Income Tax 2015-16 – Deductions and Exemptions for Salaried Employees with regard to payment of Income Tax for the financial year 2014-15 (Assessment Year 2016-17)

Salaried Employees are a relieved lot now after fulfiling all the formalities for Income Tax 2014-15. But, by that time six months in the new financial year 2015-16 is already over.
So, preparation of statement for salary income, deductions and saving under various clauses of Income Tax Act in respect of Financial year 2015-16 is already due for submission to the employer.
Tax Planning and submisstion of statement to that effect to the employer would be mainly useful to avoid additional deduction of Income Tax by the employer over and above income tax estimated by an individual on the basis of his / her savings or deductions.
This article summarises Income Tax Structure for the year 2015-16 (Assessment Year 2016-17) and also the Tax exemptions available to salaried class employees in the form of Exempt Income, Deductions and Savings.

Rates of Income Tax 2015-16 (Assessment Year 2016-17)

A.        Normal Rates of tax:

Sl No	Total Income	Rate of tax
1	Where the total income does not exceed Rs. 2,50,000/-.	Nil
2	Where the total income exceeds    Rs. 2,50,000 but does not exceed    Rs. 5,00,000/-.	10 per cent of the amount by which the total income exceeds Rs. 2,50,000/-
3	Where the total income exceeds    Rs. 5,00,000/- but does not exceed  Rs. 10,00,000/- .	Rs. 25,000/- plus 20 per cent of the amount by which the total income exceeds Rs. 5,00,000/-.
4	Where the total income exceeds    Rs. 10,00,000/-.	Rs. 1,25,000/- plus 30 per cent of the amount  by which the total income exceeds Rs. 10,00,000/-

B. Rates of tax for every individual, resident in India, who is of the age of sixty years or more but less than eighty years at any time during the financial year:

Sl No	Total Income	Rate of tax
1	Where the total income does not exceed Rs. 3,00,000/-	Nil
2	Where the total income exceeds Rs. 3,00,000 but does not exceed  Rs. 5,00,000/-	10 per cent of the amount by which the total income exceeds Rs. 3,00,000/-
3	Where the total income exceeds Rs. 5,00,000/- but does not exceed  Rs. 10,00,000/-	Rs. 20,000/- plus 20 per cent of the amount by which the total income exceeds Rs. 5,00,000/-.
4	Where the total income exceeds Rs. 10,00,000/-	Rs. 1,20,000/- plus 30 per cent of the amount   by which the  total income exceeds Rs. 10,00,000/-

C. In case of every individual being a resident in India, who is of the age of eighty years or more at any time during the financial year:

Sl No	Total Income	Rate of tax
1	Where the total income does not exceed Rs. 5,00,000/-	Nil
2	Where the total income exceeds    Rs. 5,00,000 but does not exceed Rs. 10,00,000/-	20 per cent of the amount by which the total income exceeds Rs. 5,00,000/-
3	Where the total income exceeds    Rs. 10,00,000/-	Rs. 1,00,000/- plus 30 per cent of the amount  by which the  total income exceeds Rs. 10,00,000/-

Education Cess on Income tax:
The amount of income-tax including the surcharge if any,  shall be increased by Education Cess on
Income Tax at the rate of two percent of the income-tax.
Secondary and Higher Education Cess on Income-tax:
An additional education cess is chargeable at the rate of one percent of income-tax including the surcharge if any, but not including the education cess on income-tax.

Tax exemptions in the form of Exempt Income, Deductions and Savings

1. Exempt Income under Chapter 10 of Income Tax Act, such as House Rent allowance, Tranport Allowance, LTC etc.
2. Savings which are eligible for Tax Exemption up to Rs. 1.5 lakh under Section 80C, Section 80CCC and Section 80CCD(1)
3. Additional Savings eligible for Tax Exemption up to Rs. 50,000/- under Section 80 CCD (1B) over and above Savings Cap of Rs. Rs. 1.5 lakh, if the amount is invested in NPS (Govt run Contributory Pension System which is known as National Pension System)
4. Deduction (up to 10% of salary) towards Contribution made by Employer in any of Pension fund such as NPS, approved by Central Government
5. Eligible deductions from Income from Section 80 D to 80 U towards amount spent on health insurance, medical treatment for disabled dependents, interest on higher education loan etc.
6. Deduction of up to Rs. 2 lakh in respect of loss (interest) incurred on self-occupied House Property (and unlimited interest in respect of rented property) under Section 24 of Income Tax Act.
7. Relief Under Section 89(1)

1. Exempt Income and Allowances under Section 10 of Income Tax Act

Income given below are exempt income and hence these need not included while calculating Total Income of a Salaried Employee

