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11LeastKnownAllowancestoSaveTax

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11LeastKnownAllowancestoSaveTax
As per Wikipedia, An Allowance is an amount of money allotted or given
usually at regular intervals for a specific purpose. Allowance is given in
additiontosalarytomeetspecificrequirementsofsalariedemployee.InIndia,
Income Tax Planning is very myopic. It is only restricted to investment,
investmentandinvestment.Asihighlightedinmypost,7 Financial Mistakes
Allowance

You should Avoid that FREE ADVICE is responsible for this myopic
approach towards tax planning. A tax planner should look beyond

Investments.Heshouldprovide360degreeguidetotaxpayeronhowtoSAVETAX.Allowances
and Perquisites are 2 such tax saving buckets / instruments. An Allowance and Reimbursement
canbeusedinterchangeable.AnallowancepaidagainstactualbillsisreferredasReimbursement
which is fully exempted from income tax. In this post, we will cover 11 least known allowances
whichcanhelpyoutosavetax.Innextpost,iwilldiscussperquisites.

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Toemphasisontheimportanceofallowances,letmesharerecentexampleofoneofmyclientMs.
RoshniJunejafromMumbai.ThreeMonthsbackshechangedherjobandgotsalaryhikeof30%.
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She was quite excited about her new job. When she received her first salary, it was a shocker.
Increase in her monthly take home salary was just 8%. Reason being, Salary structure of old
employer was tax friendly i.e. loaded with allowances and perquisites whereas new employers
salary structure is flat. Though her salary increased by 30% but only on papers. Net take home
salaryincreasedbyjust8%.Beinganoviceshewasnotawareoftaxabilityofallowancesandher
incometaxplanneralsoneverinformedher.
Anothermisconceptionisthatallowancesareoverandabovesalary.Technicallyitiscorrectand
asisharedindefinitionalsothatthesearegiveninadditiontosalary.Pleasenotethatcurrentlyall
privatesectoremployeeshaveCTC(CosttoCompany)structure.ThetotalCTCremainssame.It
include basic, variable, perquisites, allowances etc. Employee can select various tax friendly
componentstoreducetaxoutflow.Itisadvisabletokeepbasicsalaryminimumandoptformax
tax friendly components like Allowances, Reimbursements and Perquisites. It will help to reduce
yourtaxoutflowconsiderably.
As a salaried employee we are aware of some of the most popular allowances like House Rent
Allowance, Leave Travel Allowance, Medical Allowance and Travelling/Transport Allowance.
TravellingallowanceisincreasedfromRs800/monthtoRs1600/monthfromFY201516.There
arewholelotofnotsopopularallowanceswhichhelpyoutosavetax.Mostoftheseallowances
are exempted u/s 10(14) and are detailed in Rule 2BB of income tax rules. Under this rule, the
allowanceisallowedirrespectiveofthenameassignedbytheorganization.Forexampleuniform
reimbursement is also referred as wardrobe reimbursement by some companies. Only pre
conditionisthatnatureofthesameshouldbeasdefinedunderIncomeTaxAct.Pleasenotethat
these allowances are available only for individual salaried employees. I do agree that employer
designthesalarywhichisstandardforallemployees.Someofthetaxfriendlyallowancesmayor
maynotbepartofsalarystructure.Anemployeecanalwaysrequestforinclusionofthesameto
reducetaxoutflow.Employeecanalsonegotiateatthetimeofacceptingjoboffer.

11LeastKnownAllowancestoSaveTax
1.UniformAllowance:Oneofmyfavoriteasthereisnomaxlimittoit.Itisfullyexemptedfrom
incometaxonactuals.Employeehastoproducebillstoclaimthesame.Thisallowanceisgivento
meettheexpenditureonthepurchaseandmaintenanceofofficeuniformforwearwhileperforming
office duties. In this case, uniform does not necessarily mean like school uniform or uniform of
workersinfactory.Generallyallofficeshavedresscodei.e.employeeshouldbesmartlydressed
in formals. In this case, according to dress code of the office, an employee can claim uniform
reimbursementforformalclothespurchasedforofficewear.
2. Mobile / Telephone Reimbursement: If your office duty require mobile / telephone / internet
connection. You can claim 100% exemption against billed amount by producing actual bills. For
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example IT Professionals, employees in sales function, HR, Middle Management etc can claim
exemption. Some employers take declaration from employees i.e. segregation of personal and
officialcallswhereasothersareliberal.Infewcases,iobservedthatthereismonthlycapnormally
of Rs 2000 per month. Please note that reimbursement can be claimed only for Postpaid
Connections.

