From HRA to LTA, these six components can save huge tax

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Many companies allow their employees to make changes in CTC i.e. cost to company at the beginning of the financial year. CTC is not the actual salary, rather made up of many components such as basic pay, house rent allowance, special allowance, variable pay, employer’s EPF contribution etc. The special allowance usually includes things like fuel and travel reimbursement, LTA, phone bill reimbursement. These things are available to the employees as reimbursement and saves tax. Tax is calculated after deducting these expenses from income, due to which the taxable income and the tax gets reduced.

So what are these allowances and how tax can be save though them, let’s find out.

House Rent Allowance If you live on rent, then you can offest your rent with the HRA that you receive. The condition for claiming HRA is that it should be a part of your package and you should be paying rent. Exemption calculation depends on three things.

1)- Actual amount received as HRA

2)- 50% of basic salary+DA in metro city and 40% of basic+DA in case of non-metro city

3)- Rent paid in excess of 10% of the salary

Whichever is the lowest will qualify for exemption.

Leave Travel Allowance

The company gives leave travel allowance for you and your family to travel. The amount spent for flight, train or bus tickets for travel is exempted. Other expenses incurred during travel are not covered under this. As per the Income Tax Act, LTA can be claimed twice in a block of four years. This benefit is not available for foreign travel. The amount of LTA exempted would be the actual cost of travel or the total allowance, whichever is lower.

For example, Mr A gets Rs 50,000 as LTA from the company and his expenditure is Rs 30,000, then exemption will be available on Rs 30,000 and the rest Rs 20,000 will be taxed.

Internet and phone bill

The culture of work from home has increased during Covid which has led to higher expenditure on phone and internet. Income tax law exempts the amount paid for these services on providing actual bills. Like LTA, even here the lower of the two, ie ,actual bills and the allowance will be expempt from tax.

Food coupons

You must be spending on tea, water and food in office. The company can give you food allowance during work or through pre-paid food vouchers/coupons. Under this, Rs 50 is tax-free for one time meal. So, an allowance of Rs 2,200 per month i.e. Rs 26,400 per year can be made tax-free.

Fuel and travel reimbursement

If you travel by taxi or cab for office work, then that reimbursement is tax free. If you are using your own car then the expenses can be set off against the payment received for transport allowance.

Newspapers and magazines

Elders advise us to read newspapers, but do you know that newspapers can also save tax? Payments made to buy books, newspapers and periodicals are also tax-free, provided the original bill is presented. The amount of the bill or the amount prescribed under this section of the salary, whichever is less, will be tax exempt.

Apart from this, there are other allowances on which tax exemption can be claimed. If the company gives you allowance, then you can check the salary slip for this or you can ask the HR department.