Allowance is defined as a fixed quantity of money or other substance given regularly in addition to salary for meeting specific requirements of the employees.
Allowance is defined as a fixed quantity of money or other substance given regularly in addition to salary for meeting specific requirements of the employees. As a general rule, all allowances are to be included in the total income unless specifically exempted. Exemption in respect of following allowances is allowable to the exent mentioned against each :-
House Rent Allowance:- Provided that expenditure on rent is actually incurred, exemption available shall be the least of the following :
(i) HRA received.
(ii) Rent paid less 10% of salary.
(iii) 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi) Salary here means Basic + Dearness Allowance, if dearness allowance is provided by the terms of employment.
Leave Travel Allowance: The amount actually incurred on performance of travel on leave to any
place in India by the shortest route to that place is exempt. This is subject to a maximum of the air economy fare or AC 1st Class fare (if journey is performed by mode other than air) by such route, provided that the exemption shall be available only in respect of two journeys performed in a block of 4 calendar years.
Certain allowances given by the employer to the employee are exempt u/s 10(14). All these exempt allowance are detailed in Rule 2BB of Income-tax Rules and are briefly given below:
For the purpose of Section 10(14)(i), following allowances are exempt, subject to actual expenses incurred:
(i) Allowance granted to meet cost of travel on tour or on transfer.
(ii) Allowance granted on tour or journey in connection with transfer to meet the daily charges incurred by the employee.
(iii) Allowance granted to meet conveyance expenses incurred in performance of duty, provided no free conveyance is provided.
(iv) Allowance granted to meet expenses incurred on a helper engaged for performance of official duty.
(v) Academic, research or training allowance granted in educational or research institutions.
(vi) Allowance granted to meet expenditure on purchase/ maintenance of uniform for performance of official duty.
Under Section 10(14)(ii), the following allowances have been prescribed as exempt.
Type of Allowance
(i) Special Compensatory Allowance for hilly areas or high altitude allowance or climate allowance.
Rs.800 common for various areas of North East, Hilly areas of UP, HP. & J&K and Rs. 7000 per month for Siachen area of J&K and Rs.300 common for all places at a height of 1000 mts or more other than the above places.
(ii) Border area allowance or remote area allowance or a difficult area allowance or disturbed area allowance.
Various amounts ranging from Rs.200 per month to Rs.1300 per month are exempt for various areas specified in Rule 2BB.
(iii) Tribal area/Schedule area/Agency area allowance available in MP,
Rs.200 per month.
(iv) Any allowance granted to an employee working in any transport system to meet his personal expenditure during duty performed in the course of running of such transport from one place to another place.
70% of such allowance upto a maximum of Rs.6000 per month.
(v) Children education allowance.
Rs.100 per month per child upto a maximum 2 children.
(vi) Allowance granted to meet hostel expenditure on employee