Introduction
It's important for taxpayers to have a clear
understanding of the available allowances and deductions, as they can greatly
reduce tax liabilities. Throughout this article, we aim to provide you with all
the necessary details on income tax allowances and deductions, empowering you
to make informed decisions when filing your tax returns
Understanding Income Tax Allowances
Income tax allowances are
specific deductions that can reduce your taxable income. The following are some
of the most commonly available income tax allowances in India.
1. Standard
Deduction
Standard deduction is a flat
deduction of INR 50,000 (for FY 2022-23) from the total income of salaried
individuals. This deduction was introduced in Budget 2018 and is available to
all salaried individuals irrespective
of their actual expenses.
2. House
Rent Allowance (HRA)
HRA is an
allowance received by employees from their employer to pay for their rented
accommodation. HRA is partially or
fully exempt from tax, subject to certain conditions.
3. Leave
Travel Allowance (LTA)
LTA is an allowance
received by employees
to meet their travel expenses
while on leave from work. LTA can be
claimed twice in a block of four years, and the exemption is limited to the
actual expenses incurred on travel.
4. Children
Education Allowance
Children Education Allowance is
an allowance received by employees for the education of their children. The
exemption limit for this allowance is INR 100 per month per child, up to a
maximum of two children.
5. Medical
Reimbursement
Medical
reimbursement is an allowance received by employees to meet their medical
expenses. The exemption limit for this allowance is INR 15,000 per annum.
Understanding Income Tax Deductions
Income tax deductions are
expenses or investments that can be claimed as deductions from your total
income. The following are some of the most commonly available income tax
deductions in India.
1. Section
80C
Section 80C is one of the most
commonly used tax-saving options for individuals. Under this section, you can
claim a deduction of up to INR 1.5 lakh by investing in various instruments
such as Public Provident Fund (PPF),
Equity Linked Savings Scheme (ELSS), National Pension Scheme (NPS), etc.
2. Section
80D
Section 80D allows you to claim a
deduction for the premium paid towards health insurance policies for yourself, spouse, and dependent children.
The deduction limit is INR 25,000 for individuals below 60 years and INR 50,000
for senior citizens.
3. Section
80E
Section 80E allows you to claim a
deduction for the interest paid on an education loan for higher studies. There is no upper limit on the amount that can be claimed
as a deduction, and the deduction is available for a maximum of eight years.
4. Section
80TTA
Section 80TTA allows you to claim
a deduction of up to INR 10,000 on the interest earned on savings bank
accounts. This deduction is available to individuals and HUFs.
5. Section
80G
Section 80G allows you to claim a
deduction for donations made to charitable institutions. The deduction limit
varies from 50% to 100% of the donation amount, depending on the type of
institution.
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