The Salary, Allowances and Pension of the members are regulated under the provisions of the Salary, Allowances and Pension of Members of Parliament Act, 1954. The exemptions provided to the members are provided for in the Income Tax Act and have been regulated in various rulings of the Courts which shall be discussed in detail below.

Income of MPs are qualified as income from other sources and not salaries thus no TDS.

Salary of members of parliament are classified as income from other sources and not income from salaries reason being that the members are elected by the people of India and thus are not discharging any government functions. Section 15 of the Income Tax Act categorises income to be chargeable as salaries. Therein the precondition for an income to qualify as salary is that the remuneration received must be from an employer to an employee. A relationship of employer and employee must be established to qualify an income as salary.

In CIT v. Shiv Charan Mathur (2008) it was held that the assessee, being the person concerned, should have been employed by the employer, and as a necessary corollary, the employer should have right to discharge or terminate the employee. This basic ingredient is missing in the case of MLAs and MPs, as they are not employed by anybody, rather, they are elected by the public, forming their election constituencies, and it is consequent upon such election, that they acquire constitutional position, and discharge constitutional functions and obligations. May be, that they receive remunerations after swearing in, but then, it cannot be said to be salary, within the meaning of section 15, and, therefore, the remuneration received by the MLA or MP cannot be taxed under the head “Income from salary”, but can be taxed under the head “Income from other sources”.

This being the case, the income of the members are not subjected to tax deducted at source and thus they enjoy tax amenity in the sense that no tax is deducted from the source of which the income is received. As a result, the MP would have to oblige by its tax liability through him only by paying advance tax and self-assessment tax in three installments.

Exemption under Section 10 (14) of Income Tax Act

Exemption under this section is granted in cases where the members incur expenses in performance of their duties like telephonic charges, internet charges, office expenses etc. Section 10(14) provides that any special allowances or benefits specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose, would be exempt. These exemptions are in respect of aforesaid special allowances to the extent to which the said expenses are actually incurred for that purpose.

 In M. Vankata Subbaiah v. Income Tax Officer (2010) the question for consideration arose whether the provisions of section 10(14) can be invoked for other allowances given to the MLAs. The court held that the language of section 10(14) clearly shows that any special allowance or benefit specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties of an office or an employment of profit would be exempt. Section 10(14) does not use the expression ‘office of profit’. The expression used is ‘office or employment of profit’. The expression ‘of profit’ qualifies only ‘employment’ and does not qualify ‘office’. It is enough if a person is holding an office and for the purpose of performing the duties associated with his office he is granted an allowance or benefit specifically to meet the expenses. In the case of an MLA, he may not be holding an employment of profit but he is certainly holding an office of MLA and, as such, whatever allowances or benefit are granted to him to meet the particular expenses, he is entitled to exemption up to the applicability of section 10(14) to the allowances granted to the MLAs.

In CITv. Tejaji Farashran Kharawalla Ltd. (1968) court held that the allowances granted to meet the expenses wholly and necessarily incurred or to be incurred for the performance of the duties of the office or employment of the grantees alone qualify for exemption under the Act and any surplus remaining in the hands of the grantees after meeting the expenses does not bear the character of the allowances for the meeting expenses but for performing their duties of the office for employment.

Exemption under Section 10 (17) of the Income Tax Act

According to Section 10 (17) of the Income Tax Act, the following allowances are exempt from tax in the hands of a Member of Parliament: Daily allowance received by a Member of Parliament or by a Member of State Legislature or by member of any committee thereof.

Any other allowance received by a Member of Parliament under the Members of Parliament (Constituency Allowance) Rules, 1986.

Any Constituency allowance received by a Member of State Legislature.