Income Tax Deductions

2024 Budget Update

On 23rd July 2024 Financial Minister Nirmala Sitharaman proposed changes in the tax structure under the new tax regime. The new tax regime is as follows

Difference between pre-budget and post-budget tax slab:

The 2024 Budget has raised the standard deduction in the new tax system to ₹75,000. Additionally, the family pension deduction has been increased from ₹15,000 to ₹25,000. With these adjustments, taxpayers will save ₹17,500 under the updated tax structure.

Exemption of Allowances

Several allowances provided by employers are exempt from income tax. These include:

• House Rent Allowance (HRA): Salaried individuals who live in rented accommodation can claim HRA exemption. The exemption amount is the least of the following:

  • Total HRA received from the employer

  • Rent paid minus 10% of basic salary + DA

  • 40% of basic salary + DA for non-metros and 50% of basic salary + DA for metros

• Leave Travel Allowance (LTA) or Leave Travel Concession (LTC): LTA covers domestic travel expenses incurred during leaves. It can be claimed twice in a block of four years.

• Mobile Reimbursement: Expenses incurred on mobile and telephone used at residence can be claimed as reimbursement.

• Books and Periodicals: Expenses on books, newspapers, etc., can be claimed as reimbursement.

• Food Coupons: Meal coupons such as Sodexo are tax-exempt up to Rs 50 per meal.

• Relocation Allowance: Expenses incurred due to relocation for business reasons can be claimed as reimbursement.

Tax-Saving Investments and Deductions

• Section 80C, 80CCC, and 80CCD(1): This section allows a deduction of up to Rs 1.5 lakh for investments in various tax-saving instruments like life insurance, ELSS, EPF, PPF, NPS, etc.

• Medical Expenditure and Insurance Premium (Section 80D): Deduction can be claimed on medical insurance premiums and health checkups.

• Interest on Home Loan (Section 80C and Section 24): Deduction is available for interest paid on home loans.  

• Deduction for Loan for Higher Studies (Section 80E): Interest on education loans can be claimed as a deduction.  

• Donations (Section 80G): Donations to charitable organizations can be claimed as a deduction.

• Deduction on Savings Account Interest (Section 80TTA): Deduction of up to Rs 10,000 is available on income earned from savings account interest.

• Interest on Home Loan (Section 80EE): Additional deduction is available for interest on home loans for first-time home buyers.

Tax Treatment on Notice Pay and Joining Bonus

The tax treatment of notice pay and joining bonus depends on the circumstances. It's essential to consult with a tax professional for specific guidance.

Exemptions on Perquisites

• Cab Facility: Use of a company-provided vehicle for commuting is generally exempt.

• Health Club Facility: Health club facilities provided to all employees are exempt.

• Gifts or Vouchers: Gifts or vouchers up to Rs 5,000 per year are exempt.

• Medical Expenditure Outside India: Medical expenses incurred outside India for employees and their families can be exempt under certain conditions.

• Training Expenses: Expenses incurred by employers on employee training are exempt.

Other Deductions

• Gratuity: Gratuity received at the time of retirement or death is partially exempt.

• Leave Encashment: Leave encashment received at the time of retirement is partial.

Conclusion

By effectively using income tax deductions, individuals can reduce their taxable income and the amount of tax they pay. Understanding and using these deductions can be a valuable strategy for financial planning and maximizing savings. It's important to consult with a tax professional for personalized advice and to ensure compliance with the latest tax regulations.