Allowance is a fixed monetary amount paid by the employer to the employee (over and above basic salary) for meeting certain expenses, whether personal or for the performance of his duties. These allowances are generally taxable and are to be included in gross salary unless specific exemption is provided in respect of such allowance. For the purpose of tax treatment, we divide these allowances into 3 categories:
- Fully taxable cash allowances
- Partially exempt cash allowances
- Fully exempt cash allowances
This category includes all the allowances, which are fully taxable. So, if an allowance is not partially exempt or fully exempt, it gets included in this category. The main allowances under this category are enumerated below:
Dearness Allowance and Dearness Pay :
As is clear by its name, this allowance is paid to compensate the employee against the rise in price level in the economy. Although it is a compensatory allowance against high prices, the whole of it is taxable. When a part of Dearness Allowance is converted into Dearness Pay, it becomes part of basic salary for the grant of retirement benefits and is assumed to be given under the terms of employment.
City Compensatory Allowance:
This allowance is paid to employees who are posted in big cities. The purpose is to compensate the high cost of living in cities like Delhi, Mumbai etc. However, it is fully taxable.
Tiffin / Lunch Allowance :
It is fully taxable. It is given for lunch to the employees.
Non practicing Allowance :
This is normally given to those professionals (like medical doctors, chartered accountants etc.) who are in government service and are banned from doing private practice. It is to compensate them for this ban. It is fully taxable.
Warden or Proctor Allowance :
These allowances are given in educational institutions for working as a Warden of the hostel or as a Proctor in the institution. They are fully taxable.
Deputation Allowance :
When an employee is sent from his permanent place of service to some place or institute on deputation for a temporary period, he is given this allowance. It is fully taxable.
Overtime Allowance :
When an employee works for extra hours over and above his normal hours of duty, he is given overtime allowance as extra wages. It is fully taxable.
Fixed Medical Allowance :
Medical allowance is fully taxable even if some expenditure has actually been incurred for medical treatment of employee or family.
Servant Allowance :
It is fully taxable whether or not servants have been employed by the employee.
Other allowances :
There may be several other allowances like family allowance, project allowance, marriage allowance, education allowance, and holiday allowance etc. which are not covered under specifically exempt category, so are fully taxable.
Dearness Allowance and Dearness Pay :
As is clear by its name, this allowance is paid to compensate the employee against the rise in price level in the economy. Although it is a compensatory allowance against high prices, the whole of it is taxable. When a part of Dearness Allowance is converted into Dearness Pay, it becomes part of basic salary for the grant of retirement benefits and is assumed to be given under the terms of employment.
City Compensatory Allowance:
This allowance is paid to employees who are posted in big cities. The purpose is to compensate the high cost of living in cities like Delhi, Mumbai etc. However, it is fully taxable.
Tiffin / Lunch Allowance :
It is fully taxable. It is given for lunch to the employees.
Non practicing Allowance :
This is normally given to those professionals (like medical doctors, chartered accountants etc.) who are in government service and are banned from doing private practice. It is to compensate them for this ban. It is fully taxable.
Warden or Proctor Allowance :
These allowances are given in educational institutions for working as a Warden of the hostel or as a Proctor in the institution. They are fully taxable.
Deputation Allowance :
When an employee is sent from his permanent place of service to some place or institute on deputation for a temporary period, he is given this allowance. It is fully taxable.
Overtime Allowance :
When an employee works for extra hours over and above his normal hours of duty, he is given overtime allowance as extra wages. It is fully taxable.
Fixed Medical Allowance :
Medical allowance is fully taxable even if some expenditure has actually been incurred for medical treatment of employee or family.
Servant Allowance :
It is fully taxable whether or not servants have been employed by the employee.
Other allowances :
There may be several other allowances like family allowance, project allowance, marriage allowance, education allowance, and holiday allowance etc. which are not covered under specifically exempt category, so are fully taxable.
0 comments:
Post a Comment