Generally, In India income tax is calculated on 5 type of incomes –

  1. Income from Salary
  2. Income from house property
  3. Income from business & profession
  4. Income from capital gains
  5. Income from other sources

In this article, we will talk about how to calculate income tax on salary, and what tax exemptions you can avail to minimize the tax paid.

By taking full advantage of exemptions & deductions available under the income tax act, 1961, a person can reduce their tax liability upto the certain limits.

Exemptions available for salaried employees

There are many exemptions available for salaried employees. Some of the common exemption are:-

House rent allowance (HRA)

Under section 10 (13A)
The least of the following is exempt:-

  • Actual HRA Received
  • Rent Paid in excess of 10% of salary
  • 50% or 40% of Salary

Salary here means Basic salary plus Dearness Allowance(D.A.) plus Commission, if any.

Transport allowance (TA)

Rs 800 p.m. max 9,600 p.a.

Medical reimbursement

Up to Rs. 15,000. Remember if the employee is getting medical allowance from his employer, it is fully taxable.

Leave Travel Concession (LTC)

Generally LTC is fully taxable, but in the year when LTC is availed the employee can get the exemption for travel anywhere in India for fair only for the shortest route

Deductions on investment

Under section 80C, 80CCC, 80 CCD

For individuals & HUF only – Up to Rs. 100000.
Some of the investments you can claim are –

  • LIC
  • ULIP
  • Tuition fee of up to 2 children
  • Provident fund (PF)
  • Public Provident Fund (PPF)
  • Fixed deposit (FD) with a nationalized bank for 5 years

Mediclaim

Under section 80D
Up to Rs. 15000 for self, children & spouse & also upto 15000 for parents. If parents are senior citizens then you can get deduction upto Rs. 20000.

Total deduction available u/s 80D is Rs. 30000 or 35000.

Education loan for higher education

Under section 80E

This deduction can be made only on interest payment. From Assesment year 2010 – 2011 this deduction can also be claimed by the guardian or parent of the child.

A qualified CA can help you get more details on the exemptions you can get when calculating your income tax.

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