Under the Income Tax Act, 1961, several allowances are provided to salaried individuals which are either fully or partially exempt from tax, offering substantial tax-saving benefits. Here’s a categorized summary of key allowances and their tax benefits:
✅ 1. House Rent Allowance (HRA) – Section 10(13A)
Tax Benefit: Partially exempt
Exemption Rule: Least of the following is exempt:
- Actual HRA received
- 50% of salary (for metro cities) or 40% (for non-metro)
- Rent paid minus 10% of salary
Note: Exemption available only if employee lives in rented house.
✅ 2. Leave Travel Allowance (LTA) – Section 10(5)
Tax Benefit: Exempt for travel within India (twice in 4 years)
Includes: Economy class airfare, rail, or bus fare
Excludes: Local conveyance, accommodation, food expenses
Note: Must be claimed with proof; exemptions available for actual travel only.
✅ 3. Children Education Allowance
Tax Benefit: ₹100 per month per child (max. 2 children) exempt
Hostel Expenditure Allowance: ₹300 per month per child (max. 2 children) exempt
✅ 4. Transport Allowance
Tax Benefit:
- ₹3,200/month exemption for handicapped employees
- No general exemption after Finance Act 2018 (unless special cases)
✅ 5. Travelling / Daily Allowance (Section 10(14))
Tax Benefit: Fully exempt if actually incurred for official duty
Includes: Travel, daily allowance, hotel stay, conveyance for office work
Condition: Proof of expenditure required
✅ 6. Uniform Allowance
Tax Benefit: Exempt to the extent of expenses incurred for office uniform
Condition: Needs to be used specifically for duty-related uniform
✅ 7. Academic / Research Allowance
Tax Benefit: Exempt to the extent of expenses incurred for research or training
Typically available to: Professors, researchers in educational institutions
✅ 8. Helper Allowance
Tax Benefit: Exempt if helper is used for official purposes
Proof Required: Employer’s certification or duty description
✅ 9. Conveyance Allowance
Tax Benefit: Exempt if paid to meet expenditure incurred in the performance of duties
Example: Site visits, official client meetings, etc.
✅ 10. Special Compensatory Allowances (e.g., for hilly, tribal or border areas)
Tax Benefit: Fixed exemption amount, varies by region (from ₹200 to ₹1,300 per month)
📌 Important Notes
- Most of these allowances are exempt only under the Old Tax Regime.
- Under the New Tax Regime (Section 115BAC), most exemptions (like HRA, LTA) are not available.
- Proper documentation and employer reporting (in Form 16) is crucial.
💡 Pro Tip for Tax Planning
To maximize tax savings, evaluate whether the Old Regime with exemptions or the New Regime with lower rates is better suited to your income profile.