Part B of Salary: Allowances, Exemptions (Sec 10) & Deductions (80C, 80D, 80E)
Part B of Form 16 is the section that lists every salary component, allowance, exemption, and deduction that helps you plan and reduce your income tax. Understanding each element is essential for smart tax planning and for choosing between the old and new tax regimes.
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Introduction to Part B of Salary
Part B of your salary statement provides a detailed breakup of all taxable and exempt salary components. It includes your basic salary, allowances, perquisites, and deductions that can be claimed under various sections of the Income Tax Act.
Salary Components in Part B
Part B reflects every earning and benefit you receive from your employer.
Basic Salary
The fixed portion of your pay forming the base for other allowances and retirement benefits.
Allowances (HRA, LTA, Special Allowances, etc.)
Payments like House Rent Allowance ( HRA ), Leave Travel Allowance (LTA), and special or conveyance allowances.
Perquisites & Benefits
Non-cash perks such as company car, rent-free accommodation, or subsidized loans provided by the employer.
Exemptions under Section 10
Section 10 of the Income Tax Act allows specific income components to be partially or fully tax-free.
House Rent Allowance (HRA) – Sec 10(13A)
Exemption is available if you pay rent and meet conditions based on salary and rent paid.
Leave Travel Allowance (LTA) – Sec 10(5)
Covers travel expenses for you and your family within India for specified trips.
Gratuity & Pension Provisions
Retirement benefits like gratuity and commuted pension enjoy partial exemptions.
Other Exemptions
Includes children education allowance, uniform allowance, and transport allowance for differently-abled employees.
Deductions under Chapter VI-A
These deductions lower your taxable income when you invest or spend in eligible avenues.
Section 80C – Investments & Savings
Maximum deduction of ₹1.5 lakh for EPF, PPF, ELSS, life insurance premiums, 5-year tax-saving FDs, etc.
Section 80CCC & 80CCD – NPS & Pension Plans
Additional benefits for contributions to pension funds and the National Pension System.
Section 80D – Health Insurance Premium
Deduction for medical insurance premium: up to ₹25,000 (₹50,000 for senior citizens).
Section 80E – Education Loan Interest
Entire interest on education loans is deductible with no monetary limit.
Section 80G – Donations & Charity
Donations to approved funds/charities qualify for 50% or 100% deduction.
Section 80TTA/80TTB – Savings Interest & Senior Citizens
Deduction up to ₹10,000 on savings account interest (₹50,000 for senior citizens under 80TTB).
How Part B Helps in Tax Planning
Part B helps you strategically reduce taxable income.
Reducing Taxable Income
By claiming all eligible exemptions and deductions, you directly lower your tax burden.
Optimizing Exemptions + Deductions Together
Combining Section 10 exemptions with Chapter VI-A deductions ensures maximum savings.
Old vs New Tax Regime Impact on Part B
Here’s a sample comparison table showing the impact of Old vs. New Tax Regime on a ₹10,00,000 annual salary.
It assumes the employee claims full Section 80C deduction (₹1.5 L), Section 80D health insurance deduction (₹25k), and standard deduction (₹50k).
| Particulars | Old Regime | New Regime |
|---|---|---|
| Gross Annual Salary | ₹10,00,000 | ₹10,00,000 |
| Standard Deduction | –₹50,000 | –₹50,000 |
| 80C Deductions (PF, ELSS, etc.) | –₹1,50,000 | Not Allowed |
| 80D Deduction (Health Insurance) | –₹25,000 | Not Allowed |
| Taxable Income | ₹7,75,000 | ₹9,50,000 |
| Income Tax (as per slab) | ₹72,500 | ₹60,000 |
| Health & Education Cess @4% | ₹2,900 | ₹2,400 |
| Total Tax Payable | ₹75,400 | ₹62,400 |
| Effective Tax Rate | 7.5% | 6.2% |
Filing & Claiming Deductions
Correct filing ensures you get every eligible benefit.
How to Claim Exemptions in ITR
Enter amounts in the relevant ITR schedule (Salary and Deductions tabs).
Documents Required
Keep Form 16 , rent receipts, investment proofs, and medical insurance receipts ready.
Conclusion
Part B of your salary isn’t just a payslip breakdown—it’s a roadmap to effective tax planning. By understanding allowances, Section 10 exemptions, and deductions under Sections 80C, 80D, and 80E, you can smartly choose between old and new regimes and reduce tax liability.
Jagdish Prasad is a Chartered Accountant with over 5 years of experience. He helps people and businesses with GST, income tax, and HSN codes. Jagdish makes sure his clients follow all tax rules and save money the right way. He also enjoys writing simple articles to help others understand taxes and stay updated with the latest rules.
Frequently Asked Questions
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What is Part B of the salary in Form 16?
It details the full salary breakup, exemptions, and deductions used to calculate taxable income.
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Which allowances are tax-free under Section 10?
HRA, LTA, children's education allowance, and certain retirement benefits like gratuity and pension.
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How much deduction can be claimed under Section 80C?
Up to ₹1.5 lakh for investments like PPF, EPF, ELSS, life insurance premiums, and 5-year tax-saving FDs.
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Is 80D available in the new regime?
No, most deductions, including 80D, are not available under the new tax regime.
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Can both HRA exemption and home loan benefits be claimed together?
Yes, if you live in a rented house while owning another property with a loan in a different city.
