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CS Executive · Tax Laws and Practice · Income under the Head Salary

Under the Income-tax Act, 2025 (applicable from the June 2027 session), a company pays its employee a fixed monthly 'special allowance' that is not linked to any specific expense or official duty and for which no exemption is provided. How is it treated in computing salary income?

A fixed special allowance not tied to any expense or official duty and carrying no specific exemption is fully taxable as salary. Allowances are taxable by default, and exemption is available only where the law specifically provides it, which is not the case here.

  1. AFully taxable as part of salaryCorrect
  2. BExempt up to 50% of the amount
  3. CExempt if the employee gives a declaration of spending it
  4. DTaxable only if it exceeds the basic salary

Explanation

An allowance is taxable as salary unless a specific exemption applies. A fixed special allowance with no link to an expense or duty has no exemption, so the whole amount is taxable. The 50% and declaration options invent exemptions that do not exist.

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