Income Tax Exemptions
Income Tax Exemptions, deduction or benefits are certain reduction in the income tax that a person pays for the income that they receive. These reductions are based on certain rules and regulation by the Income Tax Department of India. Such reductions are given in order to make sure that the income taxes are paid properly, the welfare of the tax payers as well as the promotion of a certain kind of income earning scheme through which people can benefit from.
Who are salaried employees?
Salaried employees are the people who get an income for the services that they have rendered to a particular individual, a company or any organizational institute. If an individual is working as a website designer for a company and receive an income from them for the services that they have rendered and the products that they have created, then the website designer is a salaries employee and the company is the employer.
What is a salary?
A salary is a sum amount of money that an employee will receive as an income from their employer which can be an individual, a company or business that have got their employee to render services to them for a price that is paid. If an individual is working for a company as a web designer, then the company is legally bound to pay remuneration for the work that they have got done by the employee for a particular period of time. Salaries are usually paid on a monthly basis, but it can be paid weekly or fortnightly as well, depending upon the functioning of the organization or the employer.
10 Income Tax Exemptions for Salaried Employees
- HRA – House Rent Allowance Tax Exemption
Different types of allowances are considered as a part of the salary, as you have seen above. Now, an employee gets a house rent allowance so they can rent out a place to stay in during the tenure of their time with the company. There is a tax exemption allowed on the HRA under the Section 80 G G of the Income Tax Act in case they are residing in a rented house. They will not receive the exemption if they stay in a house they own. Exemptions are also given to people who stay with their parents and pay them rent.
- Child Education Allowance
A tax exemption is offered on the allowance that an employee receives for the education of their child. The child education allowance is considered as a salary income which an employer gives to their employee during the term of their work. The allowance will be given to only 2 children of the employee.
- Hostel Facilities Allowance
The hostel facilities allowance is linked to the child education allowance. A hostel stay allowance is provided for the child of the employee as a part of the salary income. Any taxes on this allowance are exempted by the Income Tax Department.
- Transportation Allowance
As an employee, one gets an allowance which allows them to easily commute from their home to their work place and the other way around. This allowance is exempted from being taxed by the Income Tax Department and one does not even have to provide any receipts to show the transportation is being done as it is obvious that the employees have to commute to work.
- House Loan
An employee gets a housing loan from their employer. This loan is given in cases when the employee might have to change their residence during the period of their employment in the company. Here, only the interest which comes with a loan is exempted from being taxed by the Income Tax Department. But, this can be exempted only in case of the house being occupied by the owner, the employee.
- Annuity or Pension Schemes
For the promotion and increase of certain schemes, the government has offered certain tax exemptions. Under the Section 80 C’s 80 CCC AND 80 CCD of the Income Tax Act, there are tax exemptions offered for the returns that are received by the annuity schemes and the pension schemes.
- Employee Provident Fund
The employee provident fund is also exempted from being taxed under the Section 80 C’s 80 CCC AND 80 CCD of the Income Tax Act. This exemption is offered so that more and more employees invest into the provident fund and for the welfare of the employees in general.
- Life Insurance Premium
The premiums that one pays in order to get their life insurance policy plan going are exempted from being taxed by the Income Tax Act. This is a very important and useful tax benefit for salaried employees as they might be supporting their family and might be the sole bread earner of their family and in case anything happens to them, it might be difficult for their nominees to get by without the financial support. This is offered by the Section 80 C’s 80 CCC AND 80 CCD.
- Tax Saving Mutual Funds
Tax Saving mutual funds like ELSS – equity linked savings schemes have tax exemptions on them under the Section 80 C’s 80 CCC AND 80 CCD of the Income Tax Act in India. This is useful for salaried employees as they have a fixed income and can invest regularly in order to increase their wealth.
- Tax Saving Fixed Deposits
The tax savings fixed deposits have tax exemptions on them under the Section 80 C’s 80 CCC AND 80 CCD of the Income Tax Act in India. These are great and useful for salaried employees as they can easily invest into fixed deposits without being taxed which might make them think twice before investing as they have a limited income every month. Also, they can earn return on investments, here.
These are the 10 very useful income tax exemption taxes that a salaried employee can benefit from due to various reasons. Only invest into plans that offer you tax benefits, exemptions and deductions to get the best benefits.