Exempt Income from Tax as per Section 10
Exemptions are available on the Income Tax Act as a privilege for taxpayers as they lower the tax burden significantly. In the Income Tax Act, exemptions are available in the form of flat deductions, full exemptions of the amount received and percentages.
Therefore, the income tax exemptions under Section 10 offer significant tax relaxations from the plethora of reliefs available.
List of Important Income Tax Exemptions under Section 10
Here are the pivotal exemptions on income tax available to salaried taxpayers under Section 10.
- Section 10(1): Agricultural Income
A taxpayer earning income through agricultural means in India is exempted from tax under the Income Tax Act 1961. Section 2(1A) of the Act defines agricultural income as:
- Any sum of money received as rent or income from land that is used for agricultural income and is located in India.
- Any sum generated as income from land that is used for agricultural operations that involve growing produce or crops which is suitable for sale in the market.
- The section also specifies certain conditions of any income which has its source from a farmhouse for exemption. In addition to this, any income that comes from growing saplings or seedlings in the nursery will be deemed as agricultural income.
- Section 10(2): Sum Received by a Coparcener from Hindu Undivided Family (HUF)
The Act allows exemption on the income of a coparcener or family member of a HUF that comes from a business setup or impartible assets. This can be explained well with an example.
For example, during the previous year, the HUF earned ₹10 lakh and paid tax on this income. Now Mr X, who is a coparcener in this HUF and is an employee, received a salary of ₹1 lakh this previous year. Hence, as per the provision of this section, the income earned by Mr A from the HUF will be exempted from tax.
- Section 10(2A): Income Share from a Firm
This section of the Income Tax Act specifies that the share of profit received from a partnership firm (including LLP) is exempted from tax. However, the exemption of this provision is limited to the share of profit derived from Limited Liability Partnership LLP or other firms and does not include interest on capital or any remuneration received by a partner.
- Section 10(4)(i): Interest Paid to a Non-Resident
As per the provision of Section 10(4)(i), the generation of any income of a non-resident from the interest received on certain specified securities or bonds also includes the income from the premium on the redemption of those bonds.
- Section 10(4)(ii): Interest to Non-Resident on Non-Resident (External) Account
Any interest income that is credited to a Non-Resident (External) Account in any Indian bank will be exempted as per the law. However, this provision is eligible for people who are a resident outside of India or someone who has got permission from the Reserve Bank of India to maintain such a bank account.
Section 10(5): Leave Travel Concession or Assistance (LTC/LTA)
As per the provision of this section, the employer of some organisations offers travel concessions or assistance to employees and their families if:
- He or she is travelling to any place in India.
- He or she is travelling to any place in India after retirement or termination from the services.
The income tax exemption under Section 10 (5) will be applicable only if:
- The journey is performed by air and the exemption limit will be restricted to the economy fare of the airline. This applies to the shortest route to reach the destination.
- the place of beginning of the journey and destination be connected by rail, and the mode of transportation be any medium other than air. The exemption limit is restricted to the fare of air-conditioned first-class rail and applies to the shortest route used to reach the destination.
- in case the source of the journey and destination is not connected by rail.
The exemption will be applicable:
- where there is a presence of a public transport system, and the employee has used the shortest route to reach the destination. Also, the exemption limit should not exceed the fare of first class or deluxe class fare.
- in case there is no public transport system. Then the amount exempted will be limited to the air-conditioned first-class rail fare.
- Section 10(6): Salary or Remuneration Received by an Individual Who is not a Citizen of India
Here is a list of the following income that is exempted under the provision of this section for individuals who are not a citizen of India.
- Remuneration under Section 10(6)(ii)
- Any amount received by an employee who is an ambassador or holds other higher official rank of the Embassy or High Commission in any foreign State in India.
- Any remuneration received by a consular officer of a foreign State in India.
- Sum of money as remuneration received by a trade commissioner or individuals holding important official positions in India of a foreign State.
- Remuneration received as an employee of a foreign enterprise under Section 10(6)(vi).
- Salary received for employment on a foreign ship under Section 10(6)(viii), where the total stay period does not exceed 90 days in the previous year.
- Remuneration received by an employee of a foreign government during his stay period in India for training purposes under Section 10(6)(xi).
- Section 10(7): Allowances and Perquisites Paid by Government to Employees Working outside India
The allowance of perquisites paid by the Government on occasion to a citizen of India offering services outside India is exempted. Here are the following conditions under which such exemption of income tax is granted:
- Income generated must be chargeable under the “Salary” head.
- The payer must be the Government of India.
- The person receiving this income must be a citizen of India holding residential status “Resident” or “Non-Resident.”
- Services offered by the recipient must be outside India.
- Section 10(10): Gratuity
Gratuity is an amount that is paid by the employer of an organisation to the employee as an appreciation for the past services offered. This sum of money can be received in two different ways:
- Directly to employees at the time of his/her retirement.
- To the family member or legal heir at the time of death of the employee.
In both cases, as per the provision of Section 10(10), the amount received as gratuity is exempted to a specified limit. If the recipient receives gratuity at the time of his or her retirement, then it must be chargeable under the “Salaries” head.
On the other hand, if the amount is paid to a legal heir of a deceased employee, then it will be chargeable under the “Income from other sources”.
- Section 10(10CC): Tax on Non-Monetary Perquisites Paid by Employer
As per the provision of this section, the income tax that an employer pays for himself for providing non-monetary perquisites to employees will be exempted in the hands of that employee.
