Allowances are like incentives given by the employer to its employees apart from the salary. The majority of the exemptions and special allowances under income tax return provided by the employer is exempted from tax as per the provisions of the Income Tax Act, 1961.
Definition of special allowances under Income Tax Return
Special Allowance has been mentioned under Section 10(14) of the Income Tax Act. The section reads as follows:
“(i) any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed, to the extent to which such expenses are actually incurred for that purpose ;
(ii) any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, as may be prescribed and to the extent as may be prescribed :
Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence ;”
Categories of special allowances
– Transport Allowance
Under this allowance, Rs. 3,200 per month granted to an employee, who is blind or deaf and dumb or orthopedically handicapped with disability of lower extremities and Rs. 1600 per month to other employees
This allowance includes the expenses incurred in purchasing and maintaining the uniform during the course of employment. The amount of allowance is the amount of expenses incurred.
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– Daily Allowance
Daily Allowance is the allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.
– Tribal Allowance
This allowance is given in areas (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa and the amount of allowance provided is Rs. 200 per month.
– Travel Allowance
Travel allowance is allowance granted to meet the cost of travel on tour or on transfer. This amount is exempted to the extent of expenditure incurred.
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– Helper/Assistant Allowance
Under this allowance, the expenses incurred to hire assistant the fulfil the duties of employment are exempted to the extent of expenditure incurred.
– Outstation Allowance
Outstation allowance is a special allowance provided on railways, roadways and airways in place of daily allowance. The maximum limit of exemption available is 70% of the allowance or Rs.10,000, whichever is lower.
-Island Duty Allowance
Island Duty Allowance is granted to members of armed forces in Andaman and Nicobar and Lakshadweep group of Island (Subject to certain conditions and locations). The amount of allowance is Up to Rs. 3,250 per month.
– Academic/Research Allowance
Research Allowance is granted for encouraging the academic research and other professional pursuits. The amount of allowance is limited to the amount of expenditure incurred.
– Hostel Allowance
Hostel allowance is provided up to Rs. 300 per month per child up to a maximum of 2 children is exempt
– Children Education Allowance
Children Education Allowance up to Rs. 100 per month per child up to a maximum of 2 children is exempt
– Conveyance Allowance
Conveyance Allowance is granted to meet the expenditure on conveyance in performance of duties of an office. It is exempted to the extent of expenditure incurred.