Salaried employees get a fixed quantity of money or other forms of allowances apart from their salary for specific requirements of the employees. Most allowances are a part of the total income unless they come under some specific exemption under the Income Tax Act. Allowances are given to employees for their services or as compensation for working in unusual conditions.
Section 10 of the Income Tax Act covers many allowances such as Leave Travel Allowance, Uniform Allowance, Travelling Allowance, House Rent Allowance and some more. However, some special allowances that are exempt fall under Section 10 (14).
Section 10 (14):
Under special allowance act of Section 10 (14), exemption is granted based on the amount utilised for a specific purpose by the employee. The exemption depends on the following points:
- Allowance amount.
- Actual amount used for the purpose for which the allowance has been granted.
Section 10 (14) (i):
Under Section 10 (14)(i), allowances are exempted to the extent of the amount received as allowance or amount spent on certain duties, whichever is the lower figure.
Allowances covered in this category are:
- Daily Allowance: Daily allowance is given to employees to meet the daily charges incurred when on tour or for the duration of a transfer in the job. This type of allowance is granted when the employee is not in the usual place of duty.
- Travel Allowance: Travel allowance covers costs related to travel while on tour or on transfer while on duty. This allowance also includes travel costs incurred while getting transferred to another location, including packaging or transport of personal objects.
- Research/ Academic Allowance: Allowance granted for the purpose of encouraging academic and research related training, education or professional duties is termed as academic or research allowance.
- Conveyance Allowance: Allowance for conveyance is granted to employees in case of expenses incurred while travelling for duties of office. However, the employer does not pay for travel from home to work as it is not considered as a duty of the office. This allowance comes under a different section called as ‘Transport allowance’ and is not exempt from tax.
- Helper Allowance: Sometimes your employer allows you to appoint a helper for performing official duties of the office. In such cases, helper allowance is granted.
- Uniform Allowance: Allowance when given for the purchase or maintenance of uniform, required to be worn while on duty is referred to as uniform allowance. This allowance can be opted for only when an office duty prescribes a specific uniform.
Usually, it is not required to furnish details of the expenses incurred under this category of allowance unless the expense are disproportionate to the salary or unreasonable in reference to the duty performed by the employee. At most times, it is not required for you to keep a proof of documents and a simple declaration serves the purpose.
Section 10 (14) (ii):
Under this section, allowance granted to employees for working under certain set of conditions while on duty. The amount exempted is either the amount received as allowance or the limit mentioned, whichever is lesser.
The types of allowances in this category and exempt in allowances are listed below:
Compensatory allowance for working in areas of high altitude or hilly areas, also known as climate allowance:
Hilly areas of HP, UP, J&K and North East - Rs.800
Siachen are of J&K - Rs.7000 per month
Common places above 1000mtr or above - Rs.300
Scheduled or tribal or agency areas allowance:
Karnataka, West Bengal, MP, Assam, Orissa, Tamil Nadu, Bihar, UP and Tripura. - Rs. 200
Allowance for duty in border area or remote area or any difficult/disturbed areas:
Allowances ranging from Rs.200 to Rs.1300 pm are exempt under the Rule 2BB.
- Allowance for children education: Rs.100 pm for each child and a maximum of two children.
- Allowance for working in a transport system for personal expenses, while on duty: 70% of allowance up to Rs.10,000 pm.
Field area allowance:
Areas of Nagaland, J&K, HP, UP, AP, Sikkim and Manipur – Rs.2600 pm
- Allowance for employee’s children’s hostel expenses: Rs.300 pm for each child up to two children.
- Allowance granted to armed forces for cases of counter insurgency: Rs.3900 per month.
- Transport allowance to physically disabled employee on duty to travel to work: Rs.1600 per month.
- Transport allowance for commute between work and residence: Rs.1600 pm.
Compensatory allowance for duty in modified field area:
Specific areas of West Bengal, North East, Rajasthan, J&K, UP and HP – Rs.1000 pm.
- Island Duty allowance granted to armed forces in Andaman & Nicobar and Lakshadweep: Rs.3250 per month.
- Allowance for working in underground mines: Rs.800 per month.
- Special compensatory highly active field area allowance: Rs.4200 pm.
Allowance for armed forces in a high altitude region:
9000 – 15,000ft – Rs.1060 pm
Above 15,000 ft – Rs.1600 pm
Special Individuals Receiving Allowances Exempt:
There are certain individuals who also receive allowances exempt under Section 10:
- Allowances granted to High Court Judges.
- Allowance given to a UNO employee.
- Sumptuary allowance received by Supreme Court and High Court Judge.
- Allowances granted to government employees who are Indian citizens, working abroad.