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Section 10(14) & Rule 2BB. Special Allowance

Types of allowances	Amount of Exemption
Part 1 allowance	Amount of expenditure incurred either for official purpose or for specified purpose.
Part 2 allowance	Amount specified in Income Tax Rules. Expenditure is ignored.

Part 1 Allowances

	Name of allowances	Nature of allowance	Amount of Exemption
1.	Transfer Allowance.	Granted by employer for shifting from one city to another city.	Expenditure incurred on transfer. (Movers & Packers)
2.	Helper Allowance.	To help in official duties.	Salary given to helper.
3.	Academic Allowance.	Granted to employees for higher studies.	Fees given to the institutes.
4.	Research & Development Allowance (R & D).	For official research.	Expenditure incurred on research.
5.	Daily Allowance.	Where employee is sent for official work outside the city limits where he incurs expenditure for living, food, etc.	Expenditure incurred in Hotels, Food and Tour.
6.	Uniform Allowance.	Given generally to police, nurses, pilots factory workers.	Expenditure incurred on uniform.
7.	Conveyance Allowance.	Touring within city limits.	Expenditure incurred on car,
8.	Travelling Allowance.	Travelling outsidecitylimits.	train, bus, metro for performing official duties.

Part 2 Allowances

1.	Transport Allowance	It is given to commute between residence to office and back.	Normal	blind / Dumb and Deaf / orthopaedic handicapped with lower extremities
			upto t 1,600 p.m. is exempt.	upto t 3,200 p.m. is exempt.
2.	Children Education allowance.	Given for child’s education.	Monthly exemption		Lumpsum Exemption
			uptot100 p.m. per child maximum 2 child is exempt.		1 child	2 child
					t 1,200 is exempt.	t 2,400 is exempt.
3.	Hostel allowance.	Given for living in a hostel.	monthly exemption		Lumpsum Exemption
			upto t 300 p.m. per child maximum 2 child is exempt.		1 child	2 child
					t 3,600 is exempt	t 7,200 is exempt
4.	Outstation Allowances. (It is a similar to daily allowance).	It is an allowance paid to employee working in a transport system to meet his personal expenditure during the course of his duty.	70% of allowance or		t 10,000 p.m.
			whichever is lower is exempt.
			Note : Double benefit of daily allowance & outstation allowance is not available.

5.	Other Notified Allowances (Need not be memorised).
	a.	Tribal area allowance.	upto ? 200 p.m. is exempt.
	b.	Underground allowance.	upto ? 800 p.m. is exempt.
	c.	Compensatory modified field area allowance.	upto ? 1,000 p.m. is exempt.
	d.	Composite field area allowance.	upto ? 2,600 p.m. is exempt.
	e.	Compensatory field area allowance.	upto ? 2,600 p.m. is exempt.
	f.	Island Duty allowance.	upto ? 3,250 p.m. is exempt.
	g.	Counter insurgency allowance.	upto ? 3,900 p.m. is exempt.
	h.	Special Compensatory highly active field area allowance.	upto ? 4,200 p.m. is exempt.

P1 : Compute Income from Salary : Basic Salary 3,000 p.m. High Cost of living allowance 800 p.m. Entertainment Allowance 300 p.m. (30% is used for official purpose) Uniform Allowance 3,000 p.m. (40% is spent towards personal purpose) Transport Allowance 1,800 p.m. Children Education Allowance for 3 children 120 p.m./each.
Hostel Allowance for 4 children 140 p.m. / each

Ans: 71,280 [36,000+9,600+3,600+14,400+2,400+1,920+3,360=71,280]

Solution

Computation of Income from salary
Basic Salary (3,000 x 12)						36,000
High Cost of living allowance (800 x 12)						9,600
Entertainment Allowance (300 x 12) (ignore the expenses)						3,600
Uniform Allowance Less: exempt 60%	3,000 (1.800)		1,200 x 12			14,400
Transport Allowance Less: exempt	1,800 (1,600)		200 x 12			2,400
Children Education Allowance Less : exempt	120 100 20	120 100 20	120 Nil 120	160 x 12		1,920
Hostel Allowance Less : exempt	140 140 nil	140 140 nil	140 nil 140	140 nil 140	280 x 12	3,360
Income from salaries						71,280

P2: Compute Income from Salary : Basic Salary 5,000 p.m. High Cost of living allowance 9,280 p.a. Entertainment Allowance 550 p.m. (30% is used for official purpose) Uniform Allowance 700 p.m. (40% is spent towards personal purpose) Transport Allowance 600 p.m. Children Education Allowance for 3 children 5,000. Hostel Allowance for 4 children 320 p.m./each.

