Taxability of Personal Allowances
Introduction
Allowances provided to employees for personal expenses are generally taxable under the head “Salary.” However, specific allowances are exempt up to predefined limits under the Income-tax Act.
Exempt Personal Allowances
- Transport Allowance for Transport Employees
- Exempt for employees in transport systems for duty-related personal expenses.
- Exemption: Lower of 70% of the allowance or 10,000/month.
- Children’s Education Allowance
- Exempt up to 100/month per child for a maximum of 2 children.
- Actual education expenditure is irrelevant for exemption.
- Children’s Hostel Allowance
- Exempt up to 300/month per child for a maximum of 2 children.
- Transport Allowance (Handicapped Employees)
- Exempt for employees who are blind, deaf, dumb, or orthopedically handicapped.
- Exemption: 3,200/month.
Other Taxable Allowances
The following allowances are fully taxable:
- Tiffin Allowance
- Medical Allowance
- Servant Allowance
- City Compensatory Allowance