Allowance is generally defined as fixed quantity amount given regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by the employee or as compensation for unusual conditions of that service.
Tax treatment of different allowances is given below :-
1) House Rent Allowance (HRA) :- HRA is given by employer for meeting the cost of living of the employee. HRA is exempt to the extent of least of following amount
1) Actual HRA received,
2) Rent paid - 10% of basic salary & DA,
3) 50% of basic salary & DA for Mumbai,Delhi, Kolkata and Chennai Or 40% for other cities
2) Entertainment Allowance:- It is taxable as salary income. In case of Government
Employees it is first added to salary and thereafter least of following is deductible from salary in respect of entertainment allowance.
a) Rs.5,000/- or
b) 20% of Salary or
c) Amount of entertainment allowance
Salary for this purpose excludes any allowance, benefit or other perquisites.
3) Special Allowances :- Under this allowances are divided in following two categories.
I) When exemption depends upon actual expenditure incurred by the employee (Official Allowances):- In this category allowances are exempt u/s 10 to the extent of amount of allowance is used for the purpose for which the amount is received. In simple the amount of exemption under this category is least of following
-
Amount of allowance; or
-
Amount used for the purpose for which allowance is given
On the above basis exemption is available in case of the following allowances :-
i) Travelling Allowance / Transfer Allowance
ii) Conveyance Allowance
iii) Daily Allowance
iv) Helper Allowance
v) Research Allowance
vi) Uniform Allowance
II) When exemption does not depend upon actual expenditure incurred by the employee (Special Allowances) :- In this category the amount of exemption does not depend upon actual expenditure incurred by the employee but depends upon amount specified in the income tax rule in respect of concerned allowance specified under this category. Allowances received under this category exempt to the extent of lower of following
-
The amount of allowance; or
-
The amount specified in the income tax ru
On the above basis exemption is available in case of the following allowances and limit of amount of exemption as per income tax rule given against them as follow
Sr. No. |
Nature of Allowance |
Exemption amount as specified in rule |
1 |
Special Compensatory (Hill Areas) Allowance |
Exemption amount varies from Rs.300/- per month to Rs.7000/- per month |
2 |
Border Area Allowance |
Exemption amount varies from Rs.200/- per month to Rs.1300/- per month |
3 |
Tribal Areas/ Scheduled Areas Allowance |
Rs.200/- per month |
4 |
Allowance for transport employees |
The amount of exemption is lower of following
|
5 |
Children Education Allowance |
Rs.100/- per month per child upto a maximum of two children |
6 |
Hostel Expenditure Allowance |
Rs.300/- per month per child upto a maximum of two children |
7 |
Compensatory Field Area Allowance |
Rs.2600/- per month in some cases. |
8 |
Compensatory modified area allowance |
Rs.1000/- per month in some cases. |
9 |
Counter insurgency allowance |
Rs.3900/- per month in some cases. |
11 |
Transport allowance |
Rs.1600/- per month. (Rs.3200/- per month in case of an employee who is blind or orthopaedically handicapped) |
12 |
Underground Allowance |
Rs.800/- per month |
13 |
High Altitude Allowance |
Rs.1060/- per month for altitude of 9000 to 15000 feet; or Rs.1600/- per month for altitude above 15000 feet. |
14 |
Highly Active Field Area Allowance |
Rs.4200/- per month |
15 |
Island duty allowance |
Rs.3250/- per month |
Comments
0 comments
Please sign in to leave a comment.