Section 10(14) Income Tax Act deals with exemption on certain special allowances. Section 10(14) Income Tax Act provides exemption for allowances like Assessee’s Hostel expenditure on their children, High Altitude allowance etc.
Scope of Section 10(14) Income Tax Act
Any special allowance in cash or the value of any benefit granted by the employer to an employee with the specific object of enabling the employee to meet expenses ‘wholly’, ‘necessarily’ and ‘exclusively’ incurred by him in the performance of the duties of his office or employment of profit, is exempt under Section 10(14) Income Tax Act, to the extent to which such expenses are actually incurred for that purpose.
Exemption Limit Section 10(14) Income Tax Act
The Exemption on this allowance Section 10(14) Income Tax Act, may include travelling allowance to agents, conveyance allowance, transfer allowance, etc., but it does not include entertainment allowance, perquisites and the allowance to meet personal expenses (i.e. City Compensatory Allowance) at the place where the duties of office are performed by him or at the place where he ordinarily resides [Addl. C.I.T. v. A.K. Mishra 117 ITR 342 (All.)].
Condition of Exemption Section 10(14) Income Tax Act
It must be noted that to be eligible for exemption the amount must have been actually expended. Where a surplus remains in the hands of the assessee out of a lump sum paid to him by the employer for the purpose, the surplus would be taxable in the hands of the assessee as income.
Refund Scenario under Section 10(14) Income Tax Act
This is irrespective of the fact that the employer does not demand refund of the amount not expended [CIT v. Tejaji Farasram Kharawalla Ltd. (1968) 67 ITR 95 (SC)].
The allowances granted to the assessee 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 the place where he resides, or to compensate him for the increased cost of living, as the Central Government may, by notification in the Official Gazette specify, shall not form part of the total income of the assessee to such notified extent.
Section 10(14A) with Rule 2BB – Uniform and Child Education Allowance
Rule 2BB. Prescribed allowances for the purposes of clause (14)(i) of Section 10 – For the purposes of sub-clause (i) of clause (14) of Section 10, prescribed allowances, by whatever name called, shall be the following, namely –
- 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;
- any allowance 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;
- any allowance granted for encouraging the academic, research and training pursuits in educational and research institutions;
- any allowance 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.
Section 10(14) Exemption Table
|Name & Nature of allowance||Extent to which allowance is exempt|
|Any special compensatory allowance in the nature of composite hill compensatory allowance or high altitude allowance or uncongenial climate allowance or snow bound area allowance or avalanche allowance.||Rs.800 per month or Rs.7,000 per month or Rs.300 per month depending upon the specified locations|
|Any Special Compensatory Allowance in the Nature of Border Area Allowance, Remote Locality Allowance or Difficult Area Allowance or Disturbed Area Allowance||Rs.1,300 per month or Rs.1,100 per month or Rs.1,050 per month or Rs.750 per month.|
|Compensatory field area allowance||Rs.2,600 per month for specified location|
|Any allowance granted to an employee to meet the hostel expenditure on his child||Rs.300 per month per child up to a maximum of two children|
|Compensatory modified field area allowance||Rs.1,000 per month for specified location|
Provided that any assessee claiming exemption in respect of the allowances mentioned at serial numbers 7 and 8 shall not be entitled to the exemption in respect of the allowance referred to at serial number 2.
Provided further that any assessee claiming exemption in respect of the allowance mentioned at serial number 9 shall not be entitled to the exemption in respect of disturbed area allowance referred to at serial number 2.