How to save tax on salary income in India?

The major concern for many of salaried is how to save tax on salary income. We know few but fail to utilize to the maximum. In this post, I will try to list down all allowances and deductions which help you in saving tax.

I will try to explain the available allowances which can be claimed for exemptions and also the deductions. These two will actually save tax on salary income.

What is the difference between Exemption and deduction?

If an income is exempt from tax, then it is not included in the computation of income. However, the deduction is given from income chargeable to tax. Exempt income will never exceed the amount of income. However, the deduct may be less than or equal to or more than the amount of income.

Allowances available to save tax on salary income-

First, let us consider the allowances which gives you an exemption in your salary.

# Mobile/Telephone Reimbursement-If your employer offering you the mobile/telephone connection or internet connection which requires for work, then you can claim 100% of such cost. However, you have to produce the bill. Only the postpaid connections are allowed for reimbursement.

# Medical Allowance-This is the allowance provided to the employee to meet the treatment cost to him or his family. The maximum limit per year is Rs.15,000. Anything more than that will be taxable income to the employee.

# Leave Travel Allowance-The bills for your travel against LTA can be claimed for exemption. It is allowed to be claimed twice in a block of four years. The current block is 2014 to 2017. You can carry forward your unclaimed LTA to the next year. You can request your employer to not deduct tax on it and allow you to claim it next year.

# Entertainment Allowances-You may be getting this allowance. However, the exemption is available only for Government employees. The amount of exemption is least of the following.

a) Rs 5,000

b) 1/5th of salary (excluding any allowance, benefits or other perquisites)

c) Actual entertainment allowance received

# House Rent Allowance (HRA)-This is the famous exemption which is used by many salaried individuals. However, the wrong belief is that whatever the rent they pay is actually exempted from their income. The reality is different. The amount of exemption is least of the following.

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)

# Children Education Allowance-If your employer providing this allowance, then you can take exemption up to Rs.100 per month per child (maximum of up to 2 children). Therefore, monthly you can save Rs.200 from this allowance. The exemption may seems so low. But why to pay the tax?

# Hostel Expenditure Allowance-If your employer providing this allowance, then you can take exemption Up to Rs. 300 per month per child up to a maximum of 2 children is exempt. Therefore, you can save around maximum of Rs.600 from this allowance.

# Transport Allowance-This allowance is provided to you to meet expenditure on commuting between place of residence and place of duty. The extent of exemption is Rs.1,600 per month. For blind and handicapped employees is is Rs.3,200 per month.

# Conveyance Allowance-This is the different allowance than transport allowance. It is the expenditure granted to an employee to meet the expenses on conveyance in performing of his office duties. There is no limit for this. If such conveyance allowance is Rs.5,000 a month, then whole allowance is exempt. Hence, you may this may be exempt to the extent of expenditure incurred for official purposes.

# Any Allowance to meet the cost of travel on tour or on transfer-Here also no limit. The employee can claim exempt to the extent of expenditure incurred for official purposes.

# Allowance to meet the cost of travel on tour or on transfer-Here also no limit. The employee can claim exempt to the extent of expenditure incurred for official purposes.

# Daily Allowance-If you are not placed in normal duty place, then your employer may provide you such allowance. The employee can claim exempt to the extent of expenditure incurred for official purposes.

These are the major allowances, which can be utilized to save tax on salary income. There are few other allowances also to claim the exemption. But many of such allowances are not so famous. Hence, I left them to list.

Deductions available to save tax on salary income-

Now let us consider on deductions which will save tax on salary income. I tried to list down all deductions in below image for your reference.

save tax on salary income

# Sec.80C-This is the famous section which often used by all of salaried. The maximum limit for the current year is Rs.1,50,000. Thereofere, up to Rs.1,50,000 you can save tax on salary income from this section alone. The different investments you do and can also be claimed under Sec.80C are listed below.

  • Life Insurance premium (Paid by an individual, spouse, and child. In the case of HUF, on the life of any member of HUF).
  • EPF-Employee contribution can be claimed for deduction.
  • Public Provident Fund (Paid by an individual, spouse, and child. In the case of HUF, on the life of any member of HUF).
  • National Savings Certificate (NSC).
  • Sukanya Samriddhi Account
  • ELSS or Tax Saving Mutual Funds.
  • Senior Citizen Savings Scheme.
  • 5-Years Post Office or Bank Deposits.
  • Tuition fee of kids.
  • Principal payment towards home loan.

