TAXABILITY OF ALLOWANCES- OVERVIEW

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TAXABILITY OF ALLOWANCES-OVERVIEW

An allowance is a fixed amount of money paid regularly in addition to salary for meeting specific requirements of the employees. As a general rule, any fixed allowance received by an employee forms part of his taxable salary unless specifically exempted. Section 10(14) read with rule 2BB provides exemption for certain types of allowances. Following is the summary of taxability of various allowances received by the employees-

Sr. No. Allowances Taxability
1. Children Education Allowance Rs. 100/- per month per child or Rs. 1200/-p.a.; maximum 2 children
2. Children Hostel Allowance Rs. 300/- per month per child or Rs. 3600/- p.a.; maximum 2 children
3. House Rent Allowance (HRA) The least of the following is exempt-

·        40% of salary (50% if house is situated at Mumbai, Kolkata, Delhi or Chennai)

·        HRA actually received only in respect of the period during which the accommodation is occupied on rent.

·        Rent paid –(10% of Salary)

Salary = Basic+ Dearness allowance (if provided by the terms of employment) + Commission based on fixed % of Turnover.
4. Conveyance allowance

(Between residence and office)

 Rs. 1600/- per month

(Rs. 3200/- for blind/handicapped)
5. Allowance granted to an employee working in any transport system Lower of –

·        70% of allowance or

·        Rs. 10000/- per month

 
6. Tribal area allowance Rs. 200/- per  month in specified area
7. Compensatory field area allowance Maximum Rs. 2600/- per month in specified areas
8. Compensatory modifies hill area allowance Maximum up to Rs. 1000/- per month in specified areas.
9. Special Compensatory hill area or high altitude Rs. 300/- per month to Rs. 700/- per month in specified areas
10. Border area, Remote area, Disturbed/Difficult area allowance Rs. 200/- per month to Rs. 1300/- per month for specified areas.
11. High altitude allowance

(Non-congenial climate)

 Rs. 1060/- per month (Altitude for 9000 ft. – 15000 ft.)

Rs. 1600/- (Above 15000 ft.)
12. Special compensatory for highly active field area allowance to member of armed force Limit is Rs. 4200/- per month allowance in specified areas
13. Island allowance to member of armed force Limit is Rs. 3250/- per month in specified areas
14. Counter Insurgency Allowance Limit is Rs. 3900/- per month.
15. Leave Travel Allowance (LTA) Assessee who incurs expenditure for-

·        Travel for himself and his family (up to 2 children)

·        On leave to any destination in India

Is eligible for exemption in respect of LTA to the extent of expenses actually incurred for the purpose of such travel subject to the following limits-

Situations Exemption
Journey performed by Air Amount of economy class air fare of the national carrier by the shortest route or amount spent, whichever is less.
Journey performed by Rail Amount of air-conditioned first class rail fare by the shortest route or amount spent, whichever is less.
Place of origin and destination are connected by rail and journey performed by any other mode Amount of air-conditioned first class rail fare by the shortest route or amount spent, whichever is less.
Place of origin and destination are not connected by rail

a)      A recognized public transport exist

 

 

 

b)      No recognized public transport exist

 

  

 

 

First class of deluxe fare by the shortest route or the amount spent, whichever is less.

 

Amount of air-conditioned first class rail fare by the shortest route or amount spent, whichever is less.

 
Note: Exemption in only 2 out of a block of 4 years, with an option to claim exemption for 1 journey in calendar year immediately following the end of the block.

 
16. Dearness Allowance,

Overtime allowance,

City Compensatory Allowance,

Interim Allowance,

Servant Allowance,

Project Allowance,

Tiffin/Lunch/Dinner Allowance,

Warden Allowance,

Fixed Medical Allowance

Any other cash Allowance.

 Fully taxable
17. Allowance to Government employees outside India Fully Exempt.
18. Uniform Allowance Exempt from tax, to the extent it is provided to meet actual expenditure on purchase or maintenance of uniform.
19. Academic research allowance Exempt from tax, to the extent it is actually expended by the employee for the purpose of Academic research and training pursuits in educational and research institutions.
20. Travel Allowance Exempt from tax, to the extent it is actually expended by the employees to meet cost of travel on tour or travel.
21 Conveyance Allowance Exempt from tax, to the extent it is actually expended by the employees to meet expenditure incurred on conveyance in performance of duties of an office or employment of profit.
22. Helper Allowance Exempt from tax, to the extent it is actually expended by the employees to meet expenditure incurred on a helper where such helper.

Juhi Ganatra

(Articl Assistant)

Nagpur

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