How tax is levied on the allowances received by the salaried, what strategy should be adopted to save your money
Income Tax Exemption: Various types of allowances are given by the employer to its employees. Employees can claim tax exemption on these allowances. These include HRA and LTA,
Highlights
⏩ Exemption on allowances will be available only if you have actually spent it.
⏩ For this, you will have to give proof to the Income Tax Department.
⏩ That’s why it is very important to keep the receipt and bill of the expenditure with you.
New Delhi. In order to reduce the tax burden on salaried people, the government gives them relief in many ways in the form of tax exemption, deduction, and allowance. Employers around the world, including India, provide different allowances/allowances to their employees. House Rent Allowance (HRA), Leave Travel Allowance (LTA), Dearness Allowance (DA), Medical Allowance, Child Education Allowance, etc. are some of the commonly given allowances in India.
On all these, you can claim tax exemption and reduce the tax liability to some extent. But, remember one thing in order to claim exemption on the above allowances, it is necessary that all these should be part of your CTC. If this does not happen then you will not be able to claim the exemption.
Discount will be given only on spending
If your CTC includes the above-mentioned allowances but you have not spent any of that allowance on specified work, then you will have to pay full tax. For example, if your CTC includes HRA, then you have to actually pay the rent from it and attach the proof of this payment while filing the return, only then you will get tax exemption on HRA. Similarly, you will have to submit proof of children’s education, hostel expenses, travel allowance, and other types of allowances.
Record-keeping required
As we told you above exemption on allowances will be available only when there is proof of the same. That’s why you must have the receipt or bill for the expenses incurred by you. If ever the Income Tax Department investigates the claims made by you, then you must have all these proofs to show otherwise you may be in trouble.
Consult a tax advisor
If you feel that you are not able to properly manage the tax-related calculations or expenses required for exemption on your own, then you should seek the advice of a professional tax advisor. With this, it will be easy for you to take full advantage of the exemption on allowance.
