Tax exemption under "living allowances"

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 June 2015 Hi,

I work with a software organization, I will be sent to Mexico for a short-stray ( 5 -7 months). I will continue to get my Indian Salary , for which TDS will be deducted. However, I'll be getting some 'living allowance' during my stay:

Further, I understand that under section 10(14) of the Indian Income Tax Act, 'living allowance' will be tax exempted. However, I've following queries considering this scenario:

1. Source of "living allowance": What if the "living allowances" are transferred to my Mexico Account by US based subsidiary of Indian Organization I'm employed with, Would still "living allowances" be considered as tax exempted?

2. Exemption Amount: While filing income tax in India, do I need to mention complete amount transferred under "living allowances" or only the amount which is unspent ans transferred to Indian Bank?
For Instance: If USD 2000 given as "living allowances" and USD 1000 got spent and I transferred USD 1000 to my Indian Bank, what is amount I file for tax exemption?

3. Stay Period: As per Indian Financial year 2015-16, I may stay more than 180 days in Mexico, Will this has any bearing on my tax calculation? If yes, please explain how the tax will will calculated under such scenarios ( above 180 days and below 180 days)

Request you to please provide clarifications to the above stated queries. Let me know if you require any additional information.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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27 June 2015 1 Living allowance is exempted if you are on temporary transfer.
2 Un spent living expenses is taxable.
3 If you stay more than 182 days in Mexico your entire salary relating to services rendered in Mexico including the salary credited in India for that period is exempted.

Querist : Anonymous

Querist : Anonymous (Querist)

27 June 2015 Thanks.

But do I need to present documents to Indian Income tax departmnet that i paid taxes in mexico

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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27 June 2015 When asked for it, then only you have to present.

Querist : Anonymous

Querist : Anonymous (Querist)

27 June 2015 But as per the link below:
http://taxguru.in/income-tax-case-laws/living-allowance-deputation-temporarily-deployment-india-taxable.html#comment-1731479

the entire 'living allowance' should be tax exempted? or am i interpreting in wrong way?

Querist : Anonymous

Querist : Anonymous (Querist)

27 June 2015 Also, is there any exemption limit applicable under such scenario?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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27 June 2015 Your interpretation is correct any saving in living allowance will be taxable.

Querist : Anonymous

Querist : Anonymous (Querist)

27 June 2015 As per the court ruling in the case:

http://taxguru.in/income-tax-case-laws/living-allowance-deputation-temporarily-deployment-india-taxable.html#comment-1731479

the entire "living allowances" are declared as tax exempted as the employee was on "tour" and not "transferred" to foreign location.

Considering that, the" living allowances" in scenario presented initially should not be tax exempted?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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26 July 2025 Great question! The tax treatment of **living allowances** for an employee sent abroad can be a bit nuanced. Here's a clear summary based on your scenario and typical Income Tax principles:

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### 1. **Source of Living Allowance (Paid by Foreign Subsidiary)**

* The exemption under **Section 10(14)** for living allowances applies **if you are on temporary transfer/deputation abroad by your Indian employer or its associated entity**.
* Even if the allowance is paid by a US-based subsidiary, if it relates to your temporary stay abroad linked to your Indian employment, it is generally considered exempt **provided the amount is actually spent on living expenses abroad**.
* However, if the payment is from an unrelated foreign entity or for purposes other than deputation, it may be taxable.

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### 2. **Exemption Amount & Treatment of Unspent Amount**

* The **actual amount spent on living expenses abroad** is exempt.
* The **unspent portion (savings)** of the living allowance that is remitted/transferred back to India is **taxable**.
* So in your example:

* USD 2000 received as living allowance
* USD 1000 spent abroad — exempt
* USD 1000 transferred to India — taxable and should be declared as income.

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### 3. **Stay Period & Tax Residency**

* If you stay **more than 182 days in a foreign country** (Mexico), your **income earned for services rendered outside India during that period may not be taxable in India** under the DTAA (Double Taxation Avoidance Agreement) between India and that country.
* This means the salary related to the foreign stay (and corresponding allowance) may be exempt from Indian tax.
* If stay is **less than 182 days**, your global income (including allowances) is taxable in India, but living allowance spent abroad is exempt as per above rules.

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### 4. **Documentation**

* If Indian tax authorities ask, you should be prepared to provide:

* Proof of temporary transfer/deputation (letter from employer)
* Details of allowance received and expenses incurred abroad
* Tax paid in foreign country (if any), to claim relief under DTAA
* But **you only need to produce these documents if asked** during assessment.

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### 5. **Limits on Exemption**

* No specific monetary limit is prescribed under Section 10(14) for living allowance exemption.
* The exemption is **to the extent of actual expenditure incurred on living expenses abroad**.
* Savings or amounts brought back to India are taxable.

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### 6. **If Employee is on “Tour” (Short Visit) vs. “Transfer”**

* Courts have sometimes distinguished between "tour" and "transfer":

* On a **tour (short visit)**, allowances may be taxable.
* On a **temporary transfer/deputation**, allowances are generally exempt to the extent spent abroad.
* This distinction is critical. If you are on a short-term project visit (tour), exemption may not fully apply.

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### **Summary Table**

| Factor | Tax Treatment |
| ----------------------------------- | ------------------------------------------------------------------------ |
| Living allowance spent abroad | Exempt under Sec 10(14) |
| Unspent allowance remitted to India | Taxable as income |
| Stay >182 days abroad | Income related to foreign services may be exempt under DTAA |
| Stay <182 days abroad | Global income taxable, living allowance exemption as per actual expenses |
| Payment from foreign subsidiary | Exempt if related to temporary deputation |
| Employee on “tour” | Living allowance likely taxable |

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If you want, I can help draft an explanation or prepare documents to present to the tax authorities. Would that help?

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