 per month,i m using my

    personal car for commuting to office from home ,monthly petrol expanses &

    maintance are more than 6000 .how much tax deduction is allowed in my case under
    which section as presently we are exempted 800 only as conveyance allowance.

    • Financial Advisor

      Exemption is there of rs 800 only. The way around is if the company considers this as transport allowance for official purpose and maintenance of car the fuel / maintenance bills can be submitted to clain tax relief

  • ajay nikam

    Dear Sir,

    Kindly advise whether Rajiv gandhi Equity S S will save the the deductible tax of 25000 if invested in Equity Mutual funds. That is if my tax to be deducted is 25000 & I invest in Rs.50000 as per Rajiv gandhi ESS I will save 25000.

    Please advise.

  • The exemption given to Infrastructure Bond to the tune of 20000 in AY 2012-13 is still hold good for the AY 2013-14 or is it scrapped . Is it within the limit of one lachor other than 0ne lack. how can i save other than u/s 88

  • sooryanarain

    The exemption given to Infrastructure Bond to the tune of 20000 in AY 2012-13 is still hold good for the AY 2013-14 or is it scrapped

  • Nirav Bhavsar

    Any chage (Increase in limit) for paid along-with salary
    HRA Exemption – 40% & 50% of Basic + DA
    Conveyance Exemption – Previously 9600 Rs per annum
    Medical Exemption – Previously 15000 Rs per annum
    Education Exemption – Previously 2400 Rs per annum
    LTA Exemption –
    Please update if any change in exemption amount will helpful for Salaried person.
    Nirav

  • VENKAT

    I am a handicapped person working in central Government(joined recently).
    Could anybody provide GO’s or Office Memorandums of MOWR regarding conveyance allowance and Professional tax exemption and any other benefisiery Go’s related to handicapped persons.

    Please provide asap

  • Gurdass Kaur

    1. I am a bank employee and availed one month’s salary encashment and leave travelling concession upto 4000kms without producing tickets. The bank has reimbursed 75% of notional fare of railway tickets. whether it is taxable??? If yes,under which section ???

    2. My son who is wholly dependent on me, met with an accident and was hospitalized. We spent around 55000/- on his treatment and my bank reimbursed me only 29000/-. Out of 29000/- what amount is exempted from income tax and under which section ??

    Please reply asap.

  • @\/i

    dear sir,
    can i have the tax rebate in case of physically handicapped employee.
    please provide both the cases i.e. p.h.(more than 40%) and
    severe p.h. (more than 80%). i am a govt employee and my gross pay is
    more than 1.80 lacs. i would be highly obliged..
    thanx

  • SURINDER MOHAN

    is cpf deduction is inculed in dedection of RS. one lac or speartely in govt employee

  • Aditya

    Dear Sir,
    This site is very usefull for Salaried Emp. Please elaborate this HRA rules.Actually my basic salary is 100541.00 and the HRA received by the company is 40219.00. My actual rent is 3000.00/month and the above calculations are based on 11 months because i joined this company in May 2011. Please do the calculation based on 11 months Please suggest me how much HRA i can exempt on Tax.
    Regards Aditya

  • Prashant Joshi

    Dear Sir,

    My office deducted tax without considering my Housing Loan and savings for this financial year 2010-11. For the same i got last year excemption.
    Please tell me what should I do, to get excemption from my tax for HRA and savings.,

    Prashant

  • HARI SINGH SHARMA

    sir, I am Physically Handicapped employee. As handicapped how much rebate is possible to me in my salary. Income Slabe rate may be given.

  • Rajpal Singh Sansanwal

    There are many ELSS Infrastructer Bonds in Bazar, but govt exempt all ELSS saving fund from tax benifit, then how Infrastructer Bond will growth for next years ? Can you send solution ?

  • C P JAYADEVAN

    In my opinion, for employees of Central and STate Government exployees, including Public Sector Undertakings, the amount realised due to VRS upto the extent of Rs.25 Lakh should be exempted from payment of Income Tax, from the existing level of Rs.5 lakh. The limit fixed is long back and considering the hike in salary and increase in cost of living etc., Finance Ministry should sympathetically consider my suggestion. If this limit is raised upto 25 Lakh, more and more employees will opt VRS and get out from the government employment. This will help the youngsters, who are more talented, to get an opportunity to serve the nation more efficiently.

  • Deepak Singh Rawat

    Dear,

    Please advise regarding the detail information about Infrastructure bond which is having Rs.20,000 exemption in Income tax annually.
    Is these bond are readily available in the market.
    How can i go ahead about the same.

    Thank You

    Deepak Singh Rawat

    • Sunita Rana

      Deepak,

      When the Companies are declaring the Infrastructure bonds in the markets that time only you can buy them like now a days Larsen & Tourbo has declared the bonds and these bonds are for specific periods ( last date of bond is around 15th of jan, 12 )you can buy these bonds in this period only . These bonds you can get from any investment company, share broking firms or if you have dmate account, can buy directly.

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