Exemptions from Salary

Exemptions from salary are specific provisions allowed under the Indian Income Tax Act, 1961, which help reduce the taxable income of an individual. These exemptions are typically related to allowances that are part of an employee’s salary package.

1. House Rent Allowance (HRA)

One of the most significant exemptions for salaried individuals is the House Rent Allowance. The amount of HRA exempted from taxation is the least of the following:

• Actual HRA received from the employer.
• 50% of the basic salary if living in a metro city (40% for non-metros).
• Excess of rent paid over 10% of salary.

This exemption allows employees living in rented houses to claim a substantial part of their HRA as non-taxable, subject to the conditions mentioned above.

2. Leave Travel Allowance (LTA)

The LTA is an exemption for expenses incurred on travel when on leave from work. This exemption can be claimed for travel costs for the employee and their family (spouse, children, and dependent parents and siblings). However, it is limited to travel within India and is available for two journeys in a block of four years.

3. Standard Deduction

Introduced in the budget of 2018, the standard deduction allows a flat deduction of INR 50,000 from the taxable salary. This deduction replaced the transport allowance and medical reimbursement and is applicable to all salaried individuals and pensioners, simplifying tax compliance with no requirement to submit proofs.

4. Transport Allowance

Transport allowance to an employee with a disability is exempt up to INR 3200 per month. This is specifically designed to facilitate the commute between home and workplace for physically challenged employees.

5. Children Education Allowance

An exemption is available for children’s education allowance up to INR 100 per month per child for a maximum of two children. Additionally, hostel expenditure allowance is exempt up to INR 300 per month per child for a maximum of two children.

6. Special Allowances

Certain special allowances are exempt, such as allowances for travel on tour or on transfer and allowances to meet the cost of travel on conveyance under Section 10(14) of the Income Tax Act. The exemption is limited to the amount actually incurred for the purpose of business or employment.

7. Helper Allowance

Any allowance to meet the expenditure incurred on a helper where such helper is engaged for the performance of duties of an office or employment of profit is exempt to the extent of expenditure actually incurred.

8. Research Allowance

Any allowance granted for encouraging the academic, research and training pursuits in educational and research institutions is exempt to the extent of expenditure incurred.

9. Uniform Allowance

Any allowance granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of duties of an office or employment is exempt to the extent of expenditure actually incurred.

10. Conveyance Allowance

While the general conveyance allowance was subsumed under the standard deduction, conveyance allowance provided to meet the travel costs from residence to office is fully exempt if it is part of a special arrangement or is necessary owing to the specific nature of the job.

11. Driver Salary

If the employee receives an allowance for employment of a driver to drive a motor vehicle owned or hired by the employee, the allowance is exempt to the extent of expenditure actually incurred.

12. Professional Tax

The professional tax paid by an employer on behalf of an employee is exempt from the salary of the employee as it is deemed to be a tax paid by the employer.