SelfDrivetheE20
AtRs800/day
mylescars.com/MylesSelfDrive
Cars

3.ChildrenEducationAllowance:Underthishead,youcanclaimexemptionofmaxRs100per
month per child for a maximum of 2 children. Payment Receipts are not required to claim
exemption therefore it is not a reimbursement. Though amount is small but if you have 2 school
going children then you can claim Rs 2400 p.a. This allowance is paid to meet the education
expensesofachild.
4.ChildrenHostelAllowance:Ifyourchild/childrenarestayinginhostelthenyoucanclaimmax
exemption of up to Rs 300 per month per child for a max of 2 children. Payment receipts are
requiredbytheemployertoclaimincometaxexemption.YoucanclaimmaxRs7,200p.a.for2
children.
5.SoftFurnishingAllowance:Inthishead,employeeisallowedtobuysomehouseholditemsor
payforsoftfurnishingofthehouse.Originalbillsarerequiredforreimbursement.Normallythereis
amaxcapdependingonthehierarchyoftheorganization.Maxreimbursementislimitedtojustify
the same. For MidManagers, Soft Furnishing Reimbursement is restricted upto Rs 50,000
dependingonthesalaryofperson.Thereasonforsoftfurnishingreimbursementisthatemployee
needtoentertainguestsathisresidenceforofficialpurposeandexpenseincurredtoprotectoffice
furnitureatresidence.
6.Newspaper,BooksandPeriodicals:Someprofessionsdemandanemployeetokeepabreast
withlatesthappeningsrelatingtoprofessione.g.medical,finance,legaletc.Thereforeemployee
canpurchasenewspapers,books,periodicalsetcandsubmitactualbillsforreimbursement.Itis
fullyexemptedfromincometaxonactuals.SomeorganizationscapthemaxlimittoRs1000per
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month.
7.ReimbursementofConveyanceExpenses:IfthejobrequirelotofLocaltravellinglikefront
end staff, sales employees, collection agents etc. An employer can reimburse actual expense
incurredbytheemployeeatactuals.Amountreceivedisfullyexemptedfromincometax.Only2
conditionsshouldbefulfilled(a)Employeeisnotreceivingtransportallowanceand(b)Employee
should maintain log book with respect to travelling and corresponding expense. Exemption is
available only against actual bills, reimbursement without bills is taxable. Conveyance expenses
shouldbeincurredonlyforperformanceofofficialduty.
8. Daily Allowance: If your normal place of duty is not fixed and you have to travel to different
places.YouremployercanincludeDailyAllowancetomeetordinarydailychargesincurred,ifyou
areabsentfromnormalplaceofduty.Reimbursementreceivedisfullyexemptedfromincometax
againstactualbills.Itcanbegrantedeitherontourorperiodofjourneyinconnectionwithtransfer.
9.ResearchAllowance:Anyamountspent&reimbursementclaimedbyemployeeforacademic
research or other professional pursuits including training, short term / online course etc. is fully
exemptedfromincometaxonproductionofactualbills.
10.TourAllowance:Thoughthereisnoformalnameforthisbutanyallowancegrantedtomeet
the cost of travel on tour or being transferred from one place to another. Reimbursement is fully
exemptedfromincometaxagainstactualexpenditureincurred.Italsoincludecosttowardsmovers
andpackers.
11.HelperAllowance:Youcanhireorengagehelperwhocanhelpyouinperformanceofofficial
duties.Anyexpenditureincurredisfullyexemptedfromincometaxonactualvalue.
Throughintelligenttaxplanning,youcansavetaxoutsideInvestmentsalso.Dependingonyour
job profile and nature of job, you can discuss with your employer to include above mentioned
allowancesinyoursalarystructure.Itcanhelptoreduceyourtaxoutflow.
CopyrightNitinBhatia.AllRightsReserved.

