Finance Minister Nirmala Sitharaman introduced a new provision allowing for tax-free annual income up to Rs 12 lakh, offering a significant benefit to taxpayers. Those with salaries exceeding Rs 15 lakh were left pondering whether they could avail of tax savings under the New Tax Regime, which minimizes deductions and exemptions.
However, individuals should take note that the tax-free limit can potentially be raised to Rs 17 lakh by utilising specific allowances, provided that adjustments are made to their salary structure by their employer. According to the Income Tax Act, certain allowances are exempt from income tax under the new tax regime, subject to meeting specific requirements. These allowances have the potential to assist taxpayers in reducing their overall tax burden.
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Per the current tax laws (Income Tax Act, 1961), taxpayers can adjust their salary structure by utilising specific allowances provided in the Income Tax Act. These allowances are eligible for tax exemption under the new regime as long as specific criteria are satisfied. By taking advantage of these allowances, taxpayers can effectively lower their taxable income under the updated tax laws.
Tax slabs and salary structure explained
CA Dr Suresh Surana explained that zero tax on Rs 17 lakh CTC can happen under following situations:
> It is assumed that the taxpayer is working in a different city and has a house property in a different city.
> It is assumed that Employee has 2 children as such children's education allowance is exempt for two children to the extent of Rs. 100 per month, the exemption in this case works out to be Rs. 2,400 (Rs.100*2*12 months). Further, two children are assumed to be staying at hostel and as such, hostel expenditure allowance is exempt for two children to the extent of Rs. 300 per month, the exemption in this case works out to be Rs.7,200 (Rs.300*2*12 months)
> Leave Travel Allowance shall be exempt under section 10(5) in the hands of Employee subject to the conditions specified therein. (subject to actual invoice/ticket / boarding pass copy submission)
> The value of free food and non-alcoholic beverages provided by the employer is not taxable in the hands of employee provided it is given during working hours at office or business premises or through non-transferrable paid vouchers and usable only at eating joints to the extent the value thereof in either case does not exceed Rs 50 per meal. We assumed that the employer will provide paid vouchers.
> Perquisite value of gift, voucher or token less than Rs 5,000 is considered to be nil and as such, exempt.
> Employee will get standard deduction of Rs 50,000 under Section 16(ia) and deduction of professional tax of Rs2,500, if any, paid by the company under section 16(iii).
"We understand that employee may make investment in eligible investment of Rs 1,50,000 under Section 80C of the Act. Further, the employee may also make payment of medical insurance premium or other eligible payments of Rs. 75,000 (including for parents - senior citizen). However, as there is no tax liability in the above scenario, the same is considered as NIL," Surana elaborated.
> The working and the tax rates considered in the aforesaid illustration are as per the Finance Act 2024. It is assumed that the employee has not opted for new tax regime under section 115BAC of the Act.
Allowances and Reimbursements
Telephone and mobile bills: Receiving an exemption on telephone and mobile bills is available for salaried employees without any limit. By adjusting their salary structure to include expenses for telephone, mobile, and internet bills, employees can effectively reduce their tax liability. Yogesh Kale, executive director at Nangia Andersen LLP, told the Economic Times, there is no specific limit on the exemption for these bills under either tax regime. It is advisable for the reimbursement amount to be reasonable based on the employee's position, duties, and responsibilities.
Transport Allowance: Under the provisions of the Income Tax Act, specially-abled individuals are eligible for a tax-exempt transport allowance. This allowance is meant to cover the cost of commuting from their home to their place of work and back. Specially-abled employees can receive a tax-exempt transport allowance of up to Rs 3,200 per month or Rs 38,400 per annum. This exemption applies only to employees who are blind, deaf, dumb, or orthopaedically handicapped with a disability affecting the lower extremities.
Conveyance Reimbursement: Employers offer conveyance reimbursement to assist employees in covering their transportation expenses while on the job. This benefit is separate from transport allowance provided to employees with disabilities, and employees must submit receipts for reimbursement.
Car Lease Policy Of Employer: Some employers also offer a car lease policy, providing employees with a vehicle for personal and work-related purposes. While this is considered a taxable benefit, the value of the car provided is minimal. According to income tax rules, the taxable value of a car perquisite is Rs 1,800 per month for engines with a cubic capacity below 1.6 litres, and Rs 2,400 per month for engines exceeding this capacity. The valuation method remains consistent under both old and new tax regimes.