Tax Exempted Allowances Under Income Tax Act

tax-exempted-allowances-under-income-tax-act
Tax Exempted Allowances Under Income Tax Act 

We have already discussed on various ways to save Income Tax in my another post on the topic Tips on How To Save Income Tax. In this post we will be focusing on Tax Exempted Allowance. Under the Income Tax Act, 1961 there no of Tax Exempted Allowances are available for the different categories of tax payers. Here is the summary of all such tax exempted allowance :

S. No.
Particulars
Limit of exemption
Exemption available to
A. Under the head Salaries


1
Any allowance or perquisite paid or allowed by Government to its employees posted outside India
Entire Amount
Individual- Salaried Employee (being a citizen of India)
2
Allowances to Judges of High Court/Supreme Court
Exempt, subject to certain conditions.
Individual - Judges of High Court/Supreme Court
3
Compensatory allowance received by a Judge under article 222(2) of the Constitution
Fully Exempt
Individual - Judges
4
Salary and allowances received by a teacher /professor from SAARC member state (Subject to certain conditions).
Fully Exempt
Individual - Teacher from SAARC member State
5
Following allowances and perquisites given to serving Chairman/Member of UPSC is exempt from tax:
Fully Exempt
Individual - Chairman/Member of UPSC
a) Value of rent free official residence
b) Value of conveyance facilities including transport allowance
c) Sumptuary allowance
d) Leave travel concession
6
Allowances to Retired Chairman/Members of UPSC
Exempt subject to maximum of Rs. 14,000 per month for defraying the services of an orderly and for meeting expenses incurred towards secretarial assistant on contract basis.
Individual - Retired Chairman/Member of UPSC
7
Allowances paid by the UNO to its employees
Fully Exempt Individual - Government employee
Individual - Employees of UNO
8
Entertainment Allowance received by the Government employees (Fully taxable in case of other employees)
Least of the following is exempt from tax:
Individual - Government Employee

a) Rs 5,000

b) 1/5th of salary (excluding any allowance, benefits or other perquisite)

c) Actual entertainment allowance received
9
House Rent Allowance (Sec. 10(13A) & Rule 2A)
Least of the following is exempt:
Individual - Salaried employee

a) Actual HRA Received

b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Madras)

c) Rent paid minus 10% of salary

* Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission

Note:

 i. Fully Taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent

 ii. It is mandatory for employee to report PAN of the landlord to the employer if rent paid is more than Rs. 1,00,000 [Circular No. 08 /2013 dated 10th October, 2013].
10
Up to Rs. 100 per month per child up to a maximum of 2 children is exempt
Individual - Salaried employee
11
Hostel Expenditure Allowance
Up to Rs. 300 per month per child up to a maximum of 2 children is exempt
Individual - Salaried employee
12
Transport Allowance is granted to an employee to meet expenditure on commuting between place of residence and place of duty
Up to Rs. 1,600 per month (Rs. 3,200 per month for blind and handicapped employees) is exempt
Individual - Salaried employee
13
Allowance granted to an employee working in any transport business to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided employee is not in receipt of daily allowance.
Amount of exemption shall be lower of following:
Individual - Salaried employee

