Would you like to pay less income taxes? The next step is to comprehend what individual tax exemption entails and how you can effectively use it. These exemptions legally keep more money in your hands and help lower your taxable income.
Let us dissect it in plain terms.
Individual Tax Exemptions:
An individual tax exemption is a non-taxed sum you can deduct from your overall income. The Income Tax Department lets these go under encouragement of savings and support of basic needs including housing, travel, and medical treatment.
Typical Categories of Individual Tax Exemptions
The most often used exemptions available to help lower your tax load is:
- Section 10(13A) addresses House Rent Allowance (HRA).
Should you get HRA and live in a rented house, you are exempt.
Salary, rent paid, and city taxes determine exempt amount. - Section 10(5) Leave Travel Allowance (LTA) lets you claim domestic travel expenses paid for family vacations.
Permitted twice over a 4-year block.
Just for train, air, or bus (not lodging or food) travel. - Standard Deductibility
₹50,000 flat deduction for every pensioner and salaried person.
Not needing any documentation. - Section 10(10) Gratuity
Exempt up to ₹20 lakh should one be retiring or dying.
Affects government staff members as well as those covered by the Payment of Gratuity Act. - Revenue from Agriculture
Completely free from income taxes.
Still needs to be recorded in ITR if your overall income exceeds the basic limit. - Policies for Government Workers
Certain special allowances including UN allowance, foreign duty allowance, etc., are tax-free.
Applies just to some posts.
Note:
Exemption from taxes differs from deduction; income not taxed at all (e.g., HRA, LTA).
Income is taxed; but, if you invest or spend in specific areas (e.g., 80C), you pay less.
Points of Consideration
- To be exempt, you have to turn in proof of rent receipts.
- Most individual tax exemptions are no longer available under the new tax system.
- Select your tax regime depending on income and overall savings.
Regular Errors
- Not on time providing documentation to your company
- Dealing with exemption rather than deduction
- Ignoring to indicate HRA while renting a house
Pro Advice
- File ITR on time to seek all exemptions
- Save LTA and HRA travel documentation as well as rent records.
- Review your exemption every year in finance.