Income Tax

Allowances And
Deductions
Submitted by:
Ashish sabu
2321
 Table of Content
MEANING OF ALLOWANCE MEANING OF ALLOWANCE AND
INTRODUCTION AND DEDUCTION DEDUCTION

DEDUCTION WITH MARKET

TYPE OF DEDUCTION LINKED INSTRUMENTS
TYPE OF ALLOWANCE

DISTINCTION BETWEEN
DEDUCTION & ALLOWANCE NEW TAX REGIME BIBLOGRAPHY
 ACKNOWLEDGEMENT
I would like to express my special thanks of gratitude to my
Personal Tax Planning Professor Kanika Anand who gave me a
golden opportunity to do this project and also provided support
in completing my project.
I would also like to extend my gratitude to our Principal Mam
Prof.Anju Srivastav for providing me with all the facility that
were required.

Ashish Sabu
Bcom(Hons)
Introduction
Salaried employees form the major
chunk of the overall taxpayers in the
country and the contribution they make
to to the tax collection is quite
significant. Income tax deduction offer a
gamut of opportunities for saving tax for
the salaried class.With the help of these
deductions and exemption and one could
reduce his/her taxsustantially.
Meaning Of Allowances
and Deductions
As per the current tax regulations, if your
income is anywhere above ₹5,00,000 in a
financial year, you would have to pay taxes.
However, income tax regulations are not bad at
all. They allow you to lower income taxability by
various options. It is because of these option
that every one plan their taxes to make most of
it. Everyone want to avail the maximum
reductions in their tax liability. Tax exemption
and tax deductionare two such options which
allow lowering of your taxability.
 Before moving to the meaning. We must understand
the various heads of income as per income tax, there
are 5 sources of income under income tax act:

Income from Salary Income from House Property

Profits,gains,from business or
profession Capital Gains

Income from Other Sources

 Deduction
Once you complete your gross total income the Income
Tax Act allows you to deduct some amount from your
income.So that your income reduces and thereby
reduces your tax liability.
This amount is based on certain investment or expenses
to make in a financial year as per income tax act called
deduction
Common examples of dedutcions are
1.Life insurance Premium
2.Tution Fees
3.Health insurance Premium
4.PPF Investments
Type Of Deductions
Standard Deduction
Professional tax/Tax on employment
gift or voucher provided by emlpoyer
leave travel allowance
Food coupons
Medical insurance deduction
Interest on Home loan
Deduction for loan for Higher studies
Deduction for donations
Deduction On Saving Account Interest
 DEDUCTION WITH "MARKEDT-LINKED"
INSTRUMENTS
National Pension Scheme (NPS): NPS is a pension scheme by the government
that ensures retirement benefits with regular contributions during your
working life. It is also a tax-saving equity investment
An individual can either invest money in different asset classes (active choice)
or opt for a default option which invests money as per their age (auto choice)
Active choice allows you to invest upto a maximum of 75% in Asset class E,
which invests in equities. The auto choice also offers three life cycle options
with 25%, 50% and 75% equity exposure
One can claim an additional deduction of ₹50,000 as per section 80CCD1(b)
of the Income tax for their contribution to NPS making it one of the few
market-linked investments with tax benefits
Section 80CCD(1) allows an employee to claim a contribution made by him
upto 10 percent of his salary(basic plus DA). This is within the ₹1.5 lakh
deduction limit under 80C and 80CCE
 Equity Linked Savings Schemes(ELSS):
ELSS are close-ended mutual funds with a 3 year lock in period that
invest in equity shares of companies across sectors and market
capitalisations
They are a tax saving equity investment under Section 80C of the
Income Tax Act. They are eligible for a deduction of upto ₹1.5
lakhs.
Gains above ₹1 lakh made on transfer of ELSS funds with 65% or
more exposure to equity are subject to 10% percent long term
capital gain tax(LTCG) from April 1, 2018. Gains made till January
2018 are exempted from tax
Since dividends declared in ELSS qualify for a dividend
distribution tax of 10%, growth option is better for investment
purposes
ALLOWANCES
Tax exemption can be expenditure, income or
investment on which no taxes is leived and thus
reducing the overall taxable income. These income or
investments pertain to a specific head of income and
can be claimed from those heads only.After deducting
allowed exemption from the specific income head and
can be claimed from these heads only. The different
heads of income tax are totalled to arrive at gross
income. Some example of tax exempt items are:
1.House rent allowance
2.leave travel allowance
3.Company accommodation
4.Leave encashment
 TYPES OF
ALLOWANCES

