An allowance is additional compensation provided by an employer beyond a employee's regular salary. Allowances can be categorized as taxable, non-taxable, or partially taxable. Taxable allowances include dearness allowance, entertainment allowance, project allowance, and overtime allowance. Partially taxable allowances include house rent allowance, medical allowance, conveyance allowance, education allowances, and hostel expenditure allowance. Non-taxable allowances are those provided to government employees serving abroad, judges of the Supreme Court, and employees of the United Nations.

1. Allowances
Pooja Agrawal

2. What is an allowance?
 An allowance is the financial benefit given to the employee by the
employer over and above given salary. These benefit are provided
cover expenses which may be incurred to facilitate the discharge of
service.
 Allowance are generally calculated on Basic Salary. Basic salary is
the fixed salary, invariable, minimum wages, mandatory pay, fixed
by the company to pay the employees.
 The salary allowances can be bifurcated into three broad
categories, taxable, non-taxable and partly taxable allowance.

3. The salary allowance can be bifurcated into three
broad categories taxable, non-taxable and partly
taxable allowances.

4. Taxable allowances
 Dearness allowance (DA)
Dearness allowance is paid to employees who migrate from the city of
their residence to another for job purpose. The allowance helps them
to deal with inflation related expenses and difference in cost of living
for employees living in different towns and cities.
 Entertainment allowance (EA)
Entertainment allowance is the fund given to an employee by the
company to pay for client meetings, drinks, food, hotel stay, etc.
Entertainment allowance is fully taxable for employees working in the
private sector.

5.  Tribal Area Allowance
This is a partially taxable allowance given to employees posted in tribal
areas of Madhya Pradesh, Tamil Nadu, Uttar Pradesh, Karnataka,
Tripura, Assam, West Bengal, Bihar and Orissa. In this case, tax
exemption is allowed up to Rs. 200 per month.
 Project Allowance
It is the allowance paid by the employer to the employees who are
engaged in a specific project expenses incurred due to their
engagement in the project. Project allowance is usually fully taxable
for the employees.

6.  Tiffin/Meal allowance
Tiffin/Lunch allowance is fully taxable. It is given to employee for lunch
as coupons or added as part of salary
 Overtime allowance
employers may provide an overtime allowance to employees working
over and above the regular hours. This is called overtime and any
allowance received for this is fully taxable

7. Partly taxable allowances
 House rent allowances(HRA)
• House rent allowance(HRA) is allowance paid for house rent. Tax
exemption under section 10 (13A) can be claimed on whichever
amount is lower of the three:
• HRA as a per actual received by the employee.
• Rent paid as per actuals less 10% of Basic Salary.
• In Metros i.e, Delhi, Mumbai, Chennai or Kolkata as much as 50% of
basic salary or else 40% of accommodation is in a non-metro.

8.  Medical allowance:
Medical allowance is a fixed component that you receive every month
as part of your monthly salary, that is taxable as salary income.
Whereas Medical reimbursement is a tax-free component and as
discussed above, it is exempted up to the amount spent by employee
or Rs. 15,000 whichever is less.
 Conveyance allowance(CA):
Conveyance Allowance (also known as Transport Allowance) is
provided by employer to employee for meeting employee
transportation cost from residence to workplace. It is exempt up to Rs.
19,200 per annum (Rs. 1600/month)

9.  Education allowances
Employees are given a certain amount to educate their children in
India. Any sum spent more than the provided limit of Rs. 100 per
month per child for maximum two children, is taxable
 Hostel Expenditure Allowance
Similarly, any hostel expenditure allowance received by you for your
children from an employer is eligible for exemption up to Rs. 300 per
month or Rs. 3600 per annum for maximum up to 2 children.
 Running or flight allowance
If given to the employees of the transportation system who do not
receive any daily allowances from their place of normal duty it shall be
exempted upto 10000 per month or 70% of such allowances
whichever is less

10. Non Taxable Allowances
 Some of the allowances, usually paid to government servants,
judges and employees are not taxable. These are:
 Allowances paid to Govt. servants abroad:
When servants of government of India are paid allowance while
serving abroad, such income is fully exempt from taxes.
 Allowances to Judges of Supreme Court are not taxable.
 Allowances paid by the UNO to its employees

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