Allowance i.e. allowances are like a kind of financial benefit that the employed employee gets from his employer. The allowances received by the employees are taxable, partially taxable and non-taxable, which can be availed for tax deduction.
New Delhi. If you are a salaried person and also file income tax, then apart from investment proof, you can also get the benefit of tax deduction on the allowance received from the company. In fact, allowances are like a kind of financial benefit that the employed employee gets from his employer. The special thing is that they also help in reducing the tax burden. The allowances are divided into different categories and the employee can claim them every month. These allowances help while filing Income Tax Return (ITR).
Taxpayers have to file ITR every year, so with the onset of 2023 it is important to understand the various allowances and associated tax benefits that will come in handy while filing ITR which further help in reducing income tax liability.
Tax deduction benefits available on these 7 allowances
The allowances received by the employees are taxable, partially taxable and non-taxable. The most popular allowances are those under section 10 whose details are mentioned in Form 16 received by salaried individuals from their employers. Form 16 is a certificate containing details of tax deducted at source (TDS), allowances exempted under section 10 and salary breakup. Taxpayers are required to file their ITR for the financial year 2022-23 (Assessment Year 2023-24) by 31st July of the current year.
House Rent Allowance (Sec. 10(13A)): The allowance received for paying house rent is called House Rent Allowance. HRA ranges from 40 to 50 percent of the basic salary, salaried individuals living in rented accommodation can claim tax exemption on HRA.
Leave Travel Concession or Assistance (LTC/LTA) (10(5)): Under this allowance, travel expenses incurred by the employee while on leave in India are allowed as tax-free expenditure. Therefore, the money made towards rent to the employee will be allowed as tax-free allowance by the employer. The mode of travel should be railway, air or public transport.
Children Education Allowance: Under this up to a maximum of 2 children per month
Tax exemption of up to Rs 100 per month per child is available.
Uniform Allowance: Expenditure on purchase or maintenance of uniform for wearing in the course of duties of office or employment is exempted from the limit of actual amount spent.
Books and Periodical Allowance: Tax free reimbursement is given as per income tax law on expenses incurred for books, newspapers, periodicals, magazines etc.
Relocation Allowance: Companies ask employees to shift to another city for business reasons. The employer reimburses the expenses incurred on car transportation cost, car registration charges, packaging charges, accommodation for the first 15 days and train/air tickets, these reimbursements are tax free.
Helper Allowance: Helper Allowance is given in cases where the employer allows you to appoint a helper to carry out the official duties of the office.
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