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