Useful Income Tax Exemptions for Salaried Employees

The Government of India collects a significant share of revenue through taxes. In FY 2024-25, the gross tax collection reached ₹25.87 lakh crore, contributed by corporate tax, personal income tax, security transaction tax, and others. Among these, salaried employees form a major part of the taxpayers.

However, if you are a salaried employee, you don’t have to pay more than necessary. The Income Tax Act offers multiple income tax exemptions and deductions that can reduce your tax liability and boost your savings.

In this blog, we’ll explore the top 8 income tax exemptions for salaried employees and other deductions you can use to save more.

 

---

1. House Rent Allowance (HRA) Exemption

If you live in rented accommodation, you can claim HRA exemption and reduce your taxable income.

• If you live on rent and receive HRA, you can claim exemption.
   
• If you don’t live on rent, the HRA becomes taxable.
   
• Exemption is the lowest of:
   
  • Actual HRA received
     
  • Rent paid – (10% of basic salary + DA)
     
  • 40% of salary (non-metro) or 50% of salary (metro)
     

👉 Always submit rent receipts to your employer, or else claim while filing ITR.

 

---

2. Leave Travel Allowance (LTA)

Under LTA exemption, you can claim tax-free travel expenses when you travel within India.

• Covers domestic travel only (not hotels, food, or shopping).
   
• Can be availed twice in a block of four years.
   
• Unused LTA can be carried forward to the next block.
   

 

---

3. Home Loan Interest Deduction

If you are repaying a home loan, you can claim exemption under Section 24(b).

• Deduction up to ₹2 lakh per year on self-occupied property.
   
• If the property is rented out, full interest paid can be claimed.
   

💡 Combine with Section 80C principal repayment benefit for extra savings.

 

---

4. Standard Deduction

Every salaried employee is eligible for a lump-sum deduction:

• ₹50,000 under the old tax regime.
   
• ₹75,000 under the new tax regime (as per FY 2024-25).
   

This replaces earlier deductions like medical reimbursement and transport allowance.

 

---

5. Provident Fund (PF) Contribution

Both employer and employee contribute 12% of basic salary to EPF.

• Eligible under Section 80C (up to ₹1.5 lakh).
   
• Mandatory for companies with 20+ employees.
   
• Helps you build long-term retirement savings while saving tax.
   

 

---

6. Relocation Allowance

When you shift to another city for work, several expenses can be exempt:

• Transportation costs (car, train, flight tickets).
   
• Car registration charges in a new state.
   
• Temporary accommodation costs (usually up to 15 days).
   
• Packers & movers expenses (100% deductible if reimbursed).
   
• Children’s school admission costs.
   

 

---

7. Children’s Education Allowance

Employees can claim an exemption for children’s education.

• ₹100 per month per child (max. 2 children).
   
• Small but useful for salaried families.
   

 

---

8. Gratuity

Gratuity is a retirement benefit paid by the employer.

• Tax-free if received at retirement, resignation (after 5 years of service), or in case of death.
   
• Exemptions are subject to limits under the Income Tax Act.
   

 

---

Additional Tax-Saving Exemptions for Salaried Employees

Apart from the above, here are more income tax benefits:

• Books & Periodicals Allowance → Tax-free reimbursement for books, online courses, and newspapers.
   
• Food Coupons (Meal Vouchers) → Up to ₹50 per meal (approx. ₹2,200 per month).
   
• Section 80C Investments → Tax deduction up to ₹1.5 lakh for PF, NPS, ELSS, Life Insurance, SSY, etc.
   
• Section 80D → Deduction for medical insurance (₹25,000 for <60 years, ₹50,000 for senior citizens).
   
• Section 80DD → For medical expenses on disabled dependents (₹75,000 to ₹1,25,000).
   

 

---

Conclusion

By making use of these income tax exemptions and deductions for salaried employees, you can significantly reduce your tax burden while securing financial stability. From HRA, PF, and home loan interest to 80C and 80D deductions, these benefits can help you save and invest more wisely.