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 31st March 2012, the premium paid should be up to 20% of the sum assured
- For policies issued on or after 1st April 2012, the premium paid should be up to 10% of the sum assured.
- For policies issued on or after 1st 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:
Section
| Exemption Type
| Details
|
|---|
10(1)
|
Agricultural Income
|
Exempts income derived from agricultural land in India.
|
10(2)
|
Income of Hindu Undivided Family (HUF)
|
Income received by a member from the family’s income is exempt.
|
10(2A)
|
Share of Profit from Partnership Firms
|
Share of profit received by partners is exempt as the firm pays tax.
|
10(4)(i)
|
Interest on Non-Resident Accounts
|
Interest on specific non-resident (external) accounts is exempt1.
|
10(4)(ii)
|
Interest Payable to Non-Residents
|
Exemption for interest on money lent to the government or Indian concerns by non-residents.
|
10(6)
|
Income of Foreign Individuals
| Includes exemptions for foreign diplomats, consular officials, and specific foreign employees1.
|
10(6A)
|
Technical Services Income
|
Exempts income earned by foreign nationals providing technical services in India.
|
10(6BB)
|
Tax Paid for Non-Resident Aircraft Operators
|
Tax paid by the government on behalf of foreign aircraft operators is exempt.
|
10(6C)
|
Technical Services Rendered by Non-Residents
|
Non-residents earn income from technical services provided in or outside India tax-free.
|
10(7)
|
Allowances to Government Employees Abroad
|
Exempts allowances or perquisites for government employees posted abroad.
|
10(8)
|
Income of Foreign Employees
|
Tax-free income for employees of foreign governments working under national research organizations in India.
|
10(9)
| Remuneration from International Organizations
|
Remuneration and pensions received by individuals working for international organizations are exempt.
|
10(10)
|
Gratuity
|
Exemption is subject to limits under applicable laws.
|
10(10A)
|
Pension
|
A commuted pension is exempt under specific conditions.
|
10(10AA)
|
Leave Encashment
|
Exemption for leave encashment received on retirement, subject to limits.
|
10(10B)
|
Retrenchment Compensation
|
Tax-free compensation received by workers under the Industrial Disputes Act.
|
10(10C)
|
Voluntary Retirement Scheme (VRS)
|
The amount received under VRS is exempted up to specified limits.
|
10(11)
|
Provident Fund
|
Payments from statutory provident funds are tax-free.
|
10(12)
|
Recognised Provident Fund
|
The accumulated balance received from recognized provident funds is exempt under certain conditions.
|
10(13)
|
Superannuation Funds
|
Payments from approved superannuation funds are exempt.
|
10(15)
|
Interest on Specified Investments
|
Interest on securities, bonds, and savings certificates is exempt.
|
10(16)
|
Scholarships
|
Tax-free scholarships for educational purposes.
|
10(17)
|
Income of MPs and MLAs
|
Exempts daily allowances and other incomes received by legislators.
|
10(17A)
|
Awards
|
Rewards and payments for public services granted by the government are exempt.
|
10(18)
|
Gallantry Award Pension
|
Tax-free pension for recipients of gallantry awards.
|
10(19)
|
Family Pension
|
Exemption for family pension received by armed forces’ dependents.
|
10(19A)
|
Privy Purse
|
Income received by former rulers as privy purse is exempt.
|
10(20)
|
Income of Local Authorities
|
Tax-free income earned by municipalities and other local authorities.
|
10(21)
|
Income of Scientific Research Associations
|
Exempts income earned by approved scientific research organizations.
|
10(22B)
|
Income of News Agencies
|
Tax-free income for approved news agencies.
|
10(24)
|
Trade Unions
|
Tax-free income of registered trade unions.
|
10(25)
|
Provident, Pension, and Superannuation Funds
|
Income received by trustees on behalf of approved funds is exempt.
|
10(26A)
|
Ladakh Residents’ Income
|
Tax-free income from specific sources for residents of Ladakh.
|
10(27)
|
Co-Operative Societies
|
Exemption for societies marketing agricultural produce grown by members.
|
10(30)
|
Subsidies for Tea
|
Tax-free subsidies for tea plantation replantation.
|
10(31)
|
Subsidies for Specific Crops
|
Exemption for subsidies given to growers of rubber, coffee, and cardamom.
|
10(32)
|
Minor Child’s Income
|
The income of a minor child included in the parent’s income is exempt up to a certain limit.
|
10(33)
|
Specified Dividends
|
Exempts dividends from certain sources.
|
10(35)
|
Income from Mutual Funds
|
Tax-free income from units of mutual funds, UTI, or specified undertakings.
|
10(36)
|
Long-Term Gains on Shares
|
LTCG from shares purchased between 1st March 2003 and 1st March 2004 is exempt.
|
10(39)
|
Sports Income
|
Tax-free income from international sporting events held in India.
|
10(40)
|
Subsidiaries of Overseas Financial Organizations
|
The income of certain subsidiaries of foreign financial organizations is exempt.
|
10(41)
|
Industrial Relocation
|
Tax-free gains from transferring assets for relocating industries to non-urban areas.
|
10(42)
|
Income of Notified Bodies
|
Tax-free income of government-notified bodies.
|
10(43)
| Reverse Mortgage Income
|
The amount received under reverse mortgage schemes is exempt.
|
10(44)
|
New Pension Scheme
|
Income from the New Pension System Trust is tax-free.
|
10(45)
|
Compensation for Coal Mines
|
Exemption for compensation under specific nationalization agreements.
|
10(47)
|
Infrastructure Debt Funds
|
Tax-free income for certain government-notified infrastructure debt funds.
|
10(48)
|
Sale of Crude Oil by Foreign Companies
|
Tax-free income for foreign companies selling crude oil under government agreements.
|
10(48A)
|
Crude Oil Storage
|
Exemption for income from storage and sale of crude oil under government agreements.
|
10(48B)
|
Sale of Leftover Crude Oil
|
Tax-free income from leftover crude oil after the expiry of government agreements.
|
10(49)
|
National Financial Holdings Company
|
This company will have tax-free income up to April 1, 2014.
|
10(50)
|
Equalization Levy
|
Exemption for income from specified e-commerce or service transactions under the equalization levy.
|
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:
- Understand which Section 10 exemptions apply to your income, such as HRA, agricultural income, or LTC.
- When filing your Income Tax Return (ITR), declare all income sources, both taxable and exempt, and specify the exempt income with the corresponding amounts.
- Maintain supporting documents like salary slips, Form 16, investment receipts, and employer certificates to substantiate your claims.
- Deduct the exempted income under Section 10 from your total income to calculate your taxable income.
- Select the appropriate ITR form based on your income sources and exemptions (e.g., ITR-1 for salaried individuals).
- 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.
Source:
An ISO 9001:2015 
