What is Allowance ?  Types of Allowances  in Income Tax

The term allowance has come from the word “to allow” which means according to the Oxford dictionary is ” a sum of money paid regularly to a person to meet needs and expenses” . Such Allowances is an amount of money which is given or allotted to an employee by the employer at regular intervals for a specific purpose . Here you can know about what is Allowance ? 

To encourage and motivate employees, the employer pays some extra amount above and over the salary  in cash or in kind with regular intervals. The Allowance payment only for the purpose of meeting some losses and extra expenses of employees. 

There are different types of allowance i.e. medical allowance, Dearness allowance, entertainment allowance, Traveling allowance, meals and tiffin allowance, house rent allowance, and special allowance etc. By taking such types of extra benefits the employees give their full effort to their work for the achievement of organizational goals.

 Such Allowances may be fully or partly taxable for income tax purposes. And may be exempted in income tax purposes. So basically allowance may be categorised into 3 types.

1) Fully Taxable Allowance 

2) Partly Taxable Allowance 

3) Exempted(Not Taxable) Allowance 

 

Types of Allowances and its taxability:-

Types of allowances

Fully Taxable Allowance:-

• Dearness Allowance: (महंगाई भत्ता)

The allowance which is paid to the employees to cope with inflation. It is paid to government employees, public sector employees  etc.

• Entertainment Allowance: (मनोरंजन भत्ता)

mainly this kind of allowance is given to private employees. This is an allowance that is provided to the employees to reimburse the expenses which are incurred on the hospitality like meeting, drink, fooding, hotel stay etc. Entertainment allowance is fully taxable under income tax purpose .

• Overtime Allowance: (ओवरटाइमभत्ता)

Overtime allowance is the allowance which is paid to the employees for working above the regular working hours.

• City Compensatory Allowance: (शहर का मुआवजा भत्ता)

This kind allowance is paid to those employees who move to urban cities which is fully taxable.

• Project Allowance:( परियोजनाभत्ता)

When an employer paid an allowance to the employees to meet the project expenses. This is fully taxable allowance.

• Tiffin/Meals Allowance: (टिफिन / भोजनभत्ता)

Employees may be provided with meal and tiffin allowances in some cases which is fully taxable.

• Cash Allowance: (नकदभत्ता)

Employers may also pay cash allowance in some cases like for marriage or holiday purposes which is also fully taxable.

Partly Taxable allowances:-

House Rent Allowance: (मकानकिराया भत्ता)

HRA allowance is much popular that an employer pays to his employee for accommodation. This kind of allowance is partly taxable.

• Entertainment Allowance: (मनोरंजन भत्ता)

Entertainment allowance received by any non-government employees or private employees are Fully Taxable. But in case of government employees, it is Partly Taxable.

• Allowances u/s 10 (14 )(1):-

    Daily allowances: to meet the ordinary charges during the time of tour.

    Travelling allowance: to meet the travel cost.

    Conveyance allowance : to meet the conveyance expenses during the performance of official duties.

    Academic research allowance: to meet the expenses relating to academic research & training etc.

    Uniform allowance– to meet the expenses of maintenance and purchase of uniform in office duties.

    Helper allowances : to meet the expenses on helper engagement in official duties.

• Allowance u/s 10(14)(ii) :-

    Border area allowances : exempted upto 200 per month to 1300 per month.

    Children education allowances :100 per child or actual amount received per child which over is less is exempted up to maximum two children.

    Transport allowances: to meet the expenditure of transport exempted up to rs 1600 permonth 3200 per month in case of blind handicap disability lower extremities employee) or actual amount received whichever is less.

    Underground allowances “expenses of the em[ployee who is working Uncongenial ,unnatural climate , underground mixes: Example up to 7800 per month and actual amount received which is less.

    Counter insurgency allowances : exempt up to rs.  3900 per rmonth ,counter insurgency allowances and both allowances can not be taken at the same time .

    Island duty allowances- exempt up to 3250 per month .

    Compensatory modified allowances : exempt up to 1000 per month. employees  cannot claim any exemptions in respect of border area allowances and Compensatory exempt at same time.

    Compensatory field area allowances : exempt up to 2600 this allowance and border area allowances  can not take the same time .

    High level allowances: These allowances given to armed forces operation in high altitude area.exempted as altitude of operation in 9000 feet to15000 feet . upto 1060 per month altitude 15000 feet up to 1600 per month.

    Special compensatory allowances  in all areas: Exempted  from 300 per month to 7000 per month depending upon the place of posting.

Tribal area / scheduled area allowances: exempted up to 200 per month or actual amount –received whichever is less.

    Hostel expenditure allowances: exempted upto 300 per month or actual amount received per child. Whichever is less upto maximum 2 children. This is the allowance for kids.

    Running flight allowances employee working in a transport business :such allowances given to an employee working in any transport business to meet his personal expenditure during his duty, such transport from one place to another place exempted upto 70% of such allowances or rupees 10000 per month whichever is less

Exempted (Non Taxable) allowances: 

•     Allowances paid to the Govt. :(सरकार को भत्ते का भुगतान)

servants who are working abroad: When the government employees of India are paid allowances to those who are working abroad.

•     Sumptuary allowances: (व्यय-विषयक allowance)

Sumptuary allowances which are paid to the judges of High Court  and Supreme Court which are not taxable.

•     Allowance received by UNO employee: (UNO कर्मचारी को मिलने वाला भत्ता)

Allowances received by the employees of UNO are fully exempt from tax.

•     Compensatory allowance of judges: (न्यायाधीशों का अनिवार्य भत्ता)

When a judge receives a compensatory allowance, such kind of allowance is also not taxable.It may be noted that a person can save tax on income from salary by getting the tax saving allowances.

•     Allowance of SAARC: (SAARC  का भत्ता)

salary and allowances received by a teacher or research professor from SAARC members are fully exempted for income tax purposes.

From the above discussion you know about what is allowance ? and Types of allowances.