An allowance is a financial benefit of a fixed amount of money provided by an employer to meet a particular type of expenditure over and above regular salary. Allowances are regarded as part of the salary and are taxable, except for those under exemptions under various sections of the Income Tax Act. Based on the tax structure, these allowances can be categorized into three groups – Taxable, Non-taxable and Partially taxable.
Taxable allowances are treated as a part of salary and are not exempted under any sections of Income Tax. They include –
Partially taxable allowances are exempted from tax to a certain limit, as specified in the income tax rules & regulations. These include –
Non-taxable allowances are a part of an individual’s salary which is fully exempted from taxes. The list of allowances that are totally non –taxable are –