Allowances are like the financial benefits a salaried person receives from his or her employer, which helps the former reduce the tax burden. Allowances are divided into different categories and employees can claim monthly payments. These benefits help when filing an income tax return (ITR) containing information such as net tax liability, tax withholding claims, and an overview of total taxable income. Taxpayers are required to file an ITR every year. As 2023 begins, it’s important to understand the different allowances and their tax benefits. This will come in handy when filing an ITR to further reduce income tax liability.
It should be noted that there are taxable, partially taxable and non-taxable allowances. Chances are you don’t even know which allowance to claim for maximum benefit. One of the most common are the item 10 benefits detailed on Form 16 that salaried individuals receive from their employer. Form 16 is a certificate that includes details of the tax withheld at source (TDS), allowances waived under section 10 and wage breakdown. It is an important form required to apply ITR within their expected time period.
taxpayers are required to submit the ITR for fiscal year 2022-23 (assessment year 2023-24) by 31 July of the current year.
Abhishek Soni, Co-Founder & CEO of Tax2win, a Fisdom company, says the 1st of every month is the happiest day in a salaried person’s life. This is the day we all work from the beginning to the end of the whole month. However, the most dissatisfied situation arises when the expected salary does not come. This is because a significant portion of wages are tax withheld.
Further explaining, the Tax2win CEO added that salaried individuals contribute the most to the overall tax collection. So it is important for salaried people to benefit from maximum taxes while filing ITR. In the employee’s salary section, any monetary benefits provided above the base salary are referred to as allowances. The more allowances you claim, the less your tax liability will be, as some costs are waived and some are partially taxable.
Therefore, the Tax2win CEO lists some key allowances to remember and their tax benefits when filing an ITR. That is:
1. Rent allowance (Section 10(13A)):
Wage workers living in rented housing can claim an HRA tax exemption.
The exemption amount will be lower in the following cases:
– Total amount received by HRA
– 50 percent of salary (Basic Salary + Dear Allowance) if living in big cities or 40 percent for non-major cities
– Exceeding the annual rent paid by more than 10% of the annual salary (Basic Salary + DA)
2. Allowance or Travel Assistance (LTC/LTA) (10(5)):
Under this allowance, the employee’s travel expenses during a holiday trip in India are considered as tax-free expenses. As a result, the employee can take time off from work and travel on holiday in India, and the expense incurred for the fare will be allowed by the employer as a tax-free allowance. The mode of transportation must be by rail, by air or by public transport. (Note: Two trips in a 4-calendar year period are exempt) This exemption is limited to employer-provided LTAs.
In addition, certain Section 10 (14) grants are exempt from limiting the amount earned as a grant or the amount spent on certain tasks, whichever is the minimum. . That is:
3. Child education allowance: Up to Rs. 100 per month per child, up to 2 children are exempt.
4. Uniform Allowance: The cost of maintaining or purchasing the uniform to wear while performing office or business duties is exempt from the limit of the actual amount spent.
5. Bookkeeping and Periodic Allowance: A tax-free refund is provided under income tax law for the purchase of books, newspapers, magazines, magazines, etc. offered in the salary package.
6. Moving allowance: Companies require employees to move to another city for business reasons. Employer reimburses expenses already made for car transportation, car registration fee, packing fee, accommodation for the first 15 days and train/airfare. These reimbursements are tax-free.
7. Helper allowance: The assistant allowance is granted in cases where the employer allows you to appoint an assistant to perform the official duties of the office.
In addition, Soni said, these components and many other allowances can help salaried workers get the most out of income tax deductions. Next time, make sure you sit down with your employer and get a pay structure in a way that can add more allowances, which are tax-free.
Disclaimer: The views and recommendations expressed above are those of individual analysts or brokerage firms, not those of Mint.
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