This is a very good and pertinent question. When switching jobs, one takes many aspects in to mind to help the individual make the right decision- CTC being offered, working hours, days off, office location, etc. Another aspect that help an individual select between various job offers is allowances.
An allowance is an amount received by the employee, over and above the regular salary, for meeting service requirements. Allowances are provided in addition to the basic salary, are taxable and vary from company to company. Not all companies are expected to provide all allowances. A few common types of allowances are:
House Rent Allowance (HRA):
It is an amount paid to employees by companies for expenses related to rented accommodation.
Leave Travel Allowance (LTA):
LTA is the amount provided by the company to cover an employee’s domestic travel expenses. Please note, there are terms and conditions that the employee’s travel duration should meet in order to avail of LTA. Furthermore, LTA doesn’t include expenses for food, accommodation, etc. during the travel.
Conveyance Allowance:
This allowance is provided to employees to meet travel expenses from residence to work.
Dearness Allowance:
Dearness Allowance (DA) is a cost of living allowance that is aimed at hedging the ever-increasing inflation. Because DA is directly related to the cost of living, its value varies for different employees based on their location of employment.
Thus, DA can’t be the same for two people working in different cities. Hence, DA is different for employees in the urban sector, semi-urban sector or the rural sector.
Reimbursements:
Companies also offer various reimbursements to their employees. A few commonly given reimbursements are medical treatments, phone bills, newspaper bills, etc. This reimbursement amount doesn’t come directly into one’s salary, but needs to be claimed by providing bills.
Some allowances are fully taxable, a few are partially taxable and some are completely tax free. Thus, ensure you get the details of the salary breakup as well as the tax liability of the allowances being offered before you accept any offer.