Guide to .. Tax Management ,Tax Planning and Tax Saving

14.  Tax saving Allowances, Accommodation and Car for A.Y. 2015-2016 for Salaried Employees

Tax Saving on Allowances

Salaried employees in particular should take advantage of the following tax-free allowances permissible to them in terms of Rule 2BB (1) & (2):

(a) Conveyance Allowance (no free conveyance provided) and Travelling Allowance.

(b) Daily Allowance.

(c) Cost of Living Allowance:-


(i)      Composite Hill Compensatory Allowance

(ii)     Special Compensatory Allowance like Border Area Allowance, etc.

(iii)    Tribal Area Allowance.



(iv)    Children Education Allowance @ ` 100 p.m. for maximum two children.

(v)     Hostel Allowance @
` 300 p.m. for maximum two children.


(vi)    Compensatory Field Area Allowance.

Transport Allowance, etc. @ ` 800 p.m.

Exempted Special Allowance — Section 10 (14) (1)

As per Rule 2BB (i) (d), (e) and (f) the following are yet other important exempted special allowances for salaried-employees:


(a)     Any allowance (by whatever name called) granted to meet the expenditure incurred on a helper where such helper is engaged for the performance of the duties of an office or employment of profit.


(b)     Any allowance (by whatever name called) granted for encouraging the academic, research & training pursuits in educational and research institutions.


(c)     Any allowance (by whatever name called) granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit.

(Rule 2BB (i) (d), (e) & (f) inserted by notification No.S.O.617 (E) dated 7.7.1995).

Valuation of Perquisites as per new Rule 3

Rule 3 of the Income Tax Rules, 1962 has been substituted w.e.f. 1.4.2009. The following is the summary of this new rule:

Valuation of Residential Accommodation

(1) Provided by Central or State Government        =       At License fee

[2) Accommodation owned by employer                =       15% of salary for

cities with population over ` 25 Lakh


=       10% of salary for other cities with population over ` 10 lakh and below `25lakh

=       7.5% of salary in

other areas.

[3] Accommodation taken on lease                        =       15% of salary

[4) Accommodation in Hotel                                  =       24% of salary

[excluding for 15

days on transfer]


(5) Remote Area                                                    =       NIL

[6) Two Accommodation provided                          =       To be taxed if                                                                                               exceeds more than

90 days for transfer.

(7) Furnished Accommodation                               =       10% of cost of

furniture, etc. [other than hotels).

Valuation of Motor Car [From A. Y. 2010-2011]:

Now that the Fringe Benefit Tax is scrapped with effect from the A.Y.
2010—2011 the valuation of motor car has to be taken as per Rule 3 of
Income Tax Rules 1962.

Perquisite value would be
` 1,800 p.m. or ` 2,400 p.m. for car for personal and official purposes depending on the C.C. of engine up to 1.6 litre or more.

For chauffeur add
` 900 p.m. extra.

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