Good and Bad News to the all Salaried persons the Standard Deduction of Rs.40,000 in 2018, Income Tax Benefits by the Finance Budget 2018-19

Medical and Transportation Allowances Subsumed into Standard Deduction

Standard Deduction: Budget 2018 has not cheered the Salaried Class at all, neither the tax slab is changed nor the deduction limit under section 80C is hiked. The tax rebate of Rs.5,000 has been reduced to Rs.2,500 and that too up to the taxable income of Rs.3,00,000 which was earlier up to Rs.5,00,000.

The only changed proposed for the salaried class is the reintroduction of Standard Deduction of Rs.40,000. This standard deduction was the part of income tax act but was done away with in Union Budget 2005-06 by P. Chidambaram by introducing medical and transportation allowances, but now from Assessment Year 2019-20, both medical allowances and transportation allowance are subsumed into the standard deduction of Rs.40,000.

Download: Automated Income Tax Arrears Relief Calculator U/s 89(1) with Form 10E from F.Y.2000-01 to F.Y.2018-19

All about Standard Deduction

1. Standard Deduction allows a flat deduction of a specified amount (i.e. Rs.40,000) from income of salaried taxpayers towards expenses incurred during the course of employment. Say for example if your salary is Rs.5.20 lakh than you can start calculating tax by deducting Rs.40,000 straight away i.e. start with Rs.4.80 lakh.

2. Standard Deduction is reintroduced by abolishing medical reimbursements and transport allowance, enhancing a deduction by just Rs.5,800 which would in turn saves tax of mere Rs.290 for the person falling in lowest tax bracket of 5%, Rs.1,160 for person falling in tax bracket of 20% and Rs.1,740 for the person falling in highest tax bracket of 30%. But the same savings of tax is nullified due to the increase in cess by 3% to 4%.

Income Tax Slab for the Financial Year 2018-19&Ass Year 2019-20 as given below:-

Download Automated Advance Income Tax Calculator for F.Y.2018-19 & A.Y. 2019-20

3. Unlike Medical Reimbursements and Transport Allowances, No proof or any type of documents are needed to claim the standard deduction of Rs.40,000.

4. Since pension is taxable under the head of salaries, any pension received by a person from his past employer shall be entitled to claim a standard deduction of Rs.40,000 or pension amount, whichever is lower under section 16 of the Income Tax Act.

5. Please note that No standard deduction of Rs.40,000 is allowed in case of family pension received by the legal heirs of the deceased. The Family Pension is taxed under the head of income from other sources and a standard deduction of Rs.15,000 or 1/3^rd of uncommitted pension received, whichever is lower, shall be exempt.

Read More

Automated Excel based Arrears Relief calculator with Form 10E for A.Y 2019-20 for claiming rebate u/s 89(1)

As per section 89(1) of the Income Tax Act, 1961 relief for income tax has been provided when in a financial year an employee receives the salary in arrears or advance. As per Rule 21AA of the Income Tax Rules, 1962, Form 10-E has been prescribed for claiming the relief.

According to the said rule, in case the employee is a Government servant or is an employee of a company, cooperative society, local authority, university, institution or association of body, he/she may for claiming the relief submit the form 10E to his/her employer who is responsible for making the payment of the salary as referred to in subsection (1) of section 192 of the Income Tax Act, 1961

 In all other cases, the assessee for claiming the relief should file an application in form 10E to his/her income tax assessing officer.   The relief under section 89(1) is allowable in the assessment year in which the arrears or the advance is received by the employee.

Pay revisions, particularly in the Government Sector, has become common. Since independence six Pay Commissions have been set up by the Government so far. Recommendations of each commission with retrospective effect have resulted in arrears of salaries. The rationale behind giving this relief under section 89 is that due to the payment of arrears or advance salary received in a given financial year, the income of the employee for that financial year gets increased due to the amount of the arrears or advances. As a result, the income of the employee attracts taxation at a higher rate than that rate at which his income would have been taxed had there been no such arrears or advances. 

