Salaried
Employee take allowances are the payments given by the employer to the
employee for some specific purpose and it is taxable subject to certain
exemptions. Allowances are of three types:
- Fully Taxable
- Party Taxable
- Fully Exempt
Fully Taxable Allowances are:
- Dearness Allowance
- Overtime Allowance
- Medical Allowance
- City Compensatory Allowance
- Servant Allowance
- Family Allowance
- Project Allowance
- Non-practicing Allowance
- Lunch/Tiffin Allowance
- Any other Cash Allowance
Partly taxable allowances are:
- House Rent Allowance (Section 10(13A), Rule 2A)
- Specified Allowances (Sec 10(14), Rule 2BB)
House Rent Allowance-Section 10(13A), Rule 2A
House
Rent Allowance is given by the employer to the employee for the
specific purpose of taking house on rent. House Rent Allowance is
exempt to the extent of the least of the following:
- Actual HRA Received
- Rent Paid Less 10% of Salary
- 50% of the salary if house taken on rent is situated in metro cities else 40% of the salary.
Salary for the purpose of HRA includes:
- Basic Pay
- Dearness Allowance to the extent if forms part of salary for retirement benefits
- Commission on Sales Turnover, if it has been paid as a certain percentage of Sales Turnover (As decided in Gestetner Duplicators Pvt Ltd (SC)).
Note: Exemption
in respect of HRA is based upon the following factors-Salary, Place of
Residence, Rent Paid, HRA Received. If, during the year, there is change
in any of the factors, then HRA exemption shall be separately
calculated for that period.
Specified Allowances-Section 10(14), Rule 2BB
These allowances are of two types:
1.
Special Allowances for performance of Official Duties (section
10(14(i)) - These allowances are exempt to the extent of amount received
or amount spent whichever is less:
Allowance
|
Purpose
|
Travelling Allowance
|
Cost of Travel on tour or on transfer of duty
|
Daily Allowance
|
Daily expenses on tour or on transfer
|
Conveyance Allowance
|
Conveyance in performing official duties
|
Helper Allowance
|
Helper engaged for the performance of official duty
|
Academic Allowance
|
For academic, research and training
|
Uniform Allowance
|
For uniform
|
2.
Special Allowance to meet personal expenses. (section 10(14)(ii)) -
These allowances are exempt to the extent of amount received or the
limit specified whichever is less:
Allowance
|
Exemption
|
Children Education Allowance
|
Rs. 100 PM per child for max 2 Children
|
Hostel Expenditure Allowance
|
Rs. 300 PM per child for max 2 Children
|
Transport Allowance
|
Rs. 800 PM but for handicapped Employee - Rs. 1600 PM
|
Tribal Area Allowance
|
Rs. 200 PM
|
Underground Allowance
|
Rs. 800 PM
|
Hill/Border/Remote Area Allowance
|
Rs. 300 PM to Rs. 7000 PM
|
Outstation Allowance to Transport Employees
|
70% of the allowance but max upto Rs. 10000 PM
|
Fully Exempt Allowances are:
- Allowances given to Citizen of India, who is a Government Employee's rendering services outside India (section 10(7))
- Allowances to High Court Judges
- Sumptuary Allowances given to High Court and Supreme Court Judges
- Allowances received by an employee of United Nation Organisation (UNO).
Deductions from Salary (sec 16)
Entertainment Allowance (sec 16(ii))
The
deduction of entertainment allowance is allowed only to the Government
Employee and it is exempt to the extent of the least of following:
- Entertainment Allowance Received
- 20% of Basic Pay
- Rs. 5000
Professional Tax (Tax on Employment) - Section (16(iii))
Any
amount paid (whether due, advance or arrears) by the employee towards
professional tax shall be allowed as deduction in the year of payment.
If professional tax of employee is paid by the employer than first it
shall be included in the gross salary of employees and then deduction
shall be allowed under section 16(iii).
Source: e-Book on IT by CA Rahul Jain
