"Allowance" is defined as a fixed quantity of money or other substance given regularly in addition to salary for meeting specific requirements of the employees. Most allowances are taxable like city compensatory allowance, tiffin allowance, fixed medical allowance and servant allowances. Encashment of any concession is also taxable.
- House Rent Allowance:- Out of house rent allowance received during the year, least of the following three amounts will not be included in income.
- The amount equal to 50% of annual salary, for persons staying in Mumbai, Chennai, Calcutta or Delhi, but 40%, for others
- The actual amount of house rent allowance received
- The amount of rent actually paid in excess of 10% of annual salary ( Here, salary includes basic salary, dearness allowance, and commission on fixed percentage, but not other allowances).
- Transport allowance :- Transport allowance for travelling from residence to office is exempt up to Rs 800 per month
- Any allowance granted for encouraging the academic, research and other professional pursuits is exempt, to the extent the allowance is utilised for the purpose specified.
- Children Education Allowance:- Rs. 100 per month per child up to a maximum of two children.
- Any allowance granted to an employee to meet the hostel expenditure on his child:- Rs. 300 per month per child up to a maximum of two children
Salary income is taxable in the hands of individuals only. No other type of person such as a firm, company can earn salary income.
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