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ALLOWANCES [Section 17(3)]- For Computing ‘Salary’ Income

 

Meaning and Tax Treatment of Allowances for Computing Salary Income

  1. Fully Exempted Allowances

  2. Fully Taxable Allowances

  3. Partially Taxable Allowances ( House Rent Allowance - HRA )

  4. Allowances covered U/s 10(14)

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 allowances are given to an employee to meet some specific type of loss or expenditure of the employee or to help him to meet certain type of expenses. For example, house rent allowance is given to help the employee to pay house rent or to get a house on rent. These are divided into three categories on the basis of their tax treatment. These are :

Tax Treatment of Allowances for Computing Salary Income

A
Fully Exempted

B
Fully Taxable

C
Partially Taxable

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

2. House rent allowance given to judges of High Court and Supreme
Court.

3. Sumptuary Allowance given to judges of High Court and Supreme Court

4. Allowances from U.N.O

5. Allowance to teacher or professor from SAARC member States

6. Allowance to member of Union Public Service Commission

1. Dearness Allowance
Additional Dearness
allowance
High Cost of living
allowance

2. City Compensatory Allowance

3. Capital Compensatory
Allowance

4. Lunch Allowance

5. Tiffin Allowance

6. Marriage Allowance

7. Family Allowance

8. Deputation Allowance

9. Wardenship Allowance

10. Non practicing Allowance

11. Project Allowance

12. Overtime Allowance

13. Fixed Medical Allowance

14. Entertainment Allowance for non-
Govt. employees

15. Water and Electricity Allowance

16. Servant Allowance

17. Holiday Trip Allowance

1. House Rent Allowance

2. Entertainment Allowance for Govt. employees (see details)

3. Allowances covered u/s 10(14)

(i) Helper Allowance

(ii) Uniform Allowance

(iii) Academic Allowance

(iv) Conveyance Allowance

(v) Travelling Allowance

(vi) Any special allowance in the nature of Composite Hill compensatory Allowance or High Altitude Allowance or Uncongenial Climate Allowance or Snow Bound Area Allowance or Avalanche Allowance

(vii) Any Special 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

(xv) Special Allowance in the nature of counter insurgency allowance given to the members of armed forces operating in areas away from their permanent locations for a period of more than 30 days.

Note. An allowance which is neither covered under category A (Fully exempted) or category C (Partly taxable) shall always be fully taxable as salary income.

 
More.. Topics ... @ ' SALARY'
Salary-Definition & Meaning

Computation of Salary Income

Definition of Word ‘Salary’ [ Section 17(1)]

Section-15 : List of Incomes Chargeable to Income Tax under the head ‘ SALARIES’

Important Points / Characteristics for Computing Salary Income

Provident Fund

Treatment of Provident Funds (PF) for Computing Salary Income

Taxable Portion of annual accretion to RPF [Section 17(1)(vii)]. for Computing Salary Income

Transferred Balance from URPF to RPF [Section 17(1)(vii] for Computing Salary Income

Refund from Provident Fund [Section 17(3)(ii)] for Computing Salary Income

New Pension Scheme [ NPS] for Central Government and other Employees joining new jobs on or after 1-1-2004 for Computing Salary Income

 
Allowance [ Section 17(3)]

Allowance [ Section 17(3)] – for Computing ‘Salary’ Income

Fully Exempted Allowances for Computing ‘Salary’ Income

Fully Taxable Allowances for Computing ‘Salary’ Income

House Rent Allowance (HRA) for Computing ‘Salary’ Income

Allowances covered u/s 10 (14) for Computing ‘Salary’ Income

Meaning Of Salary For Different Purposes
PERQUISITES [Section 17(2)]

Meaning and Types of Perquisites [ Section 17(2)]

Taxability of Perquisites for Computing Salary Income

Perks Exempted From Tax for all Employees and not added in Salary Income

Rent Free House [Section 17(2)(i) Rule 3(1)]

Rules Regarding Calculation Of Value Of Rent Free House

Valuation Of Rent Free Accomodation (Unfurnished & Furnished)

Valuation of Rent Free Accommodation Provided as Concessional Rent [Sec. 17(2)ii)]

Obligation of Employee of Rent Free House met by Employer [Section 17(2)(iv)]

Sum payable by the Employer directly or through a fund to effect an assurance / an annuity [Section 17(2)(v)]

Any specified security or sweat equity shares allotted or transferred to employee [Section 17(2)(vi)] [ w.e.f. 1-4-2009]

Contribution to an Approved Superannuation Fund by the Employer [Sec. 17(2)(vii)]

Interest free or Concessional loan from employer [Rule 3(7)(i)]

Valuation of Perk in respect of Travelling, Touring, Accommodation

Food or Beverages Facility by Employer to Employee

Valuation of Perquisite in respect of Gift Voucher or Token

Valuation of Perquisite in respect of Credit Card

Valuation of Perquisite in respect of Club Facility

Use of Moveable Assets by Employer to Employee

Transfer Of Moveable Assets to the employee

Meaning of Specified Employee for Taxable Perquisites [Section 17(2)(iii) Rule 3]

Valuation of Perquisite of Motor Car or any Other Automotive Conveyance [Rule 3(2)]

Perquisite of Free domestic servants [Rule 3(3)]

Perquisite in respect of free supply of gas, electric energy, water supply [Rule 3(4)]

Free Educational Facilities to Children of Employee’s Household [Rule 3(5)]

Facility of Free or Concessional Private Journey to an employee by the employer engaged in the carriage of passengers or goods [Rule 3(6)]
PROFITS IN LIEU OF SALARY [17(3)]

Receipts treated as Profit in Lieu of Salary [ Section 17(3)]

Leave Travel Concessional (LTC) Assistance [Section 10(5)]

Death-Cum-Retirement Gratuity [Section 10(10)]

Non-Government employees receiving gratuity under payment of Gratuity Act, 1972 [POGA]

Non-Government Employees receiving gratuity (Not covered under payment of Gratuity Act)

PENSION [Monthly and Commuted] for Computing Salary Income

Leave Encashment [Section 10(10AA)] for Computing Salary Income

Any amount received as compensation on termination of employment [Section-10B]

Any amount received on voluntary retirement [Section 10(10C)]

Payment received from Recognised Provident Fund [Section 10(12)]

Any payment from Superannuation Fund [Section 10(13)]

 
DEDUCTIONS OUT OF GROSS SALARY [ Section-16]

Entertainment Allowance to Government Employees [Section-16(ii)]

Tax on Employment Under Section - 16(iii)

 
DEDUCTIONS U/S 80C OUT OF GROSS TOTAL INCOME

Section - 80C : Deductions from Gross Total Income (GTI) in case of Individual and HUF

Qualifying Amount ( Q.A.) for Deduction U/s 80C

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