• Agricultural Income [Section 10(1)]
• The sum received (including the bonus) under a life insurance policy (other than any sum received under sub-section (3) of section 80DDA or under a Keyman insurance policy).[Section (10)(10)(D)]
• Amount of LTC or LTA actually incurred. [Section 10(5)]
• Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering service outside India. [Section 10(7)]
• Any special allowance or benefit, such as Travelling Allowance, Uniform Allowance etc which are incurred for the performance of the duties of an office or employment . [Section 10(13A)]
• The transport allowance granted  to  an  employee to meet his expenditure  for  the purpose of commuting between the place of his residence and the place  of  duty is exempt to the extent of  Rs. 1,600/- per month or Rs. 3200 per month (for a visually challenged person) [Section 10 (14)]
• Scholarships granted to meet the cost of education.[Section 10(16)]
• Children Education allowance:
  Rs. 100/- per month per child up to a maximum of 2 children.
• Hostel Subsidy: Rs. 300/- per month per child upto a maximum of two children.
• Other Allowances exempted under Section 10 of IT Act are Tour TA, Tour Daily Allowance, Academic, research or training allowance, uniform Allowance, Special Compensatory Allowance, High Altitude Allowance, Climate Allowance, allowances applicable to North East, Hilly areas of U.P., H.P. and J & K, border area allowance, Compensatory Field Area Allowance, Counter Insurgency Allowance, High Active Field Area Allowance, island duty allowance, tribal allowance etc.

Exemption under Section 10 (13A) in respect of HRA – CalculationMethod:

Least of the following amount is to be treated as exempt from Income Tax.

• Actual House Rent Allowance Received, or
• Rent paid in excess of 10% of Pay in Pay band and Grade Pay or
• 50% of Pay in Pay band and Grade Pay  if the employee is in Chennai/Mumbai/Kolkatta/Delhi and 40% of Pay in Pay Band and Grade Pay for the employees is in other places.
• If the employees resides in his/her own house or in a house for which he/she does not pay any rent, no HRA exemption is available.

2. Savings which are eligible for Tax Exemption Section 80C, Section 80CCC and Section 80CCD

Section 80C, CCC and CCD(1) allow deduction from total income. The total deduction under this section (alongwith section 80CCC and 80CCD(1) is limited to Rs. 1.50 lakh only.
Section 80C:

• Life Insurance Premium For individual, policy must be in self or spouse’s or any child’s name. For HUF, it may be on life of any member of HUF.
• Sum paid under contract for deferred annuity for individual, on life of self, spouse or any child .
• Sum deducted from salary payable to Govt. Servant for securing deferred annuity for self-spouse or child Payment limited to 20% of salary.
• Investment in Senior Citizens Savings Scheme 2004 for 5 year by resident individuals.
• Contribution made under Employee’s Provident Fund Scheme.
• Contribution to PPF For resident individual, can be in the name of self/spouse, any child & for HUF, it can be in the name of any member of the family.
• Deposit in Sukanya Samriddhi Account as natural / legal guardian of girl child.
• Contribution by employee to a Recognised Provident Fund.
• Sum deposited in 10 year/15 year account of Post Office Saving Bank
• Subscription to any notified securities/notified deposits scheme. e.g. NSS
• Subscription to any notified savings certificate, Unit Linked Savings certificates. e.g. NSC VIII issue.
• Contribution to Unit Linked Insurance Plan of LIC Mutual Fund e.g. Dhanrakhsa 1989
• Contribution to notified deposit scheme/Pension fund set up by the National Housing Scheme.
• Payment made by way of instalment or part payment of loan taken for purchase/construction of residential house property.
• Subscription to units of a Mutual Fund notified u/s 10(23D).
• Subscription to deposit scheme of a public sector, company engaged in providing housing finance.
• Subscription to equity shares/ debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions.
• Tuition fees paid at the time of admission or otherwise to any school, college, university or other educational institution situated within India for the purpose of full time education of any two children. Available in respect of any two children.

Section 80CCC: 
Deduction in respect of Premium Paid for Annuity Plan of LIC or Other Insurer. Payment of premium for annuity plan of LIC or any other insurer Deduction is available upto a maximum of Rs. 150,000/-.
The premium must be deposited to keep in force a contract for an annuity plan of the LIC or any other insurer for receiving pension from the fund.
Section 80CCD (1): 
Deduction in respect of Contribution to Pension Account (by Assessee). Deduction available for the amount paid or deposited in a pension scheme notified or as may be notified by the Central Government subject to a maximum of :
(a) 10% of salary in the previous year in the case of an employee
(b) 10% of gross total income in any other case.
Section 80CCD(1A):
The maximum deduction allowable under this section is Rs. 1.00 lakh. in case of contribution to New Pension Scheme (NPS), it is Rs. 1.50 lakh w.e.f. 01.04.2015

3. Additional Savings eligible for Tax Exemption up to Rs. 50,000/- under Section 80 CCD (1B)

Section 80CCD(1B):
Contribution in NPS has been given more tax concession in the budget 2015. As per Section 80CCD(1B), an additional deduction of up to Rs. 50,000 over and above the Section 80C, 80CCC and 80CCD savings cap of Rs. 1.5 lakh, is allowed if such amount is contributed by the employee. So, overall tax savings of Rs. 2 lakh can be availed under Section 80C, 80CCC and 80CCD(1).

