Taxable Allowances

These allowances are fully taxable and form part of your gross income.

1. Basic Salary:
   • The core component of your salary, fully taxable.
2. Dearness Allowance (DA):
   • Given to offset inflation, fully taxable.
3. House Rent Allowance (HRA):
   • Taxable, but with partial exemptions under certain conditions if the employee pays rent.
4. Conveyance Allowance:
   • Given for transportation expenses. It is taxable, but a standard deduction is allowed (e.g., up to a certain limit per month as specified by tax laws).
5. Special Allowance:
   • Any allowance not specifically covered under other heads is fully taxable.
6. Overtime Allowance:
   • Additional payment for working beyond normal hours, fully taxable.
7. Entertainment Allowance:
   • Fully taxable for private-sector employees. For government employees, a portion may be exempt.

Non-Taxable Allowances (or Partially Taxable)

These allowances are either fully exempt or partially exempt from tax under specific conditions.

1. House Rent Allowance (HRA):
   • Partially exempt if rent is paid and the employee meets certain conditions specified by tax laws (like living in a rented house and the amount of rent paid).
2. Leave Travel Allowance (LTA):
   • Exempt for the actual travel expenses for self and family during leave, subject to certain conditions and limits.
3. Medical Allowance/Reimbursement:
   • Reimbursement of medical expenses up to a certain limit is exempt from tax.
4. Uniform Allowance:
   • Fully exempt if the employer provides a uniform, and it is required for work.
5. Children Education Allowance:
   • Exempt up to a specified limit per child for a maximum of two children.
6. Transport Allowance for Handicapped Employees:
   • Higher exemption limit for employees with disabilities.
7. Perquisites Provided by the Employer:
   • Some perquisites like accommodation, car, or other benefits may have specific tax treatment, either fully or partially exempt based on conditions.
8. Gratuity:
   • Tax-exempt up to a certain limit upon retirement or resignation, as specified by tax laws.
9. Provident Fund Contributions:
   • Employer’s contribution to Provident Fund up to a specified limit is exempt.

Example Breakdown on a Salary Slip

Here is a simplified example of how these might appear on a salary slip:

In this example, certain allowances like HRA, Conveyance, Medical Reimbursement, and Children Education Allowance have specific conditions under which they are either partially or fully exempt from tax.