May 122015
 

Allowance under section 10(14)

Meaning of allowance

Allowance is generally defined as fixed quantity of money or other substance given regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by the employee or as compensation for unusual conditions. It is fixed, pre-determined and given irrespective of actual expenditure

Under income tax act for exemption purpose allowances are categorized under three heads. One of the commonly used category is allowances which are based on actual amount expended by an employee. Here an attempt is made to understand types & nature of such allowances and per se the extent of exemption available for these allowances.

 Special allowance prescribed as exempt under section 10(14)

When exemption depends upon actual expenditure by the employee – The following allowances are exempt under section 10(14) to the extent the amount is utilised for the specified purpose for which the allowance is received . In other words, in the cases given below the amount of exemption under section 10(14) is_

  1. The amount of the allowance ; or
  2. The amount utilised for the specific purpose for which allowance is given,

whichever is low .

Exemption is available on the aforesaid basis in the case of following allowances-

Name of the allowance Nature of allowance
Travelling allowance/transfer allowance Any allowance (by whatever name called) granted to meet the cost of travel on tour or on transfer(including any sum paid in connection with transfer, packing and transportation of personal effects on such transfer).
Conveyance allowance Conveyance allowance granted to meet the expenditure on conveyance in the performance of duties of an officeNote pls.: Expenditure for covering the journey between office and residence is not treated as expenditure in performance of duties of the office and, consequently, such expenditure is not exempt from tax under this section. This allowance is covered separately under “Transport allowance” where a fixed exemption up to Rs 800 per month is given to such allowances in case of all employees. However, with introduction of finance act 2015 such exemption is increase to Rs. 1600 per month with prospective effect.

Example:

Conveyance allowances given to an employees for travelling done by employee for attending income tax hearing for presenting income tax hearing

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.
Helper allowance Any allowance (by whatever name called) to meet the expenditure on a helper where such helper is engaged for the performance of official duties.
Research allowance Any allowance (by whatever name called) granted for encouraging the academic research and other professional of official duties.
Uniform allowance Any allowance (by whatever name called) to meet the expenditure on the purchase or maintenance of uniform for wear during the performance of duties of an office.Pls. note: Benefit under this allowance can be taken only when a specific uniform is prescribed for office duties.

As stated earlier, the amount of exemption in the above cases is the amount of allowance or the expenditure incurred for the specific purpose for which allowance is given,whichever is lower.

Kindly attention:

It is not open to the Assessing Officer to call for the details of expenses actually incurred by the assessee unless the allowances are disproportionately high compared to the salary received by the assessee or unreasonable with reference to the nature of the duties performed by the assessee.

So as far as allowance given are in normal proportion to the gross salary given to employee, employee need not to maintain the account and kept documents to proof is stand of actual expenses incurred for the aforesaid purpose. A simple declaration is enough to claim such exemption.

Case study

During the previous year 2013-14, the following allowances are given to X by the employer company -

Nature of allowance Amount of allowance Amount actually spent Amount Chargeable
Traveling allowance for official purpose                      36,000                        32,000                      4,000
Transfer allowance given at the time of transfer of Mr. X from Delhi to Ajmer                      40,000                        41,000                          -
Conveyance allowance for official purpose                      50,000                        42,000                      8,000
Helper allowance for engaging helper for official purpose                      68,000                        64,000                      4,000
Research allowance                    100,000                        90,000                    10,000
Uniform allowance for official purpose                      18,000                        17,000                      1,000
Total                    312,000                      286,000                    27,000