Tax Saving

Components of salary: Fully Taxable

• Basic salary

• Dearness Allowance (referred to as ‘DA’)

• Bonus, fees or commission

Fully taxable Allowances

• City Compensatory Allowance

• Fixed Medical Allowance

• Tiffin, Lunch, Dinner or Refreshment Allowance

• Servant Allowance

• Project Allowance

• Overtime Allowance

• Telephone Allowance

• Holiday Allowance

• Any Other Cash Allowance

Fully Exempted Allowances

• Foreign allowances or perquisites paid or allowed by Government to its employees (an Indian citizen) posted outside India

• Allowances to Judges of High Court/Supreme Court (Subject to certain conditions)

• Value of rent free official residence given to serving Chairman/Member of UPSC

• Value of conveyance facilities including transport allowance given to serving Chairman/Member of UPSC

• Sumptuary allowance given to serving Chairman/Member of UPSC

• Leave travel concession given to serving Chairman/Member of UPSC

• Allowances paid by the UNO to its employees

Exempt to the extent of expenditure incurred

• Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office

• Any Allowance granted to meet the cost of travel on tour or on transfer

• Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty

• Helper/Assistant Allowance

• Research Allowance granted for encouraging the academic research and other professional pursuits

• Uniform Allowance

Partly Exempted Allowances

• House Rent Allowance

Least of the following is exempt:

a) Actual HRA Received

b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Madras)

c) Rent paid minus 10% of salary

* Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission

Note:

  i.  Fully Taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent

 ii. It is mandatory for employee to report PAN of the landlord to the employer if rent paid is more than Rs. 1,00,000 [Circular No. 08 /2013 dated 10th October, 2013].

• Children Education Allowance = Up to Rs. 100 per month per child up to a maximum of 2 children is exempt

• Hostel Expenditure Allowance = Up to Rs. 300 per month per child up to a maximum of 2 children is exempt

• Transport Allowance granted to an employee to meet expenditure for the purpose of commuting between place of residence and place of duty = Rs. 3,200 per month granted to an employee, who is blind or deaf and dumb or orthopedically handicapped with disability of lower extremities

• Transport Allowance to an employee working in any transport business to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided employee is not in receipt of daily allowance.

Amount of exemption shall be lower of following:

a) 70% of such allowance; or

b) Rs. 10,000 per month.

• Allowances to Retired Chairman/Members of UPSC (Subject to certain conditions)

Exempt subject to maximum of Rs.14,000 per month for defraying services of an orderly and for secretarial assistant on contract basis.

The value of residential telephone free of cost and the number of free calls to the extent of 1500 per month shall be exempt.

• Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations)

Amount exempt from tax varies from Rs. 300 per month to Rs. 7,000 per month.

• Border area allowances, Remote Locality allowance or Disturbed Area allowance or Difficult Area Allowance (Subject to certain conditions and locations)

Amount exempt from tax varies from Rs. 200 per month to Rs. 1,300 per month

• Tribal area allowance given in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa = 200 Per month

• Compensatory Field Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations) = Rs. 2,600 per month

• Compensatory Modified Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations) = Rs. 1,000 per month

• Counter Insurgency Allowance granted to members of Armed Forces operating in areas away from their permanent locations. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations) = Rs. 3,900 per month

• Underground Allowance is granted to employees working in uncongenial, unnatural climate in underground mines =Up to Rs. 800 per month

• High Altitude Allowance is granted to armed forces operating in high altitude areas (Subject to certain conditions and locations) = 

a) Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet) 

b) Up to Rs. 1,600 per month (for altitude above 15,000 feet)

• Highly active field area allowance granted to members of armed forces (Subject to certain conditions and locations) =Up to Rs. 4,200 per month

• Island Duty Allowance granted to members of armed forces in Andaman and Nicobar and Lakshadweep group of Island (Subject to certain conditions and locations)= Up to Rs. 3,250 per month

• Leave Travel Concession or Assistance (LTC/LTA), extended by an employer to an employee for going anywhere in India along with his family*

*Family includes spouse, children and dependent brother/sister/parents. However, family doesn’t include more than 2 children of an Individual born on or after 01-10-1998.

(Subject to certain conditions)

The exemption shall be limited to fare for going anywhere in India along with family twice in a block of four years:

• Where journey is performed by Air - Exemption up to Air fare of economy class in the National Carrier by the shortest route

• Where journey is performed by Rail - Exemption up to air-conditioned first class rail fare by the shortest route

• If places of origin of journey and destination are connected by rail but the journey is performed by any other mode of transport - Exemption up to air-conditioned first class rail fare by the shortest route.

• Where the places of origin of journey and destination are not connected by rail:

* Where a recognized public transport system exists - Exemption up to first Class or deluxe class fare by the shortest route

* Where no recognized public transport system exists - Exemption up to air conditioned first class rail fare by shortest route.

Notes:

i. Two journeys in a block of 4 calendar years is exempt

ii. Taxable only in case of Specified Employees