House Rent Allowance
House Rent Allowance (HRA) exemption is applicable only if you are living in a rented house and not in your own house. The least of the following amounts is exempted:
1. Actual HRA received
2. 50% in case of metros and 40% in case of others on salary
3. Rent Paid minus 10% of salary (Where salary = Basic Pay + DA + Commission)
For example, if:
- HRA per month = Rs 15,000
- Basic monthly salary = Rs 30,000
- Dearness Allowance = Nil
- Monthly rent = Rs 12,000
- Rental accommodation is in Mumbai
Exemption:
The exemption would be the least of the following:
1. Actual amount of HRA: Rs 15,000
2. 50% of salary (basic component + dearness allowance): Rs 15,000
3. Actual rent paid - 10% of salary (basic component + dearness allowance): Rs 9,000
Rs 9,000 being the least of the three amounts will be the exemption from HRA. The balance HRA of Rs 6,000 (15,000 - 9,000) is taxable.
Conveyance Allowance / Transport Allowance
Granted to employees to meet their expenditure for commuting between their residence and place of duty. Exempted up to Rs. 800 p.m.
Entertainment Allowances
Any amount received by the employee as an entertainment allowance is taxable as salary. However, a deduction is available to the employee if he has been:
The amount of deduction available is restricted to the least of the following:
- In case of government employees: Rs. 5,000; 20% of salary; or the amount of entertainment allowance granted during the previous year.
- In case of non-Government employees: Rs. 7,500; 20% of salary; or the amount of entertainment allowance granted during the previous year.
Education Allowances
Education allowance of Rs. 100 per month per child for up to 2 children of the employee is exempted. In case the children are in a hostel, the exemption available is Rs. 300 per month per child for up to 2 children.
Medical Allowances / Reimbursement
This exemption is available in respect of reimbursement up to Rs. 15,000 for medical treatment of the employee and family members.
Note: Medical Allowance is fully taxable. However, reimbursement of medical expenses is exempted up to Rs. 15,000 p.a. Reimbursement means, for claiming the allowance, one should produce the bills of the same. If a person is not providing the bills of medical and is taking the allowance, then the entire amount would be taxable.
Dearness Allowance
Dearness Allowance (DA) is paid to employees to compensate them for the erosion in their wages due to an increase in the price level. Dearness Allowance is fully taxable.
Regards