While calculating Income tax liability, there are certain allowances in which the amount of tax exemption does not depend upon expenditure incurred by the employee. Given below is a list of such allowances which are very useful in determining the ways to reduce income tax liability. In these cases, the amount of actual expenditure is not considered. The basis of exemption is the amount of allowance or amount specified in rule 2BB, whichever is lower.

Special Compensatory (Hill Areas) Allowance

It includes any special compensatory allowance in the nature of special compensatory (hilly areas) allowance, high altitude allowance, uncongenial climate allowance, snow bound area allowances or avalanche allowance.

Border area allowance

It includes any special compensatory allowance in the nature of border area allowance, remote locality allowance or disturbed area allowances.

Tribal areas/scheduled areas allowance

Tribal areas allowance is given in the states of Madhya Pradesh, Uttar Pradesh, Bihar, Assam, Tripura, West Bengal, Orissa, Tamil Nadu and Karnataka.

Children education allowance

This allowance is given for education of children up to a maximum of two.

Hostel expenditure allowance

This allowance is given to an employee so as to meet the hostel expenditure of his childup to a maximum of two children.

Allowance for transport employees

This allowance is granted to an employee working in any transport system so that he could meet his personal expenditure during his duty in running such transport from one place to another place.But that employee should not be in receipt of daily allowances.

Compensatory field area allowance

If this exemption is taken, the same employee cannot claim any exemption in respect of border area allowances mentioned above. Exemption is limited to Rs. 2,600 per month in some cases.

Compensatory modified area allowance

If this exemption is taken by an employee then he cannot claim any exemption in respect of border area allowances mentioned above.

Counter insurgency allowance

It includes any special allowance in the nature of the counter- insurgency allowance granted to the members of armed forces operating in areas away from their permanent locations. If this exemption is availed by an employee then he cannot claim any exemption in respect of border area allowances mentioned above.

Transport Allowance

It is granted to an employee to meet his expenditure for travelling between the place of his residence and the place of his duty.

Undergrounded allowance

This allowance is granted to an employee who is working in uncongenial or unnatural climate in underground mines.

High altitude allowance

It is granted to the members of armed forces who operate in high altitude areas.It varies on the basis of altitude.

Highly active field area allowance

This allowance is granted to the members of armed forces in the nature of special compensatory highly active field area allowances.

Island duty allowance

This special allowance is granted to the members of armed forces in the nature of island (duty) allowances in Andaman & Nicobar and Lakshadweep islands.

However it is important to note that these allowances are only granted to salaried employees by their employers as these expenditures are borne by the company and provides tax saving to the employees.