What are non taxable allowances?
Non taxable allowance are an additional amount of money given to employees on their regular salary. This financial advantage can cover expenses related to their jobs, such as travel or accommodation costs.
Moreover, the government does not consider non-taxable allowance as taxable income, so the employee does not have to pay taxes.
What are fully exempt allowances?
Fully exempt allowances are a type of allowance that can be claimed without providing any information about the expenses comes on claim stage.
Further, some allowances are fully exempt – the first is for certain disability-related expenses, and the second is for travel costs related to caring for a dependent.
The disability-related expenses which can be claimed as a fully exempt allowance include:
- Special equipment or furniture.
- Adaptations to a home or car.
- Repair or replacement of aids or appliances.
- Help with personal care or transport.
Overall, the travel costs, which can be claimed as a fully exempt allowance, relate to journeys made specifically to care for a dependent.
Examples of Fully Exempt Allowances
- Allowances to judges under Article 222(2) of the Constitution are wholly exempt from tax.
- Allowances received by the employees of UNO are fully exempt under the United Nations (Privileges and Immunities) Act.
- Government employees working in foreign postings enjoy allowances that are fully exempt from tax during their service outside India.
List of fully non taxable allowances
1. Allowances paid to government employees abroad
The government fully exempts allowances from the Income tax bracket when it grants them to employees working abroad.
2. Sumptuary Allowances
Sumptuary allowance which is paid to judges of Supreme court and High court are fully exempted from the Income Tax bracket.
3. Allowance received by employees of United Nation Organization
The allowance paid to the employees of UNO exempts from the Income tax bracket.
4. Compensatory allowances paid to judges
The Income tax bracket fully exempts the compensatory allowance given to judges.
5. Uniform allowance
Any allowance granted to meet the expenditure on purchase or maintenance of uniform for wear during the duties of an office or employment. This is exempted to the limit of the actual amount spent on uniform.
6. Helper allowance
Helper allowance is generally provided to an employee to meet the expenditure incurred on a helper when such helper is engaged for performing official duty.
7. Other tax free allowances
Daily allowance, Research/ Academic allowance, Conveyance allowance, allowances paid to government employees outside India and so on.
Benefits of non taxable allowances:
There are several benefits to receiving a non taxable allowance. Here are some of them:
- You can use the money to cover essential expenses without worrying about being tax category on it. Also this can help reduce your overall tax burden and free up more money to save or spend elsewhere.
- Non-taxable allowance can help you stay financially afloat during lean times or periods of financial difficulty. Further, because the funds are not subject to taxation, you can use them all to cover necessary costs without worrying about jeopardizing your financial stability.
- There may be some government benefits or programs you qualify for that are only available if your income falls below a certain threshold.
Conclusion
Non-taxable allowances are very important in enabling employees to meet work-related expenses without incurring any additional tax liability. Thus, a proper understanding of these partly taxable allowances will allow for better planning regarding income taxation and, ultimately, financial stability.
For this reason, compensation packages are done by many employers to include tax-free components other than fully taxable allowances thereby offering mutual benefits to both the organization and their employees.
Overall, such an approach ensures compliance with regulations, financial satisfaction, and a better work-life balance.
FAQs
What is meant by non taxable allowance?
A non taxable allowance is an element of salary completely and wholly exempt from income tax. Also, it is provided to cover certain expenses without increasing the employee’s tax liability.
What allowances are not taxable?
Allowances including travel allowance, uniform allowance, as well as some government or UNO allowances are non-taxable. Further, these are exempt because they are meant for official or necessary expenses.
What is the non taxable allowance?
A non taxable allowance is an exempt component of salary given for official or personal expenses. Also It does not form part of an employee’s taxable income.
What allowance is not subject to tax?
Allowances like children’s education allowance (up to a certain limit), travel allowance, and foreign allowances granted to government employees are exempt from taxation.
What is taxable and non taxable income?
Taxable income includes such items as salary, allowances, bonuses, and all other emoluments that are liable to tax. Further, Examples of non taxable income are exempt allowances, reimbursements, and specified government benefits.
Are there any limits to the amount that can be claimed as non taxable allowance annually?
Yes, some non taxable allowance have pre-defined limits, depending on the nature of the expense. For example, travel or uniform allowances are exempt only up to the actual amount spent for that purpose. Overall, the Employee must reconcile such claims to actual expenses; otherwise, any excess may become taxable.
