Official Disclaimer: The contents of this document are for information purposes only and are based on official Income Tax Department data. This aims to enable taxpayers to have quick and easy access to tax-related information. Viewers are advised to verify the content from Government Acts, Rules, and Notifications. For Assessment Year 2026-27.
Income Tax Allowances & Deductions: Complete List for AY 2026-27
Complete Guide to Tax Allowances and Deductions - This comprehensive reference document contains all tax allowances available to different categories of taxpayers, deductions under various heads of income, capital gains exemptions, and other tax-saving provisions applicable for Assessment Year 2026-27 as per the Income Tax Act, 1961.
Whether you're a salaried employee claiming salary allowances, a property owner seeking house property deductions, a business owner planning depreciation benefits, or an investor looking for capital gains exemptions - this guide covers every provision with official limits and conditions.
Official Data Source: Income Tax Department, Government of India | Last Updated: AY 2026-27 (Finance Act 2025)
A. Salary Allowances & Exemptions (Section 10 & 16)
Salaried employees can claim various allowances that are either fully exempt, partially exempt, or fully taxable. Understanding these provisions helps in effective tax planning and maximizing take-home salary. Below is the complete list of all 36 allowances with exemption limits and applicability for AY 2026-27.
| S.No. | Section | Particulars | Exemption Limit | Applicable To |
|---|---|---|---|---|
| 1 | 10(7) | Any allowance or perquisite paid or allowed by Government to its employees posted outside India | Entire Amount | Individual - Salaried Employee (Indian citizen) |
| 2 | — | Allowances to Judges of High Court/Supreme Court | Exempt, subject to certain conditions | Individual - Judges |
| 3 | — | Salary and allowances received by teacher/professor from SAARC member state (Subject to conditions) | Fully Exempt | Individual - SAARC Teacher |
| 4 | 16(ii) | Entertainment Allowance received by Government employees (Fully taxable for private sector employees) |
Least of: a) Rs 5,000 b) 1/5th of salary (excluding allowances) c) Actual amount received |
Government Employee Only |
| 5 | 10(13A) | House Rent Allowance (HRA) - Rule 2A
Important: (i) Fully taxable if living in own house or not paying rent
(ii) Mandatory to report landlord's PAN if annual rent exceeds Rs 1,00,000 |
Least of: a) Actual HRA Received b) 50% of salary (Metro cities: Mumbai, Delhi, Kolkata, Chennai) OR 40% of salary (Non-metro cities) c) Rent paid minus 10% of salary *Salary = Basic + DA (retirement benefit) + Commission |
Individual - Salaried Employee |
| 6 | 10(14) | Children Education Allowance | Rs 100 per month per child Maximum 2 children (Rs 2,400 per year total) |
Individual - Salaried Employee |
| 7 | 10(14) | Hostel Expenditure Allowance | Rs 300 per month per child Maximum 2 children (Rs 7,200 per year total) |
Individual - Salaried Employee |
| 8 | 10(14) | Transport Allowance for commuting between residence and workplace | Rs 3,200 per month (Rs 38,400 per year) Only for blind/deaf-dumb/orthopedically handicapped employees |
Individual - Differently-Abled Employee |
| 9 | 10(14) | Allowance for employees in transport business (drivers, conductors) - not receiving daily allowance | Lower of: a) 70% of allowance b) Rs 10,000 per month |
Individual - Transport Employee |
| 10 | 10(14) | Conveyance Allowance for official duties | Exempt to extent of actual expenditure for official purposes | Individual - Salaried Employee |