# Sec.80CCC-Contributions to certain pension plans of LIC or any other insurers. The limit is Rs.1,50,000.

# Sec.80CCD

Sec.80CCD 1-Employee’s up to 10% of Basic+DA and the maximum limit of Rs.1,50,000 can be claimed under this section. For self-employed, the limit is 10% of their annual income and the maximum limit is Rs.1,50,000.

Note-The combined limit of Sec.80C, Sec.80CCC and Sec.80CCD1 is Rs.1,50,000 per year.

Sec.80CCD 2-This will not be part of Sec.80C, Sec.80CCC and Sec.80CCD. This section is helpful only for employed individuals. Because an employee can claim employer’s deduction of what they paid towards NPS. However, there is some condition to it. The lowest of the below 3 can be claimed by an employee under this section.

a) Amount contributed by an employer

b) 10% of income from salary (Basic+DA)

c) Gross Total Income

Sec.80CCD 1(B)-From financial year 2015-16, an additional benefit of Rs.50,000 is available for NPS contributors. This will not form the part of Sec.80 CCD 1.

# Sec.80CCG-50% of an amount invested in Rajiv Gandhi Equity Savings Scheme (RGESS) will be claimed under this section. The maximum investable limit in RGESS is Rs.50,000. So one can claim the maximum deduction of Rs.25,000 only.

# Sec.80D-Premium paid towards health insurance will be claimed for deduction under this section. Also, for preventive health check up of up to Rs.5,000 can also be claimed. I tried to explain the same in below image for your simplicity. You can save tax on salary income by buying health insruance for your family and parents. Preventive Health Check Up Tax Benefits

# Sec.80DD-You can claim up to Rs.75,000 as medical expenses on treatment of your dependents (spouse, parents, kids or siblings) who have 40% disability. If it is a severe disability, then the limit is Rs.1,25,000.

# Sec.80DDB-An individual (less than the 60 years of age) can claim up to Rs 40,000 for the treatment of specified critical ailments. You can also claim on behalf of the dependents. For senior citizens, it is Rs.60,000 and for very senior citizens (above the 80 years of age) the limit is Rs.80,000.

For claiming deductions you my obtain doctor Certificate or prescription from a specialist working in a Govt or Private hospital. Following diseases are eligible for claiming under this section as the deduction.

1) Neurological Diseases where the disability level has been certified to be of 40% and above;

(a) Dementia
(b) Dystonia Musculorum Deformans
(c) Motor Neuron Disease
(d) Ataxia
(e) Chorea
(f) Hemiballismus
(g) Aphasia
(h) Parkinson’s Disease

2) Malignant Cancers

3) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;

4) Chronic Renal failure

5) Hematological disorders) Hemophilia

a) Hemophilia

b) Thalassaemia

# Sec.80E-Educational loan taken on self, spouse, children or for the student of whom you are legal guardian can be claimed under this section for deduction. Only interest paid can be claimed but there is no benefit on the principal payout. If you took the loan from financial institutions or approved charitable trust for pursuing higher education, then only you can claim the deduction. Loan taken from relatives or friends will not be eligible for the claim. However, education may be in India or abroad.

# Sec.24 (B)-Interest part of your home loan EMI will be claimed under this section. The maximum limit for the self-occupied property is Rs.2,00,000 per year. For let-out property, the entire interest payment of home loan can be claimed for deduction.

#Sec.80EE-Earlier any interest payment towards home loans will be available for tax benefit under Sec.24 of IT Act up to Rs.2,00,000 in a financial year. Now this is raised to another Rs.50,000. However, this additional Rs.50,000 tax benefit on the interest of home loan will be available for below categories of loans.

  1. This deduction would be allowed only if the value of the property purchased is less than Rs. 50 Lakhs and the value of loan taken is less than Rs. 35 Lakhs.
  2. The loan should be sanctioned between FY 2016-17.
  3. The benefit of this deduction would be available up to the time the repayment of the loan continues.
  4. This Deduction would be available from Financial Year 2016-17 onwards.

# Sec.80G-Donations to certain approved funds, trusts, charitable institutions/donations for renovation or repairs of notified temples, etc will form the part of this deduction. You have to pay either through cheque or DD if your contribution is more than Rs.10,000.

