What are allowances?

Allowances taxation: classification and tax treatment determine whether allowances or perquisites are taxable or exempt.

Allowances are fixed periodic payments by an employer for particular employee needs and are classified for income-tax purposes as taxable, fully exempted, or partially exempted, with classification determining tax treatment. Perquisites are benefits from official position that may be taxable or non-taxable depending on their nature. A uniform allowance is exempt to the extent of expenditure incurred for official purposes under the applicable income-tax provision.