Such incomes which do not form part of total income may also be called incomes exempt from Tax or Exempted Incomes. As per Section 10 to 13A, certain incomes are either totally exempt from tax or exempt up to a certain amount. Therefore, these incomes, to the extent these are exempt, are not included in the total income of an assessee for computation of his total income.
Here we described all these 56 Exempted Incomes in details with examples which is applicable from Assessment Year 2020-21.
1. Agriculture Income [Section 10(1)]
As per section 10(1), agricultural income earned by the taxpayer in India is exempt from tax. Agricultural income is defined under section 2(1A) of the Income-tax Act. As per section 2(1A), agricultural income generally means:
- Any rent or revenue derived from land which is situated in India and is used for agricultural purposes.
- Any income derived from such land by agriculture operations including processing of agricultural produce so as to render it fit for the market or sale of such produce.
- Any income attributable to a farm house subject to satisfaction of certain conditions specified in this regard in section 2(1A). Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
2. Any sum received by a member from HUF [Section 10(2)]
As per section 10(2), amount received out of family income, or in case of impartible estate, amount received out of income of family estate by any member of such HUF is exempt from tax.
HUF earned Rs. 5,00,000 during the previous year and paid tax on its income. Mr. A, a co-parcener is an employee and earns a salary of Rs. 20,000 p.m. During the previous year Mr. A also received Rs. 1,00,000 from HUF. Mr. A will pay tax on his salary income but any sum of money received from his HUF is not chargeable to tax in Mr. A’s hands.
HUF earned Rs. 90,000 during the previous year 2016-17 and it is not chargeable to tax. Mr. A, a co-parcener is earning individual income of Rs. 20,000 p.m. Besides his individual income, Mr. A receives Rs. 30,000 from his HUF.
Mr. A will pay tax on his individual income but any sum of money received by him from his HUF is not chargeable to tax in the hands of co-parcener whether the HUF has paid tax or not on that income.
3. Share of Profit of a Partner from a Firm [Section 10(2A)]
As per section 10(2A), share of profit received by a partner from a firm is exempt from tax in the hands of the partner. Further, share of profit received by a partner of LLP from the LLP will be exempt from tax in the hands of such partner. This exemption is limited only to share of profit and does not apply to interest on capital and remuneration received by the partner from the firm/LLP.
4. Interest on Non-Resident (External) Account [Section 10(4)]
In the case of an individual assessee any income by way of interest on money standing to his credit in a Non Resident (External) Account in any bank in India shall also be Exempt if certain conditions are satisfied as below :
(1). Interest paid to Non-Resident [Section 10(4)(i)]
As per section 10(4)(i), in the case of a non-resident any income by way of interest on certain notified securities or bonds (including income by way of premium on the redemption of such bonds) is exempt from tax.
As per section 10(4)(ii), in the case of an individual, any income by way of interest on money standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999, and the rules made thereunder is exempt from tax.
Exemption under section 10(4)(ii) is available only if such individual is a person resident outside India as defined in clause (q) of section 2 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account.
(2). Interest to Non-Resident on Non-Resident (External) Account [Section 10(4)(ii)]
Any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India shall be exempt from tax in case of an individual who is a person resident outside India or is a person who has been permitted by the RBI to maintain the aforesaid account. The person residing outside India shall have the same meaning as defined under Foreign Exchange Regulation Act, 1973, FEMA, 1999. This exemption shall not be available on any income by way of interest paid or credited on or after 1-4-2005.
(3). Interest paid to a person of Indian Origin and who is Non-Resident [Section 10(4B)]
In case of an individual, being a citizen of India or a person of Indian origin, who is nonresident, any income from interest on such savings certificates issued by the Central Government, as Government may specify in this behalf by notification in the Official Gazette, shall be fully exempt. The exemption under this section shall not be allowed on bonds or securities issued on or after 1-6-2002.
This exemption shall be allowed only if the individual has subscribed to such certificates in Foreign Currency or other foreign exchange remitted from a country outside India in accordance with the provisions of the Foreign Exchange Act, 1973, FEMA, 1999 and any rules made there under.
For this purpose, a person shall be deemed to be of Indian origin if he or either of parents or any of his grandparents, was born in India or in undivided India.
5. Leave Travel Concession or Assistance (LTC/LTA) to an Indian Citizen Employee [Section 10(5)]
The employee is entitled to exemption under section 10(5) in respect of the value of travel concession or assistance received by or due to him from his employer or former employer for himself and his family, in connection with his proceeding—
- on leave to any place in India.
- to any place in India after retirement from service or after the termination of his service.
The exemption shall be allowed subject to the following:
- where journey is performed by air — Maximum exemption shall be an amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination;
- where places of origin of journey and destination are connected by rail and the journey is performed by any mode of transport other than by air — Maximum exemption shall be an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and
- where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed between such places — The amount eligible for exemption shall be:
- where a recognised public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and
- where no recognised public transport system exists, an amount equivalent to the airconditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.
Exemption will, however, in no case exceed, actual expenditure incurred on the performance of journey.
HOW MANY TIMES CAN EXEMPTION BE CLAIMED?
- The assessee can claim exemption in respect of any two journeys in a block of 4 years. For this purpose, the first block of 4 years was calendar years 1986-89, second block was 1990-93, third block was 1994-97, fourth block was 1998-2001, fifth block was 2002-05 sixth block was 2006-09, seventh block is 2010 to 2013, eight block is 2014-2017 and ninth block will be 2018-2021.
- If the assessee has not availed of the exemption of LTC in a particular block, whether for both the journeys or for one journey, he can claim the exemption of first journey in the calendar year immediately succeeding the end of the block of four calendar years. In other words, maximum one journey can be carried forward and that too only for the first journey in the following calendar year unless the period is otherwise extended. Such journey undertaken during the extended period will not be taken into account for determining the tax exemption of two journeys for the succeeding block.
