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Allowances under section 17(3) of Income tax Act 1961

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 Allowances are given to an employee to meet some specific type of loss or expenditure of the employee or to help him meet certain type of expenses. For example, house rent allowance is given to help the employee to pay house rent or to get a house on rent.

We can categories the allowance in three groups on the basis of their tax treatment: 

1. Fully Exempted:


a. Foreign Allowance only in case of government employees posted outside India.

b. House rent allowance given to judges of High court and Supreme court.

c. Sumptuary allowance given to judges of High court and Supreme court.

d. Allowances from UNO

e. Allowance to teachers or professor from SAARC member states.

f. Allowance to member of union public service commission.


2. Fully taxable:


a. Dearness Allowance additional dearness allowance, high cost of living allowance.

b. City compensatory allowance.

c. Capital compensatory allowance.

d. Lunch allowance.

e. Tiffin allowance.

f. Marriage allowance.

g. Family allowance.

h. Deputation allowance. 

i. Warden ship allowance.

j. Non practicing allowance.

k. Project allowance.

l. Overtime allowance.

m. Fixed medical allowance.

n. Entertainment allowance for non-govt employees.

o. Water and electricity allowance.

p. Servant allowance.

q. Holiday trip allowance.


3. Partially taxable:


a. House rent allowance.

b. Entertainment allowance for govt-employees.

c. Allowance covered under section 10(14)(i) read wit rule 2BB(1):- helper allowance, uniform allowance, academic allowance, conveyance allowance, travelling allowance, daily allowance.

d. Allowance covered under section 10(14)(ii) read with rule 2BB(2):- 

(1) Any allowance in the nature of composite hill compensatory allowance or high altitude allowance or uncongenial climate, Allowance or snow bound area allowance or avlanche allowance. 

(2) Any special compensatory allowance in the nature of border area or remote area pr difficult area or disturbed area allowance. 

(3) Transport allowance.

(4) Tribal allowance.

(5) Running allowance given to employees of transport sector.

(6) Children education allowance.

(7) Hostel expenditure allowance.

(8) Compensatory field area allowance.

(9) Compensatory modified field area allowance.

(10) Special allowance in the nature of counter insurgency allowance given to the members of armed forces operating in areas away from their permanent locations for a period of more than 30 days


**An allowance which is neither covered under Fully exempted or Partly taxable shall always be fully taxable as salary income

              

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