3-Step Decision — ask these in order

Step 1 · Regime Is the employee under the DEFAULT (new) regime — Sec 202 / 115BAC?

If YES → only the 4 allowances in the "Default / New Regime" card below can be exempt. Everything else is taxable. If employee has OPTED OUT (old regime) → go to Step 2.

Step 2 · Nature Is it a reimbursement-type official duty allowance?

Travelling / Daily / Conveyance / Helper / Academic / Uniform → exempt to the extent actually spent for official purposes. Surplus kept by employee = taxable.

Step 3 · Listed? Is it HRA or a listed personal allowance with a monetary cap?

Apply the cap / least-of-three formula from the tables below. If the allowance is not listed anywhere below → it is FULLY TAXABLE (e.g. medical, tiffin, servant, city compensatory).

💡 Click any allowance name to open its dedicated page — meaning, computation, conditions, examples & official references.

DEFAULT / NEW REGIME — Sec 202 (ITA 2025) · erstwhile 115BAC

Travelling / Transfer allowance — actual official spend
Daily allowance (on tour/transfer) — actual official spend
Conveyance allowance (official duties) — actual official spend
Transport allowance — employee with specified disability — up to cap*
HRA, LTC/LTA, Children Education, Hostel — NOT available
All Sec 10(14)(ii) personal allowances (except disability transport) — NOT available

Standard deduction ₹75,000 available. Gratuity (₹20L), leave encashment on retirement (₹25L), commuted pension & VRS (₹5L) remain available under both regimes — now as deductions u/s 19 / Schedule III of ITA 2025.

OLD REGIME (employee opted out of Sec 202)

All four official-duty allowances above, PLUS:
HRA — least-of-three formula (Table 1)
Helper / Academic-Research / Uniform — actual spend (Table 2)
Children Education / Hostel / Tribal / Underground etc. — capped (Table 3)
LTC/LTA — 2 journeys in block of 4 yrs, India travel, actual fare
Unlisted allowances (medical, tiffin, servant, CCA…) — taxable (Table 4)

Standard deduction ₹50,000 + Professional tax deduction available in old regime.

Table 1 — House Rent Allowance (HRA)

Sec 10(13A) ITA 1961 · Rule 2A — OLD REGIME ONLY

Item	Rule
House Rent Allowance LEAST OF 3 Employee must actually pay rent · must not own the accommodation · rent receipts kept · landlord PAN if annual rent > ₹1,00,000	Exempt = least of: (a) actual HRA received; (b) rent paid − 10% of salary; (c) 50% of salary in the 8 specified cities — Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Pune, Ahmedabad, Bengaluru (list expanded by IT Rules 2026) — or 40% elsewhere. "Salary" = Basic + DA (if forming part of retirement benefits) + commission as fixed % of turnover. No rent paid → entire HRA taxable.

Table 2 — Official Duty Allowances (spend-based)

Sec 10(14)(i) · Rule 2BB(1) → Rule 280(1) of IT Rules 2026 — exempt to the extent ACTUALLY SPENT for official purposes; surplus retained is taxable. First three + disability transport also exempt in NEW regime.

Allowance	Status	Condition for exemption	New regime?
Travelling / Transfer Allowance	EXEMPT	Cost of travel on tour or on transfer, incl. packing & transport of personal effects.	✔ Yes
Daily Allowance	EXEMPT	Ordinary daily charges while absent from normal place of duty, on tour/transfer.	✔ Yes
Conveyance Allowance	EXEMPT	Conveyance in performance of official duties — only if employer does not provide free conveyance. Home-to-office commuting is NOT official duty.	✔ Yes
Helper Allowance	EXEMPT	Helper engaged for performance of official duties.	✘ No
Academic / Research Allowance	EXEMPT	Encouraging academic, research & training pursuits in educational/research institutions.	✘ No
Uniform Allowance	EXEMPT	Purchase / maintenance of uniform required for duty.	✘ No

Table 3 — Personal / Compensatory Allowances (limit-based)

Sec 10(14)(ii) · Rule 2BB(2) → Rule 280(2) of IT Rules 2026 — exempt up to the cap irrespective of actual spend. OLD REGIME ONLY (except disability transport). Limits revised w.e.f. FY 2026-27.

