In this article, we will discuss special allowances in salary slips and their taxability. We'll explore what special allowances are, what their tax implications are, and the criteria that determine their taxability. Understanding special allowances and their taxability is crucial for both employers and employees, as compliance with tax regulations is essential. So, let's dive in and learn more about special allowances in salary slips.
Speaking of Salary Slips, we’ve got an article on accessing and downloading your salary slips. It’s a quick 3-minute read, so make sure to bookmark it for later.
When we talk about "allowance," we mean the extra money that an employer pays an employee on top of their basic salary and Dearness Allowance (if applicable). These allowances are meant to help employees with specific expenses.
Here are some common types of salary allowances:
These allowances provide employees with extra support and are often included in compensation packages. To learn more about the different types of allowances that may be included in your salary, check out this guide.
A special allowance is extra money added to an employee's salary. It doesn't have a specific purpose like other allowances. Some companies give special allowances to employees who do a great job. Other companies might give a special allowance to use up extra money in an employee's salary that doesn't fit in other categories.
The Indian income tax act of 1961 classifies allowances into three categories:
For an allowance to be either partially or completely exempt from taxation, it needs to satisfy certain conditions.
There is no limit to how much allowance an employer can offer, but there is a limit to how much can be exempt from taxes for the employee.
If a salary allowance meets the criteria above, it may be partially or fully exempt from taxes. If it does not meet the criteria, it will be fully taxed under the Income Tax Act of 1961.
Some allowance categories may be personal, and others may be official. Depending on the nature of the salary allowances, their taxability may differ.
In conclusion, special allowances, a component of salary offered by employers, can often be misunderstood when it comes to taxation. These allowances, given on top of the basic salary, aim to cover specific expenses. However, their taxability depends on certain conditions, such as being used exclusively for work-related purposes and not for personal expenses. Only the portion of the allowance meeting these criteria is exempt from tax. It is important for both employers and employees to understand the tax implications of special allowances to ensure compliance with tax regulations.
Now that you've understood special allowances and their taxability, it could be good to explore other non-tax related benefits that your salary account can offer. For example, Fi and its licensed partner Federal Bank provide a salary program with many perks such as 2% cashback when you shop using Fi, 4x Fi-Coins on all your spends via Fi that can be redeemed for vouchers and cool merch, flat 20% of your Debit Card spends as Fi-Coins, no minimum balance requirement, a free VISA Platinum debit card with zero forex charges, priority customer service and more. And, as a joining bonus, you can get a ₹500 Amazon voucher. P.S. If you're a salary user on Fi, you can now top-up your Health Insurance up to ₹20L!
Depending on your employer, you may be entitled to a multitude of different allowances. Some of the most common examples are House Rent Allowance, Leave Travel Allowance, Uniform Allowance, Conveyance Allowance, and Transport Allowance, among others.
Salary allowances can be broadly classified into three different types based on taxability - fully exempt allowances, partially taxable allowances, and fully taxable allowances.
