Perks are like financial benefits that a salaried employee receives from his employer which helps in reducing his tax burden on the former. The allowances are divided into various categories and can be claimed by an employee on a monthly basis. These allowances help while filing Income Tax Return (ITR) which includes information like net tax liability, tax deduction claimed and an overall view of gross taxable income. It is mandatory for taxpayers to file ITR every year. With the onset of 2023, it is important to understand the various allowances and their tax benefits which will come in handy while filing ITR which help in reducing the income tax liability.
It needs to be noted that there are taxable, partially taxable and non-taxable allowances. Chances are you might not even know which perks to claim for maximum benefits. One of the most popular would be allowances under section 10 whose details are mentioned in Form 16 received by salaried individuals from their employers. Form 16 is a certificate containing the details of tax deducted at source (TDS), allowances exempt under section 10, and salary breakup. This is an important form required for filing ITR over their stipulated period.
taxpayers It is necessary to file your ITR for the financial year 2022-23 (Assessment Year 2023-24) by 31st July of the current year.
Abhishek Soni, Co-Founder & CEO, Fisdom Company Tax2Win said, “The 1st of every month is the happiest day in the life of a salaried individual. This is the day when all of our work ends at the end of the whole month. However, the most frustrating situation arises when the expected salary does not come. This happens because a significant portion of the salary is deducted under taxes.
Explaining further, the CEO of Tax2Win further said that salaried individuals contribute the most to the overall tax collection. Hence, it becomes important for salaried employees to avail maximum tax benefits while filing ITR. In the salary portion of an employee, any monetary benefit provided over and above the basic salary is called allowance. The more allowances you claim, the lower your tax liability, as some expenses are exempt, and some are partially taxable.
Hence, Tax2win CEO has listed some of the major perks and their tax benefits to remember while filing ITR. These are:
1. House Rent Allowance (Section 10(13A)):
Salaried individuals living in rented accommodation can claim tax exemption on HRA.
The amount of exemption will be lower of the following:
– Total amount of HRA received
50% of salary (Basic salary + DA) if living in metro cities or 40% for non-metro cities
– 10% of annual pay plus annual pay plus rent (Basic Pay + DA)
2. Leave Travel Concession or Assistance (LTC/LTA) (10(5)):
Under this allowance, travel expenses incurred by the employee on leisure trip to India are allowed as tax-free expenditure. Therefore, the employee can take leave from work and travel on holiday to India, and the expenditure incurred towards rent will be allowed as tax-free allowance by the employer. The mode of travel should be railway, air or public transport. (Note: Two journeys in a block of 4 calendar years are exempted) This exemption is limited to the LTA provided by the employer.
Further, there are certain allowances under section 10(14) which are exempt from the limit of amount earned as allowance or amount spent on certain duties, whichever is the lower figure. These are:
3. Child Education Allowance: Up to Rs. 100 per month per child up to a maximum of 2 children is exempt.
4. Uniform Allowance: Expenditure on maintaining or purchasing uniform for wear in the course of the duties of an office or employment is exempted from the limit of actual amount spent.
5. Books and Periodical Allowance: Tax-free reimbursement is provided as per income tax law per the expenses incurred for books, newspapers, periodicals, magazines etc. The reimbursement provided is lower of the billed amount or the amount provided in the salary package.
6. Resettlement Allowance: Companies ask employees to shift to another city for business reasons. The employer reimburses the expenses incurred on car transportation cost, car registration fee, packaging fee, accommodation for initial 15 days and train/air ticket. These reimbursements are tax free.
7. Assistant Allowance: Assistant allowance is given in cases where the employer allows you to appoint an assistant to carry out the official duties of the office.
Also, Soni said, these components and several other allowances can help salaried employees make the most of income tax deductions. Next time, make sure you sit down with your employer and get the salary structure in such a way that more allowances can be added, which are tax free.
Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint.
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