What is an allowance and Its Types ?

What is an allowance?

It is a fixed monetary amount paid by the employer to the employee for meeting his expenses which may be personal or for the performance of his duty. Such allowances are generally included in the gross salary of the employee unless they are specifically exempted.

Some of the important allowances are:

1.House Rent Allowance (HRA)

It is generally given to such employees who have not been given any housing accomodation by the employer. So HRA is given to meet the expenses of rented accomodation which the employee might have taken.

It is taxable under the head salary to the extent it is not exempted.The exemption amount will be calculated as following conditions:

1.If the employee is staying in Chennai, Kolkata, Mumbai and Delhi ; the following entries are exempted:

i.Actual allowance received

ii.Rent paid in excess of 10% of salary iii.50% of salary

2.If the employee is remaining in other cities:

The following entries are exempted:

i.Actual HRA received

ii.rent paid in excess of 10% of salary

iii.40% of Salary for the above purpose includes basic + DA which enters + commision on turnover.

If the employee is getting HRA but he is not incurring any amount for house rent he will not get any exemption.

Types of allowances

Allowances may be of 3 types:

1.Fully exempted allowances

2.Fully taxable allowances

3.Partly taxable allowances

Leave a Comment