Allowances refer to any non-monetary benefits that may be provided by the employer over and above wages/salaries. This includes conveyance, education, medical facilities, residential accommodation etc. The amount of allowance paid varies from company to company depending on various factors such as nature of business, location of the establishment, safety requirements etc. Allowances can be reimbursement for some expenses or any other extra payment which may be given in addition to salary. Sometimes, it is also extended to include a non-monetary gift given by the employer to the employee.
Many employees often show confusion about allowances and since there are so many types of allowances it can get a bit confusing. The knowledge about allowances can be essential for understanding other things like depreciation rate as per income tax act. See more
Hence, in this article, we would try to understand different types of allowances provided by employers, their taxability and the legal implications associated with them.
It is given to employees who have to travel long distances for work purposes. Expenses like petrol, toll tax, parking fee and maintenance of the car are covered under conveyance allowance. This is partly taxable.
HRA or House Rent Allowance
This is paid by the employer to meet house rent expenses of employees who reside away from their office place on transfer or posting outside home city/ town. As per the law, it is only partly taxable
Dearness Allowance (DA), also called cost of living allowance, is an allowance given by employers to their employees as a way of coping with inflation and increasing the workers’ purchasing power. This allowance is taxable in nature
If an employee has to beyond the regular work hours, then they become eligible for an overtime allowance. The allowance received for overtime is fully taxable. The amount of this allowance should be determined after considering the number of overtime hours the employee works and then dividing it by the number of non-overtime hours that they work. This allowance cannot be more than the total amount earned in a month from working overtime hours in a week. This amount will vary from industry to industry depending on the wages earned but this amount is not fixed by law
Leave travel allowance
The Leave Travel Allowance pays your travel fees while you are on leave from work. Any employee can avail of Leave Travel Allowance provided they are travelling within India. The amount paid as lta in salary is tax-free and is not counted as your salary.
Fixed medical allowance
Fixed Medical Allowance is an allowance paid by the organization to its employee or his family members when they fall sick and incur expenses on their treatment. This is not a fixed amount that varies from one organization to another. This is a very important benefit provided by the employers to their employees in order to make them feel safe in their job. The rise in the cost of medical treatment has made it essential for companies to provide increased benefits to their employees. The fixed medical allowance is only partially taxable.