5.3 Incomes not included under the Head "Salaries"(Exemptions)
Any income falling within any of the following clauses
shall not be included in computing the income from salaries for the
purpose of Section 192 of the Act :-
(1) The value of any travel concession or assistance
received by or due to an employee from his employer or former employer
for himself and his family, in connection with his proceeding (a) on
leave to any place in India or (b) on retirement from service, or, after
termination of service to any place in India is exempt under Section
10(5) subject, however, to the conditions prescribed in Rule 2B of the
Rules.
For the purpose of this clause, "family" in relation to an individual means:
(i) the spouse and children of the individual; and
(ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.
It may also be noted that the amount exempt under this
clause shall in no case exceed the amount of expenses actually incurred
for the purpose of such travel.
(2) Death-cum-retirement gratuity or any other
gratuity which is exempt to the extent specified from inclusion in
computing the total income under Section 10(10). Any death-cum-retirement
gratuity received under the revised Pension Rules of the Central
Government or, as the case may be, the Central Civil Services (Pension)
Rules, 1972, or under any similar scheme applicable to the members of
the civil services of the Union or holders of posts connected with
defence or of civil posts under the Union (such members or holders being
persons not governed by the said Rules) or to the members of the
all-India services or to the members of the civil services of a State or
holders of civil posts under a State or to the employees of a local
authority or any payment of retiring gratuity received under the Pension
Code or Regulations applicable to the members of the defence service.
Gratuity received in cases other than above on retirement, termination
etc. is exempt up to the limit as prescribed by the Board. Presently the
limit is Rs. 10 lakhs w.e.f. 24-5-2010 [Notification no. 43/2010 S.O.
1414(E) F.No. 200/33/2009-ITA-l, dated 11th, June 2010].
(3) Any payment in commutation of pension received under
the Civil Pension(Commutation) Rules of the Central Government or under
any similar scheme applicable to the members of the civil services of
the Union, or holders of civil posts/posts connected with defence, under
the Union,or civil posts under a State, or to the members of the All
India Services/Defence Services, or, to the employees of a local
authority or a corporation established by a Central, State or Provincial
Act, is exempt under Section
10(10A)(i). As regards payments in commutation of pension received under
any scheme of any other employer, exemption will be governed by the
provisions of section 10(10A)(ii). Also, any payment in commutation of
pension from a fund referred to in Section 10(23AAB) is exempt under
Section 10(10A)(iii).
(4) Any payment received by an employee of the Central
Government or a State Government, as cash-equivalent of the leave salary
in respect of the period of earned leave at his credit at the time of
his retirement, whether on superannuation or otherwise, is exempt under
Section 10(10AA)(i). In the case of other employees, this exemption will
be determined with reference to the leave to their credit at the time
of retirement on superannuation, or otherwise, subject to a maximum of
ten months' leave. This exemption will be further limited to the maximum
amount specified by the Government of India Notification No.
S.O.588(E), dated 31-5-2002 at Rs. 3,00,000/- in relation to such
employees who retire, whether on superannuation or otherwise, after
1-4-1998.
(5) Under Section 10(10B), the retrenchment compensation
received by a workman is exempt from income-tax subject to certain
limits. The maximum amount of retrenchment compensation exempt is the
sum calculated on the basis provided in section 25F(b) of the Industrial
Disputes Act, 1947 or any amount not less than Rs. 50,000/- as the
Central Government may by notification specify in the official gazette,
whichever is less. These limits shall not apply in the case where the
compensation is paid under any scheme which is approved in this behalf
by the Central Government, having regard to the need for extending
special protection to the workmen in the undertaking to which the scheme
applies and other relevant circumstances. The maximum limit of such
payment is Rs. 5,00,000/- where retrenchment is on or after 1-1-1997.