| 11 | 10(14) | Travel Allowance on tour or transfer | Exempt to extent of actual expenditure for official purposes | Individual - Salaried Employee |
| 12 | 10(14) | Daily Allowance for absence from normal duty place | Exempt to extent of actual expenditure for official purposes | Individual - Salaried Employee |
| 13 | 10(14) | Helper/Assistant Allowance | Exempt to extent of actual expenditure for official purposes | Individual - Salaried Employee |
| 14 | 10(14) | Research Allowance for academic research | Exempt to extent of actual expenditure for official purposes | Individual - Salaried Employee |
| 15 | 10(14) | Uniform Allowance | Exempt to extent of actual expenditure for official purposes | Individual - Salaried Employee |
| 16 | 10(14) | Special Compensatory Allowance (Hilly Areas) - location-specific | Rs 300 to Rs 7,000 per month (Varies by location) |
Individual - Salaried Employee |
| 17 | 10(14) + Rule 2BB | Border Area/Remote Locality/Disturbed Area/Difficult Area Allowance | Rs 200 to Rs 1,300 per month (Location-specific) |
Individual - Salaried Employee |
| 18 | 10(14) | Tribal Area Allowance (MP, Tamil Nadu, UP, Karnataka, Tripura, Assam, West Bengal, Bihar, Odisha) |
Up to Rs 200 per month | Individual - Salaried Employee |
| 19 | 10(14) | Compensatory Field Area Allowance (Cannot claim with border area allowance) |
Up to Rs 2,600 per month | Individual - Salaried Employee |
| 20 | 10(14) | Compensatory Modified Area Allowance (Cannot claim with border area allowance) |
Up to Rs 1,000 per month | Individual - Salaried Employee |
| 21 | 10(14) | Counter Insurgency Allowance (Cannot claim with border area allowance) |
Up to Rs 3,900 per month | Armed Forces Members |
| 22 | 10(14) | Underground Allowance (uncongenial climate in underground mines) | Up to Rs 800 per month | Individual - Mine Workers |
| 23 | 10(14) | High Altitude Allowance (armed forces in high altitude areas) | a) Rs 1,060/month (9,000-15,000 ft) b) Rs 1,600/month (above 15,000 ft) |
Armed Forces Members |
| 24 | 10(14) | Highly Active Field Area Allowance | Up to Rs 4,200 per month | Armed Forces Members |
| 25 | 10(14) | Island Duty Allowance (Andaman & Nicobar, Lakshadweep) | Up to Rs 3,250 per month | Armed Forces Members |
| 26 | — | City Compensatory Allowance (CCA) | Fully Taxable | All Employees |
| 27 | — | Fixed Medical Allowance | Fully Taxable | All Employees |
| 28 | — | Tiffin/Lunch/Dinner/Refreshment Allowance | Fully Taxable | All Employees |
| 29 | — | Servant Allowance | Fully Taxable | All Employees |
| 30 | — | Dearness Allowance (DA) | Fully Taxable | All Employees |
| 31 | — | Project Allowance | Fully Taxable | All Employees |
| 32 | — | Overtime Allowance | Fully Taxable | All Employees |
| 33 | — | Telephone/Mobile Allowance | Fully Taxable | All Employees |
| 34 | — | Holiday Allowance | Fully Taxable | All Employees |
| 35 | — | Any Other Cash Allowance | Fully Taxable | All Employees |
| 36 | 16(ia) | Standard Deduction | Regular Tax Regime: • Rs 50,000 or salary (lower) New Tax Regime [Section 115BAC(1A)(ii)]: • Rs 75,000 or salary (lower) |
All Salaried Employees & Pensioners |
💡 Tax Planning Tip: Choose between old and new tax regimes based on your total deductions and allowances. Use our Income Tax Calculator to compare both options.
B. House Property Income Deductions (Section 23-25)
Property owners earning rental income or having self-occupied property can claim specific deductions under the head "Income from House Property". These deductions help reduce taxable income significantly, especially for those with home loans.
