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Step 1: Calculate Gross total income from salary:
The table below shows the calculation for gross taxable income from salary.
| Component | Amount (Rs.) | Exemption/ Deduction | Old regime | New regime |
|---|---|---|---|---|
| Basic Salary | 600,000 | – | 600,000 | 600,000 |
| HRA | 300,000 | 240,000 | 60,000 | 300,000 |
| Special Allowance | 60,000 | – | 60,000 | 60,000 |
| LTA | 40,000 | 40,000 (bills submitted) | 0 | 40,000 |
| Standard Deduction | – | 50,000 | – 50,000 | |
| Gross Total Income from Salary | – | – | 670,000 | 1,000,000 |
Gross Income from Salary – New Vs Old tax Regime
Step 2: Tax Deductions
Amit had made the following investments to save tax. These will be deducted from the gross income to arrive at net taxable income.
- EPF deduction from salary – Rs 60,000
- PPF Investment – Rs 1,50,000
- Medical Insurance Premium – Rs 25,000
- Total Tax Deduction = Rs 1,50,000 + 25,000 = Rs 1,75,000 (PPF & EPF both come under section 80C and have a tax deduction upper limit of Rs 1.5 lakh)
Step 3: Other Income
Amit also had Rs 20,000 from interest from fixed deposits with banks.
Step 4: Net Taxable Income
The table below shows the Net Taxable Income for Amit
Nature Old Tax Regime New Tax Regime Income from Salary 670,000 1,000,000 Income from Other Sources 20,000 20,000 Tax Deduction -175,000 0 Total Taxable Income 515,000 1,020,000 Step 5: Calculating using Income Tax Formula
Old Regime:
Tax Slab Calculation Tax up to Rs 250,000 Tax Exempt 0 Rs 250,000 to 500,000 5% || (5% * (500,000 – 250,000) 12,500 Rs 500,000 to 1,000,000 20% || (20% *(515,000 – 500,000) 3,000 Income Tax – 15,500 Cess 4% || (4% of 15,500) 620 Total Tax Payable – 16,120 Tax computation using old tax slabs New Regime:
Tax Slab Calculation Tax up to Rs 250,000 Tax Exempt 0 Rs 250,000 to 500,000 5% || (5% * (500,000 – 250,000) 12,500 Rs 500,000 to 750,000 10% || (10% * (750,000 – 500,000) 25,000 Rs 750,000 to 1,000,000 15% || (15% * (1,000,000 – 750,000) 37,500 Rs 1,000,000 to 1,250,000 20% || (20% * (1,020,000 – 1,000,000) 4,000 Income Tax – 79,000 Cess 4% || (4% of 79,000) 3,160 Total Tax payable – 82,160 Tax computation using new tax slabs As you can see the tax liability changes hugely depending on what tax regime you choose. So you should plan carefully. You can also check the official Income Tax website for calculating your income tax.
Income Tax Deductions List – Deductions on Section 80C, 80CCC, 80CCD & 80D – FY 2021-22 (AY 2022-23)
Income tax department with a view to encourage savings and investments amongst the taxpayers have provided various deductions from the taxable income under chapter VI A deductions. 80C being the most famous, there are other deductions which are beneficial for the taxpayers to reduce their tax liability. Let us understand these deductions in detail:
Section 80 Deduction List
Section 80C Investments
Section 80CCC Insurance Premium- Section 80CCD Pension Contribution
Section 80TTA Interest on Savings Account
Section 80GG House Rent Paid
Section 80E Interest on Education Loan
Section 80EE Interest on Home Loan
Section 80D Medical Insurance
Section 80DD Disabled Dependent
Section 80DDB Medical Expenditure- Section 80U Physical Disability
Section 80G Donations
Section 80GGB Company Contribution
Section 80GGC Contribution to Political Parties
Section 80RRB Royalty of a Patent- Section 80TTB Interest Income
Frequently Asked Questions
Section 80C – Deductions on Investments
Section 80C is one of the most popular and favourite sections amongst taxpayers as it allows them to reduce taxable income by making tax-saving investments or incurring eligible expenses. It allows a maximum deduction of Rs 1.5 lakh every year from the taxpayer’s total income.
