BLOG on Income Tax Management for - AY 2022-23 & 2023-24

Prescribed Special Allowances which are Exempt to a certain extent - Section 10(14)

(i) Special Allowances for performance of official duties:

These allowances are not in the nature of a perquisite within the meaning of section 17(2) and are specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties of an office or employment of profit. These allowances will be exempt the extent such expenses are actually incurred for that purpose. [Section 10(14)(i)].

These allowances are:

Travelling allowance:

Any allowance granted to meet the cost of travel on tour or on transfer of duty. "Allowance granted to meet the cost of travel on transfer" includes any sum paid in connection with transfer, packing and transportation of personal effects on such transfer.

Daily allowance:

Any allowance, whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;

Conveyance allowance:

Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit, provided that free conveyance is not provided by the employer. Expenditure incurred on journey from residence to office and back to residence shall not be treated as expenditure incurred on conveyance in performance of official duties;

Helper allowance:

Any allowance, by whatever name called, granted to meet the expenditure incurred on a helper where such helper is engaged for the performance of the duties of an office or employment of profit;

Academic allowance:

Any allowance, by whatever name called, granted for encouraging academic, research and training pursuits in educational and research institutions;

Uniform allowance:

Any allowance, by whatever name called, granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit.

The above allowances shall be exempt to the extent of minimum of the following:

Actual allowance received.
Actual amount spent for the purposes of duties of office or employment.

(ii) Allowances to meet Personal Expenses

These allowances can be of the following two types:

1. Allowances which are exempt to the extent of amount received or the limit specified, whichever is less:

Children education allowance:

Exempt upto actual amount received per child or ₹100 p.m. per child upto a maximum of 2 children, whichever is less.

Hostel expenditure allowance:

Exempt upto actual amount received per child or ₹300 p.m. per child upto a maximum of two children, whichever is less.

Tribal area, Scheduled Area/Agency area allowance:

Exempt upto actual amount received or ₹200 per month, whichever is less.

Special compensatory hilly area allowance or high altitude allowance etc.:

Exemption varies from ₹300 to ₹7,000 per month.

Border area, remote area allowance, disturbed area allowance, etc.: (as per given later):

Exemption varies from ₹200 p.m. to ₹1,300 p.m.

Compensatory field area allowance:

Exempt to the extent of ₹2,600 p.m.

Compensatory, modified field area allowance:

Exempt to the extent of ₹1,000 p.m.

Counter insurgency allowance granted to members of armed forces:

Exempt to the extent of ₹3,900 p.m.

Transport allowance:

Any transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty, to the extent of ₹1,600 per month.

However, such transport allowance granted to an employee, who is blind or deaf and dumb or orthopaedically handicapped with disability of lower extremities, is exempt to the extent of ₹3,200 p.m. instead of ₹1,600.

Underground allowance:

Any underground allowance granted to an employee who is working in uncongenial, unnatural climate in underground mines shall be exempt to the extent of ₹800 p.m.

High altitude (uncongenial climate) allowance:

Given to the member of the armed forces for altitude of 9000 ft to 15000 ft ₹1,060 p.m. and for altitude above 15000 ft ₹1,600 p.m.

Special compensatory highly active field area allowance granted to members of armed forces:

Exempt to the extent of ₹4,200 p.m.

Island (duty) allowance:

Given to the member of the armed forces in the Andaman & Nicobar and Lakshadweep Group of Islands exempt to the extent of ₹3,250 p.m.

Note :

(1) Assessee claiming exemption of allowance mentioned under clauses (f) and (g) above shall not be entitled to the exemption in respect of allowance referred to under clause (e) above.

(2) Assessee claiming exemption in respect of the allowance mentioned under clause (h) above shall not be entitled to the exemption in respect of disturbed area allowance mentioned under clause (e) above.

(3) It may be noted that allowances mentioned in para 4.13b above are exempt to the extent of amount received or the limit specified, whichever is less. Actual expenditure in this case has no relevance. E.g. if an employee receives ₹2,000 p.m. as transport allowance for commuting between the place of residence and the place of duty and actually spends ₹1,200 p.m. for this purpose, the exemption, in this case shall be ₹1,600 p.m. although the amount actually spent was ₹1,200 p.m.

2. Allowance which is exempt to the extent of certain percentage of amount received

Allowance allowed to transport employees working in any transport system:

If any fixed allowance is given by the employer to the employee who is working in any transport system, to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another,