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Taxability of Allowances

Taxability of Allowances

Allowance is defined as a fixed quantity of money or other substance given regularly in addition to salary for meeting specific requirements of the employees.

House Rent Allowance:

Provided that the expenditure on rent is actually incurred, exemption is available upto the least of the following :

  • HRA received.
  • Rent paid less 10% of salary.
  • 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi). Salary here means Basic Pay + Dearness Allowance, if dearness allowance is provided by the terms of employment.
  • Use Taxable HRA Calculator.

Leave Travel Allowance:

The exemption is available for the amount actually incurred on performance of travel on leave to any place in India by the shortest route to that place. This is subject to a maximum of the air economy fare or AC lst Class fare (if journey is performed by mode other than air) by such route, provided that the exemption shall be available only in respect of two journeys performed in a block of 4 calendar years.

Certain other allowances given by the employer to the employee are exempt u/s 10(14) subject to actual expenses incurred:

  • Allowance granted to meet cost of travel on tour or transfer.
  • Allowance granted on tour or journey in connection with transfer to meet the daily charges incurred by the employee.
  • Allowance granted to meet conveyance expenses incurred in performance of duty, provided no free conveyance is provided.
  • Allowance granted to meet expense incurred on a helper engaged for performance of official duty.
  • Academic, research or training allowance granted in educational or research institutions.
  • Allowance granted to meet expenditure on purchase/maintenance of uniform.

Taxability of Allowances

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