The benefit of this deduction can be availed by Individuals and HUFs. Companies, partnership firms, and LLPs cannot avail the benefit of this deduction.
Section 80C includes subsections, 80CCC, 80CCD (1), 80CCD (1b) and 80CCD (2).
It is important to note that overall limit including the subsections for claiming deduction is Rs 1.5 lakh except an additional deduction of Rs 50,000 allowed u/s 80CCD(1b)
Section 80C and its subsections
| Sections | Eligible investments for tax deductions |
|---|---|
| 80C | Payments made towards life insurance premiums, Equity Linked Saving Schemes, payments made towards the principal sum of a home loan, SSY, NSC, SCSS, and so on. |
| 80CCC | Payment made towards pension plans, and mutual funds. |
| 80CCD (1) | Payments paid to government-sponsored plans such as the National Pension System, the Atal Pension Yojana, and others. |
| 80CCD (1B) | Investments of up to Rs.50,000 in NPS. |
| 80CCD (2) | Employer’s contribution towards NPS (up to 10%, comprising basic salary and dearness allowance, if any) |
Here are some investment options that are allowed as deduction u/s 80C. They not only help you with saving taxes but also help you grow your money. A quick comparison of the options is tabulated below:
Section 80C Deductions List
| Investment options | Average Interest | Lock-in period for | Risk factor |
| ELSS funds | 12% – 15% | 3 years | High |
| NPS Scheme | 8% – 10% | Till 60 years of age | High |
| ULIP | 8% – 10% | 5 years | Medium |
| Tax saving FD | Up to 8.40% | 5 years | Low |
| PPF | 7.90% | 15 years | Low |
| Senior citizen savings scheme | 8.60% | 5years (can be extended for other 3 years) | Low |
| National Savings Certificate | 7.9% | 5 years | Low |
| Sukanya Samriddhi Yojana | 8.50% | Till girl child reaches 21 years of age (partial withdrawal allowed when she reached 18 years) | Low |
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Sometimes, you may have deductions or investments eligible for 80C but haven’t submitted proof to your employer. This may cause additional TDS deductions. You can still claim these deductions while e-filing, as long as you have the
Section 80TTA – Interest on Savings Accounts
If you are an individual or a HUF, you may claim a deduction of a maximum Rs 10,000 against interest income from your savings account with a bank, co-operative society, or post office. Do include the interest from a savings bank account in other income.
Section 80TTA deduction is not available on the interest income from fixed deposits, recurring deposits, or interest income from corporate bonds.
Section 80TTB – Interest From Deposits Held by Senior Citizens
Section 80TTB provides a deduction of up to Rs 50,000 for interest income earned on deposits held by resident senior people (age 60 or more) with a banking firm, a post office, a co-operative, a society engaged in the banking business, and so on. As a result, the maximum for TDS deduction under Section 194A for older citizens has been enhanced to Rs. 50,000. In these instances, however, no deduction under section 80TTA is permitted. It should be noted that senior citizens aged 75 and up who receive just pension and interest income are exempt from ITR filing because tax is deducted at the source by banks.
Section 80GG – Income Tax Deduction on House Rent Paid
a. Section 80GG deduction is available for rent paid when HRA is not received. The taxpayer, spouse or minor child should not own residential accommodation at the place of employment
b. The taxpayer should not have self-occupied residential property in any other place
c. The taxpayer must be living on rent and paying rent
d. The deduction is available to all individuals
Deduction available is the least of the following:
a. Rent paid minus 10% of adjusted total income
b. Rs 5,000/- per month
c. 25% of adjusted total income*
*Adjusted Gross Total Income is arrived at after adjusting the Gross Total Income for certain deductions, exempt income, long-term capital gains and income related to non-residents and foreign companies.
