Last modified - Dec. 5, 2015

Taxability of Allowances

Exemptions available under various section of Income Tax Act & Rules to individual salaried employees. For further details please refer to the sections / rules under the allowances.

House Rent Allowance
(Section 10(13A) & Rule 2A)

Exemption :Least of the following is exempt:
a) Actual HRA Received
b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Madras) c) Rent paid minus 10% of salary
* Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission
Note:
i. Fully Taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent
ii. It is mandatory for employee to report PAN of the landlord to the employer if rent paid is more than Rs. 1,00,000 [Circular No. 08 /2013 dated 10th October, 2013].
Available to :Individual - Salaried employee


Employment Tax/Professional Tax
(Section 16 (iii))

Exemption :Amount actually paid during the year
Available to :Individual - Salaried Employee

Children Education Allowance
(Section 10(14))

Exemption :Up to Rs. 100 per month per child up to a maximum of 2 children is exempt
Available to :Individual - Salaried employee

Hostel Expenditure Allowance
(Section 10(14))

Exemption :Up to Rs. 300 per month per child up to a maximum of 2 children is exempt
Available to :Individual - Salaried employee

Transport Allowance granted to an employee to meet expenditure on commuting between place of residence and place of duty
(Section 10(14))

Exemption :Up to Rs. 1,600 per month (Rs. 3,200 per month for blind, deaf, dumb and handicapped employees) is exempt
Available to :Individual - Salaried employee

Allowance granted to an employee working in any transport business to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided employee is not in receipt of daily allowance.
(Section 10(14))

Exemption :Amount of Exemption : shall be lower of following:
a) 70% of such allowance; or
b) Rs. 10,000 per month.
Available to :Individual - Salaried employee

Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office
(Section 10(14))

Exemption :Exempt to the extent of expenditure incurred for official purposes
Available to :Individual - Salaried employee

Any Allowance to meet the cost of travel on tour or on transfer
(Section 10(14))

Exemption :Exempt to the extent of expenditure incurred for official purposes
Available to :Individual - Salaried employee

Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty
(Section 10(14))

Exemption :Exempt to the extent of expenditure incurred for official purposes
Available to :Individual - Salaried employee

Helper/Assistant Allowance
(Section 10(14))

Exemption :Exempt to the extent of expenditure incurred for official purposes
Available to :Individual - Salaried employee

Research Allowance granted for encouraging the academic research and other professional pursuits
(Section 10(14))

Exemption :Exempt to the extent of expenditure incurred for official purposes
Available to :Individual - Salaried employee

Uniform Allowance
(Section 10(14))

Exemption :Exempt to the extent of expenditure incurred for official purposes
Available to :Individual - Salaried employee

Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations)
(Section 10(14))

Exemption :Amount exempt from tax varies from Rs. 300 per month to Rs. 7,000 per month.
Available to :Individual - Salaried employee

Border area allowance or Remote Locality allowance or Disturbed Area allowance or Difficult Area Allowance (Subject to certain conditions and locations)
(Section 10(14) & Rule 2BB)

Exemption :Amount exempt from tax varies from Rs. 200 per month to Rs. 1,300 per month.
Available to :Individual - Salaried employee

Tribal area allowance in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa
(Section 10(14))

Exemption :Up to Rs. 200 per month
Available to :Individual - Salaried employee

Compensatory Field Area Allowance. If this Exemption : is taken, employee cannot claim any Exemption : in respect of border area allowance (Subject to certain conditions and locations)
(Section 10(14))

Exemption :Up to Rs. 2,600 per month
Available to :Individual - Salaried employee

Compensatory Modified Area Allowance. If this Exemption : is taken, employee cannot claim any Exemption : in respect of border area allowance (Subject to certain conditions and locations)
(Section 10(14))

Exemption :Up to Rs. 1,000 per month
Available to :Individual - Salaried employee

Counter Insurgency Allowance if this Exemption : is taken, employee cannot claim any Exemption : in respect of border area allowance (Subject to certain conditions and locations)
(Section 10(14))

Exemption :Up to Rs. 3,900 per month
Available to :Individual - Members of Armed Forces

