Meaning of Allowances
Allowances are the fixed amount,
which employer paid to their employees over to the salary to meet with special
nature of expenditures. For Example, companies provide the OT (Overtime) to
their employees as a payment for serving to the company after working hours.
All the allowances included in the salary and treated as a part of the taxable
income under income tax laws. In some cases, allowances are also exempted
according to income tax laws.
For the Ease of the understanding and
computation process Allowance categorised under three types:
1. Taxable Allowances
2. Partially Taxable Allowances
3. Non-Taxable Allowances
Briefs about Categorized Allowances:
Taxable Allowance under Income tax
law in India
These kinds of allowances are treated
as the part of the salary and will not be liable to get the exemption under any
income tax law (Partially taxable Allowance and No-Taxable Allowance).
Find below for Taxable Allowances:
Entertainment Allowance: Entertainment Allowance paid to the employee for making payments
for the welcome for their customer drinks, meals, business outgoings, Client
meetings etc. This is totally taxable income for private-sector employees.
Though government employees can claim for exemption under section 16 (ii).
Overtime Allowance: This allowance paid to the employee as part of his salary, for giving
extra hours to the company. All kind of overtime allowances are taxable.
Dearness Allowance: Government and public sectors employees and pensioners are allowed to
avail the Dearness allowance. To deal with increasing rate of inflation government
paid DA with the motive to boost the in-hand salary of the employee and helps
them to deal with the prices increase in the market.
Meal Allowance: If the organisation provides the meal services to their employees in the
form of Tiffin, Refreshment etc., such kind of services included in the Meal
allowance and totally taxable under income tax regime.
City Compensatory Allowance (CCA)
: City Compensatory allowance paid to
the employees working in metropolitan cities, as living in metropolitan cities
is expensive as compared to live in any other towns and small towns. This
allowance is also providing to encourage people to work in big
cities.
Interim Allowance: This allowance is provided by the employer instead of final
allowance and its also taxable according to the income tax rules.
Cash Allowance: it’s paid for the expenditure like
marriage allowance, holiday allowance etc. Cash allowance is also a taxable
allowance.
Servant Allowance: it,s paid to the employee who is hired for the service of a
servant. It’s also a taxable allowance.
Project Allowance: Project allowance provides to the employees to reduce the expense on the
project.
Warden Allowance: Such kind of allowance provided to an employee who is working as warden,
storekeeper in an educational institute. This allowance is entirely taxable.
Non-Practicing allowance: When any doctor associated with several different laboratories and
medical organization, any kind of non practicing allowance is taxable.
Non Taxable Allowance
Non-taxable allowances are also part
of the particular salary and fully exempted from the tax. Following are
non-taxable allowance:
Allowance paid to government
employees abroad: This allowance provides to the
government employees who are giving their services in other countries, and it’s
a non-taxable allowance.
UNO Employees Allowance: This allowance as a name provided to the UNO employee and non-taxable.
Sumptuary Allowances: This allowance is given to the judges of high court and supreme court
and its exempted from income tax.
Compensatory Allowance: Any Compensatory allowance received by judges of HC &SC completely
exempted from income tax.
Partially Taxable Allowance in India
Partially taxable allowances
are allowances which are not chargeable nor exempted completely. Below is the
list of such allowances:
Conveyance Allowance: This allowance is payable to the employee as a conveyance allowance to
commute to the office from home daily. Conveyance allowance is not taxable upto
₹ 16,00 and more than to it taxable under income tax act.
HRA (House Rent Allowance): For coping the accommodation expenses home rent allowance given to the
employees. If any individual living in his/her own house, its
fully taxable in such condition.
Medical Allowance: Medical allowance is given to the employee ,if employee itself (he/she)
or its family member sick. Medical allowance in non-taxable to a specific
amount limit, if it exceeds, it become taxable.
Special Allowances: special allowances paid to the employees for their performance under
section 14(i) and it’s partially taxable as it’s not treated as a perquisites.
Note:- Often we people getting
confused by the term of allowance and reimbursement, which is totally two
different terms.
Allowance: Allowances are the part of the salary and some taxable, non-taxable and
partially taxable according to the income tax rules.
Reimbursement: it’s an expense which is made by the employee on behalf of the employer.
Reimbursement is treated as a business expense and never added to employee
income. That’s why it’s not taxable.
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