Exemption of allowance

In India, under the new tax regime effective from Assessment year 2021-22, allowances like Internet allowances and fuel allowances can be claimed as deductions if they are part of your salary and meet specific conditions under the INcome Tax Act. 

For claiming deductions for allowances in the Income Tax Return(ITR):

Allowances like Internet and fuel are typically considered part of taxable income if received by an employee. 

The new regime has limited deductions compared to the old regime. Most allowances are taxable, and deductions for allowances are generally not availale under the new regime unless specified under specific sections of the Income Tax Act. 

In the ITR form, allowances are usually reported under " Income from Salary". Specific deductions, if allowable, would be claimed based on the sections applicable. 

Please share specific conditions for taking allowance deduction 

Under the new tax regime, a fixed internet allowance and a fixed fuel allowance are generally taxable as salary; they are not separately deductible merely because they are employment-related expenses. For a salaried employee, any permitted exemption is reported under Salary in the ITR—not claimed as a deduction under “Other Sources” or Chapter VI-A.

• Internet: Reimbursement of actual official internet expenses may qualify for exclusion from taxable salary where it is incurred wholly for official duties and supported by appropriate bills and employer records. A fixed allowance without this substantiation is generally taxable.
• Fuel/conveyance: The limited exemption for transport allowance applies to an employee who is blind, deaf and dumb, or orthopaedically handicapped with a disability of the lower extremities, subject to the prescribed conditions and limit. Other routine fuel or conveyance allowances are generally taxable under the new regime. Official-duty travel reimbursements may be treated differently if properly documented.
• Report salary after the employer-calculated exemptions in Schedule Salary of the ITR. The exact treatment depends on whether the payment is a fixed allowance or reimbursement and how the employer has reported it in Form 16.

Correct classification of salary components and supporting bills makes payroll and return preparation more reliable. Manual review of every allowance and reimbursement is difficult, while automation can reduce repetitive work and keep professional judgment in control. At Jir AI we provide 2,000+ AI agents and 650+ integrations to streamline your practice’s day-to-day workload. For a practical look at how this can fit your workflow, message us on WhatsApp: https://wa.me/message/3HVOZ7HIY4ESC1

Internet and fuel allowances in the new regime:

• Under the new regime, fixed allowances (internet, fuel) aren't exempt; only a few are (transport for disabled employees, conveyance for official duties, daily allowance on tour, Agniveer). They're fully taxable.

• Reimbursement of actual expenses for official use (with bills) isn't salary in the first place, e.g. official phone or internet bills, so those remain non-taxable under either regime. Fuel for a personal car used partly officially is valued under Rule 3(2).