An allowance is a fixed amount of money paid by employers to their employees periodically. In other words, it is a sum of money given to someone regularly, typically weekly or monthly, for a specific purpose. If you want to define allowance specifically, here is an example – employers pay employees overtime above and beyond their basic salary when they work more hours.
Salary is defined as per Section 17(1) of the Income Tax Act that it is anything paid to an employee in exchange for their work – whether it’s an hourly wage, annual salary, commission, tips, bonuses, or benefits. In addition to that, there are multiple allowances that comes under salary.
Salary allowances are categorized into three such as taxables, non-taxable, and partially taxable allowances:
| Taxables | Non-taxable | Partially taxable |
● Entertainment allowance ● Tiffin/meals allowance ● Overtime allowance ● Dearness allowance ● Cash allowance ● Non-practicing allowance ● City compensatory allowance ● Medical allowance ● Interim allowance ● Other allowance in salary | ● HRA Leave Travel Allowance ● Children Education Allowance ● Hostel Expenditure Allowance ● Books and periodicals allowance ● Conveyance allowance under section 10 14 ii of the income tax act ● Entertainment allowance – deduction under section 16 ii ● Other allowance
| ● Conveyance allowance in salary ● Books and Periodicals allowance ● Gadgets ● Gifts in kind ● Recreational and medical facilities ● Allowance for UN employees ● Sumptuary allowance ● Compensatory allowance |
A conveyance allowance is a type of benefit that employers sometimes offer to employees to help cover transportation costs.
A sumptuary allowance is an extra amount of money given to employees to help offset the costs of necessities, such as food and housing.
The entertainment allowance in salary is a provision in some employment contracts that allows the employer to pay for certain entertainment expenses incurred by the employee.
It is an allowance given by the employer to the employee for housing.
It is taxable only if it exceeds the exemption limit.
