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Allowances Under Section-17(3) under Head 'Salary' Income

1.3.      ALLOWANCES [ Section 17(3)]

The term Allowance has been derived from the word ‘to allow’ . As per Oxford Dictionary the word ‘Allowance’ means “any amount or sum allowed regularly”. As such allowances are given in cash along with salary by the employer. These are divided into three categories on the basis of their tax treatment . these are :

Fully Exempted

Fully Taxable

Partially Taxable

1. Foreign Allowance only in case of Govt. employees posted outside India.

1. Dearness Allowance Additional D.A. High Cost of Living allowance
2. City Compensation Allowance
3. Capital Compensatory Allowance
4. Lunch Allowance
5. Tiffin Allowance
6. Marriage Allowance
7. Family Allowance
8. Deputation Allowance
9. Warden ship Allowance
10. Non participating Allowance
11. Project Allowance
12. Overtime Allowance
13. Fixed Medical Allowance
14. Entertainment Allowance
15. Water and Electricity Allowance

1. Hose Rene Allowance
2. Allowance covered u/s10(14) :
i. Helper Allowance
ii. Uniform Allowance
iii. Academic Allowance
iv. Conveyance Allowance
v. Traveling Allowance
vi. Any special allowance in the nature of Composite Hill compensatory Allowance or High Altitude Allowance etc.
vii. Any compensatory Allowance in the nature of Border area or remote area or difficult area or disturbed area Allowance.
viii. Transport Allowance
ix. Tribal Area Allowance
x. Running Allowance given to employees of Transport Sector.
xi. Children Education Allowance
xii. Hostel Expenditure Allowance
xiii. Compensatory Field Area Allowance
xiv. Compensatory Modified Field Area Allowance.


1.3.1.   IN CASE OF FOLLOWING SPECIAL ALLOWANCES AMOUNT OF EXEMPTION IS AMOUNT OF EXPENDITURE INCURRED :

Name of Allowance (THAR DUCT)

Exemption  Allowed

Transfer Allowance

Exemption allowed is amount of expenditure incurred for official purpose or for specified purpose (it means if expenditure is incurred personal purpose or is incurred for specified purpose, then such expenditure incurred or saved is taxable.

Academic Allowance ( granted to employee for higher studies)

Research and Development Allowance ( R & D)

Daily Allowance ( where employee is sent for official work outside the city limits – fooding etc.

Uniform Allowance

Conveyance Allowance (within city limit)

Traveling Allowance ( outside city limit)

1.3.2.   HOUSE RENT ALLOWANCE(HRA)

HRA Exemption in respect of House Rent Allowance regulated by Rule 2A. For purposes qualifying the exemption, the place where the residential accommodation is situated is divided into :

(i)  Major Cities (Bombay, Calcutta, Delhi and Madras), and

(ii)  Other Places.

The amount exempt will be the least of the following :

MAJOR CITIES                                                   OTHER PLACES

>> Allowance actually received                        >> Allowance actually received

>> Rent paid in excess of 10%                        >> Rent paid in excess of 10% of Salary.
of Salary.

>>50% of Salary                                              >> 40% of Salary

ILLUSTRATION
An employee working in Bombay is in receipt of House Rent Allowance of Rs.1,250 p.m. He is occupying a residential accommodation, for which rent paid by him is Rs.2,000 .He is getting a salary of Rs.3,500 p.m. and dearness allowance  of Rs. 1,000 p.m. which counts for retirement benefits.

he exemption will be worked out as follows :

  1. House Rent Allowance received for the year           Rs.15,000(A)

  2. Rent paid less 10% of salary including

Dearness Allowance Rs.24,000 minus
(54,000 X 10)/100 =                                               Rs.18,600(B)

  1. 50% of Salary                                            Rs.27,000(C)

Exemption admissible (least of A,B and C)   Rs.15,000

 
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