Exemption available only in respect of two children
The exemption relating to LTC shall not be available to more than two surviving children of an individual after 1.10.1998.
Exception: The above rule will not apply in respect of children born before 1.10.1998 and also in case of multiple birth after one child.
IMPORTANT NOTES :
- In case the LTC is encashed without performing the journey, the entire amount received by the employee would be taxable.
- Family for this purpose includes:
- the spouse and children of the employee;
- parents, brothers & sisters of the employee, who are wholly or mainly dependent upon him.
- The exemption can be availed for the journey undertaken while on leave during the tenure of service or even after retirement/termination from service.
- The exemption is allowed only in respect of fare. Expenses incurred on porterage, conveyance from residence to the railway station/airport/bus stand and back, boarding and lodging or expenses during the journey will not qualify for exemption.
- Exemption is available in respect of shortest route. Where the journey is performed from the place of origin to different places in a circular form or in any other manner, the exemption for that journey will be limited to what is admissible for the journey from the place of origin to the farthest point reached, by the shortest route.
6. Remuneration or Salary to certain persons who are not citizens of India [Section 10(6)]
The following incomes are exempt when received by an individual who is not a citizen of India:
(i) Remuneration received by Diplomats, etc.[Section 10(6)(ii)].
- The remuneration received by an ambassador or other officials of the Embassy, High Commission or Legation of a foreign State in India.
- The remuneration by a consular officer of a foreign State in India.
- The remuneration received by a trade commissioner or other official representative in India of a foreign State, provided corresponding officials of the Government of India in that country are given a similar concession.
- The remuneration received by a member of the staff of any of the officials referred to in (a), (b) and (c) above.
If the person mentioned above in (a) to (d) is a subject of the country represented, is not engaged in any business, profession or employment in India (otherwise than as a member of such staff), and the country represented gives similar concession to the members of the staff of corresponding officials of the Government of India.
(ii) Remuneration received by him as an employee of foreign enterprise [U/s 10(6)(vi)]
(e.g., technician deputed by a foreign firm to work in India), for service rendered by him during his stay in India provided the following conditions are fulfilled—
- the foreign enterprise is not engaged in any trade or business in India ;
- his stay in India does not exceed in the aggregate a period of 90 days in such previous year ; and
- such remuneration is not liable to be deducted from the income of the employer chargeable under the Act.
(iii) Employment on a foreign ship [U/s 10(6)(viii)].
Any income chargeable under the head “Salaries” received by or due to any such individual being a non-resident, as remuneration for service rendered in connection with his employment on a foreign ship where his total stay in India does not exceed in the aggregate of a period of 90 days in the previous year.
(iv) Remuneration received by an employee of foreign govt. during his stay in India for his training in India [U/s 10(6)(xi)].
Such remuneration shall be fully exempted if he is taking training in any of the following concern :
- Institution owned by govt
- A company wholly owned by Central or State govt. or partly owned by Central and partly by State govt
- A subsidiary Co. of company referred at point (b) above
- Any corporation established by or under Central, State or Provincial Act
- Any society registered under Societies Registration Act; 186Q and which is wholly financed by Central or State govt.
7. Perquisites and Allowances paid by Government to its Employees serving outside India [Section 10(7)]
The following conditions have to be satisfied before such income is treated as deemed to accrue or arise in India:
- Income should be chargeable under the head ‘Salaries’;
- The payer should be Government of India;
- The recipient should be an Indian citizen — whether Resident or Non-Resident;
- The services should be rendered outside India.
While salary of Indian citizen in the above case shall be deemed to accrue or arise in India but all allowances or perquisites paid outside India by the Government to the above Indian citizens for their rendering services outside India are exempt under section 10(7).
8. Death-cum-Retirement Gratuity received by an employee [Section 10(10)]
Gratuity is a payment made by the employer to an employee in appreciation of the past services rendered by the employee. Gratuity can either be received by:
(a) the employee himself at the time of his retirement; or
(b) the legal heir on the event of the death of the employee.
Gratuity received by an employee on his retirement is taxable under the head “Salary” whereas gratuity received by the legal heir of the deceased employee shall be taxable under the head “Income from other sources”. However, in both the above cases, according to section 10(10) gratuity is exempt upto a certain limit. Therefore, in case gratuity is received by employee, salary would include only that part of the gratuity which is not exempt under section 10(10).
A. Death-cum-retirement gratuity received by Government servants [Section 10(10)(i)]
Section 10(10)(i) grants exemption to gratuity received by Government employee (i.e., Central Government or State Government or local authority).
B. Gratuity Received by a Non-Government Employee covered by Payment of Gratuity Act, 1972 [Section 10(10)(ii)]
Minimum of the following 3 limits:
(1) Actual gratuity received, or
(2) 15 days salary for every completed year, or part thereof exceeding six months 7 days salary for each season in case of employee in seasonal establishment; or
(3) ₹. 10,00,000
Meaning of Salary:
(i) Basic salary plus dearness allowance.
(ii) Last drawn salary. Average salary for preceding 3 months in case of piece rates employees
(iii) No. of days in a month to be taken as 26
C. Any other Employee
Minimum of the following 3 limits:
(1) Actual gratuity received
(2) Half months average salary of each completed year of service.
(3) ₹. 10,00,000
Meaning of Salary:
(i) Basic Salary plus D.A. to the extent the terms of employment so provide Commission, if fixed percentage of turnover.
(ii) Average salary of last 10 months preceding the month in which event occurs.
