May 222015
 

Valuation of perquisite in respect of free education

The basis of valuation of education facilities provided by employer:m

TRAINING OF EMPLOYEES

Amount spent for providing free education facilities to, and training of the employee, is not taxable. Thus, any type of job oriented training given to its employee by employer is not taxable in the hands of employee.

FIXED EDUCATION ALLOWANCE

Fixed education allowance given in cash by the employer to the employee to meet the cost of education of the family members of the employee is exempt from tax to the extent of Rs.100 per month per child(up to a maximum of two children). Moreover,any allowance granted to an employee to meet hostel expenditure of his child is exempt from tax to the extent of Rs.300 per month per child for a maximum of two children.

PAYMENT OF SCHOOL FEES OF EMPLOYEES’ CHILDREN

School fees of the family members of the employees, paid by the employer directly to the school, is taxable as a perquisite in all cases.

REIMBURSEMENT OF SCHOOL FEES OF EMPLOYEES’ CHILDREN
Reimbursement of expenditure, incurred for the education of the family of the members of the employee, is taxable as a perquisite in all cases.

EDUCATIONAL FACILITY IN EMPLOYER’S INSTITUTE

Different situation Amount chargeable to tax
Where the educational institution is owned and maintained by the employer and educational facility is provided orwhere such educational facility is provided in any institute by reason of employee’s   employment with the employer, like employees of NCPEC are getting education facility in the schools maintained by NHPC-

Situation (i):

Where educational facility is provided to employee’s children

§  Where cost of education or value of such benefit does not exceed Rs. 1,000 per month per child (no restriction on number of children)

Nil 
§  Where such amount exceed Rs. 1,000 per month per child Cost of such education in a similar institution in or near the locality minus Rs.1,000 per month per child minus amount paid or recovered from the employee
 Where educational facility is provided to member of his household (other than children)-  Grand children and other member of household are included in this rule of perquisite valuation. Cost of such education in a similar institution in a similar institution in or near the locality (-) amount paid or recovered from the employee

TRUST FOR THE BENEFITS OF EMPLOYEE’S CHILDREN

If contribution is made under an educational trust,created for the named children employees, the same is not taxable.

Payment of the scholarship amount was never received by the employee but by the children concerned or deposited in the special amount referred to in the scheme. Hence no perquisite in the hands of employee concern.

May 202015
 

Abolition of levy of wealth-tax under Wealth-tax Act, 1957

History of Wealth Tax Act

Wealth-tax Act was introduced w.e.f. 01.04.1957 on the recommendation of Prof. Nicholas Kaldor for achieving twin major objectives of reducing inequalities and helping the enforcement of Income-tax Act through cross checks.

Accordingly, all the assets of the assessees were taken into account for computation of net-wealth. The levy of wealth-tax was thoroughly revised on the recommendation of Tax Reform Committee headed by Raja J. Chelliah vide Finance Act, 1992 with

Effect from 01.04.1993 The Chelliah Committee had recommended abolition of wealth-tax in respect of all items of wealth other than those which can be regarded as unproductive forms of wealth or other items whose possession could legitimately be discouraged in the social interest.

Current Position of Wealth Tax Levy

Wealth-tax is levied on an individual or HUF or company, if the net wealth of such person exceeds Rs.30 lakh onthe valuation date, i.e. last date of the previous year.Wealth tax is charged @ 1% on net wealth exceeding Rs. 30 Lakh.

For the purpose of computation of taxable net wealth, only few specified assets are taken into account. Section to 2(e)(a) specified following assets to be consider for levy of wealth tax:

  1. Motor Cars (Other than used by the assessee in the business of running them on hire or used by the assessee as stock in trade)
  2. Yachts, boats and air crafts (other than used by the assessee for commercial purposes)
  3. Jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal. (other than used by the assessee as stock in trade)
  4. Any building or land (with some exceptions like):
    • One residential home is exempt from Wealth Tax or urban land measuring 500 sqm or less.
    • Any residential property which has been let out for a minimum period of 300 days in the previous year
    • Any house occupied by the assessee for the purpose of any business or profession carried on by him
    • Commercial establishments or complexes
  5. Cash in excess of Rs. 50000 in case of individual or HUF
  6. All above assets transferred without consideration to family etc.
  7. Assets of minor child barring some exception
  8. Value of assets in partnership firm to be clubbed with the assets of partner

Trend Analysis

The actual collection from the levy of wealth-tax during the financial year 2011-12 was Rs.788.67 crore and during thefinancial year 2012-13 was Rs.844.12 croreonly. The number of wealth-tax assessee was around 1.15 lakh in 2011-12.

