An allowance is a monetary benefit provided by the employer to the employee in addition to his or her regular income. These benefits are offered to pay expenses that may be required to aid the completion of service, such as travel expenses, and epf form 10c Conveyance Allowance is given to cover the costs of commuting to and from work.
Some of these benefits are subject to taxation under the heading Salaries. Many of them may be somewhat taxed, while others are either non-taxable or completely tax-free. Here are some examples of taxable, partially taxable, and non-taxable allowances:
Taxable allowances
Dearness Benefit (DA): Dearness Allowance (DA) is a cost-of-living adjustment allowance granted to employees to assist them in coping with inflation. Employees’ DA is fully taxable along with their salary. According to the Income Tax Act, the tax liability for DA and salary must be reported in the filed return.
Employees are allocated the lower of the declared amount, one-fifth of basic salary, the actual amount received as an allowance, or Rs. 5,000 as an entertainment allowance. This is an allowance given to staff to reimburse them for expenses related to client hospitality. On the other hand, employees of the government can seek an exemption following section 16. (ii). It is subject to taxation for all other employees.
Overtime Allowance: Employers may pay their employees an overtime allowance if they work beyond their regular hours. This is referred to as overtime pay, and any compensation received for it is completely charged to taxable income.
City Compensatory Allowance: City Compensatory Allowance is a stipend granted to employees who work in a high-cost urban area to support them cope with rising high living costs. This is a fully taxed benefit.
Interim Allowance: Any Interim Allowance given by an employer in place of a final allowance is completely taxed.
Project Allowance: It is completely taxable when an employer gives employees a stipend to cover project costs.
On occasion, Tiffin/Meals Allowance: Employers may offer Tiffin/Meals Allowance to their staff. This is a completely taxable item.
Employer-provided cash allowances are completely taxable, such as marriage, grief, and vacation allowances along with cca allowance
Non-Practicing Allowance: Any non-practicing allowance provided to physicians attached to Clinical Centers of various Laboratories/Institutes becomes fully taxable.
Warden Allowance: The allowance is fully taxable when an employer gives a stipend to an individual working as a Warden (also known as a Keeper) in an educational institute.
Servant Allowance: An allowance paid by an employer to an employee to hire the services of a servant is taxable.
Allowances that are not taxable
Some allowances, for example, those paid to government officials, judges, and UNO personnel, are not taxed. These are the following:
- Allowances paid to government officials working abroad: This income is tax-free when government servants serving abroad are awarded an allowance.
- Sumptuary allowances: Sumptuary allowances awarded to HC and SC justices are exempt from taxation.
- Allowance paid by UNO: Allowances earned by UNO employees are completely tax-free.
- Judges’ compensatory allowance: The compensating payment received by a judge is not taxable.