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Jointhediscussion
SharadChandraAgarwal 14hoursago

IhavesubmittedmedicalbillsamountingRs18Ltomycompany.butgotonlyRs2.75Las
reimbursement.Whattodo?howmuchdeductionunderwhichsectionisadmissible?

Reply Share

VikasPandey 8daysago

Sir,InfewsaysthereisRs.24000/taxfreeamountisgivenforuniformallowanceandsomesays
Rs12000istaxfreewhenavailingnewspaperorjournalallowance.Secondlyifmycompanyis
payingeducationallowanceormedicalallowance/newspaperallowancedowehavetosubmitbills
monthtotheHRdepartment.AndifiamgettingmedicalallowancewhichhasacapofRs15000/
andifiampaidmonthlyofRs1250thendoihavetosubmitbillsmonthlyoryearlybasis.Kindly
clarify..

Reply Share

NitinBhatia

Mod >VikasPandey 3daysago

Theuniformallowanceisdecidedbythecompany.Asimentionedinmypostthat
newspaper/medicalallowancearereimbursements.Therefore,youneedtosubmitbillsto
HR/Financetoclaimthesame.Iamnotsurewhatismeantbyeducationallowance.

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HR/Financetoclaimthesame.Iamnotsurewhatismeantbyeducationallowance.
Almostalltheorganizationsdemandbillonyearlybasiseveniftheallowanceispaidon
monthlybasis.

Reply Share

Kiran 20daysago

Sir,Iseekaurgentclarificationfromyou:Foryear201516,MyCompanyhasshowntelephone
reimbursement12000/rupeesastaxableincomewithoutconsidering6000/phonebillswhichi
havesubmittedtocompanybutduetolateapprovalbycompanyinmonthofmay2016theyare
sayingtheycantconsidereditasexemptionfortheyear201516eventhoughmobilebillsareof
jan16,feb16&march16,caniclaimthis6000/whilefilingITreturn.PleaseHelp

Reply Share

NitinBhatia

Mod >Kiran 17daysago

Inmyopinionyoucannotclaimtaxexemptionagainstmobilereimbursementatthetimeof
ITRfilingifitwasnotconsideredbyyourcompany.

Reply Share

G.K.NARULA amonthago

HelloSir,CanIclaimabovementioned11TaxsavingallowancesinIncomeTaxReturn?Warm
Regards,
G.K.Narula

Reply Share

NitinBhatia

Mod >G.K.NARULA 23daysago

Theseallowancesareprovidedbyemployer.Asalariedemployeecannotclaimthese
allowancesatindividuallevel.

Reply Share

DhritimanChoudhury amonthago

HiNitin,
Greetingsoftheday!!
Foundyoursuggestions&thisdiscussionforumquitehelpful.Wouldliketobeverysurewhether
Retainers(RetiredEmployeesstillworking)arealsoeligibleforalltheseallowances&
reimbursements?IfyesthenisthereanyotherwaytheseareexemptedforRetainersordoesit
followthesameprocessasexistingemployeesget?Weareplanningtobringinalotoftaxsaving
allowances&Reimbursementsforthem,henceyouropinionishighlysolicited.
WarmRegards,
Dhritiman

Reply Share

NitinBhatia

Mod >DhritimanChoudhury amonthago

Itdependswhetherretiredemployeesareworkingasfulltimeemployees,consultantsor
parttimeemployees.Secondly,italsodependonyourcompaniesretirementpolicy.