An online ITR e-filing software like that of ClearTax can be extremely easy as the limits are auto-calculated. So, you do not have to worry about making complex calculations.
From FY 2016-17 available deduction has been raised to Rs 5,000 a month from Rs 2,000 per month.
Section 80E – Interest on Education Loan
A deduction is allowed to an individual for interest on loans taken for pursuing higher education. This loan may have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian.
80E deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed.
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Section 80EEA – Interest on Home Loan For First-Time Home Owners
This is Section 80EEA, which provides taxpayers with an extra deduction for paying interest on a house loan. Whereas Section 24 exempted interest on home loans up to Rs 2 lakh, this section exempts home buyers who take out a home loan and pay interest on the loan an additional Rs 1.5 lakhs. Read in detail here.
FY 2017-18 and FY 2016-17
This deduction is available in FY 2017-18 if the loan has been taken in FY 2016-17.
The deduction under section 80EE is available only to home-owners (individuals) having only one house property on the date of sanction of the loan. The value of the property must be less than Rs 50 lakh and the home loan must be less than Rs 35 lakh. The loan taken from a financial institution must have been sanctioned between 1 April 2016 and 31 March 2017.
There is an additional deduction of Rs 50,000 available on your home loan interest on top of the deduction of Rs 2 lakh (on the interest component of home loan EMI) allowed under section 24.
FY 2013-14 and FY 2014-15
During these financial years, the deduction available under this section was a first-time house worth Rs 40 lakh or less. You can avail this only when your loan amount during this period is Rs 25 lakh or less. The loan must be sanctioned between 1 April 2013 and 31 March 2014. The aggregate deduction allowed under this section cannot exceed Rs 1 lakh and is allowed for FY 2013-14 and FY 2014-15.
Section 80D – Deduction on Medical Insurance Premium
You (as an individual or HUF) can claim a deduction of Rs.25,000 under section 80D on insurance for self, spouse and dependent children. An additional deduction for insurance of parents is available up to Rs 25,000, if they are less than 60 years of age. If the parents are aged above 60, the deduction amount is Rs 50,000, which has been increased in Budget 2018 from Rs 30,000.
In case, both taxpayer and parent(s) are 60 years or above, the maximum deduction available under this section is up to Rs.1 lakh.
Example: Rohan’s age is 65 and his father’s age is 90. In this case, the maximum deduction Rohan can claim under section 80D is Rs. 100,000.
From FY 2015-16 a cumulative additional deduction of Rs. 5,000 is allowed for preventive health check.
Section 80DD – Deduction for Medical Treatment of a Dependent with Disability
Section 80DD deduction is available to a resident individual or a HUF and is available on:
a. Expenditure incurred on medical treatment (including nursing), training and rehabilitation of handicapped dependent relative
b. Payment or deposit to specified scheme for maintenance of handicapped dependent relative.
i. Where disability is 40% or more but less than 80% – a fixed deduction of Rs 75,000.
ii. Where there is a severe disability (disability is 80% or more) – a fixed deduction of Rs 1,25,000.
To claim this deduction a certificate of disability is required from the prescribed medical authority.
From FY 2015-16 – The deduction limit of Rs 50,000 has been raised to Rs 75,000 and Rs 1,00,000 has been raised to Rs 1,25,000.
Section 80DDB – Deduction for Specified Diseases
a. For individuals and HUFs below age 60
A deduction up to Rs.40,000 is available to a resident individual or a HUF. It is available with respect to any expense incurred towards treatment of specified medical diseases or ailments for himself or any of his dependents. For an HUF, such a deduction is available with respect to medical expenses incurred towards these prescribed ailments for any of the HUF members.
b. For senior citizens and super senior citizens
In case the individual on behalf of whom such expenses are incurred is a senior citizen, the individual or HUF taxpayer can claim a deduction up to Rs 1 lakh. Until FY 2017-18, the deduction that could be claimed for a senior citizen and a super senior citizen was Rs 60,000 and Rs 80,000 respectively. This has now become a common deduction available upto Rs 1 lakh for all senior citizens (including super senior citizens) unlike earlier.
c. For reimbursement claims
Any reimbursement of medical expenses by an insurer or employer shall be reduced from the quantum of deduction the taxpayer can claim under this section.
