Compensation and Income Tax Act, 1961

Compensation and Income Tax Act, 1961– Under the Income Tax Act, 1961 following allowances are defined:

• House Rent Allowance: Under section 10(13A) of Income Tax Act, 1961 house rent allowance is defined as an amount received by an employee paid by the employer as a rent of his/her house. It is a taxable income. There is no exemption in tax if the employee is living in his own house or house for which he is not paying rent. These are the following amounts that are exempt from tax:
• Actual house rent paid by the employee
• Rent paid for the accommodation over 10% of the salary
• 50% of the salary if house is placed at Delhi, Mumbai, Kolkata, Chennai or 40% of the salary in it is placed in any other city
• Entertainment Allowance: Entertainment Allowance is the amount paid by the employer for availing entertainment services. Under section 16(ii) of Income Tax Act, 1961 it is entitled to a deduction in tax from is salary. But in this case, deduction is given to his gross salary which also includes entertainment allowance. In the case of a Government employee, he is entitled to a minimum deduction of,
• 5000 in the entertainment allowance received
• 20% of basic salary excluding any other allowance

In case of other employee entitled to the minimum deduction of:

• 7500 in the entertainment allowance received
• 20% of basic salary excluding any other allowance
• Other Special Allowances: Some of the other special allow offered are
• Children Education Allowance
• Tribal Area Allowance
• Hostel Expenditure Allowance
• Remote Area Allowance
• Compensatory Field Area Allowance
• Counter Insurgency Allowance
• Border Area Allowance
• Hilly Area Allowance

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