What is non-taxable-allowances?
Non-taxable allowances are extra payments made to employees that are fully exempt from income tax. These allowances help cover job-related expenses like travel, accommodation, uniforms, or other professional costs without increasing the employee’s taxable income.
Since these allowances are not considered part of taxable salary, they are deducted from total earnings when calculating taxes. In simple terms, non-taxable income refers to earnings that do not contribute to total taxable income and are exempt from tax deductions.
Fully Exempt Allowances
These allowances are completely tax-free, as defined under the Income Tax Act of 1961. Some common fully exempt allowances include:
Allowances received by Judges under Article 222(2) of the Constitution
Allowances for teachers and professors from SAARC member states
Education Allowance
Travel and Conveyance Allowances
Uniform Allowance
Compensatory Allowance
Allowances for United Nations (UNO) employees
Types of Non-Taxable Allowances
These allowances remain tax-free only when they are used for their intended purpose. Any unused portion becomes taxable.
Uniform Allowance: Covers expenses for buying and maintaining uniforms required for official duties.
Allowance for Government Employees Abroad: Indian government employees working overseas receive tax-free allowances.
UNO Employee Allowances: Payments made to United Nations (UNO) employees are exempt from taxes under Section 2 of the United Nations (Privileges and Immunities) Act.
Judges' Allowances: Judges of High Courts and the Supreme Court receive tax-exempt allowances.
Compensatory Allowances: Judges receive special allowances under Article 222(2), which are not considered part of salary and are tax-free.
Sumptuary Allowance: High Court judges receive this expense allowance under Section 22C of the High Court Judges Act, 1954, and it is fully exempt.
Helper Allowance: Employees who hire a helper for official duties get reimbursement that is not taxable.
Other Tax-Free Allowances: Includes Daily Allowance, Research/Academic Allowance, Traveling Allowance, and Conveyance Allowance for government employees posted abroad.
Benefits of Non-Taxable Allowances
Increases Take-Home Pay: Employees receive additional income without paying extra taxes, leading to higher net earnings.
Covers Essential Expenses: Helps pay for housing, transportation, uniforms, and work-related costs without affecting taxable income.
Reduces Financial Burden: Helps employees manage finances more effectively, leading to a more stable financial position.
Supports Job-Related Engagements: Encourages employees to take up special assignments or remote work by offering tax-free benefits.
Boosts job satisfaction: Employees feel more valued and financially secure, leading to higher morale and productivity.