(iii) Only completed year of service is to be taken.
|Where an employee had received gratuity in any earlier year(s) and had claimed exemptions under section 10(10) in respect of the gratuity received earlier also, he will still be entitled to this exemption but the limit which at present is Rs. 10,00,000 shall be reduced by the amount of exemption(s) availed in the earlier year(s). There will be no change in the other two limits.|
The words “completed service” occurring in section 10(10) should be interpreted to mean an employee’s total service under different employers including the employer other than the one from whose service he retired, for the purpose of calculation of period of years of his completed service, provided he was not paid gratuity by the former employer. CIT v P.M. Mehra (1993) 201 ITR 930 (Bom).
Any gratuity paid to an employee, while he continues to remain in service with the same employer is taxable under the head “Salaries” because gratuity is exempt only on retirement or on his becoming incapacitated or on termination of his employment or death of the employee. In this case, however the assessee can claim relief under section 89.
The CBDT vide its instruction in F. No. 194/0/73-IT, dated 19.6.1973 has clarified that the expression “termination of employment” would cover an employee who has resigned from the service.
9. Commuted value of Pension Received [Section 10(10A)]
|Govt. employees, employees of local authorities and employees of statutory corporations||Any other employee|
|Fully Exempt||(a) If gratuity is not received Commuted value of half of pension which he is normally entitled to receive. (b) If gratuity is also received Commuted value of 1/3rd of pension which he is normally entitled to receive.|
Pension received by the employee is taxable under the head “Salaries”. However, the family pension received by the legal heirs after the death of the employee is taxable in the hands of the legal heir under the head “Income from other sources” because in this case there is no relationship of employer and employee. Treatment of family pension is discussed in detail under the head ‘Income from other sources’.
10. Amount received as Leave Encashment on Retirement [Section 10(10AA)]
|Govt. employee i.e. Central and State Govt. employees||Any other employee|
|Fully Exempt||Minimum of the following four limits: |
1. Leave encashment actually received; or
2. 10 months average salary; or
3. Cash equivalent of un-availed leave calculated on the basis of maximum 30 days leave for every year of actual service rendered;
4. Rs. 3,00,000
Meaning of salary :
- Basic salary plus D.A. to the extent the terms of employment so provide plus Commission, if fixed percentage of turnover.
- Average salary of last 10 months immediately proceeding the date of retirement.
11. Retrenchment Compensation received by Workmen [Section 10(10B)]
Any compensation received by a workman at the time of his retrenchment, under the Industrial Disputes Act, 1947 or under:
- any other Act or rules or any order or notification issued there under; or
- any standing order; or
- any award, contract of service or otherwise,
shall be exempt to the extent of minimum of the following limits:
- Actual amount received;
- 15 days’ average pay for every completed year of service or part thereof in excess of 6 months;
- Amount specified by the Central Government, i.e. ₹. 5,00,000.
Compensation received in excess of the aforesaid limit is taxable and would, therefore, form part of Gross Salary. However, the assessee shall be eligible for relief under section 89 read with rule 21A.
|1. Where retirement compensation is received by a workman in accordance with any scheme which the Central Government having regard to the need for extending special protection to the workman in the undertaking to which such scheme applies, has approved in this behalf, the entire amount of compensation so received shall be exempt under section 10(10B).|
2. Where retrenchment compensation received by a workman exceeds the amount which qualifies for exemption under the new clause, he will be entitled to relief under section 89 read with rule 21A of the Income-tax Rules, in respect of such excess.
12. Payment received under Bhopal Gas Leak Disaster (Processing of Claims) Act 1985 [Section 10 (10BB)]
Any amount received under the provision of such Act or any scheme framed there under shall be fully exempted but in case payment is received against a loss or damage, for which deduction has been claimed ealier, it shall be taxable.
13. Compensation received in case of any Disaster [Section 10(10BC) ]
Any amount received from the Central Government or State Government or a Local Authority by an individual or his legal heirs as compensation on account of any disaster is exempt from tax. However, no deduction is available in respect of the amount received or receivable to the extent such individual or his legal heirs has been allowed a deduction under the Act on account of loss or damage caused due to such disaster. Disaster here means any disaster due to any natural or man-made causes or by accident/negligence which results in substantial loss of human life or damage to property or environment and the magnitude of such disaster is beyond coping capacity of community of the affected area
14. ‘Retirement Compensation’ from a Public Sector Company or any other Company [Section 10(10C)]
The compensation received or receivable by the employee of the following, on voluntary retirement, under the golden hand shake scheme, is exempt under section 10(10C):
- a public sector company; or
- any other company; or
- an authority established under a Central, State or Provincial Act; or
- a local authority; or
- a co-operative society; or
- a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956; or
- an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961; or
- such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf;
- State Government;
- Central Government;
- Institutions having importance throughout India or in any State or States as may be notified.
Exemption shall be available, subject to the following conditions:
- The compensation is received only at the time of voluntary retirement or termination of his services in accordance with any scheme or schemes of voluntary retirement or in the case of public sector company, a scheme of voluntary separation. Even if the compensation is received in instalments, the exemption shall be allowed.
- Further, the scheme of the said companies or authorities or societies or universities or the institutes referred to in clauses (vii) and (viii) above, as the case may be, governing the payment of such amount, are framed in accordance with such guidelines (including inter alia criteria of economic viability) as may be prescribed. In the case of public sector companies, if there is a scheme of voluntary separation, it shall also be according to the said prescribed guidelines.
Quantum of Exemption:
- The amount of exemption is the actual amount of compensation received
- or ₹. 5,00,000,
whichever is less.
|1. The exemption is available to an employee only once and if it has been availed for an assessment year it shall not be allowed to him for any other assessment year.|
2. The assessee shall not be eligible for relief under section 89 in case he has claimed exemption under section 10(10C). On the other hand, if he claims relief under section 89, he cannot claim exemption under section 10(10C).
