QUESTION: Pensioners are given dearness relief on a par with dearness allowance. Public sector banks like State Bank are classifying the reliefs as allowance for computing taxable income. Under what provision under the Income-tax Act or Rules dearness relief is taken into account for income-tax purposes?
ANSWER: Sec. 17 defining salary not only includes wages, annuity or pension or any gratuity, but also “any fees, commission, perquisites or profit in lieu of or in addition to any salary or wages”, Perquisites are again widely defined to include various allowances. Explanation 3 to Sec. 17(2) would refer to dearness pay and dearness allowance. Value of any benefit or amenity is also to be included.
In fact, any amount received before or after employment, besides any amount received during employment from the employer, would be taxable as income from salary as specifically provided under Sec. 17(3)(iii) of the Act.
What are exempted are only those listed in Sec. 10(10) for gratuity, 10(10A) for commuted pension, 10(10AA) for terminal leave encashment, 10(10B) for compensation received by a workman under the Industrial Disputes Act, 10(10C) for amounts received under Voluntary Retirement Scheme, 10(10CC) for non-monetary perquisites on the value for which the employer at his option undertakes to bear the tax payable by the employees in respect of such perquisites, Sec. 10(11), 10(12) and 10(13) being payments from Government Provident Funds or recognised provident fund or approved superannuation funds, 10(13A) for rent allowance and 10(14) for expenses incurred for employer's business.
All these exemptions are, however, subject to the limits prescribed in the respective provisions or the rules.
The Supreme Court has endorsed the view that all allowances, other than those specifically exempt, are taxable and are also tax deductible in Karamchari Union v Union of India (2000) 243 ITR 143 (SC) .
