Allowances are the amount received by an individual paid by his/her employer in addition to salary.

House Rent Allowances received the period during which the rental accommodation is occupied by the employee in the previous year.

Transport allowances provided to an employee for commuting between his residence and the place of his duty shall be exempt up to Rs. 800 per month.

Education allowances of Rs. 50 per month per child for up to 2 children of the employee is exempted.

Entertainment Allowances

                Any amount received by the employee, as entertainment allowance is taxable as salary. However, deduction is available to the employee if he has been : In continuous service with the present employer from a date before April 1, 1955, and Receiving Entertainment Allowance from his present employer continuously from a date before April 1, 1955 till the year for which the income is to be taxed. The amount of deduction available is restricted to least of the following:

• In case of government employees: Rs. 5,000; 20% of salary; or amount of entertainment allowance granted during the previous year
   
• In case of non-Government employees: Rs. 7,500; 20% of salary; amount of entertainment allowance granted during the previous year, or
   
• Amount of entertainment allowance received during the financial year 1954-55. Salary means basic salary and excludes all allowances, benefits or perquisites.

                                   Transport Allowances

• Transport allowance provided to an employee for commuting between his residence and the place of his duty shall be exempt up to Rs. 800 per month.
   
• However, in case blind or orthopaedically handicapped employee's, a sum of Rs. 1,600 per month is exempt from tax.
   

                                   House Rent Allowance

             Under sections 10(13A) of Income Tax Act, 1961 allowance is defined as an amount received by an employee paid by his/ her employer as a rent of his/her house. It is a taxable income. There is no exemption in tax if he is living in his own house or house for which he is not paying rent. There are following amount which are exempt from tax:

• Actual house rent paid by that individual
   

• 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

                                    Education Allowances

• Education allowance of Rs. 50 per month per child for up to 2 children of the employee is exempted.
   

• In case the children are in hostel, the exemption available is Rs.150 per month per child for up to 2 children.
  
                                Special Allowances
   

• 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

        Allowances for there is a provision of exempt in income tax are

• Allowance given to a citizen of India, who is a government employee, for rendering services outside India

• Allowances given to Judges of High Courts

• Allowance given Judges of Supreme Court

• Allowances received by an employee of UNO

                                  Medical Allowances

• Reimbursement upto Rs.15,000 for medical treatment of the employee and family members.
   

• Reimbursement of expenditure incurred by an employee and family members in approved hospitals, dispensaries etc.
   

• Group medical insurance for an employee and family members or reimbursement of premium paid by an employee for medical insurance.
   

• For medical treatment abroad, the actual expenditure incurred, including on travel and stay abroad of the patient and one attendant (if permitted by the RBI). The ceiling for the gross total income excluding the amount to be reimbursed is Rs.2 lakhs.
   

• In any hospital maintained or approved by the Government, any local authority; or
   

• For prescribed diseases or ailments in any hospital approved by the Chief Commissioner, or
   

• Up to Rs. 15,000, actually incurred by the employee on medical (other than the treatment referred to above);
   

• Premium paid by the employer towards medical insurance on the health of such employee
  
                              Lunch and Refreshment
   

• Refreshment at free or concessional rate is not taxable.
   

• Exemptions of medical expenses incurred by or on behalf of the employee
   

• The following medical facilities provided to an employee are exempt from income tax:
   

• Treatment of an employee or his family in any hospital maintained by the employer;
   

• Reimbursement of any medical expenditure actually incurred by the employee for himself or his family.