Allowance

Allowance is defined as a fixed amount of money paid by employers to their employees to meet certain expenditures above basic salary. For example, organizations pay overtime over and above basic salary to employees when they work for additional hours. Similarly, there are many other allowances as a component of salary.

Allowances are categorized as Taxable, Non-Taxable, and Partially Taxable allowances.

Taxable Allowances

Dearness allowance
Entertainment allowance
Overtime allowance
City compensatory allowance
Medical allowance
Interim allowance
Project allowance
Tiffin/meals allowance
Uniform allowance
Cash allowance
Non-practicing allowance
Warden allowance
Servant allowance

Partially Taxable Allowances

House Rent Allowance (HRA)
- Actual HRA is received by the employee from the employer
- Rent paid less than 10% of (Basic +DA)
- 40% of the basic salary for non-metros and 50% of basic salary for metro cities.
Leave Travel Allowance (LTA)
Children Education Allowance
Hostel Expenditure Allowance
Fixed medical allowance
Conveyance allowance above ₹ 19,200 per annum under section 10 (14) (ii) of the income tax act
Entertainment allowance – deduction of 1/5 of salary or ₹ 5,000 whichever is less under section 16 (ii) of the income tax act