(6) Under Section 10(10C), any payment received or
receivable (even if received in instalments) by an employee of the
following bodies at the time of his voluntary retirement or termination
of his service, in accordance with any scheme or schemes of voluntary
retirement or in the case of public sector company, a scheme of
voluntary separation, is exempted from income-tax to the extent that
such amount does not exceed Rs. 5,00,000/-:
(a) A public sector company;
(b) Any other company;
(c) An Authority established under a Central, State or Provincial Act;
(d) A Local Authority;
(e) A Cooperative Society;
(f) A university established or incorporated
or under a Central, State or Provincial Act, or, an Institution declared
to be a University under section 3 of the University Grants Commission
Act, 1956;
(g) Any Indian Institute of Technology within the meaning of Section 3(g) of the Institute of Technology Act, 1961;
(h) Such Institute of Management as the Central Government may by notification in the Official Gazette, specify in this behalf.
The exemption of amount received under VRS has been
extended to employees of the Central Government and State Government and
employees of notified institutions having importance throughout India
or any State or States. It may also be noted that where this exemption
has been allowed to any employee for any assessment year, it shall not
be allowed to him for any other assessment year.
(7) Any sum received under a Life Insurance Policy
(Section 10(10D), including the sum allocated by way of bonus on such
policy other than:
(i) any sum received under section 80DD(3) or section 80DDA(3) or,
(ii) any sum received under Keyman insurance policy or,
(iii) any sum
received under an insurance policy issued on or after 1-4-2003, but on
or before 31-3-2012, in respect of which the premium payable for any of
the years during the term of the policy exceeds 20 per cent of the
actual capital sum assured. However, any sum received under such policy
on the death of a person would still be exempt.
(8) Any payment from a Provident Fund [section 10(11)] to
which the Provident Funds Act, 1925 ( 19 of 1925), applies or from any
other provident fund set up by the Central Government and notified by it
in this behalf in the Official Gazette.
(9) Under Section 10(13A) of Act any special allowance
specifically granted to an assessee by his employer to meet expenditure
incurred on payment of rent (by whatever name called) in respect of
residential accommodation occupied by the assessee is exempt from
Income-tax to the extent as may be prescribed, having regard to the area
or place in which such accommodation is situated and other relevant
considerations. According to Rule 2A of the Rules, the quantum of
exemption allowable on account of grant of special allowance to meet
expenditure on payment of rent shall be:
(a) The actual amount of such allowance received by the assessee in respect of the relevant period; or
(b) The actual expenditure incurred in payment of rent in excess of 1/10 of the salary due for the relevant period; or
(c) Where such accommodation is situated in
Bombay, Calcutta, Delhi or Madras, 50% of the salary due to the employee
for the relevant period; or
(d) Where such accommodation is situated in
any other places, 40% of the salary due to the employee for the relevant
period, whichever is the least.
For this purpose, "Salary" includes dearness allowance, if
the terms of employment so provide, but excludes all other allowances
and perquisites.
It has to be noted that only the expenditure actually
incurred on 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
pre-requisite for claiming deduction under section 10(13A), it has been
decided as an administrative measure that salaried employees drawing
house rent allowance up to Rs. 3000/- 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 enquiry as he deems fit for the purpose of satisfying
himself that the employee has incurred actual expenditure on payment of
rent.
Further if annual rent paid by the employee exceeds Rs.
2,00,000 per annum, it is mandatory for the employee to report PAN of
the landlord to the employer. In case the landlord does not have a PAN, a
declaration to this effect from the landlord along with the name and
address of the landlord should be filed by the employee.
(10) Section 10(14) provides for exemption of the following allowances :-
(i) Any special allowance or benefit granted
to an employee to meet the expenses incurred in the performance of his
duties as prescribed under Rule 2BB subject to the extent to which such
expenses are actually incurred for that purpose.
(ii) Any allowance granted to an employee
either to meet his personal expenses at the place of his posting or at
the place he ordinarily resides or to compensate him for the increased
cost of living, which may be prescribed and to the extent as may be
prescribed.
