Special Allowance Under Section 10

The Income Tax Act not only levies taxes on our income but it also has certain provisions that offer a number of tax exemptions. Many of such tax rebates and exemptions come under Section 10 of the Income Tax Act.

Section 10

Most salaried employees receive a specific amount of salary that includes certain allowances too. Section 10 of the Income Tax Act, 1961, offers a long list of tax exemptions that are made especially for salaried people. These allowances are greatly beneficial in taking some load off the shoulders of the breadwinner. In this article, we will confer about the special allowances under Section 10. For that let us first understand the meaning of Section 10.

Special Allowances under Section 10 for Salaried Employees

The tax rebate that is given to salaried people falls under this section of the Income Tax Act, 1961. Here is a list of the exemptions:

Special Individuals Receiving Allowances Exempt

Section 10 (14) also grants a special allowance exemption that is considered as a special allowance given to specific individuals, these are:

  • The allowances that are granted to the Judges of High Court.
  • The allowances that are given to the employees of UNO
  • The Sumptuary allowances that are received by the High Court and Supreme Court Judges
  • The allowances that are granted to the government employees who are citizens of India but are working abroad.

Section 10 (14) (i)

Under Section 10 (14) (i), an allowance received by the employee that is given to meet expenses totally and necessary for the performance of official duties (generally called ‘per diems’), for the expenses that he has already/has to incur, are exempted from taxes. In simple words, the exclusion is granted on the basis of:

  • Amount of allowance
  • The amount that is actually used for the purpose

Section 10

The other important tax exemptions under Section 10 are as follows:

Section 10(10D) - Life Insurance

Any sum that is received under a life insurance plan, be it Death Benefit, Maturity Benefit or any bonus, is tax-free under Section 10.

Section 10 (10)(i) Exemption under Gratuity

The Gratuity received, whether it is through the state or the Centre, that is received by a government employee are full tax-exempted. The amount must be at least one of the below

  • 15 days of salary multiplied by years of service.
  • INR 20 lakhs or the minimum amount
  • The amount that is actually received

For the salaried people who are not covered under the Gratuity Act, the exemption is to the least of:

  • Average of Half Month salary for every year of service.
  • INR 10 lakh
  • Gratuity that is received

Section 10(13a) HRA

An employee who receives House Rent Allowance can get an exemption to the least of the following:

  • HRA that is received
  • The rent that is paid minus 10% of his salary
  • 50% of salary for the 4 metro cities-Delhi, Kolkata, Chennai and Mumbai

Section 10(14) Daily Allowance (Partially Exempt Income)

When on tour or for the duration of a job transfer, a daily allowance is received by the employee that helps him meet the daily expenses. In simple words, the daily allowance is granted when the individual is not in the regular place of duty.

Section 10 (1) Agricultural Income

If the income that is received from agricultural activities is the only income source for the entire financial year, the individual’s income is completely excluded from tax.

Section 10(10AA) Encashment of Leave

When at the time of retirement a government employee encashes his leave, the amount he receives is tax-free. In the case of non-government employees, the exempt is available for the least of the following:

  • Earned leave multiplied by the average salary
  • Average Salary multiplied by 10
  • INR 3 lakh
  • Actual leave encashment that is received

Section 10 (10C) VRS Compensation

Under the voluntary retirement scheme, the compensation that is received at the time of retirement is exempted to a maximum limit of INR 5 lakhs.

Section 10(11) Provident Fund

The payments that are received from an individual’s Provident Fund, are excluded under Section 10. It should be noted here, that if the service has been less than 5 years, then the PF is taxable.

Section 10(5) LTA-Leave Travel Allowance

To a certain limit, LTA for travelling domestically is exempted under Section 10 (5). This exemption, however, depends on the limit of LTA that is specified in the salary of the individual.

Section 10(35) Dividends

Mutual Funds and stocks announce dividends regularly. These dividends, irrespective of the company that is paying taxes, are tax-free in the hands of the individual.

Section 10(13) Superannuation Fund

The regular payment made into a fund by an employee towards his future pension is called the Superannuation fund. This amount is also tax exempted.