Although only a nominal amount of revenue is collected from the levy of wealth-tax, this levy creates a significant amount ofcompliance burden on the assessees as well as administrative burden on the department. This is because the assessees are required to value the assets as per the provisions of Wealth-tax Rules for computation of net wealth and for certain assetslike jewellery, they are required to obtain valuation report from the registered valuer.

Further, the assets which are specified for levy of wealth-tax, being unproductive, such as jewellery, luxury cars, etc. are difficult to be tracked and this gives an opportunity to the assessees to under report/under value the assets which are liable for wealth-tax.

Due to this, the collection of wealth-tax over the years has not shown any significant growth and has only resulted into disproportionate compliance burden on the assessees and administrative burden on the department.

Road Map to abolish Wealth Tax

It is, therefore, decided to abolish the levy of wealth tax under the Wealth-tax Act, 1957 with effect from the 1st April, 2016.

The objective of taxing high net worth persons shall be achieved by levying a surcharge on tax payer earning higher income as levy of surcharge is easy to collect & monitor and also does not result into any compliance burden on the assessee and administrative burden on the department.

Further, income tax returns are being suitably modified for capturing information relating to assets which is currently required to be furnished in the wealth-tax return.

Benefits of above amendment

  1. For government it is easy to control tax collection and management without adverse impact on tax collection.
  2. For assessee – compliance burden is lower.

Conclusion

This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year2016-17 and subsequent assessment years. This means for FY 2014-15 assessee shall furnished return in regular manner, i.e., two returns – one ITR and wealth tax return. From FY 2015-16 and onwards assessee needs to submit ITR only.

May 192015
 

Pradhan Mantri Suraksha Bima Yojana (PMSBY)

As we tell you – The Pradhan Mantri of India is all set to launch another flagship social security scheme: Pradhan Mantri Suraksha Bima Yojana (PMSBY) – An accidental Death and Disability insurance scheme. Here a detail review on benefits and methodology of scheme is being done. Hope this will assist you all in taking your financial decision as to go for scheme or not.

Target Beneficiary

There are two aspects of PMSBY that make it different in offering and approach.

  1. It is the sheer size and depth of inclusion to bring and get covered the maximum number of people under this scheme.
    1. Today, if an earning member of a family becomes permanently disabled or dies an accidental death, his or her family faces a life in penury and hardship, with no protection or support from any institution or group. By joining the PMSBY scheme and by paying a nominal premium of Rs. 12/- per person per year, he or she will get an insurance cover for a sum of Rs. 2,00,000/-  in case of accidental death or permanent full disability or a sum of Rs. 1,00,000/- (one lakh) in case of partial but permanent disability. The scheme will be valid for a year and it can be renewed every year.All the payments will be directly credited to the beneficiary’s account with no scope for leakages.

Eligibility

Any person between the age of 18 and 70 with a savings bank account and Aadhaar Card can join the scheme.

A person will need to fill out a simple form, mentioning the name of the nominee and linking the Aadhaar Card to the bank account. The person will need to submit the form each year before 1st June to continue the scheme.

With this, the account can be easily activated and the entire premium due will be auto-debited from his or her account.

In other words, all a person has to do is to open a bank account and then ensure the availability of at least Rs. 12/- before 1st June of each year to ensure automatic renewal of the scheme.

A person has the option to go in for a long-term inclusion under the scheme by instructing the bank to auto-renew the scheme every year.

