The exemption of House Rent Allowance (HRA) received is exempt to the
least of the following:
HRA received the period during which the rental accommodation is occupied
by the employee in the previous year.
Excess of rent paid over 10 percent of salary.
50% of the salary, if the rented accommodation is situated at Mumbai,
Calcutta, Delhi or Chennai and 40% of salary in other cities. The salary
is taken for the period during which the rental accommodation is occupied
by the employee in the previous year.
Includes basic salary and dearness allowance if terms of employment so
provide but does not include any other allowance. However, any commission
payable at a fixed percentage of turnover achieved by the employee is
Any amount received by the employee, as entertainment allowance is taxable
as salary. However, deduction is available to the employee if he has been:
In continuous service
with the present employer from a date before April 1, 1955, and Receiving
Entertainment Allowance from his present employer continuously from a date
before April 1, 1955 till the year for which the income is to be taxed.
The amount of
deduction available is restricted to least of the following:
# In case of government employees: Rs. 5,000; 20% of salary; or amount of
entertainment allowance granted during the previous year.
# In case of non-Government employees: Rs. 7,500; 20% of salary; amount of
entertainment allowance granted during the previous year, or
# Amount of entertainment allowance received during the financial year
1954-55. Salary means basic salary and excludes all allowances, benefits
Transport allowance provided to an employee for commuting between his
residence and the place of his duty shall be exempt up to Rs. 800 per
month. However, in case blind or orthopaedically handicapped employee's, a
sum of Rs. 1,600 per month is exempt from tax.
Education allowance of Rs. 50 per month per child for up to 2 children of
the employee is exempted. In case the children are in hostel, the
exemption available is Rs.150 per month per child for up to 2 children.
The following allowances are exempt from tax:
Expenses incurred on conveyance in the performance of duties of office;
Cost of travel on tour or on transfer;
Daily ordinary charges incurred by the employee on account of absence from
his normal place of duty during a tour;
Expenditure on a helper where such helper is engaged for the performance
of the duties of office;
Allowances granted for encouraging the academic research and training
pursuits in educational and research institutions; or
Expenditure incurred on the purchase or maintenance of uniform for wear
during the performance of the duties of office.
Leave Travel Assistance
LTA is paid for meeting travelling expenses incurred by an individual as
also family members (this includes only the spouse, two children and
dependent parents, brothers and sisters) while on holiday in India. The
amount of exemption depends upon the mode of journey. This exemption is
available in respect of 2 journeys undertaken in a block of four calendar
This exemption is available in respect of :
Reimbursement upto Rs.15,000 for medical treatment of the employee and
Reimbursement of expenditure incurred by an employee and family members in
approved hospitals, dispensaries etc.
Group medical insurance for an employee and family members or
reimbursement of premium paid by an employee for medical insurance.
For medical treatment abroad, the actual expenditure incurred, including
on travel and stay abroad of the patient and one attendant (if permitted
by the RBI). The ceiling for the gross total income excluding the amount
to be reimbursed is Rs.2 lakhs.
Lunch and Refreshment
Refreshment at free or concessional rate is not taxable.
Exemptions of medical expenses incurred by or on behalf of the employee
# The following medical facilities provided to an employee are exempt from
# Treatment of an employee or his family in any hospital maintained by the
# Reimbursement of any medical expenditure actually incurred by the
employee for himself or his family :
In any hospital maintained or approved by the Government, any local
authority; or For prescribed diseases or ailments in any hospital approved
by the Chief Commissioner, or
Up to Rs. 15,000,
actually incurred by the employee on medical (other than the treatment
referred to above);
Premium paid by the employer towards medical insurance on the health of
Reimbursement by the
employer of premium paid by the employee towards insurance on his health
or of that of his family .
Expenditure incurred by the employer on
Medical treatment of the employee whose family is outside India;
Travel and stay abroad of the employee or his family including one
attendant accompanying the patient for medical treatment.
The expenditure on
medical treatment and stay abroad shall be excluded from perks :
only to the extent permitted by the Reserve Bank of India; and the
employee's gross total income, as computed before including the said
expenditure, does not exceed Rs 2 lakhs.
"Family" in relation
to an individual means:
the spouse and children of the individual; and parents, brothers and
sisters of the individual wholly or mainly dependent on the individual