Special Allowances - [Section 10(14)] - Income Tax - Ready Reckoner - Income Tax

Special Allowances u/s 10(14) Special allowance is a fixed amount that is given to employees over and above the basic salary in order to meet certain requirements. There is a taxable allowance and an exempt allowance. There are different categories of special allowances. Particulars Limit of Exemption CATEGORY-1 Exempt lower of: Amount of Allowance Received OR Amount Spent Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office Exempt to the extent of expenditure incurred for official purposes Travelling Allowance to meet the cost of travel on tour or on transfer Exempt to the extent of expenditure incurred for official purposes Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty Exempt to the extent of expenditure incurred for official purposes Helper/Assistant Allowance Exempt to the extent of expenditure incurred for official purposes Research Allowance granted for encouraging the academic research and other professional pursuits Exempt to the extent of expenditure incurred for official purposes Uniform Allowance Exempt to the extent of expenditure incurred for official purposes CATEGORY-2 Exempt lower of: Amount of Allowance Received OR Limit specified Children Education Allowance Up to 100 per month per child up to a maximum of 2 children is exempt Hostel Expenditure Allowance Up to 300 per month per child up to a maximum of 2 children is exempt Transport Allowance is granted to an employee to meet expenditure on commuting between place of residence and place of duty Up to 1,600 per month (3,200 per month for blind and handicapped employees) is exempt Tribal area allowance in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa Up to 200 per month Compensatory Field Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations) Up to 2,600 per month Compensatory Modified Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations) Up to 1,000 per month Underground Allowance is granted to employees working in uncongenial, unnatural climate in underground mines Up to 800 per month Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations) Amount exempt from tax varies from 300 per month to 7,000 per month.(for more information refer rule 2BB , Income-tax Rules, 1962 Border area allowance Remote Locality or allowance or Disturbed Area allowance or Difficult Area Allowance (Subject to certain conditions and locations) Amount exempt from tax varies from 200 per month to 1,300 per month. for more information refer rule 2BB , Income-tax Rules, 1962 Any special allowance in the nature of counter-insurgency allowance granted to the members of armed forces operating in areas away from their permanent locations( Any assessee claiming exemption in respect of the this allowance shall not be entitled to the exemption in respect of disturbed area allowance) 3,900 per month Highly active field area allowance It is exempt from tax up to ₹ 4,200 per month. Island duty allowance It is exempt up to ₹ 3,250 per month. High altitude allowance It is exempt from tax up to ₹ 1,060 per month ( for altitude of 9,000 to 15000 feet ) or ₹ 1,600 per month (for altitude above 15,000 feet) CATEGORY: 3 Outstation allowance: Allowance granted to an employee working in any transport business to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided employee is not in receipt of daily allowance. Amount of exemption shall be lower of following: a) 70% of such allowance; or b) 10,000 per month. NOTE:- Difference between Perquisites and Allowance - While the money received by an employee for any objective is known as allowance, perquisites are several facilities offered by employers. Above exemptions shall not be available to employee who opts to be taxed u/s 115BAC , except in respect of following allowances: [ Notification No. 38/2020 , dated 26.06.2020] any allowance granted to meet the cost of travel on tour or on transfer; 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; 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; Transport allowance upto Rs 3,200 p.m. granted to an employee, who is blind or deaf and dumb or orthopaedically handicapped with disability of lower extremities, to meet his expenditure for commuting between place of residence to place of duty. Further, the exemption provided in respect of free food and non alcoholic beverage provided by such employer through paid voucher shall not apply to an employee, being an assessee who has exercised option u/s 115BAC . Under this section, allowance should not be in the nature of perquisite. Allowance should not be of personal nature.