How Tax Will Eat Up Sixth Pay Commission’s Enhanced Allowances?
February 6, 2009 by taxworry · Leave a Comment
In the first part of the series, three benefits given by Sixth Pay Commission are discussed from tax angle to say that cheers will surely evaporate when in this month s DDOs starts computing tax burden .
1. Travelling allowance :
under the new pay commission has been increased .However, there is no amendment in Rule 2BB (10) which exempts travelling allowance only up to Rs 800 per month. Which means any extra will be taxed.
2. Gratuity
It has been enhanced to maximum of Rs 10 lakhs. . However. no new notification for maximum amount exempt u/s 10(10)(3) has not been issued which means that people who are retiring now will have to fork out .
3. Education allowance
It has been enhanced from Rs 100 per month to Rs 1000 per month per child . In case hostel, the allowance has been increased to Rs 3000 from Rs 300. Indeed very welcome step. However, the exemption under Rule 2BB (5) & 2BB(6) are only Rs 1200 per year and Rs 3600 in case of hostel. It means that 90 % of enhancement is taxable in your hand. Only silver lining is that those who have not saved Rs 1,00,000 under section 80C , can claim tuition fee payment for the purpose of deduction u/s 80C
4. Encashment of Leave Salary
Now 10 days of leave for LTC purpose can be encashed now- While the benefit of LTC is tax free, the encashment of leave salary for the purpose of tax is fully taxable if received before retirement. Thus, here also one has to pay tax.
1. Travelling allowance :
under the new pay commission has been increased .However, there is no amendment in Rule 2BB (10) which exempts travelling allowance only up to Rs 800 per month. Which means any extra will be taxed.
2. Gratuity
It has been enhanced to maximum of Rs 10 lakhs. . However. no new notification for maximum amount exempt u/s 10(10)(3) has not been issued which means that people who are retiring now will have to fork out .
3. Education allowance
It has been enhanced from Rs 100 per month to Rs 1000 per month per child . In case hostel, the allowance has been increased to Rs 3000 from Rs 300. Indeed very welcome step. However, the exemption under Rule 2BB (5) & 2BB(6) are only Rs 1200 per year and Rs 3600 in case of hostel. It means that 90 % of enhancement is taxable in your hand. Only silver lining is that those who have not saved Rs 1,00,000 under section 80C , can claim tuition fee payment for the purpose of deduction u/s 80C
4. Encashment of Leave Salary
Now 10 days of leave for LTC purpose can be encashed now- While the benefit of LTC is tax free, the encashment of leave salary for the purpose of tax is fully taxable if received before retirement. Thus, here also one has to pay tax.
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