15. Tax on Non-monetary Perquisites paid by Employer [Section 10(10CC)]
The income-tax actually paid by the employer himself on a non-monetary perquisite provided to the employee shall be exempt in the hands of the employee..
16. Any sum received under a Life Insurance Policy [Section 10(10D)]
Any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, is wholly exempt from tax. However, the following sum received are not exempt under this section:
- any sum received from a policy under section 80DD(3) or section 80DDA(3); or
- any sum received under a Keyman Insurance Policy; or
- any sum received, under an insurance policy issued on or after 1.4.2003 but on or before 31.3.2012 in respect of which the premium payable for any of the years during the terms of the policy exceeds 20% of the actual capital sum assured. However, such sum received on the death of a person shall be exempt; or
- any sum received under an insurance policy issued on or after 1.4.2012 in respect of which the premium payable for any of the years during the terms of the policy exceeds 10% of actual capital sum assumed; or
- any sum received under an insurance policy issued on or after 1.4.2013 for insurance on the life of any person, who is
- a person with disability or a person with severe disability as referred to in section 80U; or
- suffering from disease or ailment as specified in the rules made under section 80DDB in respect of which the premium payable for any of the years during the terms of policy exceeds 15% of the actual capital sum assumed.
|Keyman insurance policy means a life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with the business of the first mentioned person and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration.|
17. Payment from Statutory Provident Fund [Section 10(11)]
Statutory Provident Fund
|Employer’s Contribution||Employer’s contribution to such fund is not treated as income of the employee|
|Interest||Interest credited to such fund is exempt in the hands of the employee.|
|Amount received at the time of termination||Lump sum amount received from such fund, at the time of termination of service is exempt in the hands of employees.|
18. Interest and withdrawals from Sukanya Samriddhi Account [Section 10(11A)]
Any payment from an account opened in accordance with the Sukanya Samriddhi Account Rules, 2014 made under the Government Saving Bank Act, 1873 shall not be included in the total income of the assessee. As a result, the interest accruing on deposits in, and withdrawals from any account under the scheme would be exempt.
19. Payment from Recognised Provident Fund [Section 10(12)]
The accumulated balance due and becoming payable to an employee participating in a recognised provident fund, is exempt to the extent provided in rule 8 of part A of the Fourth Schedule.
Recognised Provident Fund [RPF]
|Employer’s Contribution||Employer’s contribution to such fund, up to 12% of salary is not treated as income of the employee (see Note 1).|
|Interest||Interest credited to such fund up to 9.5% per annum is exempt in the hands of the employee, interest in excess of 9.5% is charged to tax in the hands of the employee.|
|Amount received at the time of termination||If certain conditions are satisfied, then lump sum amount received from such fund, at the time of termination of service, is exempt in the hands of employees. (see Note 2)|
Un-Recognised Provident Fund [URPF)
|Employer’s Contribution||Employer’s contribution to such fund is not treated as income of the employee.|
|Interest||Interest credited to such fund is exempt in the hands of the employees.|
|Amount received at the time of termination||(See note 3)|
Public Provident Fund [PPF]
|Employer’s Contribution||Employers do not contribute to such fund|
|Interest||Interest credited to such fund is exempt.|
|Amount received at the time of termination||Lump sum amount received from such fund at the time of termination of service is exempt from tax|
1. Salary for this purpose will include basic salary, dearness allowance, if the terms of service so provide and commission based on fixed percentage of turnover achieved by the employee.
2. Accumulated balance paid from a recognised provident fund will be exempt from tax in following cases:
(a) If the employee has rendered a continuous service of 5 years or more. If the accumulated balance includes amount transferred from other recognised provident fund maintained by previous employer, then the period for which the employee rendered service to such previous employer shall also be included in computing the aforesaid period of 5 years.
(b) If the service of employee is terminated before the period of 5 years, due to his ill health or discontinuation of business of the employer or other reason beyond his control.
(c) If on retirement, the employee takes employment with any other employer and the balance due and payable to him is transferred to his individual account in any recognised fund maintained by such other employer, then the amount so transferred will not be charged to tax.
Except above situations, payment from a recognised provident fund will be charged to tax considering such fund as un-recognised from the beginning (See note 3 given below for tax treatment of un-recognised provident fund).
3. Treatment of payment (at the time of termination) from un-recognised provident fund:
Payment on termination will include 4 things, viz., employee’s contribution and interest thereto and employer’s contribution and interest thereto, the tax treatment of such payment is as follows:
· Employee’s contribution is not chargeable to tax; interest on employee contribution is taxed under the head “Income from other sources”.
· Employer’s contribution and interest thereon are taxed as salary income, however, an employee can claim relief under section 89 in respect of such payment.
20. Amount payable at the time of closure or opting out of National Pension Scheme to be exempt to the extent of 60% of the total amount payable [Section 10(12A)]
Any payment from National Pension System Trust to an assessee on account of closure or his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed 60% (40% upto A.Y. 2019-20) of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax.
However, the whole amount received by the nominee, on death of the assessee shall be exempt from tax.
|The word “employee” has been substituted by the word “assessee” w.e.f. A.Y. 2019-20. It means that both employee or self-employed person shall be entitled to exemption under this section.|
21. A Tax-exemption to partial withdrawal from National Pension System (NPS) by an employee [Section 10(12B]
Any payment from the National Pension System Trust to an employee under the pension scheme referred to in section 80CCD, on partial withdrawal to the extent it does not exceed 25% of the amount of contributions made by him shall be exempt from tax.
