Special allowances to meet expenses relating to duties or personal expenses [Section 10(14)] :
This clause provides for exemption (as per Rule 2BB) in respect of the following:
(i) Special allowances or benefit not being in the nature of a perquisite, specifically granted to meet expenses incurred wholly, necessarily and exclusively in the performance of the duties of an office or employment of profit. For the allowances under this category, there is no limit on the amount which the employee can receive from the employer, but whatever amount is received should be fully utilized for the purpose for which it was given to him.
(ii) Special allowances granted to the assessee either to meet his personal expenses at t he 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. For the allowances under this category, there is a limit on the amount which the employee can receive from the employer. Any amount received by the employee in excess of these specified limits will be taxable in his hands as income from salary for the year. It does not matter whether the amount which is received is actually spent or not by the employee for the purpose for which it was given to him.
The following allowances have been prescribed in Rule 2BB:
Allowances prescribed for the purposes of section 10(14)(i)
(a) any allowance granted to meet the cost of travel on tour or on transfer (Travelling Allowance);
(b) 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;
(c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit (Conveyance Allowance);
(d) any allowance granted to meet the expenditure incurred on a helper where such helper is engaged in the performance of the duties of an office or employment of profit (Helper Allowance);
(e) any allowance granted for encouraging the academic research and training pursuits in educational and research institutions;
(f) any allowance granted to meet the expenditure on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit (Uniform Allowance).
Explanation – For the purpose of clause (a) ―allowance granted to meet the cost of travel on transfer‖ includes any sum paid in connection with the transfer, packing and transportation of personal effects on such transfer.
Allowances prescribed for the purposes of section 10(14)( ii)
1. Any Special Compensatory Allowance in the nature of Special Compensatory (Hilly Areas) Allowance or High Altitude Allowance or Uncongenial Climate Allowance or Snow Bound Area Allowance or Avalanche Allowance – Rs 800 or Rs 7,000 or Rs 300 per month depending upon the specified locations.
2. Any Special Compensatory Allowance in the nature of border area allowance or remote locality allowance or difficult area allowance or disturbed area allowance -Rs 1,300 or Rs 1,100 or Rs 1,050 or Rs 750 or Rs 300 or Rs 200 per month depending upon the specified locations.
3. Special Compensatory (Tribal Areas / Schedule Areas / Agency Areas) Allowance – Rs 200 per month.
4. Any allowance granted to an employee working in any transport system to meet his personal expenditure during his duty performed in the course of running such transport from one place to another, provided that such employee is not in receipt of daily allowance – 70% of such allowance upto a maximum of Rs 10,000 per month.
5. Children Education Allowance – Rs 100 per month per child upto a maximum of two children.
6. Any allowance granted to an employee to meet the hostel expenditure on his child Rs 300 per month per child upto a maximum of two children.
7. Compensatory Field Area Allowance – Rs 1,300 per month in specified areas.
8. Compensatory Modified Field Area Allowance – Rs 500 per month in specified areas.
9. Any special allowance in the nature of counter insurgency allowance granted to the members of the armed forces operating in areas away from their permanent locations for a period of more than 30 days – Rs 1,300 per month. Any assessee claiming exemption in respect of allowances mentioned at serial numbers 7, 8 and 9 shall not be entitled to exemption in respect of the allowance referred to at serial number 2.
10. Any transport allowance granted to an employee (other than those referred to in Sl. No. 11 below) to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty – Rs 1,600 per month.
11. Any transport allowance granted to an employee who is blind or orthopaedically handicapped with disability of the lower extremities of the body, to meet his expenditure for commuting between his residence and place of duty – Rs 3,200 per month.
12. Underground Allowance of Rs 800 per month would be granted to an employee who is working in uncongenial, unnatural climate in underground coal mines. This is applicable to whole of India.
Illustration
Mr. Srikant has two sons. He is in receipt of children education allowance of Rs 150 p.m. for his elder son and Rs 70 p.m. for his younger son. Both his sons are going to school. He also receives the following allowances:
| Transport allowance | Rs 1,000 p.m. (amount spent Rs 600 p.m.) |
| Tribal area allowance | Rs 500 p.m. |
Compute his taxable allowances.
Solution
Taxable allowance in the hands of Mr. Srikant is computed as under –
Children Education Allowance:
| Elder son [(Rs 150 – Rs 100) p.m. × 12 months] | = Rs 600 | |
| Younger son [(Rs 70 – Rs 70) p.m. × 12 months] | = Nil | Rs 600 |
| Transport allowance [(Rs 1,000 – Rs 800) p.m. × 12 months] | Rs 2,400 | |
| Tribal area allowance [(Rs 500 – Rs 200) p.m. × 12 months] | Rs 3,600 | |
| Taxable allowances | Rs 6,600 |