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Allowance is a fixed quantity of money given by employers to their employees to meet certain special requirements. This amount is given besides the salary. These allowances may attract exemption in certain cases. Otherwise, they are considered as a part of the total income of employees and are taxable. Read through to know how special allowance is different.
Certain allowances are exempted under Section 10(14) of the Income Tax Act, 1961. Section 10(14) says that:
Certain categories of taxes are fully exempted such as allowances given to judges at the Supreme Court and the High Courts. Allowances such as house rent allowance are partially exempted as per Section 10(13A). Other allowances such as city compensatory allowance are fully taxable.
Many people may think that a special allowance is a part of variable income. However, you must know that a special allowance is considered as part of the gross salary. In addition, the allocation of a special allowance depends on the company’s policies. Therefore, if company A provides a special allowance to all its employees, it does not mean that company B also must provide a special allowance to all employees in the same ratio.
To know the total amount you have received under the special allowance component of the salary, you must sum up the figures provided under each eligible allowance head from the above list that is applicable to you. Refer your salary slip to know more about the allocation towards special allowances.
Consider the scenario in which Ms V is an employee at company A. When she checks her salary slip, she realises that a conveyance allowance of Rs.1,600 per month. This allowance is provided on the expenses incurred to travel from the place of residence to the place of work.
In another case, Mr C is a medical practitioner working in the public sector. He was deployed for duty at a medical camp in the rural side of Bidar, Karnataka. This place is inhabited by tribes. Now, Mr C gets an additional component in the salary – tribal area allowance.