Allowances Exempt Under Section 10

Salary Taxation

Allowances Exempt u/s 10: Allowances are specific amounts paid by the employer to meet specific expenditures.

All allowances are taxable except those, which are specifically exempt under section 10.

Allowances of Indian Citizen Employed Aboard Sec 10(7)

Any allowance paid or allowed outside India by the Government to a citizen of India for rendering service outside India is exempt.

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House Rent Allowances Exempt u/s 10(13A)

Any allowance specifically granted to an assessee by his employer to meet the expenditure actually incurred on payment of rent in respect of a residential accommodation occupied by the assessee is exempt as given below provided,

  1. The residential accommodation occupied by the assessee is not owned by him

  2. The assessee has actually incurred expenditure on payment of rent in respect of the residential accommodation occupied by him.

Least of the following is exempt: -

Rent Incurred xxx
Less: 10% of Salary xxx
---
xxx
40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi) xxx
Allowance actually received xxx

For this purpose,

Salary = Basic Pay + Dearness Allowance, if terms of employment provide + Commission as a Fixed Percentage on Turnover.

However, salary is to be computed only for the period during which the accommodation concerned was occupied by the assessee.

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Special Allowances Exempt u/s 10(14)(i)

The following special allowance or benefit [not being in the nature of perquisite mentioned in section 17(2)] specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties of an office or employment of profit to the extent they are actually incurred for that purpose: -

Cost of travel on tour or on transfer;

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 expenditure in performance of duties of an office or employment of profit (provided no free conveyance is provided by the employer);

Expenditure incurred on helper engaged in the performance of duties of office or employment of profit;

Encouraging academic, research and training pursuits in educational and research institutions; and

Expenditure incurred on the purchase or maintenance of uniform for wear during the performance of duties of an office or employment of profit.

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Allowances Exempt Under Section 10(14)(ii)

The following allowances granted to assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at place where he ordinarily resides, or to compensate him for increased cost of living: -

S.No Nature of Allowance Extent to which allowance is exempt
1. Hilly Area Allowance, Border Area Allowance, Remote Area Allowance, Disturbed Area Allowance, Field Area Allowance, Modified Field Area Allowance and Tribal Area Allowance.

Ranging from Rs 800 p.m. to Rs7,000 p.m.

Rs800 common for various areas of North East, Hilly areas of U.P., H.P. & J&K

Rs7000 per month for Siachen area of J&K

Rs 300 common for all places at a height of 1000 mts or more other than the above places.

2. Any allowance granted to an employee working in any transport system to meet his personal expenditure during his duty performed in the course of running such transport from one place to another place, provided that such employee is not in receipt of daily allowance. 70% of such allowance or Rs 10,000 p.m. whichever is lower.
3. Children Education Allowance (for a maximum of two children) Rs 100 p.m. per child.
4. Children Hostel Allowance (for a maximum of two children) Rs 300 p.m. per child.
5. Island (duty) allowance to members of the armed forces working in Andaman & Nicobar and Lakshwadeep Group of Islands. Rs 3250 per month.
6. Transport allowance granted to physically disabled employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty: - Rs 3200 per month.
7. Underground allowance to an employee working in Uncongenial, Unnatural climate in Underground Coal Mines Rs 800 per month.
8. High Altitude (uncongenial climate) allowance given to members of armed forces operating in high altitude areas.

Altitude of 9,000 to 15,000 feet - Rs 1060 p.m

For altitude above 15,000 feet - Rs 1600 p.m

9. Highly active field area allowance granted to the members of armed forces. Rs 4,200 p.m.
10. Counter-insurgency allowance granted to members of armed forces operating in the areas away from their permanent locations for a period of more than 30 days. Rs 3,900 p.m.

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