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Allowances [Section 17(3)]: For Computing ‘Salary’ Income

Ramasamy Ulaganathan

28/06/2017 0 0

Meaning and Tax Treatment of Allowances for Computing Salary Income

Fully Exempted Allowances
Fully Taxable Allowances
Partially Taxable Allowances ( House Rent Allowance - HRA )
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.

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