Following are the prescribed allowances for the purpose of section 10(14) and their respective treatment in computing the income under the head Salaries
Helper Allowance. It is exempted upto actual amount spent on engaging a helper required to perform the official duties.
Uniform Allowance. It is also exempted upto actual expenditure incurred on acquiring or maintaining of the official uniform. Excess, if any, will be taxable.
Academic Research Allowance. It is exempted upto actual expenditure incurred for research. Excess, if any, is taxable.
Conveyance Allowance. It is exempted upto actual expenditure incurred in performance of official duties. In case amount received is more than actual expenditure, excess, if any, will be taxable.
Travelling, Transfer or Daily Allowance. It is exempted upto actual expenditure incurred for the purposes of employment. Excess, if any, will be taxable.
Any allowance by whatever name it may be called) granted to meet the cost of travel on tour or on transfer shall be exempted. Any allowance whether granted to employee (while on tour or for the period of journey in connection with transfer) to meet the ordinary daily charges incurred by such employee on account of absence from his normal place of employment shall also be exempted.
Such allowance shall include any sum paid in connection with transfer, packing and transportation of personal effects on such transfer.
Allowances mentioned in point (i) to (v) are exempt upto the amount spent by the employee for the purpose for which these allowance are given to the employee.
So, exemption shall be the least of following two amounts—
The amount of the allowance received.
The amount actually spent by the employee for the purpose for which the allowance is given.
This clearly means that these allowances are given to meet employee’s expenses incurred in performance of his official work or duties and in case any part of these allowances is saved, then the same shall be taxable.
6. Any special allowance in the nature of Composite Hill Compensatory Allowance / High Altitude Allowance / Uncongenial Climate Allowance / Snow Bound Area Allowance! Avalanche Allowance :
Exemption allowed upto ` 300 p.m. to ` 7,000 p.m.
7. Any Special Compensatory Allowance in the nature of Border Area Allowance / Remote Area Allowance / Difficult Area Allowance/Disturbed Area Allowance
Exemption allowed upto ` 200 p.m. to ` 1,300 p.m.
8. Compensatory Field Area Allowance
Exemption allowed upto ` 2,600 p.m.
9. Compensatory Modified Field Area Allowance
Exemption allowed upto ` 1,000 p.m.
10. Counter Insurgency Allowance/Compensatory Field Area Allowance
Exemption allowed upto ` 3,900 p.m.
11. Highly Active Field Area Allowance
Exemption allowed upto ` 4,200 p.m.
12. Underground Allowance given to coal mine workers
Exemption allowed upto ` 800 p.m.
13. Island Duty Allowance given to Armed Forces posted in Andaman & Nicobar and Lakshdweep group of islands
Exemption allowed upto ` 3,250 p.m.
14. Transport Allowance. As per the recommendations of 5th Pay Commission, the Central Government has allowed transport allowance to its employees. As per orders any allowance given with effect from 1-8-1997 under the name of Transport Allowance to any employee whether govt. or private shall be exempted upto ` 800 p.m. Excess, if any, shall be taxable. But in case of handicapped with disability of lower extremities or a blind employee it shall be exempted upto ` 1,600 p.m.
15. Tribal Area Allowance. This allowance is exempted upto ` 200 p.m. in the States of Madhya Pradesh, Tamil Nadu, Uttar Pradesh, Karnataka, Tripura, Assam, West Bengal, Bihar and Orissa.
16. Any Running Flight Allowance, granted to an employee of transport system to meet his personal expenditure during the duty performed in the course of running of such transport from one place to another place provided that such employee is not in receipt of daily allowance it is exempted upto 70% of such allowance or ` 10,000 p.m. whichever is less.
17. Children Education Allowance. If any amount is given by employer to employee as education allowance for the education of own children in India, it shall be exempted upto 100 p.m. per child for two children only.
Exemption is allowed for any two children of the employee. The term ‘child’ includes all the legal children including a step child and a legally adopted child but does not include grand children.
Child include both major or minor child.
Exemption shall be allowed irrespective of the actual expenditure incurred by the employee on the education of the children.
- In case employee is getting both education as well as hostel allowance; he is allowed separate exemption for education and hostel allowance but for only two children.
18. Hostel Expenditure Allowance. Any allowance grante/d by employer to meet the hostel expenditure of employees’ children it shall be exempted upto ` 300 p.m. for per child maximum for two children only.
19. Any Special Allowance. In the nature of counter insurgency allowance given to the members of the armed forces operating in areas away from their permanent locations for a period of more than 30 days shall be exempted upto ` 1,300 p.m.