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.