Tax Free Allowances

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Tax rules vary from individuals with a salary to the ones having other/additional sources of income. They need to declare their salary income either offline or online to file their income tax returns.

Let’s first discuss allowance before proceeding ahead to Tax free allowances. Allowance is a moentary benefit provided by the employer to the employee that is over and above the base/regular salary. These benefits were introduced to cover the expenses that the individuals bore while at service. Some of the allowances are taxable, some partly taxable, and some of them are free from taxation.

There are various allowances on which benefits can be availed by salaried individuals on tax. These allowances are exempted under section 10(14) We will list them below:-
Special allowances under section 10(14)1 are

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

Under Section 10(14)(ii), the following allowances have been prescribed as exempt

Type of Allowance Amount exempt
(i) Special Compensatory Allowance for hilly areas or high altitude allowance or climate allowance. Rs.800 common for various areas of North East, Hilly areas of UP, HP. & J&K and Rs. 7000 per month for Siachen area of J&K and Rs.300 common for all places at a height of 1000 mts or more other than the above places.
(ii) Border area allowance or remote area allowance or a difficult area allowance or disturbed area allowance. Various amounts ranging from Rs.200 per month to Rs.1300 per month are exempt for various areas specified in Rule 2BB.
(iii) Tribal area/Schedule area/Agency area allowance available in MP, Assam, UP., Karnataka, West Bengal, Bihar,Orissa, Tamilnadu, Tripura. Rs.200 per month.
(iv) Any allowance granted to an employee working in any transport system to meet his personal expenditure during duty performed in the course of running of such transport from one place to another place. 70% of such allowance upto a maximum of Rs.6000 per month.
(v) Children education allowance. Rs.100 per month per child upto a maximum 2 children.
(vi) Allowance granted to meet hostel expenditure on employee’s child. Rs.300 per month per child upto a maximum two children.
(vii) Compensatory field area allowance available in various areas of Arunachal Pradesh, Manipur Sikkim,Nagaland, H.P., U.P. & J&K. Rs.2600 per month.
(viii) Compensatory modified field area allowance available in specified areas of Punjab, Rajsthan, Haryana, U.P., J&K,HP., West Bengal & North East. Rs.1000 per month.
(ix) Counter insurgency allowance to members of Armed Forces. Rs.3900 Per month.
(x) Transport Allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of residence & duty. Rs.800 per month.
(xi) Transport allowance granted to physically disabled employee for the purpose of commuting between place of duty and residence. Rs.1600 per month.
(xii) Underground allowancegranted to an employeeworking in under groundmines. Rs.800 per month.
(xiii) Special allowance in thenature of high altitudeallowance granted to members of the armed forces. Rs. 1060 p.m. (for altitude of 9000-15000 ft.)
Rs.1600 p.m. (for altitude above 15000 ft.)
(xiv) Any special allowancegranted to the members of the armed forces in the nature of special compensatory highly active field area allowance. Rs. 4,200/- p.m.
(xv) Special allowance granted to members of armed forces in the nature of island duty allowance.(in Andaman & Nicobar & Lakshadweep Group of Islands) Rs. 3,250/- p.m.

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