Section 10(14) Education Allowance (Partially Exempt Income)

An allowance of up to INR 100 per month, per child, is tax-free under Section 10. Also, there is a hostel allowance for expenses that are made towards a child’s hostel fee, up to INR 300 per month per child. This exemption can be availed for two children only.

Section 10(14) Research or Academic Allowance (Partially Exempt Income)

An allowance that is granted with the aim of encouraging training that is related to academics or research.

Section 10(14) Transport Allowance (Partially Exempt Income)

By transport allowance, it is meant the expense that is incurred due to the travel between the home and the workplace. A transport allowance that is up to INR 800 a month, which makes INR 9,600 annually, is exempted.

Section 10(14) Helper Allowance (Partially Exempt Income)

If the employer authorizes the employee to hire or appoint a helper to perform/help in official duties, the employee will receive a Helper Allowance.

Section 10 (14) (ii)

The other tax exemptions under Section 10 (14) (ii) are as follows:

Compensatory/Climate Allowance

When working in places that have a high altitude, the employees may receive a Climate Allowance, which is

  • Hilly areas of HP, J&K and the North East- INR 800.
  • Siachen- INR 7,000/ month

Allowance for Border Duty

Under Section 10, rule 2BB, allowances that range from INR 200 to INR 1300 per month are paid to the CRPF, BSF, etc. for working across the border.

Modified Field Area Allowance

There is a compensatory modified field area allowance which amounts to INR 1,000 per month.

Field Area Allowance

When working in J&K, Manipur, AP, Nagaland, UP, Sikkim or Manipur, the individual gets an allowance of INR 2600 per month.

Allowance for Duty in Counter Insurgency

An allowance of INR 3900 is received every month to the personnel who are serving in counter-insurgency areas.

High Altitude Allowance

The High Altitude Allowance is granted to the armed forces personnel who are serving in high altitude areas:

An altitude between 9,000 feet to 15,000 feet-INR 1060 per month An altitude above 15,000 feet-INR 1600 per month

Island Duty Allowance

An Island Duty Allowance is granted to the armed forces personnel who are serving in Andaman and Nicobar and Lakshadweep Islands, it amounts to INR 3,250 monthly.

FAQs

What are Allowances?

The fixed and systematic payments that are paid to an employee, over and above his salary for the purpose of meeting the employee’s requirements are called Allowances. For example Transport Allowance, Uniform Allowance, High Altitude Allowance etc.

My father is a farmer, can he save tax under Section 10?

Yes. If the income that is received from agricultural activities is the only income source for the entire financial year, then your father’s income is completely excluded from tax.

I am going to receive my Provident Fund, it is taxable?

The payments that are received from an individual’s Provident Fund, are excluded under Section 10. It should be noted here, that if your service has been less than 5 years, then the PF will be taxable.

How much allowance is received for working in underground mines?

The allowance received is INR 800 per month for working in underground mines.

What is the meaning of Uniform Allowance?

When an office duty prescribes a particular uniform, that is to be worn by the employee when on duty, then an allowance is given for the purchase or the maintenance of that uniform.

I use my own bike to go to my office every day, can I avail tax benefits?

Yes, a transport allowance that is up to INR 800 a month, which makes INR 9,600 a year, is exempted.

How much allowance will an army man receive when posted in the Andaman Islands?

An Island Duty Allowance is granted to the armed forces personnel who are serving in Andaman and Nicobar and Lakshadweep Islands, it amounts to INR 3,250.

How much Transport Allowance is granted to an employee?

For commuting between home and the workplace, an individual receives INR 1600 per month as the Transport Allowance. For an employee who is blind or handicapped, he receives INR 3200 per month.

If at the time of retirement, I encash my leave, will the amount be taxable?

When at the time of retirement a government employee encashes his leave, the amount he receives is tax-free. In the case of non-non-government employees, the exempt is available for the least of the following: Earned leave multiplied by the average salary Average Salary multiplied by 10 INR 3 lakh Actual leave encashment that is received

I am not covered under the Gratuity Act, can I still get an exemption?

For the salaried people who are not covered under the Gratuity Act, the exemption is to the least of: Average of Half Month salary for every year of service. INR 10 lakh

  • Gratuity that is received

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