Hr NewsStatutory Compliance

What are the tax exemption limits for allowances, reimbursements paid to employees? Find out

Source | The Economic Times : By Preeti Motiani

Many of the allowances, reimbursements paid to us as a part of salary are tax-exempt up to a certain limit but the tax exemption is subject to certain conditions. This limit determines how much of these allowances/reimbursements are taxable or otherwise in our hands.

Consequently, it is important to know these limits and the conditions attached for claiming tax exemption. Further, some allowances are
fully taxable and it is important to know this too in order to calculate

one’s tax properly.

Following is a list of some allowances and reimbursements which are often paid to employees as part of salary along with which are fully taxable, which are partially tax-exempt and the limits up to which these are exempted from tax.

1. House Rent Allowance (HRA): If you are receiving HRA as part of your salary and also pay rent for residential accommodation then you can claim the HRA paid to you as exempt from tax subject to

certain limits and restrictions. These are as follows:

Minimum of the following HRA is exempt from tax:
(i) Actual HRA received
(ii) 50% of annual salary* if living in metro cities or else 40%
(iii) Excess of annual rent paid over 10% of annual salary*

*Salary here is considered as basic plus dearness allowance (if it forms part of retirement benefits) and commission received on the basis of sales turnover.

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