#Sec.80GG-I explained in detail on this aspect in my earlier post “Section 80GG Deduction-Get Tax Benefit on rent paid if not getting HRA !!!“. You can utilize this section to save tax on salary income if you are not getting HRA in your salary. Few highlights and eligibility criteria are as below.

  • This section is only applicable to Individual or HUF.
  • Tax Payer may be either salaried or a self-employed. However, must not be getting HRA.
  • Tax Payer may be either salaried or a self-employed. However, must not be getting HRA.
  • Tax Payer himself or spouse/Minor Child/HUF of which he is a member should not own any accommodation at a place where he is doing a job or business
  • If Tax Payer owns house at a place other than the place noted above, then the concession in respect of self-occupied property is not claimed by him [Under Section 23 (2) (a) or 23 (4) (a)].Tax Payer has to file a declaration in
  • Tax Payer has to file a declaration in Form No.10BA regarding the expenditure incurred by him towards the payment of rent.

If the above five conditions are satisfied, the amount deductible under Section 80GG is LEAST OF THE FOLLOWING.

  • Rs.5, 000 per month (earlier it was Rs.2,000 per month. But from Budget 2016, it was raised to Rs.5,000 per month);
  • 25% of total income of taxpayer for the year; or
  • Rent Paid less 10% of total income (Rent Paid-10% of Total Income).

#Sec.87A-Tax rebate in the case of an individual resident in India, whose total income does not exceed Rs.5,00,000. The limit of rebate shall be an amount equal to 100% of such income-tax or an amount of Rs.5,000, whichever is less.

#Sec.80TTA-You can claim the deduction of up to Rs.10,000 on interest earned from your savings bank, post office, or co-operative society. However, please note that such deduction is not available for interest earned on your FDs. This is only for interest earned from SAVINGS account.

Hope this much information will suffice to majority of salaried to save tax on salary income in India.

50 Comments

  1. hello, first of all…kudos for your awesome blog!

    I need an answer to small query regarding 80EE. I purchased an underconstruction flat (44lakhs- first time buyer). Taken loan of 27 lakhs. Paid an interest amount of Rs1,21,532 as in the year FY16-17. My husband and I are both applicant and co applicant. Can we avail tax benefit for 50,000 each? or only one person can avail the tax benefit under 80EE?

    Thanks in advance, Will wait for your reply.

    Reply
      • Yes, the Property is jointly held. I guess we cannot avail the benefit as we have taken the loan in March 2016.

        Reply
        • Tripti-Check the eligibility criteria for Sec.80EE. March 2016 comes under FY 2016-17.

          Reply
  2. Hi Basavaraj,
    Thanks for such a detailed explanation.
    I have a query on sec. 80EE i bought a house in 2013,value less than 50 lakhs with a loan amount of less than 30 lakhs from lic, i transferred the loan to icici in June 2016, am i eligible to claim extra 50k under this section.

    Many thanks for the reply.

    Reply
    • Srinath-It is transfer of loan but not new buy. Hence, you are not eligible.

      Reply
  3. Hello Basu,

    Appreciate your efforts to spread financial awareness in public interest. I am following your blogs for quite a long time now and have taken some important financial decisions after going through your detailed blogs in relative sections.

    I have a query regarding Sec 80 EE, wherein we can claim extra 50k tax deductions if we have purchased house of value less than 50L. This value of 50 Lacs, does it include Taxes or just the original cost (Area * rate per sq.ft) of the house without any other charges. Could you please provide any Document or Link where i can find more details about this rule.

    Thank You again for your efforts and time,
    Cheers

    Reply
      • Thanks Basu…

        I have gone through the link however, it does not gives more insight of the rule, as to what the other criteria’s are such as Cost of the house (which btw i believe is 50L and not 40L as mentioned in the article), does it include the Taxes or not.

        Reply
        • Kedar-It is the property registered value (that excludes taxes).

          Reply
  4. Helo sir
    I am Ashutosh singh from patna
    My ctc is 10l per yr.how to do complit financial planing for future. Plz guide me.my age is 29.

    Reply
    • Ashutosh-It is lengthy subject which I can’t expalin in 2-3 lines in comment section.

      Reply
  5. Hi Basu,

    Thank you for this comprehensive post.

    A query – if I live on rent and also have a house in the same city for which I pay EMIs towards loan, I assume I can claim both HRA and housing loan interest benefits? If I rent out my house, the rental income gets added to my taxable income. Can you please confirm if my premise is correct?

