When Do You Get a Special Allowance in Salary?
A special allowance is a fixed sum of money given to an employee and his regular salary to meet specific requirements. This type of allowance is provided to employees for covering some particular expenditures.
This practice is carried out in businesses, big corporate firms, and sole proprietorship firms, but it differs from entity to entity. This special allowance can be taxable or exempt from taxes too. The Income Tax Act, 1962 talks about this special allowance in complete detail.
Categories of Special Allowance
There are seven main categories of special allowances.
- Transport Allowance
This allowance is provided by railways, aviation, and other transport-providing services. The maximum exemption is Rs. 1600 per month. Excess is taxable.
- Children Education Allowance
The maximum exemption is Rs. 100 each month per child for two children only. Excess is taxable.
- Underground Allowance
Employees who work in unfavorable conditions and harmful environments are eligible for this allowance. The maximum exemption is Rs. 800 per month. Excess is taxable.
- Hostel Allowance
The maximum exemption is Rs. 300 each month per child. Excess is taxable.
- Outstation Allowance
In addition to the salary, transport companies such as railways, roadways, airways or waterways entities provide this allowance. The maximum exemption is Rs. 10,000 per month. Excess is taxable.
- Tribal Areas Allowance
Tribal people who reside in remote hilly regions of Karnataka, Uttar Pradesh, Andhra Pradesh, Maharashtra, Assam, Tripura, Meghalaya, etc. are eligible for this allowance. The maximum exemption is Rs. 200 per month. Excess is taxable.
- Island Duty Allowance
Employees who reside on Indian islands such as Andaman and Nicobar and have joined military forces are eligible. The maximum exemption is Rs. 3250 per month. Excess is taxable.
Other allowances include:
- Daily Allowance
- Uniform Allowance
- Academic Allowance
- Conveyance Allowance
- Uniform Allowance
Special Allowance in Salary and How to Calculate
After breaking down each part of the salary, it becomes easier to calculate the special allowance. The calculation generally differs in each business, but there is a standardization of the following components:
- Gross Salary
- Basic Salary
- Variable Salary
- Cost To Company
- Net Salary
The gross salary Consists of house rent allowance, dearness allowance, medical reimbursement, leave travel allowance, and special assistance. The variable pay is a provisional payment in addition to the gross salary. It includes
- Performance-based bonus
- Provident Fund
The Cost to Company or CTC is the addition of the gross salary and the variable pay. You can derive the Net Salary after adjusting the amount that you receive.
The deductions include professional tax, Provident Fund contributed by the employee, and the tax deducted at the source as per the Income Tax Act.
To calculate the total amount of your special allowance, you must add all the eligible amounts from the given list. You can always refer to your salary slip or epfo e sewa for more in-depth information about your special allowance in salary.
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