Also, remember that you need to get a prescription for such medical treatment from the concerned specialist to claim such a deduction. Read our detailed article on Section 80DDB.
Section 80U – Deduction for Disabled Individuals
A deduction of Rs.75,000 is available to a resident individual who suffers from a physical disability (including blindness) or mental retardation. In case of severe disability, one can claim a deduction of Rs 1,25,000.
From FY 2015-16 – Section 80U deduction limit of Rs 50,000 has been raised to Rs 75,000 and Rs 1,00,000 has been raised to Rs 1,25,000.
Section 80G – Income Tax Benefits Towards Donations for Social Causes
The various donations specified in u/s 80G are eligible for deduction up to either 100% or 50% with or without restriction.
From FY 2017-18, any donations made in cash exceeding Rs 2,000 will not be allowed as a deduction. Donations above Rs 2000 should be made in any mode other than cash to qualify for an 80G deduction.
a. Donations with 100% deduction without any qualifying limit
- National Defence Fund set up by the Central Government
- Prime Minister’s National Relief Fund
- National Foundation for Communal Harmony
- An approved university/educational institution of National eminence
- Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district
- Fund set up by a State Government for the medical relief to the poor
- National Illness Assistance Fund
- National Blood Transfusion Council or to any State Blood Transfusion Council
- National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities
- National Sports Fund
- National Cultural Fund
- Fund for Technology Development and Application
- National Children’s Fund
- Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund with respect to any State or Union Territory
- The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund, Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996
- The Maharashtra Chief Minister’s Relief Fund during October 1, 1993 and October 6,1993
- Chief Minister’s Earthquake Relief Fund, Maharashtra
- Any fund set up by the State Government of Gujarat exclusively for providing relief to the victims of earthquake in Gujarat
- Any trust, institution or fund to which Section 80G(5C) applies for providing relief to the victims of earthquake in Gujarat (contribution made during January 26, 2001 and September 30, 2001) or
- Prime Minister’s Armenia Earthquake Relief Fund
- Africa (Public Contributions — India) Fund
- Swachh Bharat Kosh (applicable from financial year 2014-15)
- Clean Ganga Fund (applicable from financial year 2014-15)
- National Fund for Control of Drug Abuse (applicable from financial year 2015-16)
b. Donations with 50% deduction without any qualifying limit
- Jawaharlal Nehru Memorial Fund
- Prime Minister’s Drought Relief Fund
- Indira Gandhi Memorial Trust
- The Rajiv Gandhi Foundation
c. Donations to the following are eligible for 100% deduction subject to 10% of adjusted gross total income
- Government or any approved local authority, institution or association to be utilized for the purpose of promoting family planning
- Donation by a Company to the Indian Olympic Association or to any other notified association or institution established in India for the development of infrastructure for sports and games in India or the sponsorship of sports and games in India
d. Donations to the following are eligible for 50% deduction subject to 10% of adjusted gross total income
- Any other fund or any institution which satisfies conditions mentioned in Section 80G(5)
- Government or any local authority to be utilised for any charitable purpose other than the purpose of promoting family planning
- Any authority constituted in India for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns, villages or both
- Any corporation referred in Section 10(26BB) for promoting the interest of minority community
- For repairs or renovation of any notified temple, mosque, gurudwara, church or other places.
Section 80GGB – Company Donation to Political Parties
Section 80GGB deduction is allowed to an Indian company for the amount contributed by it to any political party or an electoral trust. A deduction is allowed for contributions done in any way other than cash.
Section 80GGC – Deduction on Donations By a Person to Political Parties
Deduction under section 80GGC is allowed to an individual taxpayer for any amount contributed to a political party or an electoral trust. It is not available for companies, local authorities and an artificial juridical person wholly or partly funded by the government. You can avail this deduction only if you pay in any way other than cash.