However, the allowance referred to in (ii) above should
not be in the nature of a personal allowance granted to the assessee to
remunerate or compensate him for performing duties of a special nature
relating to his office or employment unless such allowance is related to
his place of posting or residence.
The CBDT has prescribed guidelines for the purpose of Section 10(14) (i) / (ii)
vide notification No. SO617(E), dated 7th July, 1995 (F. No. l42/9/95-TPL)which has been amended
vide notification SO No. 403(E), dt. 24-4-2000 (F. No.
l42/34/99-TPL). The transport allowance granted to an employee to meet
his expenditure for the purpose of commuting between the place of his
residence and the place of duty is exempt to the extent of Rs.800 per
month vide notification S.O. No. 395(E), dated 13-5-1998.
(11) Under Section 10(15)(iv)(i) of the Act, interest
payable by the Government on deposits made by an employee of the Central
Government or a State Government or a public sector company out of his
retirement benefits, in accordance with such scheme framed in this
behalf by the Central Government and notified in the Official Gazette is
exempt from income-tax. By notification No. F. 2/14/89-NS-II, dated
7-6-1989, as amended by notification No. F. 2/14/89-NS-II, dated
12-10-1989, the Central Government has notified a scheme called Deposit
Scheme for Retiring Government Employees, 1989 for the purpose of the
said clause.
(12) Any scholarship granted to meet the cost of education
is not to be included in total income as per of section 10( 16) of the
Act.
(13) Section 10(18) provides for exemption of any income
by way of pension received by 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 or family pension received by any member of the family of
such individual [Notifications No. S.O. 1948(E) dated 24-11-2000 and
81(E), dated 29-1-2001, which are enclosed as per Annexure]. "Family"
for this purpose shall have the meaning assigned to it in Section 10(5)
of the Act.
DDO may not deduct any tax in the case of recipients of such awards after satisfying himself about the veracity of the claim.
(14) Under Section 17 of the Act, exemption from tax will also be available in respect of:-
(a) the value of any medical treatment
provided to an employee or any member of his family, in any hospital
maintained by the employer;
(b) any sum paid by the employer in respect
of any expenditure actually incurred by the employee on his medical
treatment or of any member of his family:
(i) in any hospital maintained by the
Government or any local authority or any other hospital approved by the
Government for the purposes of medical treatment of its employees;
(ii) in respect of the prescribed diseases or
ailments as provided in Rule 3A(2) of the Rules in any hospital
approved by the Chief Commissioner having regard to the prescribed
guidelines as provided in Rule 3(A)(l)of the Rules.
(c) premium paid by the employer in respect
of medical insurance taken for his employees (under any scheme approved
by the Central Government or Insurance Regulatory and Development
Authority) or reimbursement of insurance premium to the employees who
take medical insurance for themselves or for their family members (under
any scheme approved by the Central Government or Insurance Regulatory
and Development Authority);
(d) reimbursement, by the employer, of the
amount spent by an employee in obtaining medical treatment for himself
or any member of his family from any doctor, not exceeding in the
aggregate Rs. 15,000/- in an year.
(e) As regards medical treatment abroad, the
actual expenditure on stay and treatment abroad of the employee or any
member of his family, or, on stay abroad of one attendant who
accompanies the patient, in connection with such treatment, will be
excluded from perquisites to the extent permitted by the Reserve Bank of
India. It may be noted that the expenditure incurred on travel abroad
by the patient/attendant, shall be excluded from perquisites only if the
employee's gross total income, as computed before including the said
expenditure, does not exceed Rs. 2 lakhs.
For the purpose of availing exemption on expenditure
incurred on medical treatment, "hospital" includes a dispensary or
clinic or nursing home, and "family" in relation to an individual means
the spouse and children of the individual. Family also includes parents,
brothers and sisters of the individual if they are wholly or mainly
dependent on the individual.