| S.No. | Section | Particulars | Deduction Limit | Applicable To |
|---|---|---|---|---|
| 1 | 23(1) First Proviso | Municipal tax levied by local authority and paid by owner | Amount actually paid during the relevant previous year (Not on accrual basis) |
All Assessees |
| 1A | 23(5) | No notional income for house property held as stock-in-trade (unsold inventory) | Annual value shall be Nil for period up to 2 years from end of FY in which completion certificate obtained | All Assessees |
| 2 | 24(a) | Standard Deduction on house property income | 30% of Annual Value (Gross Annual Value minus Municipal Taxes) Available for both self-occupied and let-out properties |
All Assessees |
| 3 | 24(b) | Interest on Housing Loan
From AY 2020-21: Deduction allowed for two self-occupied house properties, but combined limit remains Rs 2,00,000 or Rs 30,000 as applicable
|
Self-Occupied Property: a) Up to Rs 2,00,000 per year (Loan for purchase/construction after 01-04-1999) (Construction must complete within 5 years) b) Up to Rs 30,000 per year (Loan for repair/reconstruction) Let-Out Property: c) No limit - Actual interest paid/payable Pre-Construction Interest: d) Allowed in 5 equal annual installments starting from year of completion |
All Assessees |
| 4 | 25A | Standard deduction from arrears of rent or unrealized rent received subsequently | 30% of arrears of rent or unrealized rent | All Assessees |
⚠️ Important: Home loan interest deduction is available only under the old tax regime. It's not available if you opt for the new tax regime under Section 115BAC. Choose wisely based on your total eligible deductions.
C. Business & Profession Deductions - Depreciation
Taxpayers earning income from business or profession can claim depreciation and various business expenditure deductions. These provisions significantly reduce business tax liability.
Depreciation & Investment Allowances (Section 32)
| S.No. | Section | Particulars | Deduction Amount | Applicable To |
|---|---|---|---|---|
| 1 | 32(1) | Regular Depreciation on: • Tangible assets (buildings, machinery, plant, furniture) • Intangible assets (patents, copyrights, trademarks, licenses, franchises) Excluding goodwill of business |
Prescribed % on actual cost (Straight Line Method) 50% depreciation if asset used less than 180 days Power generation businesses can choose between SLM or WDV method
|
Power Generation/Distribution Business |
| 2 | 32(1) | Regular Depreciation on: • Tangible assets • Intangible assets |
Prescribed % on Written Down Value (WDV) of each asset block 50% depreciation if asset used less than 180 days |
All Other Assessees |
| 3 | 32(1)(iia) | Additional Depreciation - 20% New plant and machinery (Excluding ships, aircraft, office appliances, second-hand assets) |
20% of actual cost If used < 180 days: • 50% in year 1 • Balance 50% in year 2 |
Manufacturing/Production businesses Power generation/transmission/distribution |
| 4 | 32(1)(iia) Proviso | Additional Depreciation - 35% Backward areas: Andhra Pradesh, Bihar, Telangana, West Bengal Conditions:
• Unit set up after 01-04-2015 • Asset acquired between 01-04-2015 and 01-04-2020 |
35% of actual cost If used < 180 days: • 50% in year 1 • Balance 50% in year 2 |
Manufacturing in Notified Backward Areas |
| 5 | 32AC | Investment in new plant/machinery after 31-03-2013 but before 01-04-2015 Minimum investment: Rs 25 crore or Rs 100 crore |
15% of actual cost | Manufacturing Companies |
| 6 | 32AD | Investment Allowance - 15% Manufacturing units in backward areas • Asset acquired: 01-04-2015 to 01-04-2020
• Unit set up: After 01-04-2015 • Can be claimed with Section 32AC |
15% of actual cost in year of installation | All Taxpayers in Notified Backward Areas (AP, Bihar, Telangana, WB) |
Scientific Research & Special Deductions (Section 33, 35)
| S.No. | Section | Particulars | Deduction Amount | Applicable To |
|---|---|---|---|---|
| 7 | 33AB | Tea/Coffee/Rubber Development Account Deposited with NABARD/Tea Board/Coffee Board/Rubber Board |
