Tax planning

Deductions from Salary

This article discusses some important provisions relating to tax savings in India from income chargeable under the head `Salaries’.

Voluntary retirement – 10(10c)

If on his voluntary retirement, an employee receives or is going to receive (in installments) any amount in accordance with any scheme of Voluntary Retirement, he is exempted from any tax liability up to the extent of Rs.5,00,000, provided the VRS is in accordance with Rule 2BA of IT Rules.

House Rent Allowance Exempt – 10(13A)

The least of the following three is exempted under HRA:

  • Actual HRA received : Rs. X
  • Amount rent paid in excess of 10% of Salary : Rs.Y
  • 50% of Basic Salary (including DA) in Metro Cities or 40% of Basic Salary (including DA) in other cities : Rs.Z

Least of X, Y Z is exempted. Read with Rule 2A of IT Rules 1962

NOTE: According to the notification issued by the Income tax department, now landlord’s PAN card is a must to get income tax deduction against HRA allowance. One will have to submit PAN card as a proof if he is applying for more than 15000 per month.

Transport Allowance

Any allowance granted to an employee to meet the expenditure for the purpose of commuting between the place of his residence and the place of his duty to the extent up to Rs.800/- per month is exempt u/s.10 (14).

Conveyance Allowance

Any allowance granted to meet the expenditure incurred wholly, necessarily and exclusively on conveyance in performance of the duties of office and so certified by the employer is exempt u/s.10 (14).

Medical Reimbursement

An amount of Rs.15,000 or the actual amount reimbursed by the employer whichever is less is exempt u/s.17(2).

Professional Tax

Profession Tax levied by the State Government is allowable as a deduction from Gross Salary, provided it has been paid.

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