According to Section 10(7), allowances or perquisites received by an employee outside of India for rendering services outside of India are not considered as income and therefore, are not subject to taxation. This means that if you are an employee who receives allowances or perquisites for work done outside of India, you do not need to include them in your taxable income.
This exemption is available to all Indian citizens who are employed by the Government of India and who are posted outside India. The exemption applies to all types of allowances and perquisites, including:
- Housing allowances
- Cost of living allowances
- Education allowances
- Medical allowances
- Travel allowances
- Leave travel allowances
- Vacation travel allowances
- Children’s education allowances
- Children’s travel allowances
- Hardship allowances
- Danger allowances
- Other allowances and perquisites as may be notified by the Central Government from time to time
- Any other allowance or perquisite that is paid or allowed to the employee by the Government in connection with their service outside India
It is important to note that the exemption under Section 10(7) is only available to Indian citizens who are employed by the Government of India. It is not available to Indian citizens who are employed by private companies or by foreign governments.
The following conditions must be met for the exemption to be available:
- The employee must be an employee of the Government of India.
- The allowance or perquisite must be paid for performing services outside India.
If all of the above conditions are met, then the allowance or perquisite paid to the employee will be exempt from income tax.
The exemption under Section 10(7) is a significant benefit for government employees who are posted outside India. It helps to reduce their tax burden and encourages them to serve in foreign countries.
Here are some examples of cases where the exemption under Section 10(7) will be available:
- A government employee who is posted to the Indian embassy in the United States will be exempt from income tax on the allowances and perquisites that he receives from the Government of India for serving in the United States.
- A government employee who is sent on a deputation to the World Health Organization in Geneva will be exempt from income tax on the allowances and perquisites that he receives from the Government of India for serving in Geneva.