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Sunday, 18 October 2015

Types of Allowances

Types of Allowances

Dearness Allowance
As is clear by its name, this allowance is paid to compensate the employee against the rise in price level in the economy. Although it is a compensatory allowance against high prices, the whole of it is taxable.
City Compensatory Allowance
This allowance is paid to employees who are posted in big cities. The purpose is to compensate the high cost of living in cities like Delhi, Mumbai etc. However, it is fully taxable.
Tiffin / Lunch Allowance
It is fully taxable. It is given to employees for lunch as coupons or added as part of salary.
Overtime Allowance
When an employee works for extra hours over and above his normal hours of duty, he is given overtime allowance as extra wages. It is fully taxable.
Fixed Medical Allowance
Medical allowance is fully taxable even if some expenditure has actually been incurred for medical treatment of employee or family.
Servant Allowance
It is fully taxable whether or not servants have been employed by the employee.
Other Allowances
There may be several other allowances like family allowance, project allowance, marriage allowance, education allowance, and holiday allowance etc. which are not covered under specifically exempt category, so are fully taxable.

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