22. Payment from Superannuation Fund [Section 10(13)]
Like Provident Fund, Superannuation fund is also a scheme of retirement benefits for the employee. These are funds, usually established under trusts by an undertaking, for the purpose of providing annuities, etc., to the employees of the undertaking on their retirement at or after a specified age, or on their becoming incapacitated prior to such retirement, or for the widows, children or dependents of the employees in case of the any employee’s earlier death. The trust invests the money contributed to the fund in the form and mode prescribed. Income earned on these investments shall be exempt, if any such fund is an Approved Superannuation Fund.
Tax treatment: The tax treatment as regards the contribution to and payment from the fund is as under:
Employee’s contribution:Deduction is available under section 80C from gross total income.
Employer’s contribution: Contribution by the employer to the approved superannuation fund is exempt upto ₹1,50,000 per year per employee. If the contribution exceeds ₹1,50,000 the balance shall be taxable in the hands of the employee.
Interest on accumulated balance: It is exempt from tax.
Payment from the fund: Any payment from an approved superannuation fund shall be exempt if it is made:
- on the death of a beneficiary; or
- to any employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement; or
- by way of refund of contributions on the death of a beneficiary; or
- by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon; or
- by way of transfer to the account of the employee under a pension scheme referred to in section 80CCD and notified by the Central Government.
23. House Rent Allowance-HRA [Section 10(13A)]
Quantum of Exemption: Minimum of following Three limits:
|(i)||Allowance actually received||Allowance actually received|
|(ii)||Rent paid in excess of 10% of Salary||Rent paid in excess of 10% of Salary|
|(iii)||50% of Salary||40% of Salary|
The exemption in respect of HRA is based upon the following factors:
- Place of residence
- Rent paid
- HRA received.
Since there is a possibility of change in any of the above factors during the previous year, exemption for HRA should not always be calculated on annual basis. As long as there is no change in any of the above factors it can be calculated together for that period. Whenever there is a change in any of the above factors, it should be separately calculated till the next change.
24. Any Notifed Special Allowance given for meeting Business Expenditure [Section 10(14)]
As per section 10(14), read with rule 2BB following allowances granted to an employee are exempt from tax subject to certain limit:
|Children Education Allowance||Up to Rs. 100 per month per child up to a maximum of 2 children is exempt|
|Hostel Expenditure Allowance||Up to Rs. 300 per month per child up to a maximum of 2 children is exempt|
|Transport Allowance granted to an employee to meet expenditure on commuting between place of residence and place of duty||Up to Rs. 1,600 per month (Rs. 3,200 per month for blind and handicapped employees) is exempt|
|Allowance granted to an employee working in any transport business to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided employee is not in receipt of daily allowance||Amount of exemption shall be lower of following:|
a) 70% of such allowance; or
b) Rs. 10,000 per month
|Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office||Exempt to the extent of expenditure incurred for official purposes|
|Travelling Allowance to meet the cost of travel on tour or on transfer||Exempt to the extent of expenditure incurred for official purposes|
|Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty||Exempt to the extent of expenditure incurred for official purposes|
|Helper/Assistant Allowance||Exempt to the extent of expenditure incurred for official purposes|
|Research Allowance granted for encouraging the academic research and other professional pursuits||Exempt to the extent of expenditure incurred for official purposes|
|Uniform Allowance||Exempt to the extent of expenditure incurred for official purposes|
|Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations)||Amount exempt from tax varies from Rs. 300 to Rs. 7,000 per month.|
|Border area, Remote Locality or Disturbed Area or Difficult Area Allowance (Subject to certain conditions and locations)||Amount exempt from tax varies from Rs. 200 to Rs. 1,300 per month.|
|Tribal area allowance in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa||Up to Rs. 200 per month|
|Compensatory Field Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance(Subject to certain conditions and locations)||Up to Rs. 2,600 per month|
|Compensatory Modified Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance(Subject to certain conditions and locations)||Up to Rs. 1,000 per month|
|Counter Insurgency Allowance granted to members of Armed Forces operating in areas away from their permanent locations. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations)||Up to Rs. 3,900 per month|
|Underground Allowance to employees working in uncongenial, unnatural climate in underground mines||Up to Rs. 800 per month|
|High Altitude Allowance granted to armed forces operating in high altitude areas (Subject to certain conditions and locations)||a) Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet)|
b) Up to Rs. 1,600 per month (for altitude above 15,000 feet)
|Highly active field area allowance granted to members of armed forces (Subject to certain conditions and locations)||Up to Rs. 4,200 per month|
|Island Duty Allowance granted to members of armed forces in Andaman and Nicobar and Lakshadweep group of Island (Subject to certain conditions and locations)||Up to Rs. 3,250 per month|
25. Interest, Premium or Bonus Incomes on Specified Investments [Section 10(15)]
Interest incomes which are exempt under section 10(15) could be explained with the help of the following table-
|10(15)(i)||Interest, premium on redemption, or other payment on notified securities, bonds, certificates, and deposits, etc. (subject to notified conditions and limits)||All assesses|
|10(15)(iib)||Interest on notified Capital Investment Bonds notified prior to 1-6-2002||Individual/HUF|
|10(15)(iic)||Interest on notified Relief Bonds||Individual/HUF|
|10(15)(iid)||Interest on notified bonds (notified prior to 1-6-2002) purchased in foreign exchange (subject to certain conditions)||Individual – NRI/ nominee or survivor of NRI / individual to whom bonds have been gifted by NRI|
|10(15)(iii)||Interest on securities||Issue Department of Central Bank of Ceylon|