Section 80RRB – Deduction on Income via Royalty of a Patent
80RRB Deduction for any income by way of royalty for a patent, registered on or after 1 April 2003 under the Patents Act 1970, shall be available for up to Rs.3 lakh or the income received, whichever is less. The taxpayer must be an individual patentee and an Indian resident. The taxpayer must furnish a certificate in the prescribed form duly signed by the prescribed authority.
Section 80TTB – Interest Income on Deposits for Senior Citizens
A new section 80TTB has been inserted vide Budget 2018 in which deductions with respect to interest income from deposits held by senior citizens will be allowed. The limit for this deduction is Rs.50,000.
No further deduction under section 80TTA shall be allowed. In addition to section 80 TTB, section 194A of the Act will also be amended so as to increase the threshold limit for TDS on interest income payable to senior citizens. The earlier limit was Rs 10,000, which was increased to Rs 50,000 as per the latest Budget.
Section 80 Deductions Summary Table
| Section | Deduction on | Allowed Limit (maximum) FY 2022-23 |
|---|---|---|
| 80C | Investment in PPF – Employee’s share of PF contribution – NSCs – Life Insurance Premium payment – Children’s Tuition Fee – Principal Repayment of home loan – Investment in Sukanya Samridhi Account – ULIPS – ELSS – Sum paid to purchase deferred annuity – Five year deposit scheme – Senior Citizens savings scheme – Subscription to notified securities/notified deposits scheme – Contribution to notified Pension Fund set up by Mutual Fund or UTI. – Subscription to Home Loan Account scheme of the National Housing Bank – Subscription to deposit scheme of a public sector or company engaged in providing housing finance – Contribution to notified annuity Plan of LIC – Subscription to equity shares/ debentures of an approved eligible issue – Subscription to notified bonds of NABARD | Rs. 1,50,000 |
| 80CCC | For amount deposited in annuity plan of LIC or any other insurer for a pension from a fund referred to in Section 10(23AAB) | – |
| 80CCD(1) | Employee’s contribution to NPS account (maximum up to Rs 1,50,000) | – |
| 80CCD(2) | Employer’s contribution to NPS account | Maximum up to 10% of salary |
| 80CCD(1B) | Additional contribution to NPS | Rs. 50,000 |
| 80TTA(1) | Interest Income from Savings account | Maximum up to 10,000 |
| 80TTB | Exemption of interest from banks, post office, etc. Applicable only to senior citizens | Maximum up to 50,000 |
| 80GG | For rent paid when HRA is not received from employer | Least of : – Rent paid minus 10% of total income – Rs. 5000/- per month – 25% of total income |
| 80E | Interest on education loan | Interest paid for a period of 8 years |
| 80EE | Interest on home loan for first time home owners | Rs 50,000 |
| 80D | Medical Insurance – Self, spouse, children Medical Insurance – Parents more than 60 years old or (from FY 2015-16) uninsured parents more than 80 years old | – Rs. 25,000 – Rs. 50,000 |
| 80DD | Medical treatment for handicapped dependent or payment to specified scheme for maintenance of handicapped dependent – Disability is 40% or more but less than 80% – Disability is 80% or more | – Rs. 75,000 – Rs. 1,25,000 |
| 80DDB | Medical Expenditure on Self or Dependent Relative for diseases specified in Rule 11DD – For less than 60 years old – For more than 60 years old | – Lower of Rs 40,000 or the amount actually paid – Lower of Rs 1,00,000 or the amount actually paid |
| 80U | Self-suffering from disability : – An individual suffering from a physical disability (including blindness) or mental retardation. – An individual suffering from severe disability | – Rs. 75,000 – Rs. 1,25,000 |
| 80GGB | Contribution by companies to political parties | Amount contributed (not allowed if paid in cash) |
| 80GGC | Contribution by individuals to political parties | Amount contributed (not allowed if paid in cash) |
| 80RRB | Deductions on Income by way of Royalty of a Patent | Lower of Rs 3,00,000 or income received |
Frequently Asked Questions
Can I claim the 80C deductions at the time of filing the return in case I have not submitted proof to my employer?