a) 70% of such allowance; or

b) Rs. 10,000 per month.
14
Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office
Exempt to the extent of expenditure incurred for official purposes
Individual - Salaried employee
15
Any Allowance to meet the cost of travel on tour or on transfer
Exempt to the extent of expenditure incurred for official purposes
Individual - Salaried employee
16
Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty
Exempt to the extent of expenditure incurred for official purposes
Individual - Salaried employee
17
Helper/Assistant Allowance
Exempt to the extent of expenditure incurred for official purposes
Individual - Salaried employee
1
Research Allowance granted for encouraging the academic research and other professional pursuits
Exempt to the extent of expenditure incurred for official purposes
Individual - Salaried employee
2
Uniform Allowance
Exempt to the extent of expenditure incurred for official purposes
Individual - Salaried employee
3
Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations)
Amount exempt from tax varies from Rs. 300 per month to Rs. 7,000 per month.
Individual - Salaried employee
4
Border area allowance Remote Locality or allowance or Disturbed Area allowance or Difficult Area Allowance (Subject to certain conditions and locations)
Amount exempt from tax varies from Rs. 200 per month to Rs. 1,300 per month.
Individual - Salaried employee
5
Tribal area allowance in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa
Up to Rs. 200 per month
Individual - Salaried employee
6
Compensatory Field Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations)
Up to Rs. 2,600 per month
Individual - Salaried employee
7
Compensatory Modified Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations)
Up to Rs. 1,000 per month
Individual - Salaried employee
8
Counter Insurgency Allowance if this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations)
Up to Rs. 3,900 per month
Individual - Members of Armed Forces
9
Underground Allowance is granted to employees working in uncongenial, unnatural climate in underground mines
Up to Rs. 800 per month
Individual - Salaried employee
10
High Altitude Allowance is granted to armed forces operating in high altitude areas (Subject to certain conditions and locations)
 a) Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet)
Individual - Members of Armed Forces

 b) Up to Rs. 1,600 per month (for altitude above 15,000 feet)
11
Highly active field area allowance is granted to members of armed forces (Subject to certain conditions and locations)
Up to Rs. 4,200 per month
Individual - Members of Armed Forces
12
Island Duty Allowance is granted to members of armed forces in Andaman and Nicobar and Lakshadweep group of Island (Subject to certain conditions and locations)
Up to Rs. 3,250 per month
Individual - Members of Armed Forces
13
City Compensatory Allowance
Fully Taxable
Individual - Salaried employee
14
Fixed Medical Allowance
Fully Taxable
Individual - Salaried employee
15
Tiffin/Lunch/Dinner/Refreshment Allowance
Fully Taxable
Individual - Salaried employee
16
Servant Allowance
Fully Taxable
Individual - Salaried employee
17
Dearness Allowance
Fully Taxable
Individual - Salaried employee
18
Project Allowance
Fully Taxable
Individual - Salaried employee
19
Overtime Allowance
Fully Taxable
Individual - Salaried employee
20
Telephone Allowance
Fully Taxable
Individual - Salaried employee
21
Holiday Allowance
Fully Taxable
Individual - Salaried employee
22
Any Other Cash Allowance
Fully Taxable
Individual - Salaried employee
B. Under the head Income from house property

1
Municipal tax levied by local authority and borne by owner in respect of house property
Amount actually paid during the relevant previous year
All assessee
2
Standard Deduction
30% of the Annual Value (Gross Annual Value- Municipal Taxes)
All assessee
3
Interest incurred on borrowed capital
Interest on borrowed capital is allowed as deduction from income from house property as under:
All assessee

a) Up to Rs. 2,00,000 (if amount is borrowed for construction/acquisition of self-occupied house property on or after 01-04-1999), subject to certain other conditions

b) Up to Rs. 30,000 (if amount is borrowed for reconstruction, repair or renewals of self-occupied house property)

c) Actual amount of interest paid or payable during the year (in case of let-out property)

d) Pre-construction period interest is allowed in 5 annual equal installments (Subject to certain conditions)
4
Standard Deduction from arrears of rent received subsequently
30% of arrears of rent received subsequently.
All assessee
C. Under the head Profits and gains from business or profession
1
Depreciation in respect of:
Depreciation shall be allowed at prescribed percentage on actual cost of an asset.
Taxpayer engaged in business of generation or generation and distribution of power.



i) Tangible assets (buildings, machinery, plant or furniture);
However, if asset is acquired and put to use for less than 180 days during the previous year, the deduction shall be restricted to 50% of depreciation computed above.
Note:



ii) Intangible Assets (know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature)

Taxpayer engaged in business of generation or generation and distribution of power have the option to claim depreciation either on straight line basis or written down value basis.
2
Depreciation in respect of:
Depreciation shall be allowed at prescribed percentage on written down value of each block of asset (as per WDV method).
All assessees


i) Tangible assets (buildings, machinery, plant or furniture);
However, if asset is acquired and put to use for less than 180 days during the previous year, the deduction shall be restricted to 50% of depreciation computed above.


ii) Intangible Assets (know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature)

