What are salary allowances?
The salary allowances are a type of monetary benefit over and above the salary. They are usually given in recognition of an employee’s special skills or experience and are not paid as part of the basic salary.
Salary allowances may be paid to individuals with specific skills or experience, such as specialists in certain areas of knowledge, or to employees on maternity leave. Salary allowances can also be used to reward employees for exceptional performance or good service. They are often used by employers as rewards for extra effort or achievements. Just like provident funds where you rely on a trustworthy pf calculator online with salary allowances too, you should use accurate calculators whenever possible instead of doing manual calculations.
What are the different types of salary allowances?
Taxable Allowances refer to those allowances which are subject to income tax. Most common taxable allowances include:
- Dearness Allowance (DA):
The DA is an annual allowance given to central government employees. It is an additional amount paid by the government to its employees to compensate for the price rise in the market, which has a bearing on their salary. The DA is also used by many other employers as one of their benefits in order to attract talent and retain them.
- City Compensation Allowance:
This is a tax-free allowance given to central government employees who are posted in cities with high cost of living index. The cities include Delhi, Mumbai, Kolkata, Chennai and Bengaluru among others.
Partly taxable allowances
Taxable Allowances refer to those allowances which are partly subject to income tax. Most prominent types of partly taxable allowances include:
- House Rent Allowance
House Rent Allowance (HRA) is a part of taxable income that is not included in the gross salary or wages. HRA is calculated as a percentage of the employee’s total rent paid by the employer. The benefit may be given to employees who are house owners, or who have lived with their parents for at least six months of the year. To get accurate figures for your HRA you should use a hra exemption calculator.
- Leaves Travel Allowance
Leaves travel allowance is an allowance given to employees who are not entitled to receive any other kind of paid leave. It is usually paid as per rules and regulations prescribed by the government. The amount of leave travel allowance depends on the type of leave being taken by the employee.
Fully exempt allowances
Taxable Allowances refer to those allowances which are completely free from income tax deductions. These include:
- Allowance to Government Employee
An allowance to Government employees is a part of their salary which is not taxable. The main purpose of this allowance is to compensate for the loss of salary due to leave granted by the employer, or if no leave was granted. This allowance is paid at a monthly rate and is also adjusted on basis of the month-end salary and other factors. An employee can claim this as his/her income tax from the government as per his tax slab.
- Allowance to Judges of Supreme Court
The judge’s allowance is an allowance paid by the government on top of their salary. Judges get this allowance only when they are working in the supreme court. This amount comes under the exemption category and it cannot be claimed as income tax by the judge.