Reply Share

DhritimanChoudhury>NitinBhatia amonthago
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HiNitin,
Thanksforyourresponse.
Currentlytheretiredemployees(Retainers)areworkingasfulltimeemployeesat
variousresponsiblepositions.However,theydonothaveasalarystructure.Onlya
lumpsumamountiscrediteddirectlytotheirsalaryaccount.So,ifthisispossible&
allowedaccordingtotheIncomeTaxRules,thenwewouldgoaheadandcreatea
structureforthemtoowithallnontaxablecomponentsincluded.Inthiscase,kindly
letmeknowhowwouldweprovidethemtheBasicsalary&statutorycomponents
likePF,ESIC,etcbecauseamnotsurethatRetiredEmployeesareeligiblefor
statutorypart.AlsotillhowlongwecankeeptheRetainersinourcompanyasfull
timeemployees?
Yourexplanations&opinionishighlyvaluableinthisregardtooursalary
restructuring&bringingcertainOrganizationalPolicies.
Thanksagain.
WarmRegards,
Dhritiman

Reply Share

NitinBhatia

Mod >DhritimanChoudhury 23daysago

Asisharedinmypreviouscommentthatitdependonyourcompany's
retirementpolicy.Youhavenotmentionedwhatistheretirementageasper
yourcompany'spolicyandwhethertheseemployeesretiredfromyour
organizationorsomeotherorganization.Lastly,whethertheycrossedthe
retirementageofyourcompanyornot.

Reply Share

DhritimanChoudhury>NitinBhatia 23daysago

TheRetirementAgeofemployeesinourcompanyis58asperpolicy.These
employeeshavebeenworkinginourorganizationitselfandretiredfrom
here,buttheyhavebeenretainedasRetainersandhenceworkingasfull
timeemployeesandgetalumpsumamountwithoutanystructure.Allthese
employeeshavecrossedtheRetirementageofourcompany(i.e.58years).
Thanks.
WarmRegards,
Dhritiman

Reply Share

NitinBhatia

Mod >DhritimanChoudhury 19daysago

Inmyopinion,anyemployeecrossingtheretirementageofthecompany
cannotbehiredasaFULLtimeemployee.Youcanhirethemasconsultant.
Asacompanyyoucannotofferanyallowancesorperquisitestothem.The
questionofstatutorycomponentsdoesnotarise.Youmaylandyourselfin
statutorycomplianceissueifanysuchemployeeapproachlaborcourtor
anyothergovtauthorityclaimingstatutorybenefits.Onthecontrarybynot
offeringthePFtofulltimeemployeeyouareviolatingthelaw.Therefore,itis
adoubleedgedswordforthecompany.
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adoubleedgedswordforthecompany.

Reply Share

DhritimanChoudhury>NitinBhatia 17daysago

HiNitin,
Thankyousomuchforyourvaluablesuggestion&opinion.I'lldiscussthe
samewiththedirectorsandgetbacktoyouincaserequired.
Thanksagain.
WarmRegards,
Dhritiman
1

Reply Share

ManojKumarSahu 2monthsago

HelloSir,
LastFY(201516)ihavesalaryIncomeandalsoworkedasaSubjectMatterexpertforwhichTDS
wasdeductedu/s194J.NowmyqueryiswhichITRformshouldiuseformytaxreturn?Andto
savetaxcaniclaimanyexpenseagainsttheProfessionalincome(Subjectmaterexpert)like
Telephoneexpense/internetexpense/electricityexpenseetc?Pleaseguide...

Reply Share

NitinBhatia

Mod >ManojKumarSahu 2monthsago

ITRdependonvariousfactors.Ifyouhaveonlysalaryincomeandchargedprofessional
feesthenyoumayfileITR1.Youcanclaimexpenses.

Reply Share

Karan 3monthsago

HiNitin!Ifinoneofourcompanyclient,thereimbursementsareclaimedbytheemployeeswhile
clickingthephotooftheinvoicewhichultimatelygetsclearedbytheclearingagencysittingabroad
(afterproperlyascertainingiftheyareindeedgenuine).Inshort,theoriginalsarenotretainedby
theemployees.
Arethereimbursementsvalidinthiscaseandnotliabletotax?

Reply Share

NitinBhatia

Mod >Karan 2monthsago

Areimbursementcannotbeprocessed.Theemployeeshouldproduceoriginalbill/invoice.
Theamountwillbetaxable.

