Medical, House Rent & Conveyance Allowance Expenditure and Tax liability.

When Employer paid salary to employee in breakup form like as Basic, Dearness allowance, House Rent Allowance, Conveyance Allowance and Medical Allowance etc. either in Private Sector or Public Sector, the question is arise that whether the paid salary or entire salary amount is taxable or exempted. How to calculate tax liability on drawn salary ? etc. thus the some clarification regarding such type of queries of Employer as follows:

1. Medical Allowance:
  • Only reimbursement of medical expenses up to Rs. 15,000/- is exempt from income tax. Amount received over and above Rs. 15,000/- is taxable as “Income From Salary”.
  • Fixed Medical allowance is taxable in the hand of employee. It is not plainly exempt from income tax even if it is actually expended for medical treatment by the employee.
2. House Rent Allowance (HRA):
In respect of HRA, the least of the following is exempt from tax u/s 10(13A):
  • 40% of salary (50% for Mumbai, Kolkata, Delhi and Chennai).
  • HRA for the period the house is occupied by the employee.
  • The excess of rent paid over 10% of salary. However, an employee living in his own house or where he does not pay any rent is not eligible for this exemption.
3. Conveyance Allowance:
Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit is fully exempt from tax u/s. 10(14) read with Rule 2BB (1)(c). However, transport allowance for commuting between residence and place of duty is exempt up to Rs 800/- per month.

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