Allowances Elements

Allowances include the employee benefits provided by an employer, which is part of the Earnings component.

There are various allowances provided by the employer to the employee. Some of these allowances are exempt from income tax either fully or partially in section 10. You can setup these allowances using element templates. The tax exemption is automatically calculated on these

The allowances which are exempted in Section 10 for the income tax computation are supported. This is captured in the Allowance element for India localization, which has predefined calculation rules. The calculation rules for the below allowances are generated when you create the element using the related template.

Here are the allowance types in Section 10 14(i) that are supported:

Here are the allowance types in Section 10 14(ii) that are supported:

Children Education Allowance
Compensatory Field Area Allowance
Compensatory Modified Field Area Allowance
High Altitude Allowance
Hostel Expenditure Allowance
House Rent Allowance
Other Allowance
Special Compensatory Allowance
Transport Allowance for Physically Disabled
Tribal Area Allowance
Underground Allowance

Leave Travel Assistance is the allowance types in Section 10 5 that's supported:

You can create the element and associate the appropriate allowance type. Use the Elements task to create the allowances element, using the primary classification Allowances and the allowance type Allowances. In the Earnings Rules, select No for all the questions. On the Element Summary page, update the newly created element details. Create the eligibility record for the element.

Note:

All allowances are subject to income tax unless you select the secondary classification as a nontaxable allowance.

Some of these elements might be part of regular salary or some could be one-time payments. Some might be partially exempted from tax and some might be fully exempted from tax depending on statutory threshold and subject to actual expenses submitted by the employee.