Allowances

Taxable Allowances	Partly Taxable Allowances	Fully Exempt Allowances
a) Entertainment Allowance	a) House Rent Allowance	a) Allowance granted to Government Employees outside India
b) Dearness Allowance	b) Special Allowance	b) Sumptuary allowance granted to High Court or Supreme Court Judges
c) Overtime Allowance		c) Allowance paid by UNO
d) Fixed Medical Allowance		d) Compensatory allowance to judge.
e) City Compensatory Allowance
f) Interim Allowance
g) Servant Allowance
h) Project Allowance
i) Tiffin/Lunch/Dinner Allowance
j) Any other Cash Allowance
k) Warden Allowance
l) Non-Practicing Allowance

Taxable Allowances

a) Entertainment Allowance: Entertainment Allowance is provided to employees to meet the expenses of hospitality of customers. It is fully taxable in the hands of employees other than government employees i.e. only Government employees can claim exemption in the manner provided in section 16 (ii). The exemption is allowed as follows:

Lower of:-

1) 1/5 of Basic Salary*

2) Rs. 5000 or

3) Actual Allowance received.

b) Dearness Allowance: Dearness Allowance is a Cost of living Adjustment allowance paid to the employee. It is taxable along with salary. For tax planning it must be provided as a part of salary so that assessee can get more benefit on calculation of Gratuity, Pension, etc.

c) Overtime Allowance: Many a times workers work over and above the office/working hours. Compensation received for such work is known as Overtime allowance. Thus, being a part of Salary it is fully taxable.

d) Fixed Medical Allowance: The fix amount paid by the employer for meeting the Medical Expenses of the employee or any of his Family members is fully taxable. For tax planning purpose, the employer should reimburse the actual expense incurred for medical treatment of the employee or any of his Family members. Such reimbursement if exceeds Rs. 15,000; than the same is also taxable.

e) City Compensatory Allowance: City Compensatory Allowance is paid to employee to meet the increased cost of living in the cities arising due to inflation effect. Such allowance is fully taxable. Actual expenditure by the employee is not taken into consideration.

f) Interim Allowance: Interim Allowance is paid to employee as a part of Final allowance. It is fully taxable.

g) Servant Allowance: Allowance received for meeting servant charges is also fully taxable.

h) Project Allowance: Project Allowance paid to employee to meet the project expenses is also fully taxable.

i) Tiffin/Lunch/Dinner Allowance: Tiffin/Lunch/Dinner Allowance received by employee to meet the food expense incurred by him is fully taxable.

j) Any other Cash Allowance: Any other Cash Allowances received by the employee such as marriage allowance, Holiday Allowance, etc are fully taxable in the hands of the employee.

k) Warden Allowance: Such allowance is paid to the employee working as a Warden i.e. Keeper in the educational Institute. He may be working as a Rector in hostel or Proctor in the Institute. Allowance so received is fully taxable.

l) Non-Practicing Allowance: Non – Practicing Allowance is paid to the Medical Officers attached to the Clinical Centers of the various Laboratories/Institutes as introduced in New Recruitment and Assessment Scheme with effect from 1-2-1981. It is fully taxable in the hands of the employee.

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Manpreet Kaur

CA Pallav Singhania

Manpreet Kaur

FriedrichDickinson

Sarah Lison

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