Query- Whether Pension Income of Ex-MLA or Ex-MP is taxable and if it is taxable under which head it is to be taxed ?


Query from the Reader of thetaxtalk.com

Whether Pension Income of Ex-MLA or Ex-MP is taxable and if it is taxable under which head it is to be taxed?

Opinion by thetaxtalk –Section 10(17) of the Income Tax Act, 1961 (Act) provides exemption to Members of Parliament and State legislators in respect of their daily allowances in entirety.

Similarly, In the case of MP’s & MLA’s  the amount received as constituency allowance is exempt from tax from the A.Y. 2007-08 in entirety.

The common perception that all allowances received by MPs and MLAs are tax-free is dispelled by the decision of the Visakhapatnam Bench of the Income Tax Appellate Tribunal in the case of M. Venkata Subbaiah v. ITO (2010) 7

The issue that arose for the consideration of the Tribunal was whether allowances such as conveyance , telephone , clerical , medical and contingency are also tax exempt?

The Tribunal has decided that such allowances are exempt subject to limitation mentioned in Section 10(14).  The nature of receipts received by the Central and State legislators was examined by the Rajasthan High Court in the case of CIT v. Shive Charan Mathur (2008) 306 ITR 126 and it was decided that MPs and MLAs cannot be considered as employees as they are not employed by any body but are elected by the public from their respective constituencies and discharge constituency functions.

Hence, salary and allowances received by them cannot be taxed under the head ‘salary’, but are taxable under the head ‘income from other sources’.

The Tribunal has held that in the case of legislators, they would be entitled to exemption u/s 10(14) of the Act subject to condition mentioned in this provision.  All special allowances, other than those specifically exempt, would be taxed as income. The reasoning for this view is that section 10(14) stipulates grant of exemption to the extent prescribed, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment to the extent to which such expenses are actually incurred for that purpose.

Apart from few amount eligible for exemption u/s10(14) as mentioned above, daily allowance is also eligible for exemption u/s 10(17).

There is no exemption or immunity for pension received by Ex-MLA & Ex-MP’s. It will be taxable in their hands

-thetaxtalk date: 24/3/2018

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