1. Basic salary is fully taxable under Section 17 of the Income Tax Act.
2. Dearness Allowance and overtime allowance are fully taxable.
3. The taxability of entertainment allowance depends on the company policy. However, in some companies, entertainment allowances become tax free if bills are submitted to the extent that these expenses were used towards office purposes.
4. House Rent Allowance (HRA) exemption is applicable only if you are living in a rented house and not in your own house. HRA calculation is as follows:
The minimum of the three amounts will be exempt from tax:
a. ) 40% of total Basic +DA
b.) HRA 7000 X 12 =84000 less 10% of Basic+ DA.
( If you live in metropolitan (Delhi, Chennai, Bombay and Calcutta), 50 per cent of Basic + DA However instead of 40 per cent of Basic + DA in first case) The least amount of above two would be exempt as HRA.
5. Conveyance allowance of Rs 9,600 per annum is exempted from tax. Again, this is according to company policy. In some companies, if the balance is used for official purposes, the amount becomes tax free.
6. Overtime allowance is fully taxable.
7. Medical reimbursements, if substantiated with bills, are exempt to a limit of Rs 15,000 annually.
8. Some other allowances and reimbursements which may be part of your package are food coupons (Sodexho, ticket restaurant), phone reimbursements, books and periodical reimbursements etc. The taxation of this would depend on your company policy.