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Income Tax Exemption – The Detailed Guide

13-10-2022 |

Every citizen of India earning above a specific threshold is required to pay an income tax* to the Government. The rates for calculating income tax* are mentioned in the income tax* slabs approved by the Finance Minister of India every year during the Budget Session in the Parliament.
 

The Government uses the income tax* received from its citizens to improve the overall well-being of the nation by developing infrastructure and providing basic civic amenities to everyone. So, as a responsible citizen, you must pay your income tax* accurately and timely.
 

Computation of the Income Tax in India


The rules and regulations for the computation of the income tax* in India are mentioned in the Income Tax* Act of 1961. As per this Act, the income tax* is payable annually and applies to the annual taxable income of a person. To calculate the taxable income, the total earnings of the taxpayer from various sources during the applicable financial year are added together.
 

These may include their salary, income from rent, interest received from their investments, and capital gains. After evaluating the taxable income of an individual, the income tax* is calculated as per the following income tax* slab:
 

Annual Taxable Income

Applicable Income Tax Rate

Up to ₹2.5 Lakh

Nil

₹2.5 Lakh to ₹5 Lakh

5% (Tax rebate is available)

₹5 Lakh to ₹7.5 Lakh

10%

₹ 7.5 Lakh to ₹ 10 Lakh

15%

₹10 Lakh to ₹12.5 Lakh

20%

₹12.5 Lakh to ₹15 Lakh

25%

Above ₹15 Lakh

30%


What are Income Tax Exemptions?


The Government of India has made certain provisions in the Income Tax* Act to shield its citizens from paying income tax* on their necessary expenses and savings. These expenses are available as tax exemptions or deductions from their taxable income. In other words, you can deduct these expenses while calculating your taxable income and thereby reduce your income tax* outgo.
 

These tax exemptions are available under various sections and sub-sections of the IT Act. Let’s learn about different tax* deductions available in India before moving to the income tax exemption sections:
 

  • House Rent Allowance

    If you’re a salaried employee and living in a rented house, you can get the benefit of a house rent allowance (HRA) while computing your taxable income. To receive this benefit, your salary should include the HRA component.

    You can claim the least of the following as HRA exemption:

    • Actual HRA received from your employer
    • Actual rent paid by you minus 10% of your salary
    • 40% of your salary if you’re living in a non-metro city and 50% of your salary if you’re living in a metro city


  • Leave or travel allowance

    If you’re getting leave or travel allowance (LTA) from your employer, you can claim it as a tax exemption. This exemption is provided against the travel expenses that you may incur during a trip undertaken for personal or professional reasons.

    Additionally, you can claim a transport allowance of up to ₹1600 per month or ₹19,200 per year against the expenses incurred by you for commuting to your workplace from your home and vice-versa.

  • Children Education Allowance

    Some employers also provide a Children's Education Allowance (CEA) to their employees. This allowance is given for the education of up to two children of the employees. If you’re receiving CEA from your employer, you can claim it as an income tax exemption.

    However, the maximum limit for this exemption is ₹100 per child per month. So, if you have two children, you can claim a maximum CEA of ₹2400 in a financial year.

  • Subsidy on Hotel Facility

    Under the children’s education policy, some employers also provide hotel subsidies to their employees. These subsidies are eligible for tax exemptions with a limit of up to ₹300 per child per month.

  • Relocation allowance

    If your employer asks you to relocate for professional purposes, he or she provides you with a relocation allowance. This is done to cover the expenses incurred by you during relocation, such as cab charges, air, or rail tickets, packing charges, temporary accommodation expenses, etc. Fortunately, these expenses are available for tax exemptions under the IT Act.

  • Interest paid towards your housing loan

    If you’ve taken a home loan to buy a housing property, you can claim income tax exemptions on it. The payment of the home loan interest component is available for tax* deductions up to a maximum of ₹2 Lakh. Moreover, you can claim an additional tax* exemption of up to ₹1.5 Lakh for the repayment of your home loan principal component. However, it is subjected to certain conditions.
     
Various IT Act Sections for Income Tax Exemptions

 


Let’s look at the various sections in the Income Tax* Act that allows tax exemptions as mentioned above:
 

  • Section 80C

    Under section 80C, you can claim an annual exemption up to a maximum of ₹1.5 Lakh by investing in some specified tax-saving schemes. These include life insurance policies, annuity plans, Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), National Savings Certificate (NSC), and tax*-saving fixed deposits, among others. This section also deals with the income tax exemption on housing loans.

  • Section 80D

    Section 80D offers tax* exemptions for health insurance premiums paid by the taxpayer. Under this section, you can avail of an annual tax exemption of up to ₹50,000 for paying health insurance premiums for yourself and your dependent family members.

  • Section 80E

    If you have taken an education loan for the higher education of your child, you can avail of tax* exemptions against its interest component under section 80E.

  • Section 80G

    Section 80G allows tax exemptions for a list of specified donations made by the taxpayer during the applicable assessment year.

  • Section 80U

    Under Section 80U, a maximum tax* exemption of ₹1 Lakh is allowed for individuals with a physical or mental disability.

  • Section 24

    Section 24 deals with the income tax exemption on housing loans. You can claim a deduction of up to ₹2 Lakh under this section against the repayment of your home loan interest component.
     
Conclusion


You should consider all tax exemptions available under various sections of the IT Act while filing your annual IT returns. This will help you minimise your income tax* liability. You can also invest in tax-saving schemes under section 80C to lower your tax* outgo further.

For example, you can buy a Tata AIA Policy and enjoy tax* benefits of up to ₹1.5 Lakh on the premiums that you pay for the life insurance policy of your choice.

L&C/Advt/2022/Oct/2492

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

How can I claim my income tax exemptions?

You can claim your income tax exemptions under the applicable sections while filing your income tax returns. To claim these exemptions, you need to list the applicable sections and amounts while computing your balance sheet. You may also have to submit proof of your expenses.

How do I compute my income tax?

To compute your income tax, you need to first add your income from various sources. These may include your salary or business income, rent received on your properties, interest income, and capital gains, among others. Then, you need to subtract your tax exemptions to determine your taxable income. The income tax payable by you would be applicable on this taxable income as per your income tax slab.

How can I reduce my income tax outgo?

If you want to reduce your income tax, you can invest in tax-saving schemes, such as:
 

  • Life insurance policy
  • Public Provident Fund (PPF)
  • National Pension Scheme (NPS)
  • Equity Linked Savings Scheme (ELSS)
  • Unit Linked Insurance Plans (ULIPs)
  • Sukanya Samriddhi Yojana
  • Tax Saving Fixed Deposit

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
  • Past performance is not indicative of future performance.
  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
  • Please make your own independent decision after consulting your financial or other professional advisor.