4. Deduction in respect of Contribution to Pension Account by Employer under Section 80CCD (2):

Deduction under Section 80CCD(2) is available for the amount paid or deposited by the employer of the assessee in a pension scheme notified or as may be notified by the Central Government subject to a maximum of 10% of salary in the financial year. This deduction is allowed over and above Savings value cap of Rs. 1.5 lakh under Section 80CCE (in the case of investment in NPS, savings value cap eligible for deduction will be Rs. 2 lakh).

5. Eligible deductions from Income from Section 80 D to 80 U towards amount spent on health insurance, medical treatment etc.

Section 80D: Deduction in respect of Medical Insurance:
Deduction is available upto Rs. 30,000/- for parents who are senior citizens and upto Rs. 25,000/- in other cases for insurance of self, spouse and dependent children. Amount of up to Rs.5000/- spent on preventive health check-up. So a maxium of Rs. 60,000 can be deducted which is spent towards Health Insurance premium.
Section 80DD: Deduction for medical treatment of physically challenged dependents:
In the case of salaried employee who is taking care of physically challanged Dependent Relative, an amount with the maximum limit of Rs.75000/- spent towards medical treatment or rehabilitation can be deducted from the income (In the case of severe disability maximum deduction would be Rs. 1,25,000).
Section 80DDB: Deduction in respect of specified disease:
Deduction in respect of specified disease for self or dependent relatives is allowed lower of Rs.60,000 or actual amount paid. This deduction amount increases to Rs.80,000 in case of senior citizen.
Section 80E: Deduction in respect of Interest on Loan for Higher Studies:
Deduction in respect of interest on loan taken for pursuing higher education. The deduction is also available for the purpose of higher education of a relative.
Section 80G: Deduction for Donations
Notified donations under Sec. 80G will be eligible for deduction ( 100% or 50% as per the notification condition)
Section 80GG: Deduction in respect of House Rent Paid
Deduction available is the least of

• Rent paid less 10% of total income
• Rs. 2000/- per month i.e. Maximum Deduction available is 24,000/-
• 25% of total income subject to
  • Employee or his/her spouse or minor child should not own residential accommodation at the place of employment.
  • No HRA is received.
  • No self occupied residential premises in any other place.Section 80GGA: Deduction in respect of certain donations for scientific research or rural development

Section 80GGC: Deduction on donation to political parties

Section 80 TTA: Deduction from gross total income in respect of any Income by way of Interest on Savings account

Maximum of Rs. 10,000/-, in respect of interest on deposits in savings account ( not time deposits ) with a bank, co-operative society or post office
Section 80U: Deduction in respect of Person suffering from Physical Disability
Deduction of Rs. 75,000/- in respect of tax payer suffering from a physical disability. In the case of severe disability, deduction of Rs. 125,000/- will be allowed. Certificate from the approved medical authorities regarding the extent of disability will have to be produced (Rule 11D)

6. Deductions Allowable under Section 24 of Income Tax Act in respect of interest on house property :

Housing Property bought or constructed on or after 01.04.99 (completed within 3 years from availment of loan) and self occupied will be eligible for deduction of interest paid on housing loan with the maximum limit Rs. 2,00,000/-. In other cases deduction in respect of interest paid up to Rs.30,000 will be allowed. If the said house property is not self-occupied there is no limit in deduction in respect of interest paid on housing loan subject to inclusion of rental income in respect of the house property.
Click here for GConnect Calculator for Income Tax Exemption for Housing Loan Interest

7. Relief Under Section 89(1)

Relief u/s 89(1) is available to an employee when he receives salary in advance or in arrear or when in one financial year, he receives salary of more than 12 months, or receives ‘profit in lieu of salary’ covered u/s 17(3). Relief u/s 89(1) is also admissible on family pension, as the same has been allowed by Finance Act, 2002 (with retrospective effect from 1/4/96).

To sum-up, over and above the Basic Income Tax Exemption limit of Rs. 2.5 lakh for the financial year 2015-16 available to Salaried Employees, maximum additional income tax exemption for income up to Rs.4,44,200 can be availed. 

 

          Maximum Amount that can be saved / deducted to avail this income tax exemption benefit are tabulated below. So, a salaried employee who earns gross total income of Rs. 6,94,200/- and avails income tax exemption benefit by way of savings and deductions detailed below, need not pay any income tax.

Deductions under 80C	Rs. 1,50,000
Deductions under 80CCD (1B) for contribution to NPS	Rs. 50,000
Interest on house property loan	Rs. 2,00,000
Exemption with new transportation allowance of Rs. 1,600 per month	Rs. 19,200
New deductible health insurance premium	Rs. 25,000
Total deductions / exemption	Rs. 4,44,200
Basic Income which is exempted from Income Tax	Rs. 2,50,000
Gross Total Income which can be tax free	Rs.6,94,200

It is also pertinent to note here that exemptions and deductions detailed above are common to a salaried employee.
In addition to this, by way of other deductions provided by Section 80DD to Section 80U based on specific nature of expenditure such as medical, higher studies related or physical status of employee or his / her dependents, more income could be exempted from payment of Income Tax.
Source: Finance Bill 2015