Lower of: a) Amount deposited b) 40% of profits (before Section 33AB and brought forward losses) |
Tea/Coffee/Rubber Growers & Manufacturers |
| 8 | 33ABA | Site Restoration Account (Petroleum/Natural Gas business) Deposited with SBI |
Lower of: a) Amount deposited b) 20% of profits (before Section 33ABA and brought forward losses) |
Petroleum/Natural Gas Businesses |
| 9 | 35(1)(i) | Revenue expenditure on scientific research related to business
Expenditure within 3 years before business commencement allowed in year of commencement
|
100% deduction on: • Materials purchased • Employee salaries (excluding perquisites) |
All Assessees |
| 10 | 35(1)(ii) | Contribution to approved research association/university/college/institution for scientific research | 100% of contribution | All Assessees |
| 11 | 35(1)(iia) | Contribution to approved company registered in India for scientific research | 100% of contribution | All Assessees |
| 12 | 35(1)(iii) | Contribution for statistical research or social science research to approved institutions | 100% of contribution | All Assessees |
| 13 | 35(1)(iv) + 35(2) | Capital expenditure on scientific research (excluding land)
No depreciation allowed on such assets
|
100% deduction Pre-commencement capital expenditure (within 3 years) allowed in year of commencement |
All Assessees |
| 14 | 35(2AA) | Payment to National Laboratory/IIT/University for approved research programme | 100% of payment | All Assessees |
| 15 | 35(2AB) | In-house R&D expenditure by company (excluding land/building) Includes: clinical trials, approvals, patent filing for pharmaceuticals |
100% weighted deduction Company must enter agreement with prescribed authority |
Biotechnology/Manufacturing Companies |
| 16 | 35AD | Specified businesses - 100% capital expenditure: • Cold chain facilities • Hospital (100+ beds) • Affordable housing • Fertilizer production Capital expenditure > Rs 10,000 in cash not allowed
|
100% of capital expenditure (excluding land cost) | All Assessees |
| 17 | 35AD | Specified businesses - 100% capital expenditure: • Cross-country pipeline (gas/oil) • Hotels (2-star+) • Slum redevelopment • Container depots/freight stations • Warehousing (sugar) • Semi-conductor units • Infrastructure (roads, bridges, ports, airports) |
100% of capital expenditure Business must commence after prescribed dates |
All Assessees |
| 18 | 35CCC | Notified agricultural extension projects (training/education for farmers) Expected expenditure > Rs 25 lakhs |
100% of expenditure (excluding land/building) | All Assessees |
| 19 | 35CCD | Notified skill development projects by companies | 100% of expenditure (excluding land/building) | Manufacturing/Service Companies |
D. Capital Gains Exemptions (Sections 54 to 54GB)
Taxpayers can save tax on capital gains by reinvesting sale proceeds in specified assets within prescribed time limits. These exemptions help in tax-efficient wealth transfer and asset restructuring.
| Section | Asset Sold | New Asset Required | Time Limit for Reinvestment | Exemption Amount | Special Conditions |
|---|---|---|---|---|---|
| 54 | Residential House (Long-term) | One or Two residential houses in India
Two houses: Once in lifetime, CG ≤ Rs 2 Cr
|
Purchase: 1 year before OR 2 years after sale Construction: 3 years after sale |
Lower of: • Investment • Capital gain Max investment eligible: Rs 10 Crore |
Individual & HUF only Sale of new house within 3 years: exemption withdrawn |
| 54B | Agricultural land used for agriculture in last 2 years | Agricultural land (urban or rural area) | Within 2 years after sale | Lower of: • Investment • Capital gain |
Individual & HUF Sale within 3 years: exemption withdrawn |
| 54D | Industrial land/building (Compulsory acquisition, used for industrial purposes for 2+ years) |
Land/building for shifting/reestablishing industrial unit | Within 3 years from receipt of compensation | Lower of: • Investment • Capital gain |