Ans: 90,000. [60,000+9,280+6,600+3,360+0+2,600+8,160=90,000]

P3: Explain tax treatment following allowances
1. Mr. X is a Govt. employee and he receives entertainment allowance of ₹ 5,000 for the entertainment of clients of the Govt. He spend ₹ 3,000 p.m. for the entertainment of the clients of the Govt.
2. Entertainment Allowance 300 p.m. (30% is used for official purpose)
3. Transport Allowance 1,800 p.m. Expenditure incurred in commuting ₹ 1,200 p.m.
4. Transport Allowance 2,000 p.m. Expenditure incurred in travelling from residence to office & back ₹ 300 p.m.
5. Transport Allowance 400 p.m. No expenditure is incurred.
6. Children Education Allowance for 3 children 120 p.m./each.
7. Children Education Allowance for 3 children 90 p.m./child
8. Special allowance to meet the cost of education and staying ₹ 500 p.m. for a child.
9. Hostel allowance for 3 child ₹ 400 p.m. per child for 4 months.
10. Children Education Allowance for 3 children ₹ 6,000. Actual school fees 3,000.
11. Hostel Allowance for a child ₹ 8,000. Actual hostel fees ₹ 9,000.
12. Children education allowance for his grand child ₹ 4,000. Actual school fees 300.
13. Research and development allowance ₹ 4,000. ₹ 1,000 is spend wholly towards official purpose.
14. Meal Allowance ₹ 700. Expenditure on meal is ₹ 1,000.
15. Helper Allowance ₹ 1,500. ₹ 900 is spent wholly towards official purpose.
16. Conveyance Allowance 500 p.m. Whole of allowance is saved.
17. Mr. Abhay Jain, is a pilot in Jet Airways, He get a Flight Allowance of ₹ 10,000 p.m.
18. Mr. X is working in Delhi Transport Corporation. He gets a driver allowance of ₹ 6,000 p.m.
19. X is employed as a guard in railways. He is getting guard allowance of ₹ 24,000 p.a. He is not in receipt of daily allowance.
20. Hostel Allowance for 2 children 250 p.m./child. (actual expenditure incurred is ₹ 150 p.m./child).
21. Hostel Allowance for 4 children 320 p.m./each.
22. High cost of living allowance @ 50,000.
23. Tribal area allowance in Madhya Pradesh ₹ 300 p.m.
24. Daily allowance ₹ 6,000.
25. Medical allowance ₹ 800 p.m.
26. X is employed as a caretaker in a transport company at Chennai. he gets transport duty allowance ₹ 3,600
p.m.
27. Bonus disputed in court.
28. Clothing Allowance.
29. He has received fixed allowance of ₹ 2,500 p.m. for medical treatment for the entire family; had incurred an expenditure of ₹ 12,500 actually.
30. Children education allowance • First child ₹ 70 p.m. • Second child ₹ 90 p.m. • Third child ₹ 4,800
31. Overseas allowance, Physically fit allowance.
32. Medical allowance 2,000 p.m. received by an employee, the entire amount of which has been spent by him
for medical treatment.
33. Hostel allowance for 3 children ₹ 3,500 each.

