Section 10(14)(ii) of Income Tax Act, 1961, is part of the provisions that offer tax exemptions for specific allowances granted to employees. These allowances are designed to cover personal expenses or compensate for increased living costs and their exemption limits are detailed under Rule 2BB(2) of the Income Tax Rules, 1962. These exemptions help reduce the tax burden, but the exact amounts and conditions can vary based on location and specific circumstances, such as working in hilly areas or border regions.
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What is Section 10(14)(ii) of Income Tax Act, 1961?
Section 10 of the Income Tax Act, 1961, outlines various exemptions to reduce the tax liability of individuals, particularly salaried employees. Subsection 10(14) is divided into two parts: 10(14)(i) for allowances related to official duties and 10(14)(ii) for allowances covering personal expenses or compensating for increased cost of living. Section 10(14)(ii), in particular, is governed by Rule 2BB(2) of the Income Tax Rules, 1962, which prescribes the specific allowances and their exemption limits.
The provision states: "(ii) any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, as may be prescribed and to the extent as may be prescribed." This indicates that the allowances must be employer-granted and meet the conditions set forth in Rule 2BB(2).
Practical Implications for Taxpayers
Taxpayers, particularly salaried employees, can claim these exemptions by ensuring their employer includes these allowances in their salary structure and by maintaining necessary documentation, such as disability certificates for transport allowance claims. It is advisable to consult tax professionals or refer to the latest guidelines from the Income Tax Department to maximize benefits while complying with regulations.
Learn about more Income Tax Rules.
Detailed List of Exempt Allowances Under Section 10(14)(ii)
The following table lists all allowances exempt under section 10(14)(ii), as prescribed under Rule 2BB(2), along with their applicability and exemption limits. These allowances are exempt from income tax and do not form part of the employee's total income, subject to the specified conditions.
Sl. No. | Name of Allowance | Place of Applicability | Exemption Limit |
1 | Special Compensatory Allowance (e.g., Hilly Areas, High Altitude, Uncongenial Climate) | - Specific areas in Manipur, Arunachal Pradesh, Sikkim, Uttar Pradesh, Himachal Pradesh, Jammu and Kashmir (detailed locations listed) - Siachen area of Jammu and Kashmir - All places at 1,000 meters or more above sea level (excluding above) | - Rs. 800 per month for specific areas - Rs. 7,000 per month for Siachen - Rs. 300 per month for other high-altitude areas |
2 | Border Area Allowance, Remote Locality Allowance, Difficult Area Allowance, Disturbed Area Allowance | - Specific areas including Little Andaman, Nicobar, Lakshadweep, Himachal Pradesh, Jammu and Kashmir, etc. (detailed locations listed) - Installations in Continental Shelf and Exclusive Economic Zone of India - Other specified areas | - Rs. 1,300 per month for certain areas - Rs. 1,100 per month for installations - Rs. 1,050 to Rs. 200 per month for other areas |
3 | Special Compensatory (Tribal Areas/Schedule Areas/Agency Areas) Allowance | - Specific areas in Madhya Pradesh, Tamil Nadu, Uttar Pradesh, Karnataka, Tripura, Assam, West Bengal, Bihar, Orissa | - Rs. 200 per month |
4 | Allowance for transport employees for personal expenditure during duty | - Whole of India (provided no daily allowance is received) | - 70% of such allowance, up to Rs. 10,000 per month |
5 | Children Education Allowance | - Whole of India | - Rs. 100 per month per child, maximum for 2 children |
6 | Hostel Expenditure Allowance for child | - Whole of India | - Rs. 300 per month per child, maximum for 2 children |
7 | Compensatory Field Area Allowance | - Specific areas in Arunachal Pradesh, Manipur, Nagaland, Sikkim, Himachal Pradesh, Uttar Pradesh, Jammu and Kashmir (detailed locations listed) | - Rs. 2,600 per month |
8 | Compensatory Modified Field Area Allowance | - Specific areas in Punjab, Rajasthan, Haryana, Himachal Pradesh, Arunachal Pradesh, Assam, Mizoram, Tripura, Sikkim, West Bengal, Uttar Pradesh, Jammu and Kashmir (detailed locations listed) | - Rs. 1,000 per month |