Allowance	Status	Limit — FY 2026-27 (Rules 2026)	Earlier limit (Rules 1962)	Notes
Children Education Allowance	CAPPED	₹3,000 /month /child	₹100 /month /child	Maximum 2 children.
Hostel Expenditure Allowance	CAPPED	₹9,000 /month /child	₹300 /month /child	Maximum 2 children.
Transport Allowance — specified disability	CAPPED	₹3,200 /month*	₹3,200 /month	Blind / deaf & dumb / orthopaedically handicapped. Available in BOTH regimes. For all other employees, commuting transport allowance is fully taxable.
Allowance to Transport-System Employees	CAPPED	70% of allowance or ₹10,000 /month, lower*	70% or ₹10,000 /month	Running staff of transport system, for personal expenditure during duty — only if no daily allowance is received.
Tribal Area Allowance	CAPPED	₹200 /month	₹200 /month	Specified states (MP, TN, UP, Karnataka, Tripura, Assam, WB, Bihar, Odisha).
Underground Allowance	CAPPED	₹800 /month	₹800 /month	Employees working in uncongenial, unnatural climate in underground mines.
Hill / Border / Remote / Field Area etc.	CAPPED	Location-specific slabs per Rule 2BB(2) → Rule 280(2)		Mostly armed forces / posting-specific — open the page for the station-wise amounts.

Table 4 — Fully Taxable Allowances (both regimes)

Default rule — Sec 17(1): every allowance is salary unless a specific exemption exists. If it is not in Tables 1–3, it lands here.

Allowance	Status	Why taxable
Dearness Allowance (DA)	TAXABLE	Part of salary; also counts inside "salary" for HRA/gratuity computations.
City Compensatory Allowance (CCA)	TAXABLE	Personal cost-of-living compensation — no exemption prescribed.
Medical Allowance (fixed monthly)	TAXABLE	Fixed allowance ≠ reimbursement; fully taxable regardless of bills.
Transport / Commuting Allowance (normal employees)	TAXABLE	Home-to-office commuting exemption withdrawn (subsumed in standard deduction). Only specified-disability employees get the cap in Table 3.
Tiffin / Lunch Allowance	TAXABLE	Personal benefit — no exemption prescribed.
Servant / Domestic Help Allowance	TAXABLE	Personal benefit — no exemption prescribed.
Overtime / Holiday / Project Allowance	TAXABLE	Reward for services — pure salary.
Warden / Non-practising / Deputation Allowance	TAXABLE	No exemption prescribed.
Any allowance not listed in Tables 1–3	TAXABLE	Golden rule: no entry in the exemption list = fully taxable.

Table 5 — Related Salary Receipts (quick strip — both regimes)

Not "allowances" strictly, but almost always asked alongside — now deductions u/s 19 / Schedule III of ITA 2025.

Receipt	Status	Exemption
Leave Travel Concession (LTC/LTA)	OLD ONLY	Actual travel fare within India, self + family, 2 journeys in block of 4 calendar years. Sec 10(5).
Gratuity	CAPPED	Govt employee: fully exempt. Non-Govt: least of formula / ₹20,00,000 / actual. Death cases: as per table. Both regimes.
Leave Encashment (retirement/resignation)	CAPPED	Govt: fully exempt. Non-Govt: exempt up to ₹25,00,000 (lifetime). During service: fully taxable. Both regimes.
Commuted Pension	CAPPED	Govt: fully exempt. Non-Govt: 1/3rd exempt if gratuity received, else 1/2. Uncommuted (monthly) pension: fully taxable. Both regimes.
VRS Compensation	CAPPED	Lower of amount received or ₹5,00,000 — once in a lifetime. Both regimes.
Retrenchment Compensation	CAPPED	Least of ₹5,00,000 / actual / 15 days avg pay per completed year. Fully exempt if under Central Govt approved scheme.

How to use this reckoner

Surplus rule: for Table 2 allowances, any amount not actually spent for the official purpose is taxable — obtain declarations/vouchers at TDS stage.
Regime check first: Sec 202 (default) is presumed unless the employee has opted for the old regime — capture the option before computing TDS u/s 192.
Items marked * reflect a Taxmann.AI research note dated 24-07-2026 suggesting revised caps under Rule 280 that are not yet corroborated — verify against the notified Income-tax Rules, 2026 before relying.
Sources: Taxmann commentary on exempt allowances (including the old vs new regime comparison) and "Exemptions in respect of salary income", read together with the Income Tax Department's text of Rule 2BB and the notified Income-tax Rules, 2026.
Published by Ledger Logic, the accounting & compliance arm of Kolte Enterprises, as a general reference. It is not a substitute for reading the notified Act and Rules in borderline cases, and it is not advice on any particular salary structure — talk to us before you rely on it for a payroll or TDS position.

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