Allowances are the payments paid by the employer to
the employee for meeting some expenses for the performing his duties in an
fixed amount. These allowances are generally taxable and are to be included in
the gross salary unless a specified exemption has been provided in respect of
any such allowance.
Some of the allowances are as follows:-
House Rent Allowance Sec 10(13A)
HRA is allowed by the employer to employee for curbing
the expenses concerned with rent of the accommodation which the employee take.
of the following is exempt :
a) Actual HRA Received
b) 40% of Salary (50%, if house situated in Mumbai,
Calcutta, Delhi or Chennai)
c) Rent paid minus 10% of salary
* Salary = Basic + Dearness allowance + Turnover
Akhil is entitled to a basic salary of Rs. 50,000
p.m and dearness allowance of 10,000 p.m which counts for retirement benefits.
He is entitled to HRA of Rs. 20,000 p.m. He actually pays Rs. 20,000 as rent
for a house in Delhi. Compute the taxable HRA of Akhil.
Actual HRA received ( 20000 *12 )
Rent paid in excess of 10% salary ( 2,40,000 – 72000
50% of Salary
Least of the following is Rs. 1,68,000 and the
balance Rs. 72,000 shall be included in gross salary.
Salary is calculated as:-
Salary ( 50,000*12) 6,00,000
# Special allowances
which are exempt to the extent of actual amount received or the amount spent
for the performance of the duties of an office or employment of profit,
whichever is less.
Following are such :-
Travelling Allowance : Allowances given
to meet the cost of travel on tour or on transfer of duty is called travelling
Daily allowance : Daily allowance to
meet the ordinary daily charges incurred by an employee on account of absence
from his normal place of duty.
Conveyance Allowance : Any allowance
granted to meet the expenditure on conveyance for performing the duties of an
Helper Allowance : Any allowance granted
to meet the expenditure incurred on a helper.
Academic Allowance : Any allowance granted
for encouraging academic research and training pursuits.
Uniform Allowance : Any allowance allowed
to meet the expenses incurred on the purchase of uniform to wear during the
performance of the duties of office are called uniform allowance.
The above allowances
shall be exempt to the extent of minimum of the following:
Actual Allowance received
Actual amount spent for the purposes of
duties of office.
# Allowances which are
exmpt to the extent of amount received or the limit specified, whichever is
Following are such :-
Children Education Allowance : Exempt
upto actual amount received per child or Rs. 100 p.m per child upto a maximum
of 2 children, whichever is less.
Hostel Expenditure allowance : Allowance
is Exempted upto actual amount received per child or Rs. 300 p.m per child upto
a maximum of 2 children whichever is less.
Transport allowance : Exempt upto Rs.
1600 per month for commuting between place of residence and place of duty.
Tribal area allowance : Exempt upto
actual amount received or Rs.200 p.m whichever is less.
Special compensatory hilly area
allowance : Exemption varies from Rs.300 to Rs.7000 per month.
Border area allowance : Exemption varies
from Rs. 200 to Rs.1300 per month.
# Allowances fully
City Compensatory allowance
Over Time allowance