    Many Thanks,
    gaurav

    Reply
      • yes Basu, I live in a rented house. In the same city as I live in, I own a house as well for which I pay EMI towards home loan. The house I own is rented out to someone.

        I assume I can claim rent benefits as well as home loan benefits towards income tax deductions? For the rental income I get, I need to pay tax since it gets added to my taxable income.

        Please advise if my premise is correct.

        Many Thanks,

        Reply
        • Gaurav-Yes, you can claim both. But if the cross question you , then you must have valid reason of why you staying in rented being in same city. It may be asked by your employer or tax authorities.

          Reply
          • Thank you Basu.

            Reply
  6. Hi Basu,

    Happy Wednesday:)

    I read your articles, thanks for all the inputs you share and really appreciate as people like me who has very less knowledge on finance can gain information from your blog.

    I have a query on the IT -return filing, This 2015-16 I have paid extra tax around 11k; How can I refund that amount from IT?
    Please let me know the process as do I need to file any forms, I had filed the it-return in cleartax.com

    Waiting for your suggestions,

    Thanks a lot:)

    Vandana Sirakaje

    Reply
    • Vandana-If the IT return already filed and it is also showing additional tax payment of Rs.11,000, then you will get it refund.

      Reply
      • Thanks Basu:)

        Reply
  7. Hi Basu,

    I have a query regarding DTAA(Double Taxation Avoidance Agreements). Last year I was in Australia from 5th April,2015 to 15th Aug, 2015. I was getting my Indian Salary in my Australian Account(converted into AUD). In Australia I have already paid tax for the salary I was getting there, but once I returned back to India, tax was deducted on my Indian Salary as well(I was told its because my stay was less than 182 days). Now there is agreement between Australia and India regarding Double Taxation. So could you please tell me if I am eligible for it and how can I apply for it while filling my ITR this year.

    Thanks in advance
    Saurav

    Reply
    • Saurav-You can claim the benefit under Sec.90 and Sec.90A of IT Act. Yes, you are eligible for this. Because your status if resident Indian and if India have an agreement with the country where you taxed under the DTAA.

      Reply
      • Thanks for the update Basu 🙂

        Reply
  8. Hi Basu,

    Nice Article.

    My family lives in Bangalore and i am paying EMI for the housing Loan, However i work from Hydrebad and rent a home in that city.

    I was told that i can claim for both as i am working out of a different city and have the proof, is this true.

    Regards,
    Rajesh

    Reply
  9. Sir,

    how to avail transport allowance exemption ???

    Reply
  10. Sir, the tax rebate of Rs.5,000/- under section 87-A is from AY 2017-18 onwardss. Is it correct?

    Reply
  11. Nice article!
    My company is providing HRA. However I am paying housing loan EMI. Can i take advantage on both HRA and 80c/24 sections. If so, how ?

    Reply
  12. Thanks Basu for such helpful information.

    Could you please help me to know how to invest in SIP through online process. Is it mandatory to go with a broker?

    Reply
  13. I mean I have two questions here

    1. If I don’t have any medical insurance and If I go for any preventive checkups, Can I claim Rs.5000 under Sec 80D? Is it mandatory to have medical insurance for claiming preventive checkups?

    2. Say I have a medical insurance for Rs.10000 P.A and also preventive checkups done for Rs.5000, So Can I claim Rs 15000 under 80d?

    Reply
  14. Hi Nice article,

    I have one question Preventive Health Check Up deduction under Sec.80D. Is this means the regular checkup we do for BP, Diabetic , General checkup etc can be claimed under sec 8o D up to max of Rs 5000?

    Reply
  15. Nice Post

    Reply
  16. Nice article Basu as always.

    Reply
    • thank you Mr. Basavaraj. Please tell me if these tax-saving guidelines hold good also to the pensioners

      Reply
  17. What are the options for parents to save tax on pension income?

    Reply
    • DD-For parents too same rules applies like deductions mentioned above.

      Reply
  18. very informative. LTA block should be from 2014-2017 I think

    Reply
  19. Thanks for the informative article.

    For 80C you have listed the following:

    Interest payment towards home loan.

    I believe this should be principal payment towards the home loan. Interest is covered by Section 24.

    Thanks,
    Prasad

    Reply
  20. Excellent information Sir..

    Reply
  21. Great Effort Basu. Cheers 🙂

    Reply

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