Salary allowances like HRA and LTA help you save tax legally. These allowances reduce your taxable income when you meet specific conditions. This guide explains how to claim HRA, LTA, and other allowances effectively. You must choose the old tax regime to use these benefits

Key Allowances for Tax Savings

1. House Rent Allowance (HRA): Reduces tax for rented accommodation.
2. Leave Travel Allowance (LTA): Covers domestic travel costs during leave.
3. Standard Deduction: Fixed deduction of ₹50,000 (old regime) or ₹75,000 (new regime).
4. Children Education and Hostel Allowance: Exempt up to ₹1,200 and ₹7,200 per year respectively.
5. Mobile and Book Reimbursements: Tax-free for actual expenses

How to Claim HRA

Eligibility

• You must be a salaried employee with HRA in your salary structure.
• You must live in rented accommodation.
• Your rent payments require valid documentation.

Exemption Calculation

HRA exemption is the lowest of:

1. Actual HRA received.
2. Rent paid minus 10% of salary (basic + DA).
3. 50% of salary (metro cities) or 40% (non-metro cities)

Example:

• Basic salary: ₹40,000/month (₹4,80,000/year).
• HRA received: ₹20,000/month (₹2,40,000/year).
• Rent paid: ₹15,000/month (₹1,80,000/year).
• City: Mumbai (metro).
• Calculation:
  • Actual HRA: ₹2,40,000.
  • Rent minus 10% of salary: ₹1,80,000 – ₹48,000 = ₹1,32,000.
  • 50% of salary: ₹2,40,000.
• Exempt HRA: ₹1,32,000 (lowest value)

Documents Required

• Rent receipts with landlord details.
• Rental agreement.
• Landlord PAN if rent exceeds ₹1 lakh/year

Common Mistakes

• Claiming HRA without rent payments.
• Forgetting landlord PAN for high rent.
• Overlooking metro city rules

How to Claim LTA

Eligibility

• You must be a salaried employee with LTA in your salary.
• Travel must be within India.
• You must submit travel proofs

Exemption Rules

• Covers only travel fares (air, rail, or bus).
• Excludes food, accommodation, and local transport.
• Available for two journeys in a block of four years (current block: 2022-2025)

Example:

• LTA granted: ₹30,000.
• Actual travel cost: ₹25,000.
• Exempt amount: ₹25,000 (lower of actual cost or LTA granted)

Documents Required

• Travel tickets and boarding passes.
• Invoices for travel expenses.
• Employer declaration form.

Carryforward Rule

• Unused LTA for one journey can carry forward to the next block.
• You must use it in the first year of the new block.

Other Tax-Free Allowances

Standard Deduction

• Flat deduction from salary income.
• ₹50,000 under old regime, ₹75,000 under new regime.

Children Education Allowance

• Exempt up to ₹100/month per child (max two children).
• Annual exemption: ₹2,400.

Children Hostel Allowance

• Exempt up to ₹300/month per child (max two children).
• Annual exemption: ₹7,200.

Mobile and Internet Reimbursement

• Tax-free for actual bills.
• No fixed limit.

Food Coupons

• Exempt up to ₹50 per meal.
• Max exemption: ₹26,400/year (22 days × 2 meals × ₹50 × 12 months).

Strategies to Maximize Savings

1. Negotiate Salary Structure: Increase HRA and LTA components in your CTC.
2. Plan LTA Claims: Use two journeys per block and carry forward unused ones.
3. Maintain Documents: Keep rent receipts, travel tickets, and expense proofs.
4. Compare Regimes: Choose the old regime if allowances exceed standard deduction benefits.

Common Pitfalls to Avoid

1. No Travel Proof for LTA: Claims rejected without tickets or boarding passes.
2. Incorrect HRA Calculation: Overclaiming without metro/non-metro rules.
3. Missing Landlord PAN: Rent above ₹1 lakh/year requires landlord PAN.
4. Overlapping Claims: Avoid claiming HRA for owned property.

Conclusion

HRA and LTA offer significant tax savings if you follow the rules. Submit valid documents, plan your claims, and choose the right tax regime. Use tools like the HRA calculator to estimate exemptions accurately