1. Dearness Allowance/Additional Dearness Allowance/High cost of living allowance/Interim Relief.
Employees having fixed income suffer the most due to rise in prices and to compensate their loss, they are paid such allowances. So D.A. is nothing but an additional salary and it is fully taxable.
Some times it is mentioned that
D.A. enters into pay for service benefits; or
D.A. enters into pay for retirement benefits; or
D.A. is given under the terms of employment; or
It is treated as part of salary for calculation of all benefits such as provident fund, value of rent free house, house rent allowance, bonus, gratuity, leave encashment and all other retirement benefits.
In case any part of D.A. enters salary for calculation of only some of the retirement benefits (not all) then that part of D.A. will not form part of salary for the calculation of any retirement benefit.
2. City/Capital compensatory Allowance.
These are given to compensate for the high cost of living in a particular big city of India or any other capital city. These are also fully taxable.
3. Lunch / Tiffin / Marriage / FamiLy / Deputation / Wardenship / Non-practising / Project / Overtime / Fixed Medical Allowance.
These allowances are fully taxable.
4. Entertainment Allowance :.
This allowance is fully taxable irrespective of any expenditure incurred on entertainment of guests or customers. But in case any amount is reimbursed against any expenditure incurred by employee on entertainment of guests or customers it shall be fully exempted.
U/s 16(u) a deduction is allowed to those persons who receive this allowance. Till assessment year 2001-02 this deduction was admissible both to Government as well as private sector emplo’ees. But with effect from assessment year 2003-04 this deduction is admissible only to Government employees for an amount equal to least of following :
Statutory Limit 5,000 ;
1/5 th of basic salary only ; or
Actual entertainment allowance received during the previous year.
Important Note: The actual expenditure incurred by a government employee on entertainment of customers is not relevant for claiming deduction u/s 16(u).