APPLICABLITY OF THE PROVISION OF SECTION 10(14) OF INCOME TAX ACT 1961 TO RELOCATION ALLOWANCE GRANTED BY A FOREIGN COMPANY TO ITS EMPLOYEES ON RELOCATION TO THE COMPANYYS IN

[ABHAYA NAIK]

An employee of BANQUE NATIONAL DE PARIS transferred its employee working at its SINGAPORE establishment to the banks Chennai office in India wef 05/12/2024. as per the transfer policy of the bank a lumpsum amount of rupees 1081068 / has been paid to the transferred employee as relocation allowance to assist the transferred employee in defraying miscellaneous cost that the employee may incur as a result of his relocation from Singapore to Chennai in India. this lump sum amount of rupees 1081068 / has been paid to the employee in his salary for the month of December 2024 in Chennai India. the finance dept of BANQUE NATIONAL DE PARIS CHENNAI has deducted tax at source from such relocation allowance of rupees 1081068/ presuming such relocation allowance to be taxable salary in India .

Now while filing ITR for FY 24-25/ay 25-26 can the employee claim exemption under section 10(14) of income tax act 1961 in respect of this relocation allowance of rupees 1081068/ please cite any case laws from ITAT /HC/supreme court/ or circulars or notification which may support the taxpayers stand about complete exemption of relocation allowance received under section 10(14) of income tax act 1961

[YAGAY andSUN]

APPLICABLITY OF THE PROVISION OF SECTION 10(14) OF INCOME TAX ACT 1961 TO RELOCATION ALLOWANCE GRANTED BY A FOREIGN COMPANY TO ITS EMPLOYEES ON RELOCATION TO THE COMPANYYS IN, INCOME TAX

Issue Id: - 120091

Under Section 10(14) of the Income-tax Act, 1961, an employee can claim exemption for any special allowance or benefit granted specifically to meet expenses incurred wholly, necessarily, and exclusively in the performance of the duties of an office or employment of profit. However, such allowances must be of the nature prescribed under Rule 2BB of the Income-tax Rules, 1962.

In the case of the lump sum relocation allowance of ₹10,81,068 received by the employee of Banque Nationale de Paris upon transfer from Singapore to Chennai, the nature of this allowance must be closely examined. Relocation allowance is generally intended to reimburse personal and incidental expenses incurred as a result of shifting residence due to transfer. These typically include costs for travel, packing, transportation, temporary accommodation, and other miscellaneous expenditures.

It is important to note that the exemption under Section 10(14) is available only when the allowance is granted to meet expenses that are incurred in the discharge of official duties, and not for personal purposes. Relocation benefits, although arising from employment, are generally viewed as aiding the employee in adjusting to the new location and are thus treated as personal in nature. Therefore, they do not qualify as exempt under Section 10(14) read with Rule 2BB.

Further, since the amount in question is paid as a lump sum and not as a reimbursement against actual bills or specific allowable expenses, it does not satisfy the conditions necessary to be treated as exempt. The Income-tax Department and courts have consistently held that such lump sum payments, if not specifically covered under the prescribed exempt categories, are to be included as part of salary and taxed accordingly.

Hence, in the absence of specific inclusion of such a relocation allowance under the notified categories of Rule 2BB, the amount of ₹10,81,068 received by the employee is liable to be taxed as part of salary income for the financial year 2024–25.

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AI Summary

Relocation Allowance Dispute: Foreign Bank Employee Challenges Tax Deduction on Transfer Expenses Under Section 10(14) An employee of a foreign bank received a relocation allowance of Rs. 1,081,068 when transferred from Singapore to Chennai. The finance department deducted tax at source, presuming the amount taxable. The employee seeks exemption under Section 10(14) of the Income Tax Act. The reply indicates that lump sum relocation allowances are generally not exempt, as they are considered personal expenses and do not meet the specific conditions of Rule 2BB, thus remaining taxable as part of salary income.