This section provides exemption for certain allowances received by employees to meet expenses incurred in the performance of official duties. These allowances are exempt either fully or partially, depending on the nature of the allowance and the conditions prescribed.
Categories Under Section 10(14):
- Fully Exempt Allowances– Given for official duties (no specific limit).
- Partially Exempt Allowances– Exempt up to actual expenditure or a prescribed limit.
Example 1: Fully Exempt Allowance (Official Duty Related)
Allowance: Travel Allowance (TA) / Transfer Allowance
- Purpose:Given when an employee is transferred or travels for official work.
- Exemption:Fully exempt if used for official purposes.
- Employee receives:₹20,000 as Transfer Allowance for relocation.
- Actual relocation expenses:₹18,000 (movement of goods, travel, etc.).
- Taxable portion:₹0 (since it’s fully exempt if used for official relocation).
Example 2: Partially Exempt Allowance (Subject to Limits)
Allowance: Daily Allowance / Conveyance Allowance
- Purpose:Given to meet daily travel expenses for office duties.
- Exemption Limit:Up to ₹1,600 per month (₹19,200 per year) (as per Rule 2BB).
- Employee receives:₹3,000 per month as Conveyance Allowance.
- Exempt amount:₹1,600 per month (as per limit).
- Taxable portion:₹3,000 – ₹1,600 = ₹1,400 per month (₹16,800 per year).
Example 3: Special Allowance for Uniform Maintenance
- Allowance:Uniform Allowance
- Exemption:Actual expenditure incurred on uniform maintenance.
- Employee receives:₹5,000 per year as Uniform Allowance.
- Actual expenses:₹3,500 (dry cleaning, stitching, etc.).
- Exempt amount:₹3,500
- Taxable portion:₹5,000 – ₹3,500 = ₹1,500.
Key Points:
✅ Exemption is available only if the allowance is used for the intended official purpose.
✅ Proof of expenses may be required (bills/receipts) for partial exemptions.
✅ Different allowances have different exemption limits (refer Rule 2BB).