9 | Counter-insurgency allowance for armed forces | - Whole of India | - Rs. 3,900 per month |
10 | Transport allowance for commuting (excluding serial 11 employees) | - Whole of India | - Rs. 1,600 per month |
11 | Transport allowance for blind, deaf and dumb, or orthopaedically handicapped with lower extremities disability | - Whole of India | - Rs. 3,200 per month |
12 | Underground Allowance for working in uncongenial, unnatural climate in underground mines | - Whole of India | - Rs. 800 per month |
13 | High altitude allowance for armed forces | - Altitude 9,000 to 15,000 feet - Altitude above 15,000 feet | - Rs. 1,060 per month - Rs. 1,600 per month |
14 | Special compensatory highly active field area allowance for armed forces | - Whole of India | - Rs. 4,200 per month |
15 | Island (duty) allowance for armed forces | - Andaman & Nicobar and Lakshadweep Group of Islands | - Rs. 3,250 per month |
Conditions and Exclusions
Several conditions apply to these exemptions:
Exclusivity: Assessees claiming exemptions for Compensatory Field Area Allowance (serial 7) and Compensatory Modified Field Area Allowance (serial 8) cannot claim Border Area Allowance, etc. (serial 2). Similarly, those claiming Counter-insurgency Allowance (serial 9) cannot claim disturbed area allowance under serial 2.
General Conditions: The allowances must be granted by the employer, and the exemption is limited to the actual amount received or the prescribed limit, whichever is lower.
Tax Regime Applicability: These exemptions are available under both the old and new tax regimes, except where specifically restricted, such as in cases where standard deductions have replaced certain allowances.
Read Section 147 of Income Tax Act, 1961.
Analysis of Key Allowances
Among the allowances, Children's Education Allowance and Transport Allowance for Disabled are frequently referenced due to their broad applicability:
Children's Education Allowance: Set at Rs. 100 per month per child, with a maximum of two children, this allowance supports educational expenses and is uniform across India.
Transport Allowance for Physically Disabled: An exemption limit of Rs. 3,200 per month are for employees who are blind, deaf, dumb, or orthopedically handicapped with lower extremities disability. This contrasts with earlier reports of Rs. 1,600 per month on some platforms, suggesting a possible update. Given the recency of the Rs. 3,200 figure (as of 2025), it seems likely to reflect the current standard.
Other allowances, such as those for hilly areas or armed forces, are location-specific and cater to employees working under challenging conditions, with exemption limits varying from Rs. 200 to Rs. 7,000 per month depending on the area and nature of duty.
Summary
Section 10(14)(ii) of the Income Tax Act, 1961, is a critical provision for reducing tax liability through exempt allowances. With a wide range of allowances covering education, transport, and special conditions, it caters to diverse employee needs. The exemption limits, as detailed in Rule 2BB(2), provide clear guidelines, though taxpayers should stay updated on any changes, especially given recent discrepancies in reported figures for allowances like transport for disabled individuals.
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Section 10 (14) (ii) of Income Tax Act: FAQs
Q1. What is Section 10(14)(ii) Child Education Allowance?
Tax-exempt allowance for employees’ children’s education, Rs. 100/month per child (max 2 children).
Q2. What is Section 10(14)(ii) Increased Cost of Living?
Exempt allowances to compensate for higher living costs in specific areas, e.g., hilly or border regions, with varying limits.
Q3. What is Section 10(14) Professional Development Allowance?
No specific professional development allowance exists under Section 10(14); it covers other allowances like education or transport.
Q4. What is Section 10(14) Transport Allowance?
Exempt allowance for commuting, Rs. 1,600/month generally, Rs. 3,200/month for blind, deaf, or orthopedically handicapped employees.
Q5. What is the Exemption Limit for Section 10(14)(ii)?
Varies by allowance: Rs. 100/month (education), Rs. 3,200/month (disabled transport), up to Rs. 7,000/month (Siachen), per Rule 2BB(2).