Cost Benefits analysis of scheme

The following benefits are available under the scheme:

Particular of cost Amount of cost in Rs per annum Particulars of benefits Sum assured
Premium per annum per member Rs. 12 Death Rs. 200,000/-
In joint holder of account shall pay their premium separately. Total or irrecoverable loss of both eyes or loss of use of both hands or feet or loss of sight of one eyes and loss of use of hand or foot Rs. 200,000/-
Total or irrecoverable loss of sight of one eyes or loss of use of one hand or foot Rs. 100,000/-

The cover under this scheme is in addition to cover under any other insurance scheme the subscriber may be cover under.

Tax Benefit

The entire premium paid by the subscribers will be tax free under Section 80C. Furthermore, all the proceeds received up to Rs. 1,00,000/- (one lakh) will be tax exempt under Section 10(10D).

For all the proceed amounts exceeding Rs. 1,00,000/-, a TDS at the rate of 2% of the total proceeds will apply if Form 15H or Form 15G is not submitted to the insuring agency.

Further information / assistance

For further information on Pradhan Mantri Suraksha Bima Yojana (PMSBY), please log onto: www.jansuraksha.gov.in or www.financialservices.gov.in. One can also call the National toll free numbers: 1800 110 001 / 1800 180 1111.

May 182015
 

Tax Benefits of Education Loan

Have you taken an education loan to support higher studies of yourself or of your spouse, Children or for the student of whom you are legal guardian and you are not aware of the tax benefits that you are entitled to. Here an attempt is made to explain the tax treatment of loan taken for Higher Education.

Deduction in respect of payment of interest on loan for higher studies [Sec.80E]

Deduction under section 80E is available if the following conditions are satisfied:

Condition

Particular

1 The assessee is an individual or a natural person.
2 He had taken a loan from any bank or financial institution, i.e., a banking company or notified financial institution or an approved charitable institution.Approved charitable institution means an institution approved for the above purpose of section 10(23C) or 80G2(a).

The loan includes not only tuition or college fees but also other incidental expenses for pursuing such studies like hostel charges, transport charges etc.

3 The loan was taken for the purpose of pursuing higher education.Higher Education: Means

All fields of studies (including vocational studies) pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or Local authority or by any authority authorized by the Central Government or local authority to do so

Thus, the above definition includes loan taken for undertaking vocational training in the area of skill development, liking sewing, agriculture etc. also it further include loan taken for undertaking B. Tech, B. Com, B. Com, M.Sc, CA, etc.

4 The loan was taken by the taxpayer for the purpose of pursuing his own higher education or for the purpose of higher education of his relatives, i.e., spouse/any child /the student for whom the taxpayer is the legal guardian.Hence parent can take deduction of interest paid on education loan taken for their children.
5 Amount is paid by the individual during the previous year by way of interest on such loan.
6 Such amount is paid out of his income chargeable to tax.
Conclusion If all above check box are P, then deduction of interest paid on loan taken for higher education is availableIf any of the above check box is O, then deduction of interest in not available

Further, repayment of principle amount is not deductible any provision of income tax

Amount deductible

If the above conditions are satisfied, the entire amount paid by way of interest is deductible under section 80E.

Following points should be noted –

  1. The above deduction is allowed in computing the taxable income of the initial (i.e., assessment year relevant to the previous year in which the assessee stars paying the interest on the loan) and 7 immediately succeeding assessment years (or until the above interest is paid in full,whichever is earlier).
  2. From the assessment year2006-07, no deduction will be available under section 80E in respect of repayment of principal amount.
May 152015
 

Social security In India

Introduction

After successful launch of Jan Dhan Yojana, Prime Minister Modi had last week launched the ‘Pradhan Mantri Jivan Jyoti Bima Yojana’, ‘Pradhan Mantri Suraksha Bima Yojana’ and the ‘Atal Pension Yojana’ in Kolkata; another step forward to secure more population under their financial inclusion programme.

Objective of schemes

The above schemes have been announced targeting 80% of the people who are not covered by any social security measure. Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana and Atal Pension Yojana were simultaneously launched at 115 locations throughout the country.

While the ‘Pradhan Mantri Suraksha Bima Yojana’ (PMSBY) and the ‘Pradhan Mantri Jeevan Jyoti Bima Yojana’ (PMJJBY) provide insurance cover in the unfortunate event of death by any cause or disability due to an accident, the ‘Atal Pension Yojana’ (APY) addresses the income and security needs of the aged.

