1. Income from Salaries
Basic concept: Every payment made by an employer to his employees
for Service rendered by him would be chargeable to tax as income
from Salaries. Provisions regarding income under head of salaries
given under Section 15, 16 and 17.
✓U/s 15- deals with chargeability Salaries due or paid or advance
✓U/S 16- standard deduction , Entertainment allowance & Profession
tax
✓U/S 17 – salary includes perquisites And profits in lieu of salary
2. ALLOWANCES
➢ An allowance is a fixed amount of money received by a salaried
employee from his employer to meet a particular type of
expenditure over and above salary. For example, companies provide
overtime allowance to employees if they work more than fixed
working hours. Based on their respective tax treatment, these
allowances can be categorized into three as - Taxable, non taxable
(Exempted) and partially taxable.
3. FULLY EXEMPTED ALLOWANCES
➢ Allowance to High Court and Supreme court Judges.
➢ Allowance received by an employee of UNO
➢ Allowances granted to Govt. employee rendering services outside
India
4. FULLY TAXABLE ALLOWANCES
Any other allowance is fully chargeable to tax and such allowances may be:
• Dearness Allowance
• City Compensatory Allowance.
• Overtime Allowance.
• Medical Allowance.
• Servant Allowance.
• Tiffin Allowance.
• Lunch Allowance
• Family Allowance
• Warden Allowance
• Deputation Allowance
• Non practicing Allowance
• Project Allowance
• Dog Allowance
• Marriage Allowance
• Water and Electricity Allowance
• Capital Compensatory Allowance
• Entertainment Allowance for Non-Government Employees
5. To the extent and
actual limit of
exemption given in
Act
• HRA
• Education Allowance
• Hostel Allowance
• Tribal Area Allowance
• Underground
Allowance
• Transport Allowance
• Running flight Allowance
Tothe extent and
actual expenses
incurred
• TravellingAllowance
• Helper/ Assistance
Allowance
• Conveyance
Allowance
• Daily
Allowance
• Academic
Allowance
• Uniform
Allowance
Partly Exempted Allowances
6. PARTLY EXEMPTED ALLOWANCE (PERSONAL
ALLOWANCES)
The special allowances or benefits of the following types are exempt to the extent of the amount of allowance
or the amount specified in rule 2BB whichever is lower, as per section 10(14)(ii)
• (1) children education allowance children education allowance is exempt upto Rs.100 p.M. Per child upto two
child.
• (2) Hostel Allowance Any allowance granted to an employee to meet the hostel expenditure on his child is
exempt upto Rs. 300 p.m. per child upto two children. Remaining provisions are similar to children education
allowance.
• (3) Transport Allowance Transport allowance granted to an employee, who is blind, deaf, dumb or
orthopaedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of
commuting between the place of his residence and the place of his duty is exempt
upto Rs. 3,200 p.m.
7. PARTLY EXEMPTED ALLOWANCE(PERSONAL
ALLOWANCES)
• (4) Running flight Allowance: Any allowance granted to an employee working in any transport
system to meet his personal expenditure during his duty performed in the course of running of such
transport from one place to another place is called outstation allowance. Such allowance is given in
lieu of daily allowance. It is exempt to the extent of least of the following: (i) 70% of the
allowance (ii) Rs. 10,000 p.m.
• (5) Underground Allowance Underground Allowance granted to an employee who is working in
uncongenial, unnatural climate in underground mines is exempt upto 800 p.m.
• (6) Tribal Area Allowance: It is exempt upto actual amount receive or Rs200 per month whichever
is less. The exemption is available in M.P, Tamil Nadu, U.P, Karnataka, Tripura, Assam, West
Bengal, Bihar and Orissa.
8. PARTLY TAXABLE ALLOWANCES(OFFICIAL
ALLOWANCES)
The special allowances or benefits of the following types are exempt from tax under Rule 2BB read with
section 10(14)(i), however any saving is chargeable to tax.
• (a) Travelling Allowance: Any allowance granted to meet the cost of travel on tour or transfer shall be
exempt but saving is chargeable to tax. Travelling allowance shall also include any amount paid in
connection with transfer, packing and transportation of person effects.
• (b) Daily Allowance: Any allowance granted to meet the ordinary daily charges incurred by an
employee on account of absence from his normal place of duty, whether granted on tour or for the
period of journey in connection with transfer.
• (c) Conveyance Allowance: Any allowance granted to meet the expenditure incurred on conveyance in
the performance of duties of an office or employment of profit–provided free conveyance is not
provided by the employer.
9. PARTLY TAXABLE ALLOWANCES(OFFICIAL
ALLOWANCES)
• (d) Helper Allowance: Any allowance granted to meet the expenditure incurred on a helper where such
a helper is engaged for the performance of duties of office or employment.
• (e) Academic Allowance: Any allowance granted for encouraging academic research and training
pursuits in educational and research institutions.
• (f) Uniform Allowance: Any allowance granted to meet the expenditure incurred on the purchase or
maintenance of uniforms for wear during the performance of the duties of an office or employment.
10. PARTLY EXEMPTED ALLOWANCES AND THEIR
EXEMPTION
1. Children Education allowance : exempted upto Rs.100 per month per child maximum for two
children.
2. Hostel expenditure allowance: exempted upto Rs.300 per month per child maximum for two children.
3. Tribal area allowance: exempted upto Rs.200 per month.
4. Underground allowance: exempted upto Rs.800 per month.
5. Transport Allowance: exempted upto Rs.3200 per month in case employee is blind or orthopedically
handicapped.
6. Allowance for Transport Employees of running flight allowance:
exemption of 70% of such allowance or Rs.10,000 per month whichever is less.
