Saturday, March 13, 2010

Special Allowance is not exempted from Tax

There is an email under circulation among the Navodayas claiming that the Special Allowance is exempted from Income Tax. As it is from one of the leaders of the Union, many think it as authentic info. Whereas the attached response from Income Tax Officer,Bhopal is not clear about the exemption.

Special allowances are exempted from income tax,according to clause (14) of section 10, if they fulfill the following criteria:
(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.

Para 7.21.3 of VI PRC report,based on which NVS Teachers are granted special allowance, says that "the Government should consider grant of a special allowance in these(read navodayas) schools on par with that being recommended by the Commission for Military Schools in Ministry of Defence and the Oak Grove School in Ministry of Railways"

Now look at Para 7.36.93, pay commission clearly says the reason for granting such allowance which reads like this:the Commission has recommended a special allowance of 10% for Military Schools on account of special functions that need to be performed by Teachers/other residential staff working in the residential schools.

Any one can clearly understand that the special allowance which we get is due to 'the special nature of work' but not either 'to compensate for the increased cost of living' or "to meet the expenses incurred in the performance of our duties". So our allowance will not fall under exempted allowances.

What worries everybody is the vulnerability of our staff to be misled. We need to educate ourselves.

1 comment:

  1. Sixth Pay Commission clearly mentioned in its report that no residential allowance is recommanded for thr teachers of Navodaya still lot of our officials misdefine the terminalogy as Residential Allowance to keep us away from tax rebate.On the other hand clause(14)section 10 2BB point (e) supported our claim that "any allowance granted for encoraging education research and trainning in the educational and research institution will be exempted from tax" and any one can guess that our navodayas have been established for the encouragement of education in rural areas thus this clause suits us. NILESH THAKUR JNV HOSHANGABAD(MP)EMAIL