3
Additional depreciation on new plant and machinery (other than ships, aircraft, office appliances, second hand plant or machinery, etc.) shall be allowed subject to certain conditions.
Additional depreciation to be allowed at 20 % of actual cost of new plant and machinery.
All taxpayers engaged in:


However, if an asset is acquired and put to use for less than 180 days during the previous year, 50% of additional depreciation shall be allowed in year of acquisition and balance 50% would be allowed in the next year.
a) manufacture or production of any article or thing; or



b) generation or generation or distribution of power (if taxpayer not claiming depreciation on basis of straight line method)
4
Additional depreciation on new plant and machinery (other than ships, aircraft, vehicle, office appliances, second hand plant or machinery, etc.) shall be allowed subject to certain conditions.
Additional depreciation to be allowed at 35 % of actual cost of new plant and machinery.
All taxpayers which set up an undertaking or enterprise for production or manufacture of any article or thing in any notified backward area in the state of Andhra Pradesh, Bihar, Telangana or West Bengal.


However, if an asset is acquired and put to use for less than one 180 days during the previous year, 50% of additional depreciation shall be allowed in year of acquisition and balance 50% in next year.
Note:



1. Manufacturing unit should be set-up on or after April 1, 2015.



2. New plant and machinery should be acquired and installed on or after April 1, 2015 but before April 1, 2020.
5
Deduction under section 32AC is available if actual cost of new plant and machinery acquired and installed by a manufacturing company after 31-3-2013 but before 1-4-2015 exceeds Rs. 25/100 Crores, as the case may be.(Subject to certain conditions)
15% of actual cost of new asset acquired and installed (if it exceeds Rs. 25 Crores/100 Crores, as the case may be)
Company engaged in business or manufacturing or production of any article or thing
6
Investment allowance for investment in new plant and machinery (other than ships, aircraft, vehicle, office appliances, second hand plant or machinery, etc.) if manufacturing unit is set-up in notified backward area in the State of Andhra Pradesh, Bihar, Telangana or West Bengal
Investment allowance to be allowed at 15 % of actual cost of new plant and machinery in the year in which such asset is installed.
All taxpayers who acquire new plant and machinery for purpose of setting-up manufacturing unit in notified backward areas in the State of Andhra Pradesh, Bihar, Telangana or West Bengal


(subject to certain conditions)
Note:



1) New asset should be acquired and installed on or after April 1, 2015 but before April 1, 2020.



2) Manufacturing unit should be set-up on or after April 1, 2015.



3) Deduction shall be allowed under Section 32AD in addition to deduction under Section 32AC if assessee fulfils the specified conditions.
7
Amount deposited in Tea/Coffee/Rubber Development Account by assessee engaged in business of growing and manufacturing tea/Coffee/Rubber in India
Deduction shall be lower of following:
All assessee engaged in business of growing and manufacturing tea/Coffee/Rubber

a) Amount deposited in account with National Bank for Agricultural and Rural Development (NABARD) or in Deposit Account of Tea Board, Coffee Board or Rubber Board in accordance with approved scheme; or

b) 40% of profits from such business before making any deduction under section 33AB and before adjusting any brought forward loss.

(Subject to certain conditions)
8
Amount deposited in Special Account with SBI/Site Restoration Account by assessee carrying on business of prospecting for, or extraction or production of, petroleum or natural gas or both in India
Deduction shall be lower of following:
All assessee engaged in business of prospecting for, or extraction or production of, petroleum or natural gas or both in India

a) Amount deposited in Special Account with SBI/Site Restoration Account; or

b) 20% of profits from such business before making any deduction under section 33ABA and before adjusting any brought forward loss.

