Are taxes weighing you down? Well, I’m here to make your financial journey affordably easy. Taxes are the headache you constantly have to deal with. Finding a tax accountant who understands your numbers is quite a relief. You are entitled to a relief of some sort, at least every taxpayer is. Tax exemptions are reliefs that come in many forms. The good news is they should decrease or do away with your tax obligation entirely.
Not everyone is a fan of numbers. However, it is important to understand mathematically what your taxes are. Exemptions decrease your gross income which has already been adjusted and saves all your income from being taxed. Then the total relief together with other standard deductions is deducted from your attuned income, the resulting difference is your taxable income. You should find a tax preparer that will help you prepare financial statements, analyze and compute your taxes.
What exemptions are you entitled to?
Tax reliefs exist in two categories as personal and dependent exemptions. You are capable of claiming a relief for yourself as long as you pay and file your returns solely. When you file joint returns, for you and your wife then you are only allowed to claim a single exemption for you, and another one for your wife. Not so hard, right? In cases of filing separate returns, then you can only assert yours alone. If you are on employment and you earn an income, you should be able to get some relief of some sort.
Am employed, do I have any tax exemptions?
Yes, the Income Tax Act has a provision for you. Paying taxes is equally important as saving taxes. When states allow taxpayers to claim reliefs, then it is beneficial for everyone since it cuts taxpayers' some slack from the financial burden. As an employee on payroll, you should claim your exemptions then leave the uphill task of computing the tax on the remaining income, as per the Income Tax Slabs for your employer. Below are the exemptions for you.
House Rent Allowance
If your boss gives you a house allowance, then he is not so bad after all. He cares and wants you to reside in a decent place. Part of the house rent allowance awarded to the employee is removed from the levy of the Income Tax while some of it is not taxed. House Allowance Rent Allowance is critical in any tax system since it is very easy to claim and a large amount is exempted.
Relief on Leave Allowance
Do you love vacations? If the answer is yes, send your employer a bouquet this Christmas for giving you a leave allowance. It comes in handy during vacations with your family and friends. This amount is tax free. It is almost effective in regulating a tax system. After that long vacation you would want a refund for the spending, depending on where you work it is not so hard. Just carry with you the bills that show the same expenditure.
Ever wondered why technicalities are important? This is why; some employers decide to en-cash your leaves. Every employee is entitled to at least one leave each year. However, it is a personal decision not to take your leave days. Depending on the agreement you made with your employer, they should pay you for the leave days you did not take. The amount awarded is claimable up to a certain percentage as an exemption.
Relief on Pension
Retirement doesn’t sound that good, does it? Nevertheless, time fleets by and when age is catching up retirement is calling. Your employer will most likely give you a send-away package after your retirement. The employer might decide to pay you or buy annuity, thus the pension is catered for by the organization that sold the annuity. A tax preparer will help you determine the kind of scheme you subscribed to, whether it is commuted or uncommuted.
Commuted pension involves the whole amount being paid in a lump sum unlike uncommuted where the amount is paid in intervals or installments. The exemption you qualify for does not depend on the type of pension. Both pensions are eligible for relief up to a certain limit.
Relief on Gratuity
Gratitude or gratuity, I like to think they are coats from the same cloth. Your employee might choose to appreciate you for your services by awarding you for your services in the past. There are situations in which gratuity can be received. This is when:
An employee retires
An employee dies and leaves a legal heir
Exemption is allowed on gratuity depending on the category of employees. Do you fall in any of these categories?
Are you an employee of local authorities or government?
Are you an employee covered under the Payment of Gratuity act?
Are you covered in any of the two categories above?
Relief on Voluntary Retirement
Sometimes, the employer decides to award the employee for retiring before their retirement age. This money is un-taxable by law.
Relief on Perquisites
Perquisites are facilities awarded to the employee like cars, mobile phones, rent and or accommodation. Do not celebrate yet, they are not tax free, they are taxable up to a certain percentage.
Brian Walsh EA