Tax-Saving Strategy: A Note on Allowances to Claim Deductions

A salaried individual–especially those who fall under the higher tax slab bracket–can adopt a few strategies, including allowances such as Leave Travel Allowance (LTA), food coupons, and House Rent Allowance (HRA). This can aid in saving tax significantly. 

The Central government has various provisions in the Income-Tax Act (ITA), 1961, through which an individual can claim tax deductions. Here’s the lowdown on some of the allowances that can be claimed to ensure savings on income tax. 

Food coupons: Several organisations that provide food coupons or meal vouchers or Sodexo coupons, which can be used at food joints or while ordering food through an online platform.  Coupons worth at least Rs 100, which are included under the reimbursement category in the income tax, can be utilised daily.

For instance, let’s say a company provides Rs 100 a day at the rate of Rs 50 per meal twice daily; it is possible to highlight Rs 26,400 in income tax.

Leave Travel Allowance (LTA): An individual can go on a long tour two times in four years as part of the allowance that companies provide. It is possible to take advantage of this at the time of filing the income tax return (ITR).

As an employee, one can avail of tax exemption up to a limit on the entire expenditure of such a tour. This limit can be equal to the LTA. It is possible to get LTA added to the salary through consultation with the Human Resources (HR) personnel.

Travel or conveyance allowance: Also referred to as Transport Allowance, this is offered for travelling for office-related work during office hours. A company usually provides this allowance for commuting from home to the office.

This allowance is also a part of the salary package, but in case one takes it as an allowance, it is possible to get tax exemption on it. Conveyance allowance could be taken as reimbursement. This type of reimbursement is not taxable and is not included in the taxable salary as well. 

House Rent Allowance (HRA): This is provided by most companies or organisations to their employees. Typically, this amounts to 40-50% of the basic salary component. Income tax exemption is available on the amount of HRA at the time of filing ITR. 

Car maintenance allowance: A few companies are known to offer car maintenance allowance to their employees. An employee is entitled to get car maintenance, petrol-diesel expenses and a driver’s salary. It is possible to get tax exemption every month, and this can be taken as reimbursement as well.

This way, with aid from some of these allowances, a salaried individual can save tax on some of the extra salary.

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