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Lumpsum qualification allowance — whether taxable?

Q: The Union Government vide office memorandum No.1/2/89 Estt (Pay I) dated April 9, 1979 of Department of Personnel and Training (DOPT) grants its employees a lumpsum incentive ranging from Rs. 2,000 to Rs. 10,000 for acquiring higher qualifications from Post Graduate Diploma to Ph.D degree, which are directly related to the functions of post held or to be performed by the employees. This order is a part of recommendations made by the Fifth Central Pay Commission and is effective from April 9, 1999. Kindly clarify whether the lump sum incentive for having acquired higher qualification is taxable.

A: Sec. 10(16) exempts "scholarships granted to meet the cost of education." Sec. 10(17A) exempts awards and rewards instituted by Central or State Government for the purpose approved by the Central Government. Sec. 10(18) exempts notified gallantry awards and family pension to any member of the family of awardees. There is no exemption notified for such post-qualification allowance. It is also not in the nature of scholarship. Hence, such amounts have necessarily to be treated as part of taxable salary.

S. Rajaratnam

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