Axability of special allowance paid to employees for serving

Query: Taxability of Special Allowance Paid to Employees for Serving in the difficult and Far Flung areas

In one of our company project site located in Chamoli district of Uttarkhand, one special allowance @ 10% of Basic Pay (Variable) is being introduced to be paid to employees posted in Project site for Serving in the difficult and Far Flung areas.

Prior to this special allowance, a fixed Remote allowance of Rs 1300 per month was being paid to employees which was exempt from tax under section 10(14) (ii) being the area i.e Chamoli district specified in rule 2 BB of the Income Tax Act 1961.The same shall be discontinued upon introduction of above special allowance.

The special allowance allowance is recently being introduced to be paid to Central Public Sector enterprise employees (CPSEs) for serving in the difficult and far flung areas in pursuance of Department of Public Enterprises (DPE) guidelines issued vide OM dated 22.06.2010(Refer DPE website for more details )

Whether the special allowance @ 10% of Basic Pay (Variable) will cover under section 10(14) (ii) or any other sections of the Income tax Act and will be exempt from tax to the tune of Rs 1300 per month or will be fully taxable or fully exempt or partly exempt from Income Tax.

If partly exempt then what will be the amount of exemption available to this allowance.

Kindly advice

As per Rule 2BB of the Income tax rules

" For the purposes of sub-clause (ii) of clause (14) of section 10, the prescribed allowances, by whatever name called, and the extent thereof shall be the following, namely "

Any Special Compensatory Allowance in the nature of Border Area Allowance, Remote Locality Allowance or Difficult Area Allowance or Disturbed Area Allowance

(h) Following areas of Uttar Pradesh :—

(i) Chamoli District;

I read the Order

https://dpe.nic.in/sites/upload_files/dpe/files/glch04c11.pdf

It appears that the allowance is in nature of Remote Locality Allowance

I believe full amount should be exempted u/s 10(14)(ii)

Since sub-clause (ii) of clause (14) of section 10, did not provide for any limitation as is prescribed under S.10(14)(i)

"to the extent to which such expenses are actually incurred for that purpose"

S.10(14)(ii) any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living,[as may be prescribed and to the extent as may be prescribed]