Understanding Section 10(14)(i) of the Income Tax Act: Exemption of Allowances and Perquisites

Section 10(14)(i) of the Income Tax Act, 1961 is an important provision that deals with the exemption of certain allowances and perquisites from the computation of an individual’s taxable income. This section provides for the exemption of allowances and perquisites granted by the employer to the employee to meet the expenses that are necessarily incurred in the performance of their duties. In this blog, we will discuss the provisions of section 10(14)(i) of the Income Tax Act in detail.

What are Allowances and Perquisites under Section 10(14)(i)?

Allowances and perquisites are monetary or non-monetary benefits provided by an employer to an employee as a part of their salary package. These allowances and perquisites may include house rent allowance (HRA), leave travel concession (LTC), medical allowance, conveyance allowance, and other similar benefits. Under Section 10(14)(i), these allowances and perquisites are exempt from income tax up to a certain limit, subject to certain conditions.

Conditions for Exemption under Section 10(14)(i)

The exemption provided under Section 10(14)(i) is subject to the fulfillment of certain conditions, which are as follows:

1. Allowance or perquisite should be granted by the employer to the employee.
2. The allowance or perquisite should be granted to meet the expenses that are necessarily incurred in the performance of the duties of an office or employment of profit.
3. The allowance or perquisite should not be in the nature of a personal allowance.
4. The employee should furnish the details of such allowances and perquisites to the employer in the prescribed form and manner.
5. The employer should maintain a record of such allowances and perquisites and should furnish the details to the Income Tax authorities as and when required.

Limit of Exemption under Section 10(14)(i)

The exemption limit for various allowances and perquisites under Section 10(14)(i) is prescribed by the government from time to time. The current exemption limits for some of the popular allowances and perquisites are as follows:

1. House Rent Allowance (HRA): The exemption limit for HRA is the least of the following:

a. Actual HRA received from the employer.

b. Rent paid minus 10% of the basic salary.

c. 50% of the basic salary if the employee resides in a metro city (Mumbai, Kolkata, Delhi, or Chennai), or 40% of the basic salary if the employee resides in any other city.

2. Leave Travel Concession (LTC): The exemption is available for two journeys in a block of four years. The exemption is limited to the actual travel expenses incurred by the employee or the amount received from the employer, whichever is lower.
3. Medical Allowance: The exemption limit for medical allowance is Rs. 15,000 per annum.
4. Conveyance Allowance: The exemption limit for conveyance allowance is Rs. 1,600 per month.

Apart from the allowances and perquisites mentioned earlier, there are certain other allowances and perquisites which are also exempt under Section 10(14)(i). These include:

1. Children Education Allowance: An exemption of up to Rs. 100 per month per child (up to a maximum of two children) is allowed for children’s education expenses.
2. Hostel Allowance: An exemption of up to Rs. 300 per month per child (up to a maximum of two children) is allowed for hostel expenses.
3. Uniform Allowance: An exemption of up to Rs. 600 per annum is allowed for expenses incurred on the purchase of uniforms by the employee.
4. Special Allowance: Any special allowance granted to an employee to meet the expenses incurred in the performance of his duties is exempt up to the extent of the actual expenditure incurred.

Other Important Points

1. The exemption under Section 10(14)(i) is available only to the extent of the actual expenses incurred by the employee. Any amount received in excess of the actual expenses will be taxable.
2. The employer is required to deduct tax at source (TDS) on the salary income of the employee, including the exempted allowances and perquisites.
3. If an employee receives any allowance or perquisite that is not exempt under Section 10(14)(i), it will be fully taxable as per the applicable tax rates.
4. If an employee receives any allowance or perquisite that is in excess of the exemption limit, the excess amount will be taxable as per the applicable tax rates.

Conclusion

Section 10(14)(i) of the Income Tax Act provides for the exemption of certain allowances and perquisites from the computation of an individual’s taxable income. This section aims to provide relief to employees by exempting certain expenses incurred by them in the performance of their duties. It is important for both the employer and the employee to comply with the provisions of this section to avoid any tax-related issues. Employees should ensure that they furnish the required details of their allowances and perquisites to the employer in the prescribed form and manner to avail of the exemption under Section 10(14)(i).

Read more useful content:

• section 234e of income tax act
• section 286 of income tax act
• section 90a of income tax act
• section 40a(7) of income tax act
• section 226(3) of income tax act
• section 24 of income tax act

Frequently Asked Questions (FAQs)

Q: What is Section 10(14)(i) of the Income Tax Act?
A: Section 10(14)(i) of the Income Tax Act provides for the exemption of certain allowances and perquisites from the computation of an individual’s taxable income.

Q: What are the allowances and perquisites exempt under Section 10(14)(i)?
A: The allowances and perquisites exempt under Section 10(14)(i) include:

Daily allowance or conveyance allowance received by an employee to meet his expenses on tour or transfer.

Special allowance granted to meet expenses incurred in the performance of duties.

Allowance granted to meet the cost of travel on tour or on transfer.

Any allowance granted to an employee to meet the expenses incurred on education of his children.

Any allowance granted to an employee to meet the expenses incurred on the performance of his official duties.

Q: Are there any limits on the amount of allowances and perquisites exempt under Section 10(14)(i)?
A: Yes, there are limits on the amount of allowances and perquisites exempt under Section 10(14)(i). The exempted amount varies depending on the nature of the allowance or perquisite.

Q: What are the other allowances and perquisites exempt under Section 10(14)(i)?
A: The other allowances and perquisites exempt under Section 10(14)(i) include children education allowance, hostel allowance, uniform allowance, and special allowance granted to meet the expenses incurred in the performance of duties.

Q: Is the exemption under Section 10(14)(i) available only to salaried employees?
A: No, the exemption under Section 10(14)(i) is available to all employees, including salaried employees and self-employed individuals.

Q: Can an employee claim exemption for allowances and perquisites not mentioned under Section 10(14)(i)?
A: No, an employee cannot claim exemption for allowances and perquisites not mentioned under Section 10(14)(i). Such allowances and perquisites will be fully taxable as per the applicable tax rates.

Q: Do employers need to deduct TDS on the exempted allowances and perquisites?
A: Yes, employers need to deduct TDS on the salary income of the employee, including the exempted allowances and perquisites.

Q: What should employees do to avail of the exemption under Section 10(14)(i)?
A: Employees should furnish the required details of their allowances and perquisites to the employer in the prescribed form and manner to avail of the exemption under Section 10(14)