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Income Tax Laws – I

Notes 22. Special allowance [Section 10(14)]: Any special allowance in cash or the value of any
benefit granted by the employer to an employee with the specific object of enabling the
employee to meet expenses ‘wholly’, ‘necessarily’ and ‘exclusively’ incurred by him in the
performance of the duties of his office or employment of profit, is exempt from tax to the
extent to which such expenses are actually incurred for that purpose. This allowance may
include travelling allowance to agents, conveyance allowance, transfer allowance, etc.,
but it does not include entertainment allowance, perquisites and the allowance to meet
personal expenses (i.e. City Compensatory Allowance) at the place where the duties of
office are performed by him or at the place where he ordinarily resides.

Did u know? City Compensatory Allowance or CCA is an allowance paid by the employer
to compensate high cost of living incurred by an employee in big cities.
23. Scholarships [Section 10(16)]: Scholarships granted to meet the cost of education would be
exempt in every case regardless of the residential status or citizenship of the scholar and
the person from whom the scholarships are received.

24. Daily Allowances of MPs and MLAs [Section 10(17)]: The provisions in this regard are as
follows:
Any income by way of:

(a) daily allowance received by any person by reason of his membership of Parliament
or of any State legislature or of any Committee thereof;
(b) any allowance received by any person by reason of his membership of Parliament
under the Members of Parliament (Constituency Allowance) Rules, 1986;
(c) any constituency allowance received by any person by reason of his membership of
any State Legislature under any Act or rules made by that State Legislation.
25. Awards or rewards [Section 10(17A)]: Any payments made, whether in cash or in kind, in
pursuance of any award instituted in the public interest by the Government or instituted
by any other body and approved by the Central Government or as a reward by the
Government for such purposes as may be approved by the Central Government in the
public interest.
26. Pension [Section 10(18)]: A new clause 10(18) has been inserted by Finance Act, 1999 with
effect from 1.4.2000 to provide that any income by way of pension received by an individual
or family pension received by any member of the family of such individual shall be
exempt if such individual has been in the service of Central 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 notified.
27. Family pension [Section 10(19)]: Family pension received by the widow or children or
nominated heirs, as the case may be, of a member of the armed forces (including
paramilitary forces) of the Union, where the death of such member has occurred in the
course of operational duties, in such circumstances and subject to such conditions, as may
be prescribed, shall be exempt from tax. However, family pension received by others is
exempt upto least of ‘15,000 or 1/3rd of family pension and it is taxable under the head
other sources.
28. Annual value of palace of a ruler [Section 10(19A)]: The annual value of any one palace in
the occupation of a Ruler would be exempt if it was exempt from income tax before the
commencement of the Constitution Twenty-Sixth (Amendment) Act, 1971 by virtue of the
provisions of the Merged States (Taxation Concessions) Order, 1949 or any other taxation

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