Taxable Partially-taxable
allowances alllowance

Non-taxable
allowance
TAXABLE ALLOWACE

DEARNESS ENTERTAINMENT OVERTIME CITY

ALLOWANCE ALLOWANCE ALLOWANCE COMPENSATORY
Brainstorming and Idea Selection
Idea Generation
ALLOWANCE

INTERIM SERVANT PROJECT

ALLOWANCE ALLOWANCE ALLOWANCE
PARTIALLY-
CONVEYANCE
TAXABLE 1
ALLOWANCE UNDERGROUND
5
ALLOWANCE ALLOWANCE

UNIFORM
2
ALLOWANCE
TRIBAL AREA
6
ALLOWANCE
DAILY
3
ALLOWANCE
HOSTEL
7 EXPENDITURE
HELPERALLOWA
4 ALLOWANCE
NCE
NON-TAXABLE ALLOWANCE

ALLOWANCE
ALLOWANCE PAID TO
PAID TO COMPENSATO
ALLOWANCE JUDGES OF
GOVERNMEN RY SUMPTUARY
PAID TO UNO HC & SC
T EMPLOYEES ALLOWANCE ALLOWANCE
EMPLOYEES Business Analysis
ABROAD Start of Development
Idea Selection
Brainstorming and
DISTINCTION BETWEEN EXEMPTION & DEDUCTIONS
POINT UNDER EXEMPTION
The allowed exemptions are not
included in your taxable income.
#1 Incidence
They are deducted first to arrive at
your gross total income.
Exemptions are applied at each
#2 Application head of income to get the taxable
amount of that particular head.
It consists of those items
#3 Significance
which are not taxable
It applies to all taxpayers in the
country . For instance the
#4 Applicability
amount paid to salaried
employee as HRA is not taxable.
DEDUCTION
Deduction remain clubbed with your income
.Once the gross total income is calculated the
deductions are deducted to arrive at net
taxable income
Deduction are applied to your
gross total income
Deductions are those items which are
taxable but because of the provisions of the
act their taxability has been reduced
It applies only to those who qualify for the
specific criteria .For instance, Section 80dof
the income tax can be used to claim
deduction on premium paid for medical
insurance policies.
NEW TAX REGIME
Individuals opting to pay tax under the
new lower personal income tax regime
will have to forgo almost all tax breaks
that they were claiming in the old tax
structure. The important tax breaks that
will not be available under the new tax
regime include Section 80C
(Investments in PF, NPS, Life insurance
premium, home loan principal repayment
etc.), Section 80D (medical insurance
premium), tax breaks on HRA (House Rent
Allowance) and on interest paid on
housing loan.
 Here's a list of the main exemptions and
deductions that tax payers will have to
forgo if they opt for the new regime.
(i) Leave travel allowance (LTA) exemption which is currently available to
salaried employees twice in a block of four years

(ii) House rent allowance (HRA) normally paid to salaried individuals as

part of salary. This could be claimed as tax exempt up to certain specified
limits if the individual was staying in rented accommodation
(iii) Standard deduction of Rs 50,000 currently available to salaried tax payers and pensioners
(iv) Deduction for entertainment allowance (for government employees) and
employment/professional tax as contained in section 16
Awards
(vi) Tax benefit on interest paid on housing loan taken for a self-occupied or vacant house
property: Interest paid on housing loan for such a property could be claimed as a deduction
from income from house property which resulted in a loss from house property (as the property
was self/occupied or vacant). This loss could be set off against salary income thereby reducing
the individuals' taxable income and net tax liability. This comes under section 24
(vii) Deduction of Rs 15000 allowed from family pension
under clause (iia) of section 57

(viii) The most commonly claimed deductions under section

80C will also go. This includes the commonly availed
section 80C deductions claimed for provident fund
contributions, life insurance premium, school tuition fee for
children and various specified investments such as ELSS,
NPS, PPF etc.
 BIBLIOGRAPHY
https://economictimes.indiatimes.com
https://life.futuregenerali.in
Income tax- By Dr. V.K Singhania
Income tax-By Dr.Girish Ahuja
www.livemint.com
https://taxguru.in