Underground Allowance is granted to employees working in uncongenial, unnatural climate in underground mines
(Section 10(14))

Exemption :Up to Rs. 800 per month
Available to :Individual - Salaried employee

High Altitude Allowance is granted to armed forces operating in high altitude areas (Subject to certain conditions and locations)
(Section 10(14))

Exemption : a) Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet)
b) Up to Rs. 1,600 per month (for altitude above 15,000 feet)
Available to :Individual - Members of Armed Forces

Highly active field area allowance is granted to members of armed forces (Subject to certain conditions and locations)
(Section 10(14))

Exemption :Up to Rs. 4,200 per month
Available to :Individual - Members of Armed Forces

Island Duty Allowance is granted to members of armed forces in Andaman and Nicobar and Lakshadweep group of Island (Subject to certain conditions and locations)
(Section 10(14))

Exemption :Up to Rs. 3,250 per month
Available to :Individual - Members of Armed Forces

Any allowance or perquisite paid or allowed by Government to its employees posted outside India
(Section 10(7))

Exemption :Entire Amount
Available to :Individual- Salaried Employee (being a citizen of India)

Any portion of salary received in arrears or in advance or profit received in lieu of salary [Subject to certain conditions and circumstances]
(Section 89)

Exemption :Relief to the extent computed in accordance with Section 89
Available to :Individual - Salaried Employee

Lump-sum payment made gratuitously or by way of compensation or otherwise to widow or other legal heirs of an employee who dies while still in active service [Circular No. 573, dated 21-08-1990]

Exemption :Entire amount paid in lump-sum
Available to :Individual - Widow or other legal heirs of employee.

Ex-gratia payment to a person (or legal heirs) by Central or State Government, Local Authority or Public Sector Undertaking consequent upon injury to the person or death of family member while on duty [Circular No. 776, dated 08-06-1999]

Exemption :Entire amount paid as ex-gratia
Available to :Individual or legal heirs.

Entertainment Allowance received by the Government employees (Fully taxable in case of other employees)
(Section 16 (ii))

Exemption :Least of the following is exempt from tax:
a) Rs 5,000
b) 1/5th of salary (excluding any allowance, benefits or other perquisite)
c) Actual entertainment allowance received
Available to :Individual - Government employee

Allowances to Judges of High Court/Supreme Court

Exemption :Exempt, subject to certain conditions.
Available to :Individual - Judges of High Court/Supreme Court

Compensatory allowance received by a Judge under article 222(2) of the Constitution

Exemption :Fully Exempt
Available to :Individual - Judges

Salary and allowances received by a teacher /professor from SAARC member state (Subject to certain conditions).

Exemption :Fully Exempt
Available to :Individual - Teacher from SAARC member State

Following allowances and perquisites given to serving Chairman/Member of UPSC is exempt from tax:
a) Value of rent free official residence
b) Value of conveyance facilities including transport allowance
c) Sumptuary allowance
d) Leave travel concession
(Section 10(45))

Exemption :Fully Exempt
Available to :Individual - Chairman/Member of UPSC

Allowances to Retired Chairman/Members of UPSC
(Section 10(45))

Exemption :Exempt subject to maximum of Rs. 14,000 per month for defraying the services of an orderly and for meeting expenses incurred towards secretarial assistant on contract basis.
Available to :Individual - Retired Chairman/Member of UPSC

Allowances paid by the UNO to its employees

Exemption :Fully Exempt Individual - Government employee
Available to :Individual - Employees of UNO

Allowances Fully Taxable

  • City Compensatory Allowance
  • Fixed Medical Allowance
  • Tiffin/Lunch/Dinner/Refreshment Allowance
  • Servant Allowance
  • Dearness Allowance
  • Project Allowance
  • Overtime Allowance
  • Telephone Allowance
  • Holiday Allowance
  • Any Other Cash Allowance

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The visitors may visit the web site of Income Tax Department for resolving their doubts or for clarifications.

Related Pages

●  Deduction - House Property Income
●  Deductions from Capital Gains
●  Deductions under Chapter VI A