Exempt incomes under section 10

Every taxpayer is looking for ways to save their taxes as taxes acts a pinch to taxpayer’s pocket. In search of these ways to save taxes, income tax department has given certain specific exemptions in income tax on particular incomes.

Section 10 of the Income Tax Act, 1961 in India outlines various types of incomes that are exempt from income tax. These exemptions are provided to promote specific economic activities, support certain categories of taxpayers, and encourage savings and investments in various sectors. The exemptions under Section 10 cover a wide range of sources, including agricultural income, certain types of retirement benefits like gratuity and leave encashment, scholarships, dividends, and income of certain institutions and bodies like charitable trusts and religious institutions. Each category of exempt income is governed by specific provisions and conditions laid down in the Income Tax Act and relevant Income Tax Rules.

Section 10 of Income Tax Act, 1961:
Exempt income under Section 10 is typically those incomes that are not included in the total income of the taxpayer for the purpose of computing income tax liability. This means that taxpayers receiving such exempt income do not have to pay tax on these income sources, thereby reducing their overall tax liability.

The section provides a list of incomes that are not of taxable in the hands an individual or entity.

Exemption list under section 10:

Following is a list of certain common exempt incomes under section 10 of the Income Tax Act, 1961:

• Section 10(1): Section 10(1) provides for the exemption of agricultural income earned by a Hindu Undivided Family (HUF) or an individual from income tax. However, it should be noted that this exemption only applies to agricultural income and not to income earned from activities such as dairy farming, poultry farming, or any other animal husbandry activity.

The term agriculture income is specifically defined as income earned from agricultural land situated in India.

• Section 10(13A) : Section 10(13A) provides an exemption for House Rent Allowance (HRA) received by an individual who is a salaried employee residing in a rented accommodation. HRA exemption is available only if it is received as a part of the salary. The exemption is limited to the minimum of the following amounts:
• Actual amount of HRA received
• 50% of [basic salary + DA] for those living in Metro cities (Delhi, Mumbai, Chennai, Kolkata) or

40% of [basic salary + DA] for those living in non-metro cities

• Actual rent paid by employee (-) 10% of [basic salary + DA]

It is important to note that only expenses directly related to the rental accommodation occupied by the taxpayer are eligible for exemption under Section 10(13A) of the Act. If the employee owns a residential property in the same city where they work, they cannot claim the HRA exemption for rent paid. This exemption is not available but self-employed individuals.

• Section 10(5): Section 10(5) of the Income Tax Act provides an exemption for Leave Travel Concession (LTC) received by an employee from their employer. The exemption is applicable only for travel within India. Travel expenses incurred outside India are not eligible for exemption under this section. The LTA exemption can be claimed twice in a block of four calendar years. The exemption is limited to the actual amount incurred on travel, subject to certain conditions.
• Section 10(10)(i): Gratuity received by a government employee is exempt.
• Section 10(10)(ii): Section 10(10)(ii) provides calculation for exemption on gratuity for the employees covered under the Payment of gratuity act, 1972, which is the least of the following:
• 15 days salary x No. of years of service
• Rs. 20Lakhs
• Actual amount of Gratuity received
• Section 10 (10A): Section 10(10A) of the Income Tax Act provides an exemption from tax on commutation of pensions received by a government employee.
• Section 10(10)(AA): Leave encashment received by a government employee is exempt.
• Section 10(10C): Amount received on voluntary retirement or termination is exempt if a government employee receives money at the time of termination or voluntary retirement, and the maximum exemption amount is INR 5 lakh.
• Section 10(10D): As per section 10(10D), taxpayer get an exemption for the income received from a life insurance policy or bonus.
• Section 10 (14): Section 10(14) of the Income Tax Act provides an exemption for certain allowances an employee receives. These allowances are Travel allowance, Daily allowance, Helper allowance, Uniform allowance or Children’s education allowance, Food allowance. The limits for exemption may change from time to time based on the updates in the law.

Conclusion:
Section 10 provides an exhaustive and inclusive list of various incomes that are exempt from the income tax. However, one has to keep in mind his employment status or certain other conditions while claiming these exemptions as per their applicability.

About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.