Ans: (1) Fully taxable ₹ 5,000. (2) Fully taxable ₹ 3,600 (3) 2,400 taxable (4) 4,800 taxable (5) ₹ 4,800 exempt
(6) 1,920 taxable (7) 1,080 is taxable (8) 1,200 taxable (9) 2,400 is taxable (10) 3,600 is taxable (11) ₹ 4,400 is
taxable (12) ₹ 4,000 is taxable (13) ₹ 3,000 is taxable (14) ₹ 700 is taxable (15) ₹ 600 is taxable (16) ₹ 6,000
taxable (17) ₹ 36,000 taxable (18) ₹ 21,600 taxable (19) 7,200 is taxable (20) fully exempt (21) 8,160 is taxable
(22) fully taxable (23) ₹ 1,200 taxable (24) fully exempt (25) fully taxable (26) 12,960 is taxable (27) not taxable
(28) exempt assuming that to be uniform allowance (29) fully taxable (30) 4,440 (31) Fully taxable. (32) Fully
taxable. 24,000. (33) 3,500

P4: Mr. Taxcrazy posted at Hyderabad draws the following emoluments from Ishallworkhard unlimited.
Basic Salary ₹ 6,000 p.m. Bonus ₹ 2,000 p.m. Commission ₹ 8,000 p.a. CCA ₹1,000 p.m. Telephone allowance
₹ 200 p.m. Medical Allowance ₹ 300 p.m. Entertainment allowance ₹ 4,800 (₹ 6,000 spend on entertainment of
clients of companies). Academic allowance ₹ 16,000 (₹ 9,000 spend on his education). Conveyance allowance ₹ 6,000 (₹ 7,000 is spend on conveyance for official purpose). Travelling allowance ₹ 18,000 (₹ 17,000 is spend on conveyance for official purpose). Transport allowance ₹ 3,300 p.m. (Expenses incurred on commuting between residence to office and back ₹ 2,500 p.m.) Children education allowance for 4 child ₹ 160 p.m. per child. Hostel allowance for 3 child ₹ 280 per month per child (expenditure incurred on child education and their hostel ₹ 1,100 per month per child). Compute income from salaries.

Ans: 1,63,840 [72,000+24,000+8,000+12,000+2,400+3,600+4,800+7,000+0+1,000+20,400+5,280+3,360=
1,63,840]

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FAQs on Special Allowances - Taxation - Income Tax for assessment (Inter Level)

1. What are special allowances in taxation?

Special allowances in taxation refer to specific tax deductions or exemptions granted to individuals or organizations for certain expenses or situations. These allowances are meant to reduce the taxable income and ultimately the tax liability of the taxpayer.

2. Can you provide examples of special allowances in taxation?

Yes, some examples of special allowances in taxation include: - Medical allowances: Allowances provided by employers to employees for medical expenses, such as reimbursement of medical bills or health insurance premiums. - House rent allowances: Allowances given to employees by their employers to cover their rental expenses. - Education allowances: Allowances provided for educational expenses, such as tuition fees, books, or study materials. - Travel allowances: Allowances given to cover expenses related to business travel, such as transportation, accommodation, or meals. - Dependent care allowances: Allowances provided to employees for the care of their dependents, such as children or elderly parents.

3. Are special allowances fully exempt from taxation?

No, special allowances are not always fully exempt from taxation. The extent of exemption or deduction depends on the specific tax laws and regulations of the country. In some cases, there may be a limit or cap on the amount that can be claimed as an allowance, while in others, only a certain percentage of the allowance may be exempt from taxation.

4. How can individuals or organizations claim special allowances in taxation?

To claim special allowances in taxation, individuals or organizations usually need to provide supporting documents or evidence of the expenses for which the allowance is granted. This may include receipts, invoices, or other relevant documents. The process for claiming the allowance may vary depending on the tax jurisdiction, and individuals or organizations may need to submit the necessary forms or declarations to the tax authorities.

5. Can special allowances be claimed by self-employed individuals?

Yes, self-employed individuals can also claim special allowances in taxation, although the specific allowances available to them may differ from those applicable to employees. Self-employed individuals may be able to claim allowances for business-related expenses, such as office rent, equipment purchases, or professional development. However, it is important for self-employed individuals to comply with the tax regulations and requirements of their respective jurisdictions to ensure that they are eligible to claim these allowances.

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