All Assessees Sale within 3 years: exemption withdrawn |
| 54EC | Any long-term capital asset | Bonds of NHAI/REC/HUDCO (notified bonds)
Bonds redeemable after 5 years, issued after 01-04-2025
|
Within 6 months after sale | Maximum Rs 50 lakhs per financial year | All Assessees 5-year lock-in Sale/pledge within 5 years: exemption withdrawn |
| 54EE | Any long-term capital asset | Units of notified funds financing start-ups | Within 6 months after sale | Maximum Rs 50 lakhs | All Assessees 3-year lock-in Sale within 3 years: exemption withdrawn |
| 54F | Any long-term asset (Except residential house) |
One residential house in India
Must not own more than 1 house on sale date
|
Purchase: 1 year before OR 2 years after Construction: 3 years after |
Proportionate: (Investment / Net Consideration) × Capital Gain Max investment: Rs 10 Crore |
Individual & HUF Must invest entire net consideration for full exemption |
| 54G | Industrial assets (Land/building/plant/machinery) Shifting urban → rural |
New industrial assets in rural area | 1 year before OR 3 years after sale |
Lower of: • Investment • Capital gain |
All Assessees Sale within 3 years: exemption withdrawn |
| 54GB | Industrial assets Shifting urban → SEZ |
New industrial assets in SEZ | 1 year before OR 3 years after sale |
Lower of: • Investment • Capital gain |
All Assessees Sale within 3 years: exemption withdrawn |
💡 Capital Gains Account Scheme (CGAS) 1988:
• Available for Sections 54, 54B, 54D, 54F, 54G, 54GB
• If reinvestment not completed before ITR due date, deposit capital gains in CGAS account with any nationalized bank
• Maximum eligible amount: Rs 10 crore (Sections 54 & 54F) from AY 2024-25
• Unutilized amount becomes taxable in year when time limit expires
• Available for Sections 54, 54B, 54D, 54F, 54G, 54GB
• If reinvestment not completed before ITR due date, deposit capital gains in CGAS account with any nationalized bank
• Maximum eligible amount: Rs 10 crore (Sections 54 & 54F) from AY 2024-25
• Unutilized amount becomes taxable in year when time limit expires
E. Exemptions from Other Sources (Section 56, 57)
Gifts, receipts from relatives, and certain family pension qualify for exemptions under Income from Other Sources.
| S.No. | Section | Particulars | Exemption Amount | Applicable To |
|---|---|---|---|---|
| 1 | 56(2)(x) | Gifts from relatives Money, immovable property, movable property received without consideration [Period: 01-10-2009 to 01-04-2017] |
Fully Exempt | Individual & HUF |
| 1A | 56(2)(x) | Gifts received from any person [01-04-2017 onwards] Exempt if received from: • Relatives (spouse, siblings, parents, children, etc.) • On marriage, will, inheritance • Contemplation of death Taxable: If exceeds Rs 50,000 from non-relatives COVID-19 Special Exemption: • Medical treatment: Fully exempt • Death benefits: From employer (Fully exempt); From others (Up to Rs 10 lakh) |
Gifts from specified relatives or on specified occasions: Fully Exempt Gifts from non-relatives: Taxable if > Rs 50,000 Immovable property: Difference between stamp duty value and consideration taxable if > Rs 50,000 or 10% (higher) |
All Assessees |
| 2 | 57(iia) | Standard Deduction for Family Pension Received by family members of deceased employee/pensioner |
33.33% of family pension Maximum: • Rs 15,000 (regular) • Rs 25,000 (updated) |
Individuals |
Related Tax Planning Resources
For comprehensive tax planning and filing guidance, explore these related resources on DisyTax:
- Chapter VI-A Deductions - Section 80C to 80U complete guide
- Section 80C - Tax saving investments up to Rs 1.5 lakh
- Section 80D - Health insurance premium deduction
- Old vs New Tax Regime - Choose the best option
- Income Tax Calculator - Calculate tax for AY 2026-27
- ITR Forms Guide - Choose correct ITR form
- E-Filing Guide - Step-by-step filing process
- Return Due Dates - AY 2026-27 deadlines
- Tax Planning Strategies - Maximize savings legally
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