When an employer gives his employee a financial benefit over and above his salary, it is an allowance offered by him to cover all the expenses to facilitate discharge of services. For instance, one may pay a Conveyance allowance to cover costs incurred for back and forth from the workplace to place of residence.
House Rent Allowance (HRA): This is one of the partially-taxable allowances. The employer pays the employee for his accommodation in the same case. An employee can claim for exemption U/S 10 (13A) for an amount among the below options (whichever is lower):
Any amount exceeding the minimum of these is subject to taxes along with the basic salary.
Fixed medical allowance: This is a fee paid by the employer for medical treatments of the employee and family members. The reimbursement exceeding Rs. 15,000 is subject to taxes.
Special allowance: This is covered U/S 14 (I). It is again partly taxable.
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