In India, majority of the taxpayers are salaried individuals and it is important to know your salary components to reduce your tax-outgo.
Most salary structures include basic salary, EPF contribution, and various allowances and perquisites like HRA (House Rent Allowance), LTA (Leave Travel Allowance), etc.
Some employers offer allowances in the form of a flexi-benefits plan where you can customise your CTC based on what allowances you need. This includes allowances for expenses such as food, travel, phone & internet bills, which are deducted from your taxable salary.
According to the Income Tax Act, the following allowances are tax-exempt:
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Food coupons
This allowance is provided by the employees to meet the food expenses an employee may incur. It is usually given in the form of coupons/vouchers like Sodexo. Such allowance is exempt up to ₹50 per meal.
So, considering 22 working days in a month and 2 meals a day, you can reduce ₹26,400 from your taxable salary for the year.
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Phone/internet bill
If you incur telecom and internet expenses as a part of your job, the reimbursement provided by the employer is exempted from taxes.
Assuming that you incur an expense of ₹2000 on a monthly basis, you can reduce your taxable salary by ₹24,000 for the year.
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Children’s education and hostel allowance
This allowance is provided by the employer to support education expenses for the employee’s children.
Education allowance is exempt up to ₹100 per month and hostel allowance is exempt up to ₹300 per month. This is allowed for a maximum of 2 children and can help reduce your taxable income by ₹9,600 per year.
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Car fuel expenses
If you own a car which is exclusively used for official duties, all of the amount spent on fuel, car maintenance and driver’s salary is fully tax-exempt if the relevant proofs are submitted to the employer.
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Books/periodical allowance
This is another fully tax-exempt allowance. If you have made expenses made towards books, newspapers, periodicals and journals, you can submit the proof to your employer and reduce your taxable salary.
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Gift cards
Gift cards, vouchers, or tokens, given to you or your family members by the company are eligible for deduction from your taxable salary. The limit of this exemption is up to ₹5,000 per annum.
The above components are exempt only when they are a part of your CTC and allowed by the employer. If you do not have such allowances as a salary component, you can opt for tax-saving investments like ELSS mutual funds, NPS, PPF, VPF and many more.