The Income Tax Act, 1961 lays down the various provisions for determining the taxable income of an individual or entity. Section 10 of the Act specifies the exemptions available to taxpayers, including those related to salary, house rent allowance, and leave travel allowance. Among these exemptions, Section 10(14) pertains to the allowances and perquisites granted by the employer to the employee. In this blog, we will delve deeper into the provisions of Section 10(14) of the Income Tax Act AY 2019-20 and understand how they impact the taxpayers.
Scope of Section 10(14)
Section 10(14) applies to allowances and perquisites granted by the employer to the employee. These allowances can be broadly classified into two categories: those that are wholly exempt from tax, and those that are partially exempt.
Wholly exempt allowances:
- Travel Allowance: Any allowance granted to meet the expenses incurred in connection with travel is fully exempt from tax. This exemption covers allowances for daily commuting between the place of residence and place of work, as well as for travel on transfer or on tour.
- Daily Allowance: Daily allowance given to an employee to meet the ordinary daily expenses incurred while on duty is exempt from tax. This exemption is available only if the employee is required to stay away from his normal place of residence for a period of more than 24 hours.
- Conveyance Allowance: Any allowance given to an employee to meet his conveyance expenses in performing his official duties is fully exempt from tax.
Partially exempt allowances:
- House Rent Allowance (HRA): HRA is an allowance given by an employer to an employee to meet his rental expenses. The exemption available on HRA is the least of the following:
- Actual HRA received
- 50% of the salary (for those living in metro cities) or 40% of the salary (for those living in non-metro cities)
- Rent paid minus 10% of the salary
- Leave Travel Allowance (LTA): LTA is the allowance given by an employer to an employee to cover his travel expenses during the leave period. The exemption available on LTA is limited to the actual travel expenses incurred by the employee and his family, subject to certain conditions.
- Uniform Allowance: An allowance granted to an employee to meet the expenses incurred on the purchase or maintenance of uniforms required for his official duties is partially exempt from tax.
- Special Allowance: Any allowance other than those mentioned above, which is granted to an employee to meet his personal expenses, is partially exempt from tax. However, this exemption is available only to the extent of the actual amount spent or the amount of the allowance, whichever is less.
In conclusion
Section 10(14) of the Income Tax Act AY 2019-20 specifies the exemptions available on various allowances and perquisites granted by the employer to the employee. These exemptions can significantly reduce the tax liability of the employees, and hence it is crucial to understand the provisions of Section 10(14) to optimize the tax planning. It is advisable to consult a tax expert for guidance on the eligibility and computation of these exemptions.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
Q. What is Section 10(14) of the Income Tax Act?
Section 10(14) of the Income Tax Act specifies the exemptions available on allowances and perquisites granted by the employer to the employee. These allowances can be fully or partially exempt from tax, subject to certain conditions.
Q. Which allowances are wholly exempt from tax under Section 10(14)?
The allowances that are wholly exempt from tax under Section 10(14) are Travel Allowance, Daily Allowance, and Conveyance Allowance.
Q. What is the exemption available on House Rent Allowance (HRA) under Section 10(14)?
The exemption available on HRA is the least of the following:
Actual HRA received
50% of the salary (for those living in metro cities) or 40% of the salary (for those living in non-metro cities)
Rent paid minus 10% of the salary
Q. What is Leave Travel Allowance (LTA) and what is the exemption available on it?
LTA is the allowance given by an employer to an employee to cover his travel expenses during the leave period. The exemption available on LTA is limited to the actual travel expenses incurred by the employee and his family, subject to certain conditions.
Q. Is there any limit on the amount of exemption available on Uniform Allowance?
The exemption available on Uniform Allowance is partially exempt from tax, and there is no specific limit on the amount of exemption. However, the allowance must be used for the purchase or maintenance of uniforms required for the employee’s official duties.
Q. Can an employee claim exemptions on all the allowances listed under Section 10(14)?
No, an employee can claim exemptions only on the allowances that are granted by the employer as part of his employment package. The exemptions are subject to the conditions specified under Section 10(14) of the Income Tax Act.
Q. Are there any tax implications if the allowances exceed the exempted limit?
If the allowances exceed the exempted limit, the excess amount is taxable as per the applicable tax rates. The employer is required to deduct TDS on the taxable amount and deposit it with the government.
Q. Is it mandatory for an employer to grant allowances and perquisites to the employee?
No, it is not mandatory for an employer to grant allowances and perquisites to the employee. However, if these allowances are granted as part of the employment package, they are subject to tax as per the provisions of the Income Tax Act.
