Salaried taxpayers using Section 10(14)(i) in ITR to save tax? Know the rules and misuse risks

If you are active on X (formerly Twitter), you may have come across posts claiming that many salaried taxpayers are using Section 10(14)(i) of the Income-tax Act, 1961, in their Income Tax Return (ITR) for AY 2026-27 to save tax.

If you are eligible to claim a tax benefit under this section, there is no harm in doing so in your ITR. However, misusing this provision can have serious consequences.

What does Section 10(14)(i) allow?

This section allows tax exemption against prescribed official expenditure.

Dr Surana says, "Section 10(14)(i) of Income-tax Act (ITA), 1961 exempts only those specified allowances that an employer grants to an employee to meet expenses wholly, necessarily and exclusively incurred in the performance of official duties."

The exemption under this section is available only to the extent of the actual expenditure incurred, and only in respect of the following allowances prescribed under Rule 2BB(1) of the Income-tax Rules (IT Rules), 1962, namely:

The scope of exemption under Section 10(14)(i) is significantly restricted for employees opting for the New Tax Regime under Section 115BAC of Income-tax Act, 1961, according to Dr Surana.

The new tax regime allows exemption only in respect of travelling, daily allowance and conveyance to perform official duties.

What are the consequences of misuse?

The expert says that Section 10(14)(i) of ITA 1961 is a conditional exemption and taxpayers should exercise caution while claiming the benefit.

In cases where the prescribed conditions are not fulfilled such as where the allowance is not granted by the employer, the allowance is not covered under Rule 2BB of IT Rules, 1962, or the expenditure has not been actually incurred for official duties, the Income-tax Department may disallow the exemption and recompute the taxable income.

Consequently, the taxpayer may be liable to pay the additional tax along with applicable interest under Sections 234B and 234C of ITA 1961, wherever applicable.

Further, claims that are inconsistent with the salary particulars reported in Form 16 or are unsupported by documentary evidence, such as bills or vouchers, may attract tax notices by the tax authorities. In cases where an incorrect claim results in under-reporting or misreporting of income, penalty proceedings may also be initiated under Section 270A of the Income-tax Act, 1961. This section prescribes a 200% penalty on the amount of tax payable on under-reported income.

"Hence, taxpayers should avail the exemption under Section 10(14)(i) only where the allowance has been specifically provided by the employer, the related expenditure has been actually incurred in the course of official duties, and sufficient documentation is available to support the claim," Dr Surana said.