The general rule
Salary and all allowances I get are taxable.
The exception or exemption rule
Some exceptions to taxability are specifically given. If I strictly meet those conditions, I get a benefit or some exemptions from everything being taxed in my allowances. Common ones are:
House Rent Allowance
I get a benefit or reduction on this element only if I am paying rent. The benefit I get is minimum of :
- HRA received
- 50% of Salary for major cities (Mumbai, Delhi, Kolkatta and Chennai) and 40% of Salary for others
- Rent paid by me Minus 10% salary.
So, if I’m at Delhi and my salary is Rs.1,00,000, my HRA is Rs.50,000 and my Rent paid is Rs.40,000, I will get benefit of least of
- Rs.50,000 HRA received
- Rs.50,000 (50% Salary)
- 40,000-10000 (Rent – 10% Salary)= Rs.30,000
So out of Rs.50,000 HRA I get, Rs.30,000 is exempted and Rs. 20,000 is taxable.
Leave Travel Concession
Sometimes my employer gives me an amount being ‘Leave Travel Concession’ or LTC to reimburse or fund my travel any where in India. I get this as tax exempt to the extent of amount actually spent by me on and upto:
- If I fly, an amount of economy Air Travel fare to (and back) any place in India
- If I go by train or otherwise, an amount of or equivalent to the first class rail fare upto (and back) the place visited.
I must produce the evidence of having spent the amount
This concession is tax free for two journeys in a block of every four calender years, the current block being 2018-2021.
The non-cash benefits rule
Since the benefits in are not in cash, how do I include or measure the value of such benefits.
The tax law has given a way to value such benefits. Common ones are
The House provision by employer
If my employer gives a house to me, it is valued at lower of 15%* of my salary and amount of rent paid by employer for such house if he has rented it out. If it is employer owned, it is valued at 15% of my salary. Salary here includes all allowances but excludes perquisites.
This 15% of salary is applicable for bigger cities having population over Rs.25 lacs (per 2001) census, and reduces to 10% for cities having population in the range of over 10 lacs- upto 25 lacs and 7.5% to cities having population below 10 lacs.
The Car provision by employer
If my employer gives me a car for use, and I don’t keep a (kilometrage) record of how much I used for office and how much for personal purpose, then an amount of Rs.2400 per month is considered as the value of benefit or perquisite of car in my hands
In addition, if a driver is also given to me, an additional amount of Rs.900 per month is considered as the value of such benefit in my hands.
If I use entirely for personal purposes, the amount spent or incurred by employer is the value of my perquisite.