946. Whether tax is not to be deducted at source from conveyance allowance where disbursing authority is satisfied that conveyance allowance is exempt under section 10(14)
Circular No. 196 was issued by the Central Board of Direct Taxes on 31 March 1976. Its subject is 946. Whether tax is not to be deducted at source from conveyance allowance where disbursing authority is satisfied that conveyance allowance is exempt under section 10(14).
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
Tells disbursing authorities that where they are satisfied that a conveyance allowance falls within section 10(14), no tax need be deducted on it. Section 10(14) exempts a special allowance, not being entertainment allowance or a perquisite within section 17(2)(iv), granted specifically to meet expenses wholly, necessarily and exclusively incurred in performing the duties of the office, to the extent those expenses are actually incurred, and its Explanation excludes an allowance for personal expenses at the place of duty or residence. Conveyance allowance will normally be a perquisite under section 17(2)(iv), which is why the worked example in the Department's circular No. 195 dated 25 March 1976 added it back and restricted the standard deduction under section 16(i) to Rs. 1,000. Where the allowance is within section 10(14), a certificate to that effect must be endorsed on the tax deduction bills by the disbursing authority, the employee must furnish the necessary certificate before the assessing authority showing that the allowance is only reimbursement of expenses laid out wholly, necessarily and exclusively for the duties, and the disbursing authority's satisfaction remains open to scrutiny by the Income-tax Officer in the regular assessment.
Several references and enquiries had come from private and public establishments about the standard deduction under section 16(i) where employees receive conveyance allowance, following the Department's circular No. 195 dated 25 March 1976.
946. Whether tax is not to be deducted at source from conveyance allowance where disbursing authority is satisfied that conveyance allowance is exempt under section 10(14)
1. Reference is invited to this Department’s Circular No. 195 [F.No. 275/47/76-ITJ], dated 25-3-1976 on the above subject.
2. This Department has received several references, enquiries, etc., from various private and public establishments seeking clarification on the point of admissibility of standard deduction under section 16(i ) in the cases where the employees are in receipt of conveyance allowance. The procedure for deduction of tax at source explained in this Department’s circular referred to above indicates, in the worked example annexed thereto, how, in cases where conveyance allowance is granted by the employer to his employees, the standard deduction under section 16(i) is to be restricted to Rs. 1,000. Normally, conveyance allowance will come within the definition of perquisites under section 17(2)(iv ). Hence, in the worked examples, conveyance allowance paid to an employee has been added back to determine the total income for purposes of deduction of tax at source. Section 10 indicates income which do not form part of the total income. Section 10(14) reads as under:
"Any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning of clause (c) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose.
Explanation : For the removal of doubts, it is hereby declared that any allowance granted to the assessee 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 shall not be regarded, for the purposes of this clause as a special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties."
In terms of this section, allowance granted specifically to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office will not form part of the total income.
3. If the disbursing authority is satisfied that the conveyance allowance granted to the employees is covered by section 10(14), then the obligation to deduct tax thereon may not arise. In such contingency tax is not liable to be deducted at source from this allowance. However, at the same time it will have to be ensured that a certificate in terms of section 10(14) is endorsed on the tax deduction bills, by the disbursing authority. The employees who are in receipt of conveyance allowance would also have to furnish the necessary certificate before the assessing authorities in support of the fact that conveyance allowance is only a reimbursement of expenses laid out wholly, necessarily and exclusively for the performance of the duties of an office. Such satisfaction of the disbursing authority would still be liable for scrutiny by the Income-tax Officer during regular assessment proceedings before him.
Circular: No. 196 [F. No. 275/29/76-ITJ], dated 31-3-1976.
When conveyance allowance is added back in an employee's assessment despite no tax having been deducted on it, or in a short-deduction proceeding against the employer.
Source: the Income Tax Department’s own published text — its page for this instrument.
