The Income Tax Act 1961 offers tax exemptions to the salaried class on various company allowances, such as house rent, leave, travel, etc. For example, Section 10 and its different subsections, such as Section 10 (14), deal with allowances.

What Is Section 10 (14)?

According to the Income-tax Act, 1961, Section 10(14) (i) is “Any such special allowance or benefit, not being a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed.”

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Section 17 (2) of the Act also tells about the perquisites. Any special allowance that does not fall under the definition of perquisites can be considered a special allowance.

Section 10(14) (ii) states that “Any such allowance granted to the assessee either to meet his expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides or to compensate him for the increased cost of living, as may be prescribed and to the extent as may be prescribed”.

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What Are Special Allowances?

1. Travel Allowance:

When an employer pays a travel allowance to its employees performing office duties, it is considered a special allowance for tax purposes.

2. Uniform Allowance:

If an office requires its employees to dress in uniform while on duty and pays an allowance for this purpose, it would be exempted from tax.

3. Research Allowance:

Many organisations pay their employees for research and academic purposes, intending to encourage them to update their knowledge, etc. This allowance is also considered a special allowance and exempted under this section.

4. Field Area Allowance:

Sometimes, the work area is difficult, such as hilly terrain, border areas, etc. In this case, an allowance paid by the employer as a special allowance is tax-exempt.

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Besides this, other allowances, such as helper or daily allowance for performance of duty, could come under this section and are eligible for tax exemption. There are allowances for personal expenses, such as children’s allowance, but there is a pre-determined limit for one to claim tax benefits. Under this section, let’s see how much a taxpayer can claim as tax benefits.

How Much Exemption Is Available For Special Allowances?

Exemption is allowed only when it is an allowance and not perquisite as provided under Section 17(2) of the Act. An amount paid by the employer to an employee for office work will come under the special allowance category. Anything paid extra for any job will not be tax-exempt.  

The exempted amount in special allowance can be up to the amount spent. Let’s say the allowance is Rs 10,000, but the actual expenditure was only Rs 8,000; the remaining Rs 2,000 will be taxable. So, if you are receiving a special allowance in your salary, check with your employer to see what you can claim to manage your tax liability accordingly.