I have made an 80C investment on 30 April 2021. For which year can I claim this investment as a deduction?
I have availed a loan from my employer for pursuing higher education. Can I claim the interest paid on such a loan as a deduction under Section 80E?
Is there any restriction or maximum limit up to which I can claim a deduction under Section 80E?
Can a company or a firm take benefit of Section 80C?
I have been paying life insurance premiums to a private insurance company. Can I claim an 80C deduction for the premium paid?
In which year can I claim a deduction of the stamp duty paid for the purchase of a house property
Can a company claim a deduction for donations made under Section 80G
I am paying medical insurance premiums for a medical policy taken in my name, my wife and my children’s. I am also paying the premium on a medical policy taken in the name of my parents who are above 60 years. Can I claim a deduction for both premiums paid?
Is my FD interest exempt under Section 80TTB?
What do you mean by 80C deduction under chapter VI A?
How to calculate deduction u/s 80c?
For section 80C- The amount of eligible investment or expenditure as specified is fully allowed for deduction subject to the limit of Rs 1.5 lakh.
The limit of Rs 1.5 lakh deduction of Section 80C includes 80CCC (contribution towards pension plan) and 80CCD (1), 80CCD (1b) and 80CCD (2).
Section 80CCCD (1) is a contribution towards the National pension scheme by the employee or self-employed and is limited to 10% of salary (basisc + DA) or 20% of gross total income for self employed.
Section 80CCD (1b) provides additional deduction of Rs 50,000 for contributions towards NPS , Atal pension Yojana etc. This deduction is over and above Rs 1.5 lakh. Hence total of deduction including 80C and 80CCD (1b) can be maximum Rs 2 lakh for a single year.
Section 80CCD (2) is deduction allowed to salaried for contributions made by their employer for NPS , this is also allowed at 10 % of salary (basic +DA) . However it is important to note that there is no upper limit in 80CCD (2)
Hence for investment in 80C only , the limit is Rs 1.5 Lakh. For investment together in 80C, 80CCD (1) and 80CCD (1b), one may invest upto Rs 2 lakh in total. Whereas, a salaried employee can avail more deduction without restriction of limit of Rs 2 lakh under section 80CCD (2) if the employer contributes towards NPS account subject to 10% of salary.
Further please note that per Budget 2020, any contribution towards EPF, NPS and superannuation will be added to the salary as “perquisites” and taxable under salaries in the hands of employees.
Can you claim HRA under section 80?
What is 80GG in income tax? What is rent paid under 80GG ?
How to calculate 80GG? How to claim 80GG?
80GG deduction will be allowed as lowest of below mentioned :
- Rs 5,000 per month
- 25% of the adjusted total Income (excluding long-term capital gains, short-term capital gains under section 111A and Income under Section 115A or 115D and deductions under 80C to 80U. Also, income is before making a deduction under section 80GG).
- Actual rent less 10% of Income
Who can claim deduction in 80GG?
What is section 80CCD ?
What is section 80CCD (1b)?
What is section 80CCD (1) ?
What is section 80CCD (2)?
What is section 80TTB?
What is rebate u/s 87A?
A rebate under section 87A is one of the income tax provisions that help low income earning taxpayers reduce their income tax liability. Taxpayers earning an income below a certain limit have the benefit of paying marginally lower taxes. A Taxpayer can claim the benefit of rebate under section 87A for FY 2020-21 and 2021-22 only if the following conditions are satisfied:
- You are a resident individual
- Your total income after reducing the deductions under chapter VI-A (Section 80C, 80D and so on) does not exceed Rs 5 lakh in an FY
The tax rebate is limited to Rs 12,500. This means, if your total tax payable is less than Rs 12,500, then you will not have to pay any tax. Do note that the rebate will be applied to the total tax before adding the health and education cess of 4%.