|10(15)(iiia)||Interest on deposits made with scheduled bank with approval of RBI||Bank incorporated|
|10(15)(iiib)||Interest payable to Nordic Investment Bank||Nordic Investment Bank|
|10(15)(iiic)||10(15)(iiic) Interest payable to the European Investment Bank on loan granted by it in pursuance of framework agreement dated 25-11-1993 for financial corporation between Central Government and that bank||European Investment bank|
|10(15)(iv)(a)||Interest received from Government or from local authority on moneys lent to it before 1-6-2001 or debts owed by it before 1-6-2001, from sources outside India||All assessees who have lent money, etc., from sources outside India|
|10(15)(iv)(b)||Interest received from industrial undertaking in India on moneys lent to it under a loan agreement entered into before 1-6-2001||Approved foreign financial institution|
|10(15)(iv)(c)||Interest at approved rate received from Indian industrial undertaking on moneys lent or debt incurred before 1-6-2001 in a foreign country in respect of purchase outside India of raw materials, components or capital plant and machinery, subject to certain limits and conditions||All assessees who have lent such money, or in favour of whom such debt has been incurred|
|10(15)(iv)(d)||Interest received at approved rate from specified financial institutions in India on moneys lent from sources outside India before 1-6-2001||All assessees who have lent such moneys|
|10(15)(iv)(e)||Interest received at approved rate from other Indian financial institutions or banks on moneys lent for specified purposes from sources outside India before 1-6-2001 under approved loan agreement||All assessees who have lent such moneys|
|10(15)(iv)(f)||Interest received at approved rate from Indian industrial undertaking on moneys lent in foreign currency from sources outside India under loan agreement approved before 1-6-2001||All assessees who have lent such moneys|
|10(15)(iv)(fa)||Interest payable by scheduled bank, on deposits in foreign currency when acceptance of such deposits by bank is approved by RBI||Non-resident or individual/HUF who is not ordinarily resident in India|
|10(15)( iv)(g)||Interest received at approved rate, from Indian public companies eligible for deduction under section 36(1)(viii) and formed with main object of providing long-term housing finance, on moneys lent in foreign currency from sources outside India under loan agreement approved before 1-6-2003||All assessees who have lent such moneys|
|10(15)( iv)(h)||Interest received from any public sector company in respect of notified bonds or debentures and subject to certain conditions||All assesses|
|10(15)( iv)(i)||Interest received from Government on deposits in notified scheme out of moneys due on account of retirement||Individual –Employee of Central Government/ State Government/Public sector company|
|10(15)(v)||Interest on securities held in Reserve Bank’s SGL A/c No. SL/DH-048 and Deposits made after 31-3-1994 for benefit of victims of Bhopal Gas Leak Disaster held in such account with RBI or with notified public sector bank||Welfare Commissioner, Bhopal Gas Victims, Bhopal|
|10(15)(vi)||Interest on Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015||All assesses|
|10(15)(vii)||10(15)(vii) Interest on notified bonds issued by a local authority/State Pooled Finance Entity||All assesses|
|10(15)(viii)||Interest on deposit made on or after 1-4-2005 in an Offshore Banking Unit referred to in section 2(u) of the Special Economic Zones Act, 2005||Non-resident or person who is not ordinarily resident|
26. Scholarship granted to meet the Cost of Education [Section 10(16)]
The full amount of scholarship granted to meet the cost of education is exempted.
‘Cost of education’ includes not only the tuition fees but all other expenses which are incidental to acquiring education. Scholarship may have been given by Govt., University, Board, Trust, etc. The exemption is irrespective of actual expenditure incurred by the recipient to meet the cost of education.
27. Daily or Constituency Allowance, etc. received by MPs and MLAs [Section 10(17)]
Following allowances are exempt from tax in the hands of a Member of Parliament and a Member of State Legislature—
- Daily allowance received by a Member of Parliament or by a Member of State Legislature or by member of any committee thereof.
- Any Constituency allowance received by a Member of State Legislature
28. Award and Reward given by the Government [Section 10(17A)]
Any payment received in pursuance of following (whether paid in cash or in kind) is exempt from tax:
- Any award instituted in the public interest by the Central Government or State Government or by any other body approved by the Central Government in this behalf.
- Any reward by the Central Government or any State Government for such purpose as may be approved by the Central Government in this behalf in the public interest.
29. Pension received by certain Awardees/any member of their Families [Section 10(18)]
- Any amount received by an individual as pension shall be exempt if:
>> such individual has been in the service of the Central or State Government, and
>> he/she has been awarded ‘Param Vir Chakra’ or ‘Mahavir Chakra’ or ‘Vir Chakra’ or such other notified gallantry awards.
- Also, any amount received as family pension by any member of the family of an individual referred above shall be fully exempted.
30. Family pension received by family members of armed forces including para military forces killed in action [Section 10(19)]
With effect from the 1st day of April, 2005 family pension received by the widow or children or nominated heirs, as the case may be, of a member of the armed forces (including paramilitary forces) of the Union, where the death of such member has occurred in the course of operational duties, in such circumstances and subject to such conditions, as may be prescribed shall be fully exempted
31. Income of a Local Authority [Section 10(20)]
The following income of a local authority is exempt from tax:
- Income which is chargeable under the head “Income from house property”, “Capital gains” or“ Income from other sources” or
- Income from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or
- Income from business of supply of water or electricity within or outside its own jurisdictional area
32. Income of an Approved Scientific Research Association [Section 10(21)]
Any income of a research association, approved under section 35(1)(ii)/(iii) is exempt from tax, if following conditions as specified in section 10(21) are satisfied:
- Income should be applied or accumulated wholly and exclusively for the objects for it established.
