Taxable and Non- Taxable Allowance for Salaried


The Financial benefits which are given to their employees in addition to the regular salary are known as allowances. In those allowances, some are found to be taxable and some are partly taxable and some are fully taxable. We will have a glance at all types of taxable, partly taxable and non taxable allowances.

1. Taxable allowances

a. Dearness allowance:

The dearness allowance is paid to the employees for the adjustment of the cost of living to face the inflation. It comes under tax with the salary to the employees and it is declared in the period of field return.

b. Entertainment allowance:

The entertainment allowances are provided to the employees who are found to be the very small amount about one fifth of their salary they are receiving. It is given for the customer’s hospitality. It is an exemption for the government employees but all the other workers have to pay the tax on it.

c. Overtime allowance:

The employees who are working over the regular working times are provided the overtime allowances and this allowance are fully taxable one.

d. City compensatory allowance:

The city compensatory allowances are given to the employees living in the urban center found to be very expensive and in order to face the costs of inflation. This type of allowance comes under the taxable one.

e. Project allowance:

The person who met the expense of the project was given the project allowance and it is fully taxable.

2. Partly taxable:

a. House rent allowance:   

For the accommodation of the employees the allowance given to them is called as house rent allowance. The person can claim the tax exemption when they are paying the house rent which is less than 10% of the basic salary and those living in metro cities such as Delhi, Mumbai, Chennai or Kolkata have to pay 50% of the basic salary and 40% of the basic salary should be paid by employees living in the non metro areas.

b. Fixed medical allowance:

The medical allowance is given to the employee or to his family members when they fall into sick and undergone the treatment. If his medical claim exceeds about 15,000rs, then they have to pay tax for this allowance.

3. Non-Taxable

Some of the allowances are free from taxable which is issued to the judges, government servants and the employees of UNO.

A. Allowances paid to government servant working abroad:

The Indian government servant working abroad is given the allowance which is non- taxable one.

To read more about the allowance and their taxability, visit website here of income tax department.

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