What are the tax exemption limits for allowances, reimbursements paid to employees? Find outWed Jul 15 2020 / By: Rashmi
The largest part of India's taxpayer group is of salaried persons. They pay the highest amount of taxes that ultimately help in basic infrastructure like roads and provide good health services and education systems. But this transaction is not only one way. The government also says Thanks by giving them monetary relief.
They are exempted from a portion of the tax for different kinds which are called allowances. If a salaried person takes reimbursements from the employers, a large chunk of money will be saved by the end of the year.
An employer's salary is made up of many components. The total salary package of employers is called Cost to Company (CTC). While the money that gets credited into account is called in-hand salary, which is lower than this CTC. It happens because employers deduct various kinds of taxes imposed by the governed. While some of these taxes are fixed, a few can be reimbursed if employers’ claim for allowances.
Here's a list of major deductions and allowances given by the government:
1. House rent allowance (HRA)
2. Telephone reimbursement
3. Books and periodicals allowance
4. Meal coupons
5. Interest on higher studies loan
How to Reimburse Them:
The name of these allowances is pretty explanatory. If an employee is living in a rental house, then he/she is eligible for HRA. The same logic applies to other allowances. What these allowances basically mean is that salaried people should get some relief on their basic needs of working like housing, traveling, reading, and eating.
The process of asking reimbursements of these allowances is very simple. Salaried people have to give bills for using these basic services and commodities.
For HRA, one needs to submit rent receipts including the PAN of the employer (PAN is compulsory if the rental payment is above INR 1 lakh annually). For books and periodicals allowance, one has to submit newspaper bills, bills of books, and magazines. The same rule applies to telephone reimbursement, meal coupons, and Interest on higher studies loans.
However, one allowance that deviates from the same logic is Standard Deduction. In the last budget, it was decided that a standard amount of Rs 50,000 would be deduced from IT for salaried employees. It actually replaced transport allowance and medical reimbursement.
These tax allowances may sound small to a middle-middle-class or a higher- middle-class person. But when all of these allowances are accrued, the sum money almost looks like a monthly saving that has accumulated after a year. Basically, if you get reimbursement for all these allowances, you'll start getting more money than your present in-hand salary.
For more details about the changes in Income Tax exemption, click here.
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