When it comes to calculating taxable income, salaried individuals often overlook the various allowances that are exempt under the Income Tax Act, 1961. Among these, Section 10(14) plays a crucial role in offering tax relief through specific exemptions granted by employers. This section is divided into two categories—Section 10(14)(i) and 10(14)(ii)—each dealing with different types of allowances, from those meant to cover official duties to those granted for working in difficult conditions or remote areas. Understanding these exemptions not only helps in accurate income reporting but also ensures you don’t pay more tax than necessary. In this blog, we’ll break down these allowances, their eligibility criteria, and the limits prescribed under the law.
Allowances exempted under section 10(14)(i):
Allowances exempted under Section 10(14)(i) of the Income Tax Act, 1961 are those granted to meet expenses wholly, necessarily, and exclusively incurred in the performance of duties of an office or employment. These allowances are exempt to the extent of the amount actually spent for official purposes.
Here is a list of key allowances under Section 10(14)(i) (Rule 2BB of Income Tax Rules):
✅ List of Exempt Allowances under Section 10(14)(i):
| Allowance | Purpose / Condition |
|---|---|
| Travelling Allowance | For travel on tour or transfer (includes daily allowance on such travel) |
| Daily Allowance | For daily expenses incurred when working away from normal place of duty |
| Conveyance Allowance | For travel in performance of duties, not for commuting from home to office |
| Helper Allowance | To engage an assistant for official duties |
| Academic/Research Allowance | To encourage academic/research work |
| Uniform Allowance | For purchase/maintenance of uniform required during duty |
⚠️ Key Points:
- These are not fixed exemptions—the exemption is restricted to the amount actually spent.
- Proof of expenditure may be required if demanded by the Assessing Officer.
- These are different from Section 10(14)(ii) allowances, which have fixed exemption limits (e.g., Hilly area allowance, Children education allowance, etc.).
Allowances Exempted under section 10(14)(ii):
Under Section 10(14)(ii) of the Income Tax Act, 1961, certain allowances are exempt to the extent of the amount prescribed under Rule 2BB of the Income Tax Rules, regardless of actual expenditure. These are granted to meet personal expenses, special duties, or in special circumstances.
✅ Allowances Exempt under Section 10(14)(ii) (with limits):
| Allowance | Exemption Limit (per month) | Purpose / Condition |
|---|---|---|
| Children Education Allowance | ₹100 per child (max 2 children) | For education expenses of children |
| Hostel Expenditure Allowance | ₹300 per child (max 2 children) | For hostel stay of children |
| Transport Allowance (for specially abled employees only) | ₹3,200 | For commuting between residence and office |
| Tribal Area / Scheduled Area / Agency Area Allowance | ₹200 | For employees working in specified areas |
| Hilly Area / High Altitude Allowance | ₹300 to ₹7,000 | For employees working in hilly/remote/high-altitude areas (amount depends on location) |
| Field Area Allowance | ₹2,600 | For armed forces in specified field areas (not with border area allowance) |
| Special Compensatory Allowance (Border Area/Remote Area/Difficult Area) | ₹200 to ₹1,300 | Amount depends on location category |
| Island (Duty) Allowance | ₹3,250 | For duty in Andaman & Nicobar and Lakshadweep islands |
| Counter Insurgency Allowance | ₹3,900 | For armed forces in insurgency-affected areas |
| Underground Allowance | ₹800 | For employees working in underground mines |
| High Active Field Area Allowance | ₹4,200 | For armed forces in active combat zones |
| Project Allowance | ₹200 | For employees working on specified projects |
| Special Compensatory (Remote Locality) Allowance | ₹400 to ₹1,300 | Depends on remoteness and hardship of location |
| Flight Crew Allowance | ₹1,600 | For crew of aircrafts—towards daily expenses |
| Highly Active Field Area Allowance | ₹4,200 | Only for members of armed forces |
⚠️ Important Notes:
- The exemption is limited to the specified amount, even if higher amount is received.
- These are location or condition-specific allowances, generally applicable to government employees, armed forces, or employees in special roles/areas.
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They are separate from allowances under 10(14)(i) which are based on actual expenditure.