Reply Share

Mithra 3monthsago

HiNitin,
IhavetakenHealthInsuranceformyfatherinlawandmotherinlaw.WillIbeabletosubmitthisas
proofunder80D.

Reply Share

NitinBhatia

Mod >Mithra 2monthsago

No.Onlyparentsareallowed.

Reply Share

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Abhi 3monthsago

HelloNitinSir,
Ionbehalfofmycompanyamtryingtomakethesalarystructureofmycompanymorebeneficial
1)forTelephoneexemptionarebillsneededtobeprovidedforexemption(similartomedical
allowance)
2)Iftheofficedoesnothaveadresscode,canuniformallowancestillbeprovided?
3)ifmyemployeesrequiretobeabreastofthecurrentsituationandthereforesubscribeto
newspaperintheirhomes.Cantheygetanexemptionforthesame?

Reply Share

NitinBhatia

Mod >Abhi 2monthsago

1.Yes.Itisreimbursement
2.Yes.Youcandefineformaldressingasdresscode.
3.Yes

Reply Share

Kiran 3monthsago

HelliNitinSir,
Iamcuriousaboutsoftfurnishingallowance.OurofficeCAcommentsiseithertaxableas
perquisitesorexemptionsarenotavailablecurrently.Icouldnotseeanyinfoaboutsoftfurnishing
allowanceathttp://www.incometaxindia.gov.....CouldyoupleasegivetheIncometaxRule
number/Clausenumbertosupportthis?

Reply Share

NitinBhatia

Mod >Kiran 3monthsago

IagreewithyourCA.Itwillbetaxedasperquisite.Youmayoptforit.

Reply Share

SKNGOA 3monthsago

DuetooversightofGovt.Accountant,madeshortTDSofanamountRs8000/ofoneemployee
MrMilindforAssessmentYear201617.
SaidemployeeMrMillind,selfassessedhisownincomeandpaidtaxofRs8000/byChallan
dated12/03/2016withoutconsultingGovtEmployer.
We(Employer)havenoticedamismatchofRs8000/inourBIN(BookIdentificationNumber)of
quarterlyreturnofmonthFebruary2016.
InthisregardhowtoadjusttheamountofRs8000/paidbyshriKesarkarbychallandated12/03
/2016onourTANdeductoraccount(Employer)inthenameofMrMilindsothatwecanavoid
shortdeductionfineandnotice.

Reply Share

NitinBhatia

Mod >SKNGOA 3monthsago

Iamassuming,employeepaidselfassessmenttax.Employeecanclaimrefundatthetime
offilingofITR.

Reply Share

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HarjotSahota 3monthsago

IamasalariedindividualwithcurrentCTCwhichgoesupto30%Taxliabilitycurrentlyworkingin
MarketingFeild,
CanyouletmeknowwhataretheMAXLimitsforbelowTaxsavingallowance
HelperAllowance
Driverallowance
UniformAllowance
InterNetAllowance

Reply Share

NitinBhatia

Mod >HarjotSahota 3monthsago

Pleasegothroughthepostonthispageandfollowingpost
http://www.nitinbhatia.in/pers...

Reply Share

Nikhil 3monthsago

HelloNitin,
Thanksforthiswonderfularticle.
JustwanttoknowwitheffectfromFY2016,underTelephonereimbursements,caniclaimmy
Broadband/Internetexpenses.
Iamnotusinganylandlineinthis,butjustthebroadbandconnection?

Reply Share

NitinBhatia

Mod >Nikhil 3monthsago

Youcanclaim.

Reply Share

RajeevPandey 3monthsago

IamaCentralPSUemployeeofE3level,IamavailingConveyanceorTransportAllowancesince
year2007(40LitersPetrol)butunfortunatelyIhadnotgivensuchbenefitfromApril2009andRs.
800/givenasTransportAllowanceuptoMarch2015.
Onobservingmysalaryslip,itisobservedthatnoTransportAllowanceismentionedinmysalary
slipfortaxexemptionpurpose.
Pleaseadvicewhatwehavetodo.

