Here’s the Lowdown on Section 10 of the Income Tax Act

What is Section 10 of the Income Tax Act?

Section 10 of the Income Tax Act of 1961 outlines specific categories of income that are either fully or partially exempt from taxation. This means certain types of income, defined under this section, are not added to your total taxable income, reducing your overall tax liability. These provisions allow taxpayers to save money legally by claiming exemptions under section 10. The goal of this section is to provide financial relief and support for specific circumstances². By understanding exempted income under section 10, individuals and businesses can plan their finances more effectively while staying compliant with tax laws.

Exemptions under Section 10 of the Income Tax Act

The Income Tax Act 1961 Section 10 lists several provisions allowing specific types of income to be exempt from taxation. These exemptions help individuals and organizations lower their taxable income legally. Here's a summary of key exemptions under Section 10²:

1. Section 10(5) – Leave Travel Concession (LTC)

This section allows tax exemptions for travel expenses covered by employers for employees and their families during leave. The exemption applies only to travel within India, and the claim must be limited to the actual expenses incurred. "Family" here includes the spouse, children, dependent parents, and siblings.

2. Section 10(10D) – Life Insurance Proceeds

Proceeds from life insurance policies, including bonuses, are exempt under income tax section 10(10D), provided certain conditions are met. Some of the basic conditions are as follows⁴ –

• For policies issued on or before 31^st March 2012, the premium paid should be up to 20% of the sum assured
• For policies issued on or after 1^st April 2012, the premium paid should be up to 10% of the sum assured.
• For policies issued on or after 1^st April 2013 for individuals suffering from an illness or disability as specified under Sections 80DDB and 80U, the premium should be up to 15% of the sum assured.

This exemption does not apply to payments under specific sections like keyman insurance⁴. Provisions exist for ULIP policies issued after February 2021 for premiums exceeding ₹2.5 lakhs⁵ and for high value traditional policies (premiums exceeding ₹5 lakhs) issued after 31 March 2023⁶

3. Section 10(13A) – House Rent Allowance (HRA)

Employees receiving HRA from their employer can claim an exemption under this provision for rent paid. The exemption depends on factors like salary, rent paid, and the city of residence. However, this benefit cannot be claimed if the employee owns the property or pays no rent.

4. Section 10(14) – Special Allowances

This section offers exemptions for allowances provided to employees for work-related expenses or increased living costs.

5. Section 10(23C) – Income of Specific Funds and Institutions

Income earned from government-recognized funds and institutions, such as the Prime Minister’s National Relief Fund, PM CARES Fund, and Swachh Bharat Kosh, etc. qualifies for exemption under this clause. It also applies to educational institutions, hospitals, and charitable organizations fulfilling prescribed conditions⁷.

6. Section 10(34) – Dividend Income⁸

Dividends received from Indian companies are exempt, provided they are taxed under Section 115-O. For dividends received after April 2020, the exemption is valid only if taxes under Sections 115-O or 115BBDA have been paid.

7. Section 10(37) – Capital Gains on Agricultural Land⁹

This provision exempts capital gains from the sale of agricultural land if the land was used for agricultural purposes in the two years before the transfer. The exemption is valid for transfers via compulsory acquisition or with government approval, where compensation is received after April 1, 2004. This exemption is applicable only to individuals and HUF.

8. Section 10(26) – Income of Scheduled Tribe Members

Members of Scheduled Tribes residing in specified areas, such as North Eastern states or Ladakh, can claim tax exemptions on income generated within these areas or through dividends and interest on securities.

9. Section 10(38) – Long-Term Capital Gains on Equity¹⁰

This exemption u/s 10(38) was abolished in the Budget 2018 from the fiscal year 2018-19. Now, long-term capital gains in excess of INR 1.25 lakhs from the sale of equity shares or units of equity-oriented funds etc. are taxed @ 12.5%, provided the transaction involves securities transaction tax. However, certain conditions, including the date of acquisition and type of exchange, apply.

Apart from the above key exemptions, there are more subsections³ under Section 10 of the Income Tax Act, which are summarized concisely here:

 

 

How to Claim Exemptions under Section 10 of the Income Tax Act
 

Here’s a simple guide³ to help you claim exemptions under Section 10 and reduce your taxable income:

1. Understand which Section 10 exemptions apply to your income, such as HRA, agricultural income, or LTC.
2. When filing your Income Tax Return (ITR), declare all income sources, both taxable and exempt, and specify the exempt income with the corresponding amounts.
3. Maintain supporting documents like salary slips, Form 16, investment receipts, and employer certificates to substantiate your claims.
4. Deduct the exempted income under Section 10 from your total income to calculate your taxable income.
5. Select the appropriate ITR form based on your income sources and exemptions (e.g., ITR-1 for salaried individuals).
6. Ensure that you fill out and submit the ITR form correctly within the deadline set by the Income Tax Department.

Section 10 of the Income Tax Act offers a range of exemptions that can help reduce your taxable income. By identifying the relevant exempted income under Section 10, properly disclosing it in your Income Tax Return, and maintaining the necessary documentation, you can optimize your tax savings. Ensure accurate filing and timely submission to make the most of these exemptions and minimize your tax liability.

FAQs

1. How can I claim exemptions under Section 10?

To claim exemptions, disclose exempt income while filing your Income Tax Return (ITR) and maintain supporting documents.

2. Do I need to submit documents for exemptions under Section 10?

Yes, keep relevant documents like salary slips, Form 16, and certificates from employers to support your claims.

3. Can I claim exemptions for both salaried and agricultural income?

Yes, agricultural income and other exemptions like HRA can be claimed by salaried individuals under Section 10.

4. Is the exemption under Section 10 applicable to everyone?

No, exemptions under Section 10 are subject to specific conditions and apply only to eligible individuals based on their income sources and circumstances.

5. Can I claim exemptions under Section 10 for income from foreign sources?

Yes, certain foreign income, like salaries of foreign diplomats or technical services provided by non-residents, can be exempt under Section 10.