- Funds should not be invested or deposited for any period during the previous year otherwise than in any one or more of the forms/modes specified in section 11(5). However, this condition is not applicable in respect of the following:-
- any assets held by the research association where such assets form part of the corpus of the fund of the association as on the 1st day of June, 1973;
- Debentures of a company acquired by the research association before the 1st day of March, 1983;
- any accretion to the shares, forming part of the corpus of the fund mentioned in sub-clause (i) by way of bonus shares allotted to the research association;
- voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify,
1. Exemption shall not be denied in relation to voluntary contribution [other than voluntary contribution in cash or voluntary contribution of the nature referred to in (i), (ii), (iii) or (iv) supra]subject to the condition that such voluntary contribution is not held by the research association otherwise than in any one or more of the forms or modes specified in subsection (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired.
2. Exemption is not available in relation to any income of the research association, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business
33. Income of specified News Agency [Section 10(22B)]
In case there is any income of a news agency set up solely in India for collection and distribution of news and which is so notified in this behalf shall be fully exempted provided such income or accumulated income is used solely for collection and distribution of news and not to be distributed in any manner amongst its members.
The approval given under this section shall be withdrawn if the news agency has not applied, accumulated or distributed its income in accordance with the prescribed conditions, the notification issued under this section shall be cancelled
34. Any income received by a person on behalf of following Funds of National Importance [Section 10(23C)]
Any income received by any person on behalf of the Prime Minister’s National Relief Fund, the Prime Minister’s Fund (Promotion of Folk Art) or the Prime Minister’s Aid to Students Fund is exempt from tax under clause (i), (ii) and (iii) of section 10(23C) respectively.
- Any income received by any person on behalf of :
- the Prime Minister’s National Relief Fund ; or
- the Prime Minister’s Fund (Promotion of Folk Art) ; or
- the Prime Minister’s Aid to Student’s Fund ; or
- The National Foundation for Communal Harmony
- Any educational institution which is
- a non profit earning body and is wholly or substantially financed by the Government;
- a non profit earning body whose aggregate annual receipts do not exceed the prescribed limits (to be notified) ; or
- a non profit earning body other than those mentioned at (a) and (b) above but are approved by the prescribed authority.
- any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or reception and treatment of persons during convalescence or of persons requiring medical attention and existing solely for philanthropic purposes and which:
- is wholly or substantially financed by the Government ; or
- whose aggregate annual receipts do not exceed the prescribed limits (to be notified); or
- other than those mentioned a) and (b) above but is approved by the prescribed authority.
- any other fund established for charitable purposes which may be notified by Central Government ; or
- any trust or institution set up wholly for religious purposes or purpose which may be notified by the Central Government.
The above exemption shall not be available for the profits and gains of any business which is carried on, on behalf of or by any fund or institution referred in points (iv) and (v) above or to the profits or gains of any business undertaking held under trust for the purposes of any fund or institution referred in points (iv) and (v) above. This amendment has come into effect from assessment year 1984-85.
In case annual receipts of such an institution exceeds Rs. 1 crore in a previous year, it has to file an application upto 30th September in the succeeding financial year.
Under Section 10(23C) income of institutions specified above shall be exempt from income tax. In certain cases, approvals are required to be taken from prescribed authority in the prescribed manner to became eligible for claiming exemption.
35. Income of Notified Mutual Fund [Section 10(23D)]
Any income of following mutual funds (subject to provisions of sections 115R to 115T) is exempt from tax:
- A mutual fund registered under the Securities and Exchange Board of India Act or regulation made thereunder.
- A mutual fund set-up by a public sector bank, or a public financial institution or authorised by RBI (subject to conditions notified by the Central Government).
36. Income of Registered Trade Unions [Section 10(24)]
The following incomes of registered trade unions are exempt from tax :
The trade union must be a registered one and formed primarily for the purpose of regulating the relations between workmen and employer or between workmen and workmen. This benefit shall also be available to an association of registered trade unions.
37. Income of a member of Scheduled Tribe residing in certain Specified areas [Section 10(26)]
Certain types of incomes of the members of Scheduled Tribes living in tribal areas are exempt from tax. The Scheduled Tribes to which this exemption applies are defined in Clause (25) of Article 366 of the Constitution, residing in any areas specified in Part A or Part B of the table appended to paragraph 20 of the Sixth Schedule of the Constitution or in the State of Arunachal Pradesh, Manipur, Tripura, Mizoram and Nagaland or in the Ladakh region of the State of Jammu & Kashmir.
The exempted incomes are incomes which accrue or arise to him :
- from any source in the area, State, or Union Territories aforesaid, or
- by way of dividend.
This means that if a member of a Schedule Tribe sets up a business at any place other than mentioned above, profit from such business will be taxable.
38. Income of Sikkimese individual [Section 10(26AAA]
The following incomes which accrues or arises to a Sikkimese individual shall be exempt from income tax—
- income from any source in the State of Sikkim; or
- income by way of dividend or interest on securities.
This exemption will not be available to a Sikkimese women who, on or after 1-4-2008 marries a non-Sikkimese individual.
39. Income of Child Clubbed U/s 64 (IA) [Section 10(32)]
In case income of a minor child is clubbed with the income of his parent, the parent can claim exemption upto actual income of child clubbed or 1,500 whichever is less in respect of each minor child whose income is included.
43. Income by way of dividend from Indian company [Section 10(34)]
Dividend received from a domestic company is exempt in the hands of the shareholders provided such dividend has already suffered Dividend Distribution Tax (DDT) under section 115-O
40. Exemption of income to a shareholder on buyback of shares of unlisted company [Section 10 (34A)]
Any income arising to an assessee being a shareholder, on account of buyback of shares, (not being listed on a recognised stock exchange) by the company as referred to in section 115QA shall be exempt.
