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Updated on : 6 May, 2018

Taxability of Allowances

Information about exemptions available under various section of Income Tax Act & Rules on allowances to individual salaried employees.

House Rent Allowance Employment Tax / Professional Tax
Children Education Allowance Hostel Expenditure Allowance
Transport Allowance Allowance to an transport business employee ..
Conveyance Allowance Allowance to meet the cost of travel on tour / transfer
Daily Allowance on account of absence from normal place of duty Helper/Assistant Allowance
Research Allowance Uniform Allowance
Special compensatory Allowance (Hilly Areas) Border area allowance / Remote Locality allowance / Disturbed Area allowance / Difficult Area Allowance
Tribal area allowance Compensatory Field Area Allowance
Compensatory Modified Area Allowance Counter Insurgency Allowance
Underground Allowance High Altitude Allowance
Highly active field area allowance Island Duty Allowance)
Allowance or perquisite to Government employees posted outside India Salary received in arrears/in advance/profit received in lieu of salary
Compensation to widow or other legal heirs Ex-gratia payment to a person (or legal heirs)
Entertainment Allowance Allowances to Judges of High Court/Supreme Court
Compensatory allowance to a Judge under article 222(2) Salary and allowances received by a teacher / professor from SAARC member state
Allowances / perquisites to serving Chairman/Member of UPSC Allowances to Retired Chairman/Members of UPSC
Allowances paid by the UNO to its employees Allowances Fully Taxable


House Rent Allowance
(Section 10(13A) & Rule 2A)
ExemptionLeast 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 ₹ 1,00,000 [Circular No. 08 /2013 dated 10th October, 2013].
Available toIndividual - Salaried employee


Employment Tax / Professional Tax
(Section 16 (iii))
ExemptionAmount actually paid during the year
Available toIndividual - Salaried Employee


Children Education Allowance
(Section 10(14))
ExemptionUp to ₹ 100 per month per child up to a maximum of 2 children is exempt
Available toIndividual - Salaried employee


Hostel Expenditure Allowance
(Section 10(14))
ExemptionUp to ₹ 300 per month per child up to a maximum of 2 children is exempt
Available toIndividual - Salaried employee


Transport Allowance granted to an employee to meet expenditure on commuting between place of residence and place of duty
(Section 10(14))
ExemptionUp to ₹ 1,600 per month (₹ 3,200 per month for blind, deaf, dumb and handicapped employees) is exempt
Available toIndividual - 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))
ExemptionAmount of Exemption shall be lower of following:
a) 70% of such allowance; or
b) ₹ 10,000 per month.
Available toIndividual - Salaried employee


Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office
(Section 10(14))
ExemptionExempt to the extent of expenditure incurred for official purposes
Available toIndividual - Salaried employee


Any Allowance to meet the cost of travel on tour or on transfer
(Section 10(14))
ExemptionExempt to the extent of expenditure incurred for official purposes
Available toIndividual - 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))
ExemptionExempt to the extent of expenditure incurred for official purposes
Available toIndividual - Salaried employee


Helper/Assistant Allowance
(Section 10(14))
ExemptionExempt to the extent of expenditure incurred for official purposes
Available toIndividual - Salaried employee


Research Allowance granted for encouraging the academic research and other professional pursuits
(Section 10(14))
ExemptionExempt to the extent of expenditure incurred for official purposes
Available toIndividual - Salaried employee


Uniform Allowance
(Section 10(14))
ExemptionExempt to the extent of expenditure incurred for official purposes
Available toIndividual - Salaried employee


Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations)
(Section 10(14))
ExemptionAmount exempt from tax varies from ₹ 300 per month to ₹ 7,000 per month.
Available toIndividual - 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)
ExemptionAmount exempt from tax varies from ₹ 200 per month to ₹ 1,300 per month.
Available toIndividual - 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))
ExemptionUp to ₹ 200 per month
Available toIndividual - 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))
ExemptionUp to ₹ 2,600 per month
Available toIndividual - 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))
ExemptionUp to ₹ 1,000 per month
Available toIndividual - 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))
ExemptionUp to ₹ 3,900 per month
Available toIndividual - Members of Armed Forces


Underground Allowance is granted to employees working in uncongenial, unnatural climate in underground mines
(Section 10(14))
ExemptionUp to ₹ 800 per month
Available toIndividual - Salaried employee


High Altitude Allowance is granted to armed forces operating in high altitude areas (Subject to certain conditions and locations)
(Section 10(14))
Exemptiona) Up to ₹ 1,060 per month (for altitude of 9,000 to 15,000 feet)
b) Up to ₹ 1,600 per month (for altitude above 15,000 feet)
Available toIndividual - 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))
ExemptionUp to ₹ 4,200 per month
Available toIndividual - 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))
ExemptionUp to ₹ 3,250 per month
Available toIndividual - Members of Armed Forces


Any allowance or perquisite paid or allowed by Government to its employees posted outside India
(Section 10(7))
ExemptionEntire Amount
Available toIndividual- 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)
ExemptionRelief to the extent computed in accordance with Section 89
Available toIndividual - 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]
ExemptionEntire amount paid in lump-sum
Available toIndividual - 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]
ExemptionEntire amount paid as ex-gratia
Available toIndividual or legal heirs.


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


Allowances to Judges of High Court/Supreme Court
ExemptionExempt, subject to certain conditions.
Available toIndividual - Judges of High Court/Supreme Court


Compensatory allowance received by a Judge under article 222(2) of the Constitution
ExemptionFully Exempt
Available toIndividual - Judges


Salary and allowances received by a teacher /professor from SAARC member state (Subject to certain conditions).
ExemptionFully Exempt
Available toIndividual - 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))
ExemptionFully Exempt
Available toIndividual - Chairman/Member of UPSC


Allowances to Retired Chairman/Members of UPSC
(Section 10(45))
ExemptionExempt subject to maximum of ₹ 14,000 per month for defraying the services of an orderly and for meeting expenses incurred towards secretarial assistant on contract basis.
Available toIndividual - Retired Chairman/Member of UPSC


Allowances paid by the UNO to its employees
ExemptionFully Exempt Individual - Government employee
Available toIndividual - 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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