Every time we pay our income tax, a little portion of our heart shatters – right? And then we wonder – How to save Income Tax? How do I find the best Income Tax Saving tips? ?
Agree or not, this is something that happens to every individual. We know that paying income tax is a moral responsibility and that it should be fulfilled. And we’re not asking you to not do it – but right here we have some alternatives that can help you with your income tax saving!
Table of Content
- 1 Did you know that there are over 11 allowances that can help you save income tax in 2019-20?
- 2 1. Uniform Allowance.
- 3 2. Mobile Reimbursement.
- 4 3. Children Education Allowance.
- 5 5. Soft Furnishing Allowance.
- 6 6. Books / Periodicals / Newspaper Allowance.
- 7 7. Conveyance Allowance.
- 8 8. Daily Allowance.
- 9 9. Research Allowance.
- 10 10. Travel Allowance.
- 11 11. Helper Allowance.
Did you know that there are over 11 allowances that can help you save income tax in 2019-20?
For those who’re a little confused, an allowance is an amount of money allotted or given usually at regular intervals for a specific purpose. An allowance is given in addition to salary to meet the specific requirements of a salaried employee. Moreover, allowance and reimbursement are almost synonyms and can be used interchangeably here. How? You would receive allowances to pay real bills – which would be called reimbursement which would then lead to income tax saving.
A lot of people think that allowances are over and above salary. It is partially correct – however, currently, all the private sector employees have CTC structure, where CTC refers to as the Cost to Company structure. It includes basic, variable, perquisites, allowances etc. you can see this in your Salary slips.
If you’re an employee, you can select various tax friendly components to lessen the tax outflow. It is advisable to keep basic salary minimum and opt for max tax friendly components like Allowances, Reimbursements and Perquisites.
Here are the eleven lesser-known allowances to help you in income tax saving and increase your take-home salary:
1. Uniform Allowance.
It might be referred to as “wardrobe allowance” by some organizations. This allowance has no maximum limit to it – is being fully exempted from the income tax. However, you need to produce the bills to avail the tax deduction. Do not get confused – the uniform doesn’t mean school uniform or the uniform of the workers in a factory.
This allowance is given to meet the expenditure on the purchase and maintenance of office uniform for wear while performing office duties. Nowadays, almost all workplaces have a dress code, and the employee can claim the uniform reimbursement for the clothes purchased/made for office wear.
2. Mobile Reimbursement.
If your office requires you to make use of your mobile/telephone/internet connection – you can avail 100% exemption against bill amount. (by producing actual bills) Here, the IT Professionals, employees in sales function, HR, Middle Management etc. can claim the exemption.
As per the observation, the monthly cap is Rs. 2000. However, you need to note that reimbursement can only be claimed for postpaid connections.
3. Children Education Allowance.
An exemption of maximum Rs. 100/month can be claimed per child for a maximum of two children under this head. Payment Receipts are not required to claim exemption; hence it is not a reimbursement. This allowance might be small but helps in bearing the soaring education expenses of the children.
4. Children Hostel Allowance.
If your child is away in a hostel – you can claim exemptions of maximum Rs.300/month, again for a maximum of two children. Here, the payment receipts are important to be produced to claim the income tax exemption. A maximum of Rs.7200 p.a. can be claimed by an individual for two children.
5. Soft Furnishing Allowance.
The employee is permitted to buy some household items or pay for the soft furnishing of the house under this head. You need to original bills to claim the tax exemptions. For the Mid-Managers, this reimbursement is limited to Rs. 50,000 – depending on the pay of the individual.
You might need to entertain official guests at your residence and this is why this reimbursement is devised.
6. Books / Periodicals / Newspaper Allowance.
You might need to keep yourself updated with the latest trends/current affairs/news happening around the globe. You also need books, periodicals or newspapers to get the job done. An employee can purchase newspapers, books, periodicals etc. and submit actual bills for reimbursement – it is fully exempted from income tax on actuals.
There is no monthly limit as such, however, some companies cap the max limit to Rs 1000 per month.
If your job is to travel around a lot, and you do that from your own pocket – this can be a relieving moment for your pockets. If you’re a sales employee, a collection agent or a front-end staff, etc. – your employer can reimburse actual expense incurred by you. The expenses are fully exempted from the tax, with two conditions. First, the employee is not receiving a transport allowance and second, the employee is maintaining a log book w.r.t. the travelling and other such expenses.
The conveyance expenses would only be reimbursed if they’re done while on official duty. Remember to preserve every original bill, without which the exemption might not be possible. However, in the case of salaried employees showing bills is not mandatory.
8. Daily Allowance.
If you do not have a fixed workplace and you travel to different places for work – this allowance is just for you. Your employer can include a daily allowance to meet the ordinary daily charges incurred if you are not present at the normal place of duty. The reimbursement received through this allowance is fully exempted from income tax against actual bills.
9. Research Allowance.
If your job requires you to pursue academic research or any other professional course, be it training, online courses, short-term courses, etc. you can claim exemption on the amount spent by you to avail this course. This amount is fully exempted from income tax – only if you produce the actual bills.
10. Travel Allowance.
The travel on tour on the transfer might be synonyms for heavy expenses – but not anymore. You can ask for tour allowances and the reimbursement is fully exempted from the Income Tax against the actual expenditure incurred. Moreover, you can also include the cost of movers and packers in this allowance.
11. Helper Allowance.
You might need to hire a helper to assist you in your official duties. The expenditure of this assistant is fully exempted from income tax on actual value.
Income Tax Saving? These help you significantly!
These were some unpopular income tax saving allowances that you might not have heard of. These may help you in saving tax considerably. A lot of these allowances are exempted u/s 10(14) and are listed in Rule 2BB of income tax saving rules. Irrespective of the name assigned by the company – if the allowance is entailed in the rules, it would be granted. Nonetheless, you should know that these allowances would only be granted to an individual salaried employee.
There are a lot of tax-friendly allowances that are not a part of the salary structure of an organization. However, the employee can always question ‘how to save income tax on salary?’ And can also request for inclusion of the same to reduce tax outflow.
Moreover, it would be better if you straighten the things out at the beginning – by negotiating at the time of accepting the job offer.
You now know that “investments” are not the only way to Save Taxes.
Based on your job, you might get a lot of other exemptions – only if you research enough. Well, make use of the above-listed points and save lots of money on Tax and thank us later, guys!