Allowances won't pinch you

Rs 1,00,000 Transport allowanceRs 12,000

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Conveyance from residence to office(estimated cost)

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Rs 10,000 Conveyance allowance (utilised rs. 20,000)Rs  40,000

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Free 1600 cc car (estimated expenses)

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Rs 60,000 Education allowance for 2 childrenRs 10,000

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Free education (estimated cost)

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Rs 10,000 Medical allowanceRs 15,000

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Medical reimbursement

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Rs 15,000 Telephone allowanceRs 10,000

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Telephone reimbursement

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Rs 10,000  Dearness allowance is fully taxable. If dearness allowance is considered for retirement benefits, then while considering salary for calculating HRA exemption and the value of rent free accommodation it is added to the basic salary. 
 

TABLE II
ITEMS	PACKAGE-I	PACKAGE-II
Basic salary	Rs 5,00,000	Rs 5,00,000
Dearness allowance	Rs 1,00,000	Rs 1,00,000
House rent allowance	Rs 70,000	-
Rent free accommodation	-	Rs 50,000
Transport allowance	Rs 2,400	-
Conveyance from residence to office	-	EXEMPT
Conveyance allowance	Rs 20,000	-
Free 1600cc car	-	EXEMPT
Education allowance	Rs 7,600	-
Free education	-	Rs 10,000
Medical allowance	Rs 15,000	-
Medical reimbursement	-	EXEMPT
Telephone allowance	Rs 10,000	-
Telephone reimbursement	-	EXEMPT
Taxable salary	Rs 7,25,000	Rs 6,60,000
Tax	Rs 1,67,500	Rs.1,48,000
Education cess	Rs 3,350	Rs 2,960
TOTAL TAX	Rs 1,70,850	Rs 1,50,960

 Only if you are staying in a rented accommodation, you can claim HRA exemption to the specified limit. HRA is exempt to the extent of minimum of i) Actual HRA received; ii) 50 per cent of salary; iii) Rent paid - 10 per cent of salary.  So in package-I: Rs 30,000 is exempt from HRA and Rs 70,000 is taxable. Sometimes, the company provides rent-free accommodation to employees.  This is a perquisite and its taxable value is 10 per cent of the salary. So in package-II, the taxable value of rent-free accommodation is Rs 50,000 per cent. In case of transport allowance, the exemption is up to Rs 800 per month, that is, Rs 9,600 per annum. So in package-I, Rs 9,600 is exempt and Rs 2,400 is taxable. In case of conveyance allowance, the facility is taxfree in the hands of employees. So in package-II, such conveyance facility is provided and is fully exempt