Salary Exemptions, Deductions & Income to be Shown — Complete Guide (FY 2024-25 / AY 2025-26)

Introduction

For salaried individuals, understanding which parts of your income are taxable, what exemptions you can claim, and how deductions work is the key to legally reducing your tax outgo. With the recent Budget 2025 changes and the option to choose between the old and new tax regimes, it’s essential to plan your salary structure and investments wisely. This guide will break down the different components, rules, and tips to help you file your Income Tax Return (ITR) confidently.

1. Understanding Tax Regimes

From FY 2023-24 onwards, the new tax regime is the default option, but you can still opt for the old regime if it suits your situation better.

Old Regime:
– More exemptions and deductions available (HRA, LTA, 80C, 80D, etc.).
– Higher tax slabs compared to the new regime.

New Regime:
– Lower slab rates, limited deductions.
– Still allows benefits like Standard Deduction, employer’s NPS contribution, and certain allowances.
– Budget 2025: Standard deduction increased to ₹75,000 and no tax for taxable income up to ₹12 lakh (after deductions/rebate).

2. Salary Components & Exemptions

Your salary slip has several parts—some taxable, some partially exempt.

a) Standard Deduction
– Old Regime: ₹50,000
– New Regime: ₹75,000 (from FY 2024-25)

b) House Rent Allowance (HRA) – Old regime only
Exemption = Least of:
1. Actual HRA received
2. Rent paid – 10% of (Basic + DA)
3. 50% of salary (metro) or 40% (non-metro)

c) Leave Travel Allowance (LTA) – Old regime only
– Covers domestic travel cost (air/train/bus).
– Claim twice in a block of 4 years.

d) Meal Coupons
– Exempt up to ₹50 per meal (~₹26,400 per year).

e) Mobile/Internet/Books Reimbursement
– Fully exempt if supported by bills and allowed by employer policy.

3. Deductions Under Chapter VI-A (Old Regime)

These deductions reduce your gross total income.

– Section 80C: Up to ₹1.5 lakh for EPF, PPF, ELSS, NSC, LIC, tuition fees, home loan principal repayment.
– Section 80D: Medical insurance – ₹25k (self/family) + ₹50k (parents).
– Section 80E: Education loan interest – no cap.
– Section 80G: Donations to eligible institutions.
– Section 80GG: Rent paid if HRA not received.
– Section 24(b): Home loan interest up to ₹2 lakh (self-occupied) or actual interest (let-out property).

4. Deductions Allowed in the New Regime

Though most exemptions are gone, the following remain:

– Standard Deduction: ₹75,000
– Family Pension Deduction: ₹25,000
– Employer NPS Contribution (80CCD(2)): Up to 10% of basic salary (private sector) or 14% (government).
– Agniveer Corpus Fund Contribution (80CCH)
– Home Loan Interest (let-out property only)
– Retirement benefits (gratuity, leave encashment) as per limits

5. Choosing Between Old & New Regimes

– If your deductions (80C, 80D, HRA, etc.) exceed around ₹4–5 lakh annually, the old regime may give lower tax.
– If deductions are minimal or income is under ₹12 lakh, the new regime may be better post-Budget 2025.
– Always use an income tax calculator before deciding.

6. Income to be Reported

Salaried individuals must report:
1. Basic Salary + DA
2. Perquisites (e.g., car, rent-free accommodation)
3. Bonus & Incentives
4. Allowances (taxable & exempt portions)
5. Income from Other Sources (interest, dividends)
6. Capital Gains (if any)
7. House Property Income (including deemed let-out property)
8. Foreign Income/Assets (if applicable)

7. Mandatory Disclosures from AY 2025-26

The Income Tax Department now requires you to furnish exact details to claim exemptions and deductions, including:
– Policy numbers for insurance
– Rent amount & landlord’s PAN
– Loan account details for interest claims
– Donation receipts with registration numbers

Failing to disclose may result in disallowance of claims and notices.

8. Compliance Tips

– Keep proof for all claims (rent receipts, bills, premium receipts, donation certificates).
– Match Form 16, Form 26AS, and AIS/TIS before filing.
– File within due date to avoid penalties.
– Avoid inflated or fake claims—penalties can be severe.

FAQs

Q1: Can I claim HRA and home loan interest together?
Yes, if the house is in another city or if you live in a rented house in the same city due to work reasons.

Q2: Is standard deduction auto-applied?
Yes, it’s automatically given in both regimes.

Q3: Can I switch tax regimes every year?
Salaried individuals can switch annually, but those with business income can switch only once.

Q4: What happens if I forget to claim a deduction?
You can file a revised return before December 31 of the assessment year.