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

Non-Taxable Allowances

  • Conveyance allowance up to ₹ 1,600 per month or ₹ 19,200 per annum
  • Payments to government employees posted abroad
  • Books and Periodicals allowance
  • Gadgets
  • Gifts in kind
  • Recreational and medical facilities
  • Allowance for UN employees
  • Sumptuary allowance paid to judges of Supreme Court and High Courts
  • Compensatory allowance paid to judges of Supreme Court and High Courts