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Partially Exempted Allowances

Partially Exempted Allowances

This category includes allowances which are exempt upto certain limit specified in Income Tax Rules. For certain allowances, exemption is dependent on amount of allowance spent for the purpose for which it was received and for other allowances, there is a fixed limit of exemption. They are as follows:

  • House Rent Allowance (H.R.A.)
    An allowance granted to a person by his employer to meet expenditure incurred on payment of rent in respect of residential accommodation occupied by him is exempt from tax to the extent of least of the following three amounts:
    a) House Rent Allowance actually received by the assessee
    b) Excess of rent paid by the assessee over 10% of salary due to him
    c) An amount equal to 50% of salary due to assessee (If accommodation is situated in Mumbai, Kolkata, Delhi, Chennai)/ An amount equal to 40% of salary due to assessee, if accomodation is situated at any other place.
    If an employee is living in his own house and receiving HRA, it will be fully taxable.
  • Entertainment Allowance
    This allowance is first included in gross salary under allowances and then deduction of 1/5 of salary or Rs.5,000, whichever is less is given to only central and state government employees under Section 16(ii).
  • Special Allowances to meet personal expenses
    There are certain allowances given to the employees for specific personal purposes and the amount of exemption is fixed i.e. not dependent on actual expenditure incurred in this regard. These allowances include:

Allowance Name

Exemption limit

Children Education Allowance (maximum 2 children) Rs. 100/- p.m. per child
Children Hostel Allowance (maximum 2 children) Rs. 300/- p.m. per child
Transport Allowance Rs. 800/- p.m.
      Or
Rs. 1600/- p.m. (for handicapped)
Any Allowance granted to an employee working in any transport system Rs. 10,000/- p.m.
Or
70% of allowance
(whichever is lower)
Tribal Area Allowance Rs. 200/- p.m.
Underground Allowance Rs. 800/- p.m.
Compensatory Field Area Allowance Rs. 2,600/- p.m.
Compensatory Modified Field Area Allowance Rs. 1,000/- p.m.
Counter-insurgency allowance to members of armed forces Rs. 3,900/-p.m.