The Central Government of India receives a significant amount of revenue from tax collection. In fact, in FY 2024-25, the gross tax collection touched INR 25.87 crore. This comes from a mix of corporate, personal, security, and other tax forms. Although salaried employees pay regular taxes (provided they fall under the tax bracket), they can still save some amount through exemptions.
The government has announced multiple income tax exemptions for salaried employees as a way to a safer financial security. In this blog, we will discuss the major tax exemptions that can reduce your financial liability.
What Are the Beneficial Tax Exemptions for Salaried Employees?
You have the opportunity to increase your income from salary exemptions. These are some of the tax deductions that you must consider before filing your return:
- House Rent Allowance (HRA)
Here’s how HRA works:
- If you receive a salary and are living on rent, you can reap the benefit of HRA.
- If you do not live on rent, the HRA will be taxable.
- It is advisable to submit every rent receipt to the employer as proof of HRA. Otherwise, claim the exemption while filing your tax return. It will be partially or 100% exempt from the tax, depending on the lease of the following amounts:
- Total HRA received
- Paid rent – (10% of the salary + dearness allowance)
- 40% (non-metro cities) and 50% (metro cities) of the salary
- Leave Travel Allowance (LTA)
LTA, or leave travel concession, refers to the travel expenses incurred during leaves.
- This exemption only includes domestic travel, and doesn’t cover the cost of food, shopping, activities, and leisure.
- A salaried employee can avail of LTC twice in four years. However, if you do not use the exemption, it is carried forward to the next financial year.
- Home Loan Interest
If you have bought a house and are paying regular EMI, you can get a home loan interest exemption.
- Under the IT Act, Section 24, a salaried employee can claim up to INR 2 Lakhs as a deduction.
- In case you have given the property on rent, your complete loan interest amount can be claimed under the salaried tax exemption.
- Basic Deduction
Every year, an employee can avail of a lump sum deduction. It includes medical reimbursement and transport allowance.
As of FY 2024-25, the standard tax exemption for salaried employees is:
- INR 50,000 under the old tax regime
- INR 75,000 under the new tax regime
- Provident Fund
Here’s how the provident fund works:
- The employer as well as the employee contribute at least 12% of the salary to the provident fund.
- This contribution is eligible for tax deduction under 80C.
This is applicable to all employers with a team of 20+ employees.
- Relocation Allowance
Under the relocation allowance,
- Your employer may ask you to relocate to another city for business purposes. In that case, the moving and shifting expenses are incurred by the employer.
At times, the employer directly pays for the incurred amount. In case the employee pays the charges, the income tax exemptions for salaried employees are as follows:
- Transportation: The transportation (car, flight, train) expenses are reimbursed by the employer. Such expenses are always tax-deductible, whether paid directly or reimbursed by the employer.
- Car Registration: Most states levy car registration charges upon entry to their zone. These charges are exempt from the tax.
- Accommodation: The employers pay up for the initial 15 days upon relocation. These expenses, whether reimbursed or directly paid, fall under tax exemption.
- Packers and Movers: The entire expense related to packing and moving the furniture is either borne or reimbursed by the employer. It is 100% tax-deductible.
- School Admission: Your children’s schools will also be changed, and the admission cost can be hefty. This is reimbursed by the employer and is exempt from the tax.
- Children Education Allowance
- As part of your salary, the employer provides an education allowance. This amount is tax-deductible.
- However, the monthly permissible deduction amount is INR 100, and a maximum of two children’s fees is exempt.
- Gratuity
- Gratuity is a voluntary amount paid by the employer and is tax-deductible for the salaried employee.
- It is tax-exempt for the employee if received at the time of retirement or in the event of death, subject to certain limits under the Income Tax Act.
- Books and Periodicals
Employers provide reimbursement to employees engaging in self-learning and skill development courses. The employee can get these tax benefits on:
- Books
- Newspapers
- Journals
- Periodicals
- Online courses
The reimbursement amount is on the total bill or the amount mentioned in the salary package, whichever is lower.
- Food Coupons
Your employer can provide you with coupons like Sodexo, which are tax-exempt with up to INR 50 per meal (two meals every day).
Here’s how it’s calculated:
22 (Working Days)*100(2 Meals a Day) = INR 2,200 per month.
Other Permissible Deductions According to Income Tax Sections
Apart from the above-discussed tax exemption for salaried employees’ options, here are some other provisions according to the IT sections:
Under the IT Section 80C, your financial instruments are eligible for tax deduction of up to INR 1.5 lakh. They include:
- NPS (National Pension Scheme)
- SSY (Sukanya Samriddhi Yojana)
- Life Insurance Premium
- ELSS (Equity-Linked Savings Scheme)
Salaried employees get to claim a health insurance policy deduction paid for themselves, parents, children, or spouse.
- One can get up to INR 25,000 of yearly dedication for policyholders aged below 60.
- For senior citizens, the limit is up to INR 50,000.
Certain medical conditions are listed under Section 80DD, for which you can claim tax redemption. Benefits are available to anyone incurring treatment costs for those conditions for themselves or a member of their family.
- The deduction limit is up to INR 75,000 for 40 to 80% disability.
- However, if the disability is over 80%, one can claim up to INR 1,25,000.
Conclusion
Save most of your tax with the available deductions. They will help save a better amount for financial security and investment freedom. For EPF, interest on property loan, gratuity, and HRA, a substantial amount falls under the tax exemption bracket. To find out how to save more tax on your house loan, connect with Tata Capital experts. They will guide you towards a better future.
FAQs
A salaried person can reduce tax by filing rent receipts, allocating an amount in PF, and availing gratuity. You can also benefit from a leave travel allowance and basic deductions.
Yes, you can claim both 80C and 80D deductions, depending on whether you avail yourself of those services within the financial year or not.
20 June 2025
6 mins read
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