Non-Taxable Allowance: A Complete Guide

What are non-taxable allowances?

Non taxable allowances are an additional amount of money given to employees on their regular salary. This financial advantage can cover expenses related to their jobs, such as travel or accommodation costs.

Non taxable allowance is not considered taxable income, so the employee does not have to pay taxes.

What are fully exempt allowances?

Fully exempt allowances are a type of allowance that can be claimed without providing any information about the expenses being claimed.

Some allowances are fully exempt – the first is for certain disability-related expenses, and the second is for travel costs related to caring for a dependent.

The disability-related expenses which can be claimed as a fully exempt allowance include:

Special equipment or furniture.
Adaptations to a home or car.
Repair or replacement of aids or appliances.
Help with personal care or transport.

The travel costs, which can be claimed as a fully exempt allowance, relate to journeys made specifically to care for a dependent.

List of fully non-taxable allowances

Some of the allowances, usually paid to government servants, judges and employees of UNO are non- taxable.

Here is the list of allowances that are fully non-taxable:

1. Allowances paid to government employees abroad

When employees of the government who are working abroad are paid allowances then those allowances are fully exempted from the Income tax bracket.

2. Sumptuary Allowances

Sumptuary allowance which is paid to judges of Supreme court and High court are fully exempted from the Income Tax bracket.

3. Allowance received by employees of United Nation Organization

The allowance paid to the employees of UNO are exempted from the Income tax bracket.

4. Compensatory allowances paid to judges

The compensatory allowance paid to judges is fully exempted under the Income tax bracket.

5. Uniform allowance

Any allowance granted to meet the expenditure on purchase or maintenance of uniform for wear during the duties of an office or employment. This is exempted to the limit of the actual amount spent on uniform.

6. Helper allowance

Helper allowance is generally provided to an employee to meet the expenditure incurred on a helper when such helper is engaged for performing official duty.

7. Other tax free allowances

Daily allowance, Research/ Academic allowance, Conveyance allowance, allowances paid to government employees outside India and so on.

Benefits of non-taxable allowances:

There are several benefits to receiving a non-taxable allowance. Here are some of them:

You can use the money to cover essential expenses without worrying about being taxed on it. This can help reduce your overall tax burden and free up more money to save or spend elsewhere.
Non-taxable allowances can help you stay financially afloat during lean times or periods of financial difficulty. Because the funds are not subject to taxation, you can use them all to cover necessary costs without worrying about jeopardizing your financial stability.
There may be some government benefits or programs you qualify for that are only available if your income falls below a certain threshold.

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