- Section 10(10D): Sum Received under a Life Insurance Policy
The recipient receiving any of the money under the Life Insurance Policy will be exempted under the provision of this section. In addition to this, the allocation of the sum via bonus is fully exempted.
Below are some factors under which exemption is not available.
- Any amount received under the Keyman Insurance Policy; or
- Any amount received u/s 80DD(3) or 80DDA(3).
- Section 10(13A): House Rent Allowance
As per this section, the amount of exemption of house rent allowance will be a minimum of any three factors:
- Actual HRA received.
- Rent paid in excess of 10% of salary.
- 50% of salary for cities like Mumbai, Delhi, Kolkata or Chennai [40% of salary for other cities].
- Section 10(14): Allowances to Meet Business Expenses
Here are some of the pivotal allowances related to business expenditures that have tax exemptions:
|List of Allowances||Exemption Limit|
|Hostel Expenditure Allowance||A maximum of 2 children of up to ₹300 is exempted.|
|Children Education Allowance||A maximum of 2 children of up to ₹100 is exempted.|
|Transport Allowance||The maximum limit is ₹1,600 per month. In the case of a person with a disability or blindness, the exemption will be ₹3,200.|
|Conveyance Allowance||An exemption is limited to the expenses incurred for official purposes.|
|Travelling Allowance||An exemption is limited to the expenses incurred for official purposes.|
|Daily Allowance||An exemption is limited to the expenses incurred for official purposes.|
|Assistant Allowance||An exemption is limited to the expenses incurred for official purposes.|
|Research Allowance is given to motivate academic research work||An exemption is limited to the expenses incurred for official purposes.|
|Special Compensatory Allowance (Hilly Areas)||Exemption limit varies from ₹300 to ₹ 7,000 per month.|
|Tribal Area Allowance is applicable to states like Tamil Nadu, Madhya Pradesh, Uttar Pradesh, Tripura, Karnataka, Assam, Bihar, Orissa, and West Bengal||Exemption amount is limited to ₹200 per month.|
Some of the other significant exemptions of income tax under Section 10 are:
|List of Sections||Basis of Exemption|
|Section 10(4B)||Interest Paid to a Non-Resident of Indian Origin.|
|Section 10(11)||Payment From Statutory Provident Fund.|
|Section 10(12)||Payment From Recognised Provident Fund.|
|Section 10(13)||Payment from Superannuation Fund.|
|Section 10(10A)||Commuted Value of Pension Received.|
|Section 10(10AA)||Leave Encashment on Retirement.|
|Section 10(10B)||Retrenchment Compensation received by Workmen.|
|Section 10(10BB||Payment Received under the Bhopal Gas Leak Disaster Act 1985.|
|Section 10(10BC)||Compensation Received in case of Any Disaster.|
|Section 10(10C)||Retirement Compensation from a Public Sector Company or any other Organisation.|
|Section 10(15)||Interest Incomes.|
|Section 10(17)||Allowances of M.P./M.L.A. or M.L.C.|
|Section 10(17A)||Awards Given by the Government of India.|
|Section 10(19)||Family Pension Received by Family Members of Armed Forces, Including Para Military Forces.|
|Section 10(20)||Income of a Local Authority.|
|Section 10(21)||Income of Scientific Research Association.|
|Section 10(22B)||Income of a News Agency.|
|Section 10(23A)||Income of Specific Professional Institution|
|Section 10(23BBE)||Income of Insurance Regulatory and Development Authority.|
|Section 10(23BBH)||Income of Prasar Bharti.|
|Section 10(23C)||Income received by a person on behalf of the specific funds.|
|Section 10(23D)||Income of Mutual Fund.|
|Section 10(23DA)||Income of Securitisation trust.|
|Section 10(23EA)||Income of Investor Protection Fund.|
|Section 10(23ED)||Income of Investor Protection Fund of Depository.|
|Section 10(23FB)||Incomes of a Venture Capital Company or Fund from Certain Specified Business or Industries.|
|Section 10(24)||Income of Registered Trade Unions.|
|Section 10(25)||Income of Provident and Superannuation Funds.|
|Section 10(25A)||Income of Employees’ State Insurance Fund|
|Section 10(26) & (26A)||Income of members of Schedule Tribe.|
|Section 10(26AAB)||Regulating the marketing of agricultural produce.|
The income exemptions from tax under Section 10 offer legal and legitimate ways to reduce tax burden. Hence, proper and careful filing of income tax returns by adjusting all the applicable deductions is quintessential for every taxpayer. Moreover, the added tax benefits in terms of available exemptions will help assess and plan their tax calculation in advance.
Frequently Asked Questions
What are income exemptions available with respect to the salary of an individual?
Some of the income exemptions available with respect to the salary of an individual are Leave Travel Concession, perquisites allowed by the Government, Gratuity, Pension, Leave Salary, Retrenchment Compensation, Voluntary Retirement, any payment from provident funds, etc.
What is the exemption allowed in case of retrenchment compensation?
Under Section 10(10B), retrenchment compensation received by a workman following the Industrial Dispute Act, 1947 is exempt from the factors whichever is lower.
₹5 lakh, or
Actual amount received.
Amount calculated u/s 25F(b) of the Industrial Disputes Act, 1947.
How is voluntary retirement exempted from income tax?
Under Section 10(10C), the amount received as voluntary retirement will be exempted from the following, whichever is less:
Three Months’ salary
Salary received at the time of retirement X number of months of services left for an employees retirement.