Section 10(14) of the Income-tax Act, 1961 exempts certain allowances from tax, either up to what the employee actually spends or up to a fixed monthly limit set by Rule 2BB. These are the “special allowances” in a salary structure, and most of them are claimable only in the old tax regime.

Two kinds of exemption

The section works in two layers, and payroll has to treat them differently.

Clause (i), expense-linked. Allowances paid to meet costs of doing the job, such as travel on tour or transfer, daily allowance, conveyance in performance of duty, a helper, research or uniform. They are exempt only to the extent the employee actually spent the money for that purpose. Any unspent balance is taxable salary, which is why employers ask for bills or a declaration.

Clause (ii), limit-linked. Allowances exempt up to a stated monthly amount whether or not the money was spent, such as children’s education, hostel expenditure, transport allowance for a specially-abled employee, underground mines allowance and various remote-area allowances. For FY 2025-26 the amounts reported for Rule 2BB include Rs 100 a month per child for children’s education (up to two children), Rs 300 a month per child for hostel, Rs 3,200 a month for transport allowance to a specially-abled employee, and Rs 800 a month for underground mines.

What changes for tax year 2026-27

The Income-tax Act, 2025 came into force on 1 April 2026 with the Income-tax Rules, 2026. Summaries of the new Rules report much higher figures: Rs 3,000 a month per child for education and Rs 9,000 a month per child for hostel. They also report a two-tier transport allowance for specially-abled employees, Rs 15,000 plus DA in metros and Rs 8,000 plus DA elsewhere. Secondary sources do not agree on rule numbers, and published summaries do not clearly say which provision of the 2025 Act now carries the exemption, so check the current section and rule mapping on the portal before updating your policy documents.

Regime and payroll angle

In the new regime only a short list of duty-linked allowances survives: broadly, travel on tour or transfer, daily allowance, conveyance in the course of duty, helper allowance and transport allowance for specially-abled employees. Education, hostel and similar fixed-limit allowances become taxable. A flat special allowance with no tie to expenses is taxable in both regimes, and a monthly conveyance allowance is not exempt just because it is labelled that way.

Frequently asked questions

Do I need bills for every Section 10(14) allowance?

For the expense-linked ones, yes, or at least a declaration with supporting records. For the fixed-limit ones, the exemption applies up to the limit, though employers still tend to collect a child’s school details or similar proof. Payroll rules vary, so confirm with your own team.

Is Section 10(14) the same as HRA exemption?

No. HRA exemption has its own provision and formula. Section 10(14) covers the other prescribed allowances.

Where does the exempt amount show up?

In the exemptions block of Part B of Form 16, and from tax year 2026-27 in the equivalent Form 130.

See how exempt allowances reduce taxable salary with the income tax calculator.