Section 10(14) Special Allowances
Section 10(14) of the Income Tax Act exempts certain special allowances paid by employers to employees, to the extent they are actually spent for the purpose for which they are granted, subject to prescribed limits under Rules 2BB.
Special allowances under Section 10(14) cover a broad set of employer-paid amounts that are either fully exempt or exempt up to a prescribed limit. Rule 2BB of the Income Tax Rules notifies the limits and conditions. These allowances are split into two sub-categories: those fully exempt if the entire amount is spent for the stated purpose, and those exempt only up to a fixed monetary ceiling regardless of actual expenditure.
Conveyance allowance up to ₹1,600 per month (₹19,200 per year) was exempt until AY 2019-20, when it was subsumed into the Standard Deduction of ₹40,000 (later ₹50,000). Employees who still receive a conveyance allowance after the standard deduction regime should note that it is now taxable unless it is a transport allowance for an employee with a disability, which remains exempt at ₹3,200 per month.
Telephone and mobile allowances reimbursed by employers against actual bills are treated as exempt perquisites rather than allowances — they do not flow through Section 10(14) but are separately covered under Rule 3. Employees should preserve bills and the employer should maintain proper documentation to support the tax exemption.
Uniform allowance is exempt under Section 10(14) to the extent it is spent on purchasing or maintaining the uniform that is required to be worn during the performance of official duties. The exemption is not available if the clothing is of everyday use and not a specific dress code mandated by the employer.
Other allowances covered include children's education allowance (₹100 per month per child, up to two children), children's hostel allowance (₹300 per month per child, up to two children), helper/assistant allowance for disabled employees, and research/academic allowance. Underground mine workers and high-altitude employees get specific daily allowances.
From a compliance standpoint, employees must report these allowances correctly in the salary details of their ITR. Employers are required to reflect the exemption in Form 16 Part-B. Claiming exemptions beyond the permissible limits during scrutiny assessments has been a common source of additions to income, so accuracy in reporting is important.