Click here to Download Automated Arrears Relief Calculator U/s 89(1) with Form 10E From the F.Y. 2000-01 to F.Y.2018-19 & A.Y. 2019-20 ( Update Version)

Read More

Income Tax Calculator for F.Y.2018-19 With Allowances Exempt From Tax For Salaried Person [Most Useful] for F.Y. 2018-19

If you are a salaried people, you have many ways to save tax. The allowances are one of the best ways to reduce the tax outgo. However, the tax saving from the allowances depends upon your employer. Because the only employer can decide to give you a particular allowance. If there is an allowance in your salary structure only then you can avail tax benefit.

Allowances are a fixed payment to the employee apart from the salary. This payment is given for some particular requirement of the employee. e. g Uniform Allowance, driver allowance etc. There are generally three types of allowances  – taxable allowances fully exempted allowances and partially exempted allowances.

In this post, I have listed the most useful tax exempted allowances, fully or partially. I hope using these allowances; you would be able to save a good amount of tax.

Click here to Download automated Income Tax Calculator for Salaried Persons for the Financial Year 2018-19 & Ass Year 2019-20 [ As per Finance Budget 2018]

Common Allowances

These allowances are available to private and government employees both. If your employer gives these allowances, you would not pay 100% tax on these.

House Rent Allowance

·             This is the most common and useful allowances. This allowance alone If your employer gives you the house rent allowance (HRA)and you live in rent, you would be eligible for tax exemption on HRA.

·             Even, you can pay rent to your parents to avail tax benefit of HRA. In this case, the house should be owned by your parents.

·             If you are paying more than Rs.1 lakh rent for a year, you have to give PAN of your landlord.

·             You would not get the full exemption on HRA. The tax exemption is given to the least of the following amount.

1.     Actual HRA Received

2.     40% of annual salary (For metro 50%)

3.     Rent Paid – 10% of your salary (basic + DA)

Leave Travel Allowance  (Abolished)

This allowance is related to your vacations. In the LTA, your employer gives this allowance for a holiday. The employer bears the burden of traveling through this allowance. The LTA is eligible for tax exemption. There is no maximum limit on LTA. It is the employer who gives LTA as per its wish. However, for tax exemption, you have to present the proof of travel. The tickets are required as the proof.

Note, the travel should be within India. The exemption is only for the travel. Food, and stay are not considered for exemption. You can take family members with you. The family means your spouse, children, and parents.

You can claim LTA twice in 4 years. The dates for this 4 years is prefixed. The current 4-year block is 2018-2021. During this tenure, you can avail LTA exemption twice any time.

Education Allowance

If your employer gives Allowance for children education, it is also exempted from tax. However, there is an upper limit of ₹100 per month per child. Thus total exemption is available on an allowance of 2400 in a year.

Hostel Allowance

If your children are living in the hostel and your employer gives hostel allowance, this allowance is also exempted from tax. The maximum amount of exemption is ₹200 per month per child.

Uniform Allowance

Often companies give uniform allowance to its employee. It is given to maintain proper uniform during the job. The Allowance given for this purpose is also exempt from tax. There is no upper limit for this allowance. There is no maximum limit for the exemption. However, the expense should be real.

Research or Academic Allowance

There are some jobs which require on job learning and research. Hence companies promote research and learning by giving allowance for this. Such allowance is also exempted from tax. There is no upper limit for this exemption.

Daily Allowance

Daily Allowance is given to an employee when he/she performs duty outside of his normal place. This allowance is given for food, lodging and other expenses of the employee. If your employer gives this allowance, this would be fully exempted from tax. There is no maximum limit for this.

Conveyance Allowance(Abolished)

Your employer can also give you the conveyance allowance. This allowance is given if you travel in course of your job. However, the exemption would be given on actual expense.

Transport Allowance(Abolished)

Sometimes people confuse conveyance allowance with transport allowance. Transport allowance is given for the commute between your place of work and home. There had been tax exemption on this allowance. The maximum limit of this allowance was Rs.1600/month.

However, this exemption was withdrawal from the Budget 2018. In place of this exemption, the government gives standard deduction.

Medical Allowance

This allowance is given to meet the medical expense of employee and family. But now this allowance is not exempted from the tax. The government is giving Standard deduction in place of exemption on this allowance. There was an upper limit of ₹15,000/year for the exemption.

Helper/Assistant Allowance

In a senior position, you may be entitled to the Helper/Assistant Allowance. It is also exempted from the tax.

Read More