Reply Share

NitinBhatia

Mod >RajeevPandey 3monthsago

Itisnotmandatoryanddecidedbytheemployer.Italsodependonthejobprofile.Youmay
checkwithHRinyourorganization.

Reply Share

NitinTripathy 3monthsago

DearSir,
IhavemissedtomakefewreimbursementsfrommyorganizationinlastFYi.e.20141.CanIstill
applyforthatreimbursement&Willigettaxbenefitonthatamount?Pladvice.
Regards
NitinTripathy
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Reply Share

NitinBhatia

Mod >NitinTripathy 3monthsago

No.Reimbursementisprovidedbyorganizationagainstactualbillsandtheymusthave
paidthetaxableamounttoyouafterdeductingTDS.Therefore,nowyoucannotclaimtax
benefit.

Reply Share

NitinDevnani 3monthsago

Hellosir,
Iboughtacellphoneworth35k.CanIfilethatinmyincometaxreturn?Ifyesthenunderwhich
category.
Thanksinadvance.
Nitindevnani

Reply Share

NitinBhatia

Mod >NitinDevnani 3monthsago

ItisnotclearwhyyouwanttofileamobilepurchaseinITR.

Reply Share

NitinDevnani>NitinBhatia 3monthsago

Togettaxbenefit

Reply Share

NitinBhatia

Mod >NitinDevnani 3monthsago

Youcannotclaimtaxbenefitonmobilephonepurchase.

Reply Share

PawanSharma 3monthsago

hellosir
Ihavestarhealthinsurancepolicy.
itisundersection80dprovidetotaxbenefit20000oritisbenefitundertosection80means
150000(max)

Reply Share

NitinBhatia

Mod >PawanSharma 3monthsago

Youcanclaimbenefitu/s80D.

Reply Share

AnupDeosthalee 4monthsago

MyCompanyisreimbursingpetrolbills.Isittaxableundermypersonalaccount?

Reply Share

NitinBhatia

Mod >AnupDeosthalee 4monthsago

Pleasegothroughmyfollowingpostformoredetails
http://www.nitinbhatia.in/pers...

Reply Share

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11LeastKnownAllowancestoSaveTax

AyushBhatnagar 4monthsago

HelloSir,
IfaPersonisanemployeeofacorporatecompanythenwhatthepersonshoulddotosavehis
incometaxwithoutusingsection80C?
AndIfCompanyisprovidinghimBonus&HRAthenwhatshouldhedotosavetax,Inthis
conditionisitnecessarytousesection80Cornot?

Reply Share

NitinBhatia

Mod >AyushBhatnagar 4monthsago

Itisnotnecessarytosavetaxu/s80C.YoucanclaimHRA.Otheroptionsareallowances
andperquisitesthatihavesharedinmyposts.

Reply Share

ameyadhok 4monthsago

hello,
iaminPSU,wearegettingtelephonereimbursementasperourdesignation.canthisamount
exemptedfromtaxableincome?

Reply Share

NitinBhatia

Mod >ameyadhok 4monthsago

Itistaxfree.

Reply Share

kapilarya 5monthsago

mybasketofallowanceis73000permonthandmybasicsalaryis38000permonth.Sohow
muchincometaxwillbedeductedfrommysalarymonthly?

Reply Share

NitinBhatia

Mod >kapilarya 5monthsago

Itrequireddetailedcalculation.YoumaycheckwithyourHRdepartmentorCA.

Reply Share

SKNGOA 5monthsago

IamClassCGovtemployee,MyTAisRs800/Pm.WhatismaximumtaxrebateIcanget
asperlatestruleforFY201516?

Reply Share

NitinBhatia

Mod >SKNGOA 5monthsago

FromcurrentFYtheTransportAllowanceexemptionisdoubledtoRs1600permonthfrom
earlierRs800permonthbutasyouarereceivingRs800p.m.thereforeyoucanonlyclaim
maxRs800p.m.Youcanalsocheckwithyourdepartmentwhyitisnotincreasedinyour
case.

Reply Share

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