(Subject to certain conditions)
9
Revenue expenditure on scientific research pertaining to business of assessee is allowed as deduction (Subject to certain conditions).
Entire amount incurred on scientific research is allowed as deduction.
All assessee

Expenditure on scientific research within 3 years before commencement of business (in the nature of purchase of materials and salary of employees other than perquisite) is allowed as deduction in the year of commencement of business to the extent certified by prescribed authority.
10
Contribution to approved research association, university, college or other institution to be used for scientific research shall be allowed as deduction (Subject to certain conditions)
175% of sum paid to such association, university, college, or other institution is allowed as deduction.
All assessee
11
Contribution to an approved company registered in India to be used for the purpose of scientific research is allowed as deduction (Subject to certain conditions)
125% of sum paid to the company is allowed as deduction
All assessee
12
Contribution to approved research association, university, college or other institution with objects of undertaking statistical research or research in social sciences shall be allowed as deduction (Subject to certain conditions)
125% of sum paid to such association, university, college, or other institution is allowed as deduction
All assessee
13
Capital expenditure incurred during the year on scientific research relating to the business carried on by the assessee is allowed as deduction (Subject to certain conditions)
Entire capital expenditure incurred on scientific research is allowed as deduction.
All assessee

Capital expenditure incurred within 3 years before commencement of business is allowed as deduction in the year of commencement of business.

Note:

 i. Capital expenditure excludes land and any interest in land;

 ii. No depreciation shall be allowed on such assets.
14
Payment to a National Laboratory or University or an Indian Institute of Technology or a specified person is allowed as deduction.
200% of payment is allowed as deduction (Subject to certain conditions).
All assessee

The payment should be made with the specified direction that the sum shall be used in a scientific research undertaken under an approved programme.
15
Any expenditure incurred by a company on scientific research (including capital expenditure other than on land and building) on in-house scientific research and development facilities as approved by the prescribed authorities shall be allowed as deduction (Subject to certain conditions).
200% of expenditure so incurred shall be as deduction.
Company engaged in business of bio-technology or in any business of manufacturing or production of eligible articles or things
Expenditure on scientific research in relation to Drug and Pharmaceuticals shall include expenses incurred on clinical trials, obtaining approvals from authorities and for filing an application for patent.
Note:



i.  Deduction shall be allowed if company enters into an agreement with the prescribed authority for co-operation in such research and development and fulfils conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed.



 ii. Deduction under this provision would be allowed only for the expenditure incurred up to 31.03.2017.
16
Deduction in respect of expenditure on specified businesses, as under:
150% of capital expenditure incurred for the purpose of business is allowed as deduction provided the specified business has commenced its operation on or after 01-04-2012.
All assessee


a) Setting up and operating a cold chain facility
Note: If such specified businesses commence operations on or before 31-03-2012 but after prescribed dates, deduction shall be limited to 100% of capital expenditure.


b) Setting up and operating a warehousing facility for storage of agricultural produce



c) Building and operating, anywhere in India, a hospital with at least 100 beds for patients



d) Developing and building a housing project under a notified scheme for affordable housing



e) Production of fertilizer in India

(Subject to certain conditions)

17
Deduction in respect of expenditure on specified businesses, as under:
100% of capital expenditure incurred for the purpose of business is allowed as deduction provided specified businesses commence operations on or after the prescribed dates.
All assessee (Indian company in case of specified business of laying and operating a cross-country natural gas or crude or petroleum oil pipeline network)

a) Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network;

b) Building and operating, anywhere in India, a hotel of two-star or above category;

c) Developing and building a housing project under a scheme for slum redevelopment or rehabilitation

d) Setting up and operating an inland container depot or a container freight station

e) Bee-keeping and production of honey and beeswax

f) Setting up and operating a warehousing facility for storage of sugar

g) Laying and operating a slurry pipeline for the transportation of iron ore

h) Setting up and operating a semi-conductor wafer fabrication manufacturing unit

(Subject to certain conditions)
18
Expenditure (not being cost of land/building) incurred on notified agricultural extension project for the purpose of training, educating and guiding the farmers shall be allowed as deduction, provided the expenditure to be incurred is expected to be more than Rs. 25 lakhs (Subject to certain conditions).
150% of the expenditure (Subject to certain conditions)
All assessee
19
Expenditure incurred by a company (not being expenditure in the nature of cost of any land or building) on any notified skill development project is allowed as deduction (Subject to certain conditions).
150% of the expenditure (Subject to certain conditions)
Company engaged in manufacturing of any article or providing specified services

Note: No deduction shall be allowed to a company engaged in manufacturing  lcoholic spirits or tobacco products.


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