41. Exemption of income from Securitisation Trust [Section 10(35A)]
Any income received by any person being an investor of the Securitisation Trust from such a trust, by way of distributed income referred to in section 115TA shall be exempt.
42. Capital Gain on compulsory acquisition of urban Agricultural Land [Section 10(37)]
With a view to mitigate the hardship faced by the farmers whose agricultural land situated in specified urban limits has been compulsorily acquired, the Finance (No. 2) Act, 2004 has inserted a new clause (37) in section 10 so as to exempt the capital gains (whether short-term or long-term) arising to an individualor a Hindu undivided family from transfer of agricultural land by way of compulsory acquisition where the compensation or the enhanced compensation or consideration, as the case may be, is received on or after 1.4.2004. The exemption is available only when such land has been used for agricultural purposes during the preceding two years by such individual or a parent of his or by such Hindu undivided family.
Where the compulsory acquisition has taken place before 1.4.2004 but the compensation is received after 31.3.2004, it shall be exempt. But if part of the original compensation in the above case has already been received before 1.4.2004, then exemption shall not be available even though balance original compensation is received after 31.3.2004.
However, enhanced compensation received on or after 1.4.2004 against agricultural land compulsory acquired before 1.4.2004 shall be Exempt.
|If such urban agricultural land is held as stock-in-trade, section 10(37) shall not be applicable as it is not a capital asset. Profit from the compulsory acquisition of such urban land shall be taxable under business head.|
43. Income from international Sporting event held in india [Section 10(39)]
Any specified income (which is from such international event and which is notified by the Central Govt.) of specified persons from any international event held in India shall be fully exempted if
- such event is approved by the international body regulating the international sport relating to such event
- it has participation by more than two countries ; and
- is notified by the Central Govt. in this regard.
44. Amount received by an Individual as Loan under Reverse Mortgage [Section 10(43)]
An amount received by an individual as a Loan, either in lump sum or in instalment, in a transaction of reverse mortgage referred to in Section 47(xvi) shall be Exempt.
45. Income received by any person or on behalf of New Pension System Trust [Section 10(44)
Any sum received by any person for or on behalf of New Pension Scheme Trust under the provisions of Indian Trust Act of 1882 shall be Exempt from Income Tax.
46. Notified Allowance or Perquisites paid to Chairman / Member or Retired Chairman / Member of U.P.S.C. [ Section 10(45)]
Any allowance or perquisite, as may be notified by the Central Government in the Official Gazette in this behalf, paid to the Chairman or retired Chairman or any member or retired member of the Union Service Commission shall be Exempt in his hands.
47. Specified income arising to an Notified Body / Authority / Board / Trust / Commission [Section 10(46)]
Any ‘Specified Income‘ arising to a body or authority or Board or Trust or Commission (by whatever name called) which—
- has been established or constituted by or under a Central, State or Provincial Act, or constituted by the Central Government or a State Government, with the object of regulating or administering any activity for the benefit of the general public;
- is not engaged in any commercial activity; and
- is notified by the Central Government in the Official Gazette for the purposes of this clause. shall be exempt.
|Any Specified Income arising to a body or authority or Board or Trust or Commission (by whatever name called) which—(a) has been established or constituted by or under a Central, State or Provincial Act, or constituted by the Central Government or a State Government, with the object of regulating or administering any activity for the benefit of the general public;(b) is not engaged in any commercial activity; and(c) is notified by the Central Government in the Official Gazette for the purposes of this clause. shall be exempt.|
48. Exemption of Income of a foreign company from sale of Crude Oil in India [Section 10 (48)]
Any income of a foreign Co. received in India in Indian currency on account of sale of crude oil to any person in India shall be exempt if the following conditions are satisfied
- Such Income is in pursuant to an agreement or an arrangement entered into by the Central Govt. or approved by the Central Govt.;
- having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Govt. in this behalf; and
- the foreign company is not engaged in any activity, other than reciept of such income, in India.
49. Any income accruing or arising to a Foreign Company on account of Storage of Crude Oil and sale therefrom. [Section 10(48A)]
Any income accruing or arising to a Foreign Company on account of Storage of Crude Oil in a facility in India and Sale of Crude Oil therefrom to any person Resident in India shall be fully Exempt :
Provided that –
(i) the storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government; and
(ii) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf.
50. Exemption in respect of income chargeable to Equalization Levy [Section 10(50)]
Any income arising from any specified service provided on or after the date on which the provisions of Chapter VIII of the Finance Act, 2016 comes into force i.e. 1.6.2016 and chargeable to equalisation levy under that Chapter shall be Exmept.
51. Special provisions in respect of newly established Units in Special Economic Zones (Section 10AA):
It is allowed to all categories of assessees established in Special Economic Zone before 1-04-2020
(1) It should not be formed by the splitting up an reconstruction of a business already in existence
(2) It should not be formed by the transfer of machinery or plant, previously used for any purpose.
Following are the exceptions to this conditions:
(a) imported machinery never used in India will not be treated as second hand machinery
(b) machinery upto 20% of total value can be second hand
(c) audit report of CA compulsory
Period for which Deduction is Available
1. First 5 consecutive years — 100% of profits
2. Next 5 consecutive years — 50% of profits
3. Next 5 consecutive years — not exceeding 50% of profits debited to profit and loss of a/c and credited to Special Economic Zone Reinvested Reserve Account
Computation of Deduction Allow
Profit of business × ET [Expert Turnover/TT(Total Turnover)]
52. Income from property held for Charitable or Religious Purposes (Section 11)
For claiming exemption under section 11, the following conditions must be satisfied:
(a) Trust must have been created for any lawful purpose
(b) Such trust/institution must be for charitable or religious purposes
(c) The