Who is eligible for rebate u/s 87a?
A Taxpayer can claim the benefit of rebate under section 87A for FY 2020-21 and 2021-22 only if the following conditions are satisfied:
- You are a resident individual which means HUF and firms cannot claim this rebate.
- Your total income after reducing the deductions under chapter VI-A (Section 80C, 80D and so on) does not exceed Rs 5 lakh in an FY
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Special Allowance in India – Taxation & Calculation
Allowance is a fixed quantity of money given by employers to their employees to meet certain special requirements. This amount is given besides the salary. These allowances may attract exemption in certain cases. Otherwise, they are considered as a part of the total income of employees and are taxable. Read through to know how special allowance is different.
What is a special allowance?
Certain allowances are exempted under Section 10(14) of the Income Tax Act, 1961. Section 10(14) says that:
- Any special allowance/benefit, not a perquisite, as per the meaning specified in clause (2) of Section 17, is granted for the employees to meet certain expenses wholly. These expenses must be incurred while performing the duties of an office or employment of profit.
- Any allowance granted to the employee either to meet personal expenses at the office/employment for profit performed by him or to compensate him for the high cost of living.
In these cases, the allowance provided is exempted from taxes.
How is the special allowance taxed?
Certain categories of taxes are fully exempted such as allowances given to judges at the Supreme Court and the High Courts. Allowances such as house rent allowance are partially exempted as per Section 10(13A). Other allowances such as city compensatory allowance are fully taxable.
Special allowance categories and the corresponding exemptions
- Transport Allowance: In the case of handicapped employees, an exemption up to Rs.3,200 is provided.
- Tribal Area Allowance: A special allowance is provided to the residents of hilly, scheduled, and agency areas such as Uttar Pradesh, Karnataka, Madhya Pradesh, Tamil Nadu, Odisha, Assam, and Tripura. You can get an exemption of up to Rs.200 per month.
- Outstation Allowance: This is an allowance provided by roadways, railways, and airways in place of the daily allowance. The exemption applicable is 70% of the allowance or Rs.10,000, whichever is lower.
- Hostel Allowance: An exemption of up to Rs.300 per month per child for two children.
- Island Duty Allowance: This allowance is provided to the members of the armed forces who are assigned duties in islands such as Lakshadweep and Andaman & Nicobar. A maximum exemption of up to Rs.3,250 is given per month.
- Children’s Education Allowance: A maximum exemption of up to Rs.100 per month per child for two children.
- Uniform Allowance: You can get an allowance for the expenses incurred in purchasing and maintaining the uniform to be worn to the employment of profit/office.
- Academic/Research Allowance: Academic/research allowance is given to encourage research/training in research institutions.
- Travelling Allowance: The allowance is applicable to supplement the cost of travel when you are out on a tour or on the transfer of duty to another city.
- Daily Allowance: Daily allowance includes charges incurred on a daily basis when on a tour.
- Helper Allowance: If you have hired an assistant to fulfil the duties of your employment, the expenditures incurred can get an allowance.
Special allowance categories and the corresponding exemptions
Many people may think that a special allowance is a part of variable income. However, you must know that a special allowance is considered as part of the gross salary. In addition, the allocation of a special allowance depends on the company’s policies. Therefore, if company A provides a special allowance to all its employees, it does not mean that company B also must provide a special allowance to all employees in the same ratio.
To know the total amount you have received under the special allowance component of the salary, you must sum up the figures provided under each eligible allowance head from the above list that is applicable to you. Refer your salary slip to know more about the allocation towards special allowances.
Illustration
Consider the scenario in which Ms V is an employee at company A. When she checks her salary slip, she realises that a conveyance allowance of Rs.1,600 per month. This allowance is provided on the expenses incurred to travel from the place of residence to the place of work.
In another case, Mr C is a medical practitioner working in the public sector. He was deployed for duty at a medical camp in the rural side of Bidar, Karnataka. This place is inhabited by tribes. Now, Mr C gets an additional component in the salary – tribal area allowance.
