Taxable and Non Taxable Elements

Taxable and Non-Taxable Elements of Pay and Allowances have always confused most of the army officers. Recently PCDA(O) Pune has released a summary which provides a comprehensive breakdown of different elements of pay that are either subject to tax or exempt from taxation under relevant provisions of the Income Tax Act.

Click here to download – Taxable and Non Taxable Elements of Pay and Allowances

Taxable Elements of Pay

The taxable components of pay are subject to standard income tax provisions and include:

1. Salary Components:
   • Pay in the Pay Band.
   • Grade Pay.
   • Military Service Pay.
   • Dearness Allowance (DA).
   • Non-Practicing Allowance (NPA).
2. Allowances and Benefits:
   • Hazard/Special Hazard Pay.
   • City Compensatory Allowance.
   • Qualification Pay and Grants.
   • Flying, Security, and Strategic Force Allowances.
3. Reimbursements:
   • Reimbursement of furniture, water, and electricity.
4. Specialized Roles:
   • Test Pilot, Flight Test, and Instructor Allowances.
   • Special Action Group Allowances for specific postings.
5. Miscellaneous:
   • Leave Encashment on Leave Travel Concession (LTC).
   • Language Awards and Technical Pay.

Non-Taxable Elements of Pay

Several pay elements are exempt from tax, either fully or partially, under specific sections of the Income Tax Act:

1. Gallantry Awards: Fully exempt under Section 10(18)(i).
2. Allowances for Children and Education:
   • Children Education Allowance: Exempt up to ₹100/month per child for up to two children.
   • Hostel Subsidy: Exempt up to ₹300/month per child for up to two children.
3. House Rent Allowance (HRA): Exemption is determined by the least of:
   • Actual HRA received.
   • Rent paid minus 10% of salary.
   • 50% of salary for metro cities or 40% for non-metro cities.
4. Field and High-Altitude Allowances:
   • Siachen Allowance: ₹7,000/month.
   • High Altitude Allowance: ₹1,060-₹1,600/month depending on altitude.
5. Transport Allowance:
   • ₹1,600/month for general employees.
   • ₹3,200/month for disabled employees.
6. Uniform and Outfit Allowances: Fully exempt for maintenance and renewal costs.
7. Special Provisions for Armed Forces:
   • Island Duty Allowance.
   • Counter Insurgency Allowance.
8. Other Exemptions:
   • Reimbursement of medical expenses up to ₹15,000/year.
   • Payments from Provident Funds.
   • Compensation for disability pensions.

Key Legal References

The exemptions are governed by specific sections of the Income Tax Act, such as:

• Section 10 (14): Special allowances.
• Section 10 (13A): House Rent Allowance.
• Section 10 (11): Provident Fund payments.
• Section 17 (2): Reimbursements and medical expenses.

Conclusion

The document emphasizes that the listed provisions are based on the interpretation of the Income Tax Act and associated rules. Amendments and clarifications from the Central Board of Direct Taxes (CBDT) may alter these provisions over time.

For detailed implementation, taxpayers and administrators are advised to consult updated IT regulations and official directives from relevant authorities.