Allowances Taxability for Salaried Employee
Allowances:-
Allowances Taxability for Salaried Employee are
1. Fully-taxable allowances:
a. DA or special allowance
b. Fixed medical allowances
c. Tiffin allowanced. Servant allowances
e. Nonparticipating allowance
f. City compensatory allowances
g. Field allowances
h. Overtime allowances
2. Partly exempted allowances:
a. Special allowances
1.) Children Education Allowance – Exempt up to actual amount received per child or Rs.100 p.m. per child up to a maximum of 2 children, whichever is less
2.) Hostel Expenditure Allowance – Exempt up to actual amount received per child or Rs.300 p.m. per child up to a maximum of 2 children, whichever is less.
3.) Tribal Area Allowance – Exempt up to actual amount received or Rs. 200 per month, whichever is less
4.) Transport Allowance – It is exempt up to Rs.800 p.m. but in case of blind or orthopedically handicapped, it is exempt up to Rs. 1600 p.m.
5.) Allowance allowed to transport employees working in any transport system –It covers Fixed Allowance given by the employer to his employee working in any transport system, to meet his personal expenditure during his performance of duty and amount of exemption shall be 70% of such allowance or rs.10,000 p.m. whichever is less.
b. HRA
1.) HRA is exempt to the extent of the minimum of following 3 amounts: Actual Amount Received, Excess of Rent paid by the assessee over 10 % of salary due to him for the relevant period, 50% of the salary if residential house is situated at Mumbai, Kolkata, Delhi, Chennai. 40% of the salary if the residential house is situated in a city other than above metropolitan cities.
c. Conveyance Allowance – Starting FY 2015-16, this limit has been increased to Rs 19,200 per annum.
d. Leave Travel Allowance (LTA) – This concession is allowed for the employee and his family where family means spouse and children. This allowance is limited to two children only and that too to only those born after Oct 1, 1998. This could also be a stepchild or an adopted one. The Income Tax Department counts twins as one unit.
3. Fully exempted allowance:
a. 1.Foreign Allowance
b. Sumptuary allowances
c. Allowance From UNO
d. Per Diem Allowance
4. Retirement benefits:-
a. gratuity
i. if employee covered under gratuity act then exemption up to least of formula-based amount or 10,00,000 or actually received
ii. if employee not covered under gratuity act then exemption up to least of 1/2(average of 10months salary)(no. of completed years) or 10,00,000 or actually received
b. Leave Salary
i. It is fully exempt for Central and State government employees
ii. For non-government employees, the least of the following three is exempt-10 months average salary preceding retirement or resignation(where average salary includes basic and DA and excludes perquisites and allowances) or Leave encashment actually received or Amount equal to salary for the leave earned(where leave earned should not exceed 30 days for every year of service) or Rs 3,00,000
c. Pension
i. For a government employee, commuted pension is fully exempt.
ii. For a non-government employee, it is partially exempt. If gratuity is also received with a pension – 1/3rd of the amount of pension that would have been received if 100% of the pension was commuted is exempt from commuted pension and remaining is taxed as salary. If only the pension is received, gratuity is not received – ½ of the amount of pension that would have been received if 100% of the pension was commuted is exempt.
d. Voluntary receipts
i. Least Compensation received is towards voluntary retirement or separation or Maximum compensation received does not exceed Rs 5,00,000. The Allowances Taxability for Salaried Employee recipient is an employee of an authority established under the Central or State Act, local authority, university, IIT, state government or central government, notified institute of management, or notified institute of importance throughout India or any state, PSU, company or cooperative society. The receipts are in compliance with Rule 2BA.
