Allowance in Income Tax

7/27/2019 Allowance in Income Tax

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Today ,i am trying to cover tax issue regarding allownace generally received to salaried persons

and treatment Under Income Tax Act & Rules.

Allowance: means Fixed amount of money or other substance given monthly in addition tosalary to meet the particular type of expenditure.

Treatment:Allowances are part of salary and taxable in hands of the assessee if no specific

exemption is given under the Income Tax Act/RulesI am trying to cover most of the allowances but this is not a exhaustive list.

1. HRA(House Rent Allowance ) house rent allowance is exempted u/s 10(13A) of the

income tax act.Least of the following is exempted from Hra Received(details is availablehere)

o HRA received

o House rent paid minus 10 % of salary(salary means basic plus dp plus da if term

of employment so provides)

o 50% of salary(same meaning as above)in case of rented house situated in

Bombay,Madras,Delhi or calcutta

o 40 % of salary ,if rented house is situated in any other places

2. City compensatory allowance :Fully taxable.

3. Foreign Allowance :Exempt from tax if paid outside India By the government to the

Indian citizen for rendering services outside India.

4. Fixed medical allownace:Taxable.

5. Project Allowance :taxable.

6. Allowances to Supreme court/High court Judges :Not taxable.

7. Servant/helper Allowance :taxable ,if helper used for official purpose then exempted..

8. Transport Allowance: known also as LODA ,means allowance to meet expenses

incurred for office to home and home to office is exempted up to 800 per monthmaximum.

9. Tiffin Allowance :Taxable .

10. Allowance to meet the cost of travel on tour or on transfer(including amount paid for

packing and transportation of personal effects on such transfer):exempted to the

extent allowances used for said purpose.

11. Allowance (know as DA in TA bill) paid for purpose explained in point 11 above ,to

meet the ordinary daily charges on account of absence from his normal place ofduty):exempted to the extent allowance used for the said purpose

12. Conveyance allowance:To meet the expenditure on conveyance in performance of dutiesof an official nature:exempted to extent allowance used for said purpose
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13. Uniform allowance : exempted to the extent used for the said purpose

14. Children Education allowance :Rs 100 per month per child up to maximum of twochild is exempted if expenses made in India

15. Children hostel allowance:Rs 300 per month per child up to maximum of two child is

exempted if expenses made in India

16. Allowance granted to employee working in transport system where no daily allowancehas not been allowed to meet daily expenses ,done to meet his personal expenses during

duty performance from one place to other place :70 % of such allowable exempted

maximum up to 6000 per month.

17. Allowance granted for encouraging the academic ,research and other professional

pursuits:exempted to the extent used for said purpose

18. many hilly area,remote area,field allowances are exempted on various rate

19. Any other allowance :generally Taxable.

VALUATIONOF PERQUISITES- MOTORCAR

After abolition of the FBT tax from Financial year 2009-10 ,many perks are again taxable in the hands of the

employees again .Car facility is one of the them .There is always a confusion among the employer as well as

in the employees that how to value the facility of car provided to the employee .

Income tax rules has provided the method to value such perks. We have summarized the rule in a table to

under stand the rules in easy way .The table is provided as under .Please do not forget to read the note

given under the table .

1. In simple terms where car is used for official purpose ,there is no perk value to be added.

2. where car is used for private purpose only full expense cost including driver salary and depreciation

@10 % will be added (where car owned by employer ) will be value of perks.

3. In third case where car is used partly for official and partly for official purpose in that case rate has

be specified per rules and now there is no role of estimate from employer or from Assessing

officer side

NOTE:FOLLOWING CHART HAS BEEN AMENDED AFTER AMENDMENT IN RULES ON 18.12.2009 APPLICABLE

FROM FINANCIAL YEAR 2009-10 (These rules are also applicable in current year Fy 2012-13)
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Download Amendment in new Rules from here (INCOME-TAX (THIRTEENTH AMENDMENT) RULES, 2009 -

SUBSTITUTION OF Rule 3 and insertion of rule 40F

Valuation of perquisite in respect of motor car :

Private purpose Official Purpose Private and officialpurpose

Car owned by the employee and expenses met by him

Not a perquisite Not a perquisite Not a perquisite

Car owned by the employee and expenses are reimbursed by the employer

Actual expenses ofemployerless: amount recoveredfrom the employeebalance amount will beperquisites in employee'shand

Not a perquisite(see Note-1)

1.calculate actualexpenditure on byemployer2.less:if car hp < 16,perquisite isRs.1200 1800p.m., if hp>16Rs.1600 2400 p.m. withRs.600 900 p.m. chauffeursalary. or higher sum asrecorded by logbook by

employer3.Less :amount recoveredfrom the employee (if any)

Car is owned/ hired by the employer and expenses met by the employer

1.Actual Expenses byemployer2. Plus depreciation (10%of the original cost of car)/hire charges(if car is hired)

3.Less :amount recoveredfrom the employee

Not a perquisite(see note-1)

if car hp < 16, perquisite isRs. Rs.1200 1800p.m.., ifhp>16 Rs.1600 2400p.m. with 600 900p.m. chauffeur salary.

Note :nothing is deductiblein respect of any amountrecovered from employee.

Car is owned/ hired by the employer and expenses met by the employee
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1.Depreciation(10 % of theoriginal cost of the car)/hire charges + chauffeursalary.2,less : amount recoveredfrom the employee

Not a perquisite(see note-1)

If car hp < 16, perquisite isRs.400 600 p.m., if hp>16Rs.600 900 p.m. withRs.600 900 p.m.chauffeursalary.

Note :nothing is deductiblein respect of any amountrecovered from employee.

Note 1. Conditions to be satisfied if the Car is used for official purpose :-

The employer has maintained complete details of journey undertaken for offcial purpose which may

include date of journey, destination, mileage, and the amount of exepnditure incurred thereon.

The employer gives a certificate to the effect that the expenditure was incurred wholly and

exclusively for the performance of official duties

Content of log book - complete details of the journey such as date of journey destination, mileage

and amount of the expenditure incurred.

The priciple of Arms length price will apply while cars taken from related parties.

Note:2: where more than one car is being provided for use for employee or member of his family

then valuation will be as under

The only car will be valued as partly used for official purpose and partly for private purpose

other car will be valued as fully used for private purpose.

Note:3-Car facility between residence to office

Car facility between office to residence and back is not chargeable to tax at all.

Note-4: Vehicle other than Car owned by employee and running and maintenance met

/reimbursed by employer
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If used for official purpose: full exempt see note one

If used for private purpose: expense met by employer fully taxable as perquisites

Partly used for office: find out total expenses met by employer less 600 per month (or higher if

actual recorded) for official purpose and less any amount recovered from employee balance amount

will be treated as perquisite

Note-5: if in any case given above the amount is negative after recovery from the employee then

valuation of perquisites will be treated as nil
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Allowance in Income Tax