Impact

In the first seven days of the trail-run, banks have enrolled 50.5 million people including 4.2 million from West Bengal Even over 50 lakh people have enrolled for the schemes in the last 2 days.

The detail of above schemes is explained below:

Pradhan Mantri Jeevan Jyoti Bima Yojana

This insurance scheme will offer a renewable one-year life cover of Rs. 2 lakh with an annual premium of Rs. 330. This offer can be availed by all savings bank account holders in the age group of 18-50 years. An individual with multiple savings bank accounts would be eligible to join the scheme through one account only with Aadhaar as the primary know-your-customer (KYC) criterion.

The nominee will get the benefits of the scheme in case of the death of the policy holder. Initially, to be covered for the period from 1 June, 2015 to 31 May, 2016, subscribers will be required to enroll and give their auto-debit consent by 31 May, 2015.

Pradhan Mantri Suraksha Bima Yojana

This insurance scheme is also worth Rs. 2 lakh at an annual Premium of Rs. 12. All savings bank account holders in the age group of 18-70 years are eligible for it. It will cover death or permanent disability due to accident.

Eligibility to join the scheme is only through one savings bank account and premium will be deducted from it through ‘auto-debit’ facility annually between 1 June, 2015 and 31 May, 2016.

Atal Pension Yojana

The Atal Pension Yojana will focus on the unorganized sector and provide subscribers a fixed minimum pension of Rs.1, 000, Rs. 2,000, Rs. 3,000, Rs.4,000 orRs. 5,000 per month, starting at the age of 60 years, depending on the contribution option exercised on entering at an age between 18 and 40 years. The minimum age for joining the scheme is 18 years and the maximum is 40 years with a minimum contribution period of 20 years. Contributions would vary from as little as Rs. 48 a month for a Rs 1,000 pension to Rs 248 a month for a pension of Rs 5,000 per month

Where to get forms

All you have to do is to fill up the application form, which can be accessed from these websites -http://www.jansuraksha.gov.in/andhttp://www.financialservices.gov.in. Alternatively, forms can also be procured from all banks

May 142015
 

Relief under section 89

Meaning

It is the amount deducted from tax payable for the year in which it is received. The detail provision as to applicability and manner of availing this relief is in section 89 and further mode of computation is given in rule 21A. Here an attempt is made to explain this concept with the help of practical case study.

When relief can be used

This relief can be avail in the following cases:

  1. An individual receives any portion of his salary in arrears or
  2. Salary received in advance or
  3. Salary received in the form of profit in lieu of salary
  4. When a salaried employee received gratuity in the following cases
    • Where gratuity payable is in respect of past service of 15 years or more
    • Where such period is 5 years or more but less than 15 Years
  5. Compensation received on termination of employment
  6. Payment received in commutation of pension
  7. Any other cases where CBDT may allow

Computation of relief when salary has been received in arrears or in advance

The relief on salary received in arrears or in advance is computed as under:

  1. Calculate the tax payable on the total income, including the salary received in arrears or in advance, of the relevant previous year in which the same is received.
  2. Calculate the tax payable on the total income, excluding the salary received in arrears or in advance, of the relevant previous year in which the additional salary is received.
  3. Find out the difference between tax at (1)and (2).
  4. Compute the tax on the total income after including the salary received in arrears or in advance in the previous year to which such salary relates.
  5. Compute the tax on the total income after excluding the additional salary in the previous year to which such salary relates.
  6. Find out the difference between tax at (4) and (5).
  7. Amount of relief: The excess of tax computed at (3)over tax computed at (6)

No relief is, however admissible if tax computed at (3) is less than tax computed at (6)

If the additional salary relates to more than one previous year, salary would be spread over the previous year to which it pertains in the manner explained above.

Case study

During the previous year ending March 31, 2015, Mr X, a salaried employee (age: 40years),received Rs.10,67,000/- as basic salary and Rs.20,000/- as arrears of bonus of the financial year 1992-93.

