Are Special and Mobile Allowances Taxable? Seeking Clarity on Tax Implications

Could you please tell me if special allowance is subject to tax? Is it a taxable component? Is mobile allowance a taxable component?

Regards,
Moumita

Special Allowances and Taxability

Special allowances are taxable by themselves. However, if you are distinguishing them, for example, entertainment allowance, mobile allowance, etc., you may save on them.

Mobile Allowance

- Fix a monthly limit on it. The company agrees to pay/reimburse your mobile bills up to a maximum amount of X per month. Note that the tax liability will be either on the bill amount or the maximum amount quoted on your salary slip as a mobile allowance, whichever is lower.

For instance, if your company provides you with a ₹1000 mobile allowance per month and your mobile bill is ₹1500, then the entire ₹1000 will be tax-exempt as the full amount was reimbursed. The additional ₹500 will be your out-of-pocket expense.

On the other hand, if your mobile allowance is ₹1000 and your bill is ₹800 per month, you would receive a tax exemption only on the ₹800 (actual bill amount), and the remaining ₹200 will be your taxable income.

Entertainment Allowance

Similarly, if we differentiate the special allowance as an entertainment allowance, a concept similar to the mobile allowance is applicable. The catch here is that the entertainment allowance should be utilized only for business purposes. Therefore, expenses like taking your client on business outings, business lunch/dinner, etc., would be included and reimbursed.

This way, you can partially save on your taxes.

I hope this information has been helpful and answered your query.

Regards.

I agree with Ms. Ankita Shah, only with a slight modification: Mobile Allowance is fully taxable unless it is claimed for official usage. It's better to mark the salary component as Mobile Reimbursement and allocate an amount according to the hierarchy designed by the company in their policy. Let the employee claim the bill as per their entitlement. You can include the entitlement in your CTC calculation.

Generally, any expenditure reimbursed by the employer in the course of employment is tax-exempt. Simple payment without any such condition, for example, even a medical allowance, is taxable. Hence, taxability depends on the methodology, which is a loophole provided under the IT Act. You may explore and avail it suitably. However, special allowance cannot be considered tax-exempt ipso facto.

Regards.

Difference Between Special Allowance and Dearness Allowance

Is Special Allowance and Dearness Allowance the same? If not, what is the difference?

Hi,

If a mobile allowance (fixed) is sent to the employee at the time of salary disbursement, then it comes under ESIC as gross salary increase due to allowance inclusion. If it is not considered under gross salary, then can it be paid separately to the employee's account? Please confirm.