INCOME TAX EXEMPTIONS FROM SALARY INCOME

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3.4.1 Section 10 of the I.T. Act provides for certain categories of payments to be exempt from taxation, either wholly or partly. Such payments are not to be included under the head ‘salary’ for computing the tax deductible. Some of these are listed below and are discussed in detail in Chapter-5 of this booklet. i) Death cum retirement gratuity or any other gratuity: Exempt to the extent specified u/s 10(10). ii) Commutation of pension - Exempt to the extent as provided in sec. 10(10A) iii) Leave encashment - Exempt to the extent provided in sec. 10(10AA). iv) Retrenchment Compensation - exempt to the extent provided by section 10(10B). v) Compensation on voluntary retirement - Exempt to the extent provided by sec 10(10C) vi) Payment from provident fund - Exempt to the extent provided in sec. 10(11) & sec 10(12). vii) Payment from approved superannuation fund – Exempt under section 10(13). viii) Interest income & income on certain investments - As provided u/s 10(15). ix) Exemption of pension/family pension to awardees of PVC, MVC and VC: Clause (18) of section 10 provides for exemption of any income by way of pension received by an individual or family pension received by any member of the family of an individual who has been in the service of the Central Government or State Government and has been awarded “Param Vir Chakra” or “Maha Vir Chakra” or “Vir Chakra” or such other gallantry award as may be specifically notified by the Central Government. 3.4.2 Exemption of Allowances: There are various other receipts besides the above given regularly in addition to salary for meeting specific requirements of the employee. These are referred to as allowances, in common parlance and taxability of some of these are discussed here. (i) Leave travel concession:- The value of any travel concession or assistance received by or due to an employee from his employer or former employer in connection with his proceeding (a) on leave to any place in India (b) to any place in India on retirement or after termination of service. The amount exempt as prescribed in Rule 2B is the amount actually incurred on performance of travel in India by the shortest route to that place, subject to economy air fare or A.C. Ist class fare. This exemption is available only in respect of two journeys in a block of 4 calendar years. (ii) House Rent allowance - House rent allowance granted to the employee is exempt u/s 10(13A) to the following extent; provided expenditure on rent is actually incurred, the amount of exemption granted is the least of (1) HRA received (2) Rent paid Less 10% of salary (3) 40% of salary, (50% in case of Mumbai, Chennai, Calcutta & Delhi). Salary includes bonus + Dearness allowance, where provided by terms of employment. payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the house rent allowance or any portion thereof from the total income of the employee. Though incurring actual expenditure on payment of rent is a prerequisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance upto Rs. 3,000 per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such inquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent. (iii) Allowances exempt u/s 10(14):- Certain allowances given by the employer to the employee are exempt u/s 10(14). W.e.f. 1-7-1995, all these exempt allowance are detailed in Rule 2BB of Income Tax Rules and are briefly given below: (i) Allowance granted to meet cost of travel on tour or transfer. (ii) Allowance granted on tour or journey in connection with transfer to meet the daily charges incurred by the employee. (iii) Allowance granted to meet conveyance expense incurred in performance of duty, provided no free conveyance is provided. (iv) Allowance granted to meet expenses incurred on a helper engaged for performance of official duty. (v) Academic, research or training allowance granted in educational or research institutions. (vi) Uniform purchase or maintenance allowance. (vii) Other allowances as prescribed in Rule 2BB(2) for the purpose of Section 10(14)(ii). 3.4.3 Perquisites exempt from Income Tax : Some instances of perquisites exempt from tax are given below : I) Provision of medical facilities (proviso to Sec. 17(2): Value of medical treatment in any hospital maintained by the Government or any local authority or by the employer or approved by the Government or in respect of certain prescribed diseases or ailments approved by the Chief Commissioner of Income Tax. Besides, any sum paid by the employer towards medical reimbursement other than as discussed above is exempt upto Rs. 15,000/-. II) Perquisites allowed outside India by the Government to a citizen of India for rendering services outside India (Sec. 10(7)). III) Rent free official residence provided to a Judge of High Court of Supreme Court or an Officer of Parliament, Union Minister or Leader of Opposition. IV) No perquisite shall arise if interest free/concessional loans are made available for medical treatment of specified diseases in Rule 3A or where the loan is petty not exceeding in the aggregate Rs. 20,000/-. V) No perquisite shall arise in relation to expenses on telephones including a mobile phone incurred on behalf of the employee by the employer. 3.5 Deductions from Salary Income: The deductions are allowable from the salary income as specified in Section 16 of the IT Act and are being given below: 3.5.1 Standard Deduction: It is to be noted that no standard deduction is available from the salary income w.e.f. 01.04.2006 i.e. A.Y.-2006-07 (relevant to F.Y.-2005-06) onwards. 3.5.2 Professional/employment tax: As levied by the State Government and paid. 3.5.3 Entertainment allowance: With effect from AY 2002-03, this deduction is admissible only to government employees to the extent of Rs.5,000 or 20% of salary whichever is less. Share and Care

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