Deductions under IT Act 1961 for Salaried Persons - Allowances

Salaried people formulate a huge amount of tax paying community in India. Thus, it is necessary to make every possible to save their taxes. To make this alternative workable we need to understand the various components that constitute the salary. The following list of allowances and perquisites will help you to take maximum benefit of your existing salary structure. The allowances under Section 10 and perquisites under Section 17 of IT Act,1961. 

In this write up, we would cover up the different allowances allowable under Sec 10 and the various benefits, the salaried can avail to reduce their tax burden. Although, one does not avail all the benefits, it is useful in case you have a choice to design your own CTC structure. The perquisites benefits we would study in the coming week.

Sub Section under section 10 in IT Act	Details of Allowances	Benefit available
13A	House Rent Allowance	Least of the following is exempt : a)   Actual HRA Received from the company b) 40% of Salary (i.e. Basic + Dearness Allowance+ Commission on Sales (50%, if house situated in Mumbai, Calcutta, Delhi or Madras) c)   Actual Rent paid minus 10% of salary
14	Children Education Allowance	Rs. 100 maximum per month per child up to a maximum of 2 children
14	Hostel Expenditure Allowance	Rs. 300 maximum per month per child up to a maximum of 2 children
14	Transport Allowance	a)Given only in case of travel from place of residence to place of  work b)Rs 1600 per month is exempt
14	Transport Allowance	a)  Only for people in transport business during the working for his personal expenditure while travelling from one place to another, in case if he does not receive daily allowance b)  The benefit would be lower of ·         70% of actual allowance or ·         Rs 10000 pm
14	Conveyance Allowance or any expenses incurred in tour or on transfer	a)   Given to meet the expenditure on conveyance in performance of duties of an office b)   The amount actually spent is exempted
14	Daily allowance	a)  Expense incurred due to absence from his work. b)  The entire expenditure spent is exempted.
14	Helper allowance	a)  Any duties performed by any helper in course of duties at work. b)  The entire expenditure spent is exempted.
14	Research Allowance	a)  Any research allowed in academics or other professional pursuits. b)  The entire expenditure spent is exempted.
14	Uniform Allowance	a)  Expenditure incurred to purchase or maintain office uniform during the performance of duties b)  The entire expenditure spent is exempted.

Beyond the above regular allowances, there are certain allowances which are specific to certain locations and roles of employees.

Sub Section under section 10 in IT Act	Details of Allowances	Benefit available
14	Special compensatory Allowance (Hilly Areas)	a)  The exempt amount varies from Rs. 300 pm to Rs. 3000 pm.
14	Border area allowances, Remote Locality allowance	a)  The exempt amount varies from Rs. 200 pm to Rs. 1300 pm.
14	Tribal area allowance given in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa	a)  The exempt amount is Rs 200 per month
14	·     Compensatory Field Area Allowance – can be claimed only if border area allowance not availed ·     Compensatory Modified Area Allowance.	Rs 2600 pm Rs 1000 pm
14	Counter Insurgency Allowance  for members of armed forces in case working away from their permanent locations	Rs 3900 pm
14	Underground allowance made available to mine workers working in unnatural conditions	Up to Rs 800 pm
14	High altitude allowance for Armed forces	a) Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet) b) Up to Rs. 1,600 per month(for altitude above 15,000 feet)
14	Highly active  field area allowance	Rs 4200 pm
14	Special allowance for armed forces working in Andaman & Nicobar Islands	Rs.3250 pm

Beyond the above, some of special allowances are exempted for government employees,Judges or members of UPSC services.