During the previous year 1992-93, Mr X has received Rs. 50,000/- as salary. Mr X deposits Rs.1,500/- (during1992-93)and Rs.10,000/- ( during 2014-15) in public provident fund. Now calculation if relief can be given as under:

The admissible relief under section 89 in respect of bonus paid in the financial year 2014-15 will be computed as under :

Taxable income and tax liability in the year of receipt Taxable income and tax liability in the year of accrual
Previous Year 2014-15

Rs.

1993-94

Rs.

2014-15

Rs.

1993-94

Rs.

(1) (5) (2) (4)
Salary 10,67,000 50,000 10,67,000 50,000
Arrears of salary 20,000 20,000
Gross salary 10,87,000 50,000 10,67,000 70,000
Less: standard deduction under section 16(i) Nil 12,000 Nil 12,000
Gross total income 10,87,000 38,000 10,67,000 58,000
Less: Deduction under section 80C 10,000 Nil 10,000 Nil
Net income 10,77,000 38,000 10,57,000 58,000
Tax on net income 1,48,100 2,000 1,42,100 6,800
Less: Rebate under section 88 Nil 300 Nil 300
Tax 1,48,100 1,700 1,42,100 6,500
Add: Surcharge Nil Nil
Tax and surcharge 1,48,100 1,700 1,42,100 6,500
Add: Education cess 2,962 2,842
Add:Secondary and higher education cess 1,481 1,421
Tax liability 1,57,693 1,700 1,51,513 6,500

 Now rebate may be calculated in either of two methods given below:

Method 1 Method 2
Difference between (1) & (2) = (3) 6180 Tax liability of the two assessment year on receipt basis 159393
Difference between (4) & (5) = (6) 4800 Tax liability of the two assessment year on accrual basis 158013
Difference, i.e., excess of (3) over (6) 1380 Difference, i.e., excess of (3) over (6) 1380
May 132015
 

Taxability of Provident Fund

Employees’ provident fund

Provident fund scheme is as a retirement benefit scheme. Under this scheme, a stipulated sum is deducted from the salary of the employee as his contribution towards this fund. The employer also generally contributes simultaneously an equal amount out of its pocket to the fund.

The contributions of employee and employer are invested in gilt-edged securities. Interest earned thereon is also credited to the provident fund account of employees. Thus, the credit balance in the provident fund account of an employee consists of employee’s contribution, interest on employee’s contribution, employer’s contribution and interest on employer’s contribution. The accumulated sum is paid to the employee at the time of his retirement or resignation.

In the case of death of an employee, the accumulated balance is paid to his legal heirs. Since the scheme encourages personal saving at micro level and generates funds for investment at macro level, Government provides deduction under section 80C.

Types of provident funds

  • Statutory provident fund.
  • Recognised provident fund.
  • Unrecognised provident fund.
  • Public provident fund

STATUTORY PROVIDENT FUND – Statutory provident fund is set up under the provisions of the Provident Funds Act, 1925.This fund is maintained by the Government and semi-Government organisations, local authorities, railway, universities and recognised educational institutions.

RECOGNISED PROVIDENT FUND – A provident fund scheme to which the Employee’s Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred to as PF Act,1952) applies is recognised provident fund.

As per PF Act,1952 any establishment employees 20 or more person is covered by the PF Act,1952(establishment employing less than 20 persons can also join the provident fund scheme if the employees want to do so). A establishment covered by the Pf Act, 1952 has the following two alternatives

Alternative available schemes Additional formalities to get approval of the Provident Fund Commissioner Status for income-tax purpose
1.Scheme of the Government set up under the PF Act,1952 No Such provident fund is recognised provident fund
2.Own scheme of provident fund A trust has to be created by the employer and employees to start own provident fund scheme.Funds shall be invested in accordance with the rules given under PF Act,1952. If the scheme satisfies certain rules given under PF Act,1952. It will get the approval of the PF Commissioner It is the recognised by the Commissioner of Income-tax in accordance with the rules contained under Part A of the Fourth Schedule to the Income-tax Act, it becomes recognised provident fund 

UNRECOGNISED PROVIDENT FUND – If a provident fund is not recognised by the Commissioner of Income-tax, it is known as unrecognised provident fund.

PUBLIC PROVIDENT FUND – The Central Government has established the public provident fund for the benefit of general public to mobilise personal savings. Any members of the public (whether a salaried employee or a self-employed person) can participate in the fund by opening provident fund account at any branch of the State Bank of India or its subsidiaries or a few nationalised banks.

A salaried employee can simultaneously become a member of employees ‘provident fund(whether statutory recognised or unrecognised) and the public provident fund. Any amount (subject to minimum of Rs. 500/- and maximum of Rs. 1,50,000/- per annum) may be deposited in this account. The accumulated sum is repayable after 15 years (it may be extended). This provident fund, at present, carries compound interest (tax-free) at the rate of 8.7% per annum.Interest is credited every year but is payable only at the time of maturity.

Tax treatment

  Statutory provident fund Recognised provident fund Unrecognised provident fund Public provident fund
1 2 3 4 5
Employer’s contribution to provident fund  Not treated as “income”of the year in which contribution is made Not treated as “income”up to 12 %of salary. Excess of employer’s contribution over 12%of salary is taxable Available Not treated as “income” of the year in which contribution is made Employer does not contribute 
Deduction under section 80C on employee’s contribution Available 

 

Available 

 

Not available 

 

Available 

 

Interest credited to provident fund 

 

Not treated as income of the year in which interest is credited  Not treated as “income” If the rate of interest does not exceed the notified rate of interest (i.e.,9.5%) of excess of interest over the notified rate is however,taxable Not treated as income of the year in which interest is credited

 

Exempt from tax

 

Lump sum payment at the time of the retirement of service Exempt from tax Exempt from tax in some cases. When not exempt provident fund will be treated as an unrecognised fund from the beginning See note 3 Exempt from tax

Notes:

  1. Accumulated balance payable to an employee participating in a recognized provident fund shall be exempt in the hands of employee in the following situations-
  • If the employee has rendered continue service with his employer for a period of 5 years or more.
  • If the employer has been terminated because of the certain reason which are beyond his control (e.g., ill health of the employee, discontinuation of business by employer, completion of project for which the employee was employed, etc.).
  • If the employer has resigned before completion of 5 years but he joins another employer (who maintains recognized provident fund and provident fund money with the current employer is transferred to the new employer).
  1. Lump sum payment received from unrecognized provident fund at the time of retirement/termination shall be taxable as follows-
  • Payment received in respect of employer’s contribution and interest thereon is taxable under the head “Salaries”
  • Payment received in respect of interest on employee’s contribution is taxable under the head ”Income from other sources”.
  • Payment received in respect of employee’s contribution is not chargeable to tax.
  1. If the accumulated balance becomes taxable due to non-fulfillment of the aforesaid conditions, the total income of the employee will be recomputed by the Assessing Officer, as if the fund was not recognised from the beginning.
  2. Interest credited to recognised provident fund is exempt from tax.
May 132015
 

How provision of Black Money bill impact your tax assessment

The government has been grappling with the undesirable consequences that black money has on the economic development of the country. The introduction of The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill 2015, reiterates the commitment of the government towards a step closer in making law on black money. Here an attempt is made to explain the provision of bill and the manner which same will impact assessment of individual.

Effective Date

The bill if enacted shall come into force from 1 April 2016, i.e., from assessment year 2016-17.

Who will be impacted by such enactment, i.e., assessee covered

The bill is applicable to persons who are resident and ordinary resident in India. Thus, non resident are not get impacted by such enactment.

Basis of charge

The basis of charge can be explained as below:


Penalties & Prosecution

Window to existing defaulters

An existing defaulter may file a declaration before the specified tax authority within a specified period followed by payment of tax at the rate of 30% and an equal amount by way of penalty. It is the best chance to get tax compliant before the stringent provision comes into force.

Thus, in view of above, one can conclude that how government is working in the direction of plugging out black money from outside India. Hence, it is advisable to give full accurate particulars of your income and assets outside India in coming year. In our upcoming blog we will highlight few more aspects of this bill.

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