Salary Allowances in India - Taxable & Non Taxable

Any monetary benefit offered by the employer to its employees for meeting expenditures, over and above the basic salary are known as Salary Allowances.

 

The employers offer various kinds of additional benefits in monetary terms to their employees over and above the basic salary, which are known as salary allowances. These salary allowances are given to meet the expenditure of particular nature. According to Income Tax Act, allowances are added to the salary of an individual and taxed under the head Income from Salaries. The salary allowances can be bifurcated into three broad categories, taxable, non-taxable and partly taxable allowances.

The taxability of various salary allowances are given below

  1. Taxable Allowances
    1. Dearness Allowance (DA): DA is provided for converse the inflationary effect from the cost of living of the people. Income Tax Act does not provide any exemption on DA.
    2. City Compensation Allowance: It is offered to the employees for meeting the highly inflated costs in the large or metro cities.
    3. Entertainment Allowance: It is an amount given to the employees for achieving the expenses incurred towards the meal, beverages, hotels, etc. for the business clients of the company. An exemption u/s 16(ii) can be claimed for entertainment allowance by the Government employees. Non-government employees are taxed entirely.
    4. Overtime Allowance: It is provided to the employees for working more than the regular working hours.
    5. Tiffin Allowance: It is provided to meet the food expenses.
    6. Cash Allowance: Any cash allowance provided by the employer becomes taxable. For instance, marriage allowance, holiday allowance, etc.
    7. Project Allowance: Allowance provided to bear the expenses relating to the project.
    8. Servant/helper Allowance: Amount provided for hiring a servant is fully taxable in the hands of an employee.
  2. Partly Taxable Allowances
    1. House Rent Allowance: HRA is offered to meet the residential rent expenses of the employee for its accommodation. It is partially exempt u/s 10(13A), and the remaining amount after deduction is taxable.
    2. Leave Travel Allowance: LTA is offered for travelling anywhere in India. Deduction on the fare cost is provided to some extent, and the balance is taxable.
    3. Conveyance Allowance: An amount of Rs. 1600 per month is offered to the employees for commuting from home to office and vice-versa. Any expense over and above that is taxable.
    4. Medical Bills Reimbursement Allowance: A token of Rs. 15000 is given by the employer for meeting the treatment costs in case the employee or its family falls ill. Any expenditure incurred above Rs. 15000 is taxable.
    5. Education Allowance: Employees are given a certain amount to educate their children in India. Any sum spent more than the provided limit of Rs. 100 per month per child for maximum two children, is taxable.
    6. Hostel Allowance: Per Child Rs. 300 per month for maximum two children is allowed as a deduction.
  3. Fully Exempt Allowances
    1. Allowance to Government Employees: Any amount paid as a provision for rendering services outside India by the Government Employees is exempt.
    2. Allowances to Judges of Supreme Court or High Court are not taxable.
    3. Benefits received by the people working in United Nations Organisation (UNO) are fully exempt.