Any fixed allowance is taxable as salary subject to the specific exemptions under Section 10(14). This section states maximum amount exempt from tax is, to the extent the allowance is utilised for the specific purpose for which the said allowance is given. That means the actual expenses incurred is tax free and balance if any is taxable.So as per income tax act one should keep the bills for claiming the exemption.
Upto 31.03.2009 most of the employers used to book the the total per diem allowance to the Travelling,Conveyance,Hotel expenses and used to pay FBT on that.Now theoritically the part of the allowance for which an employee can provide bills should be booked to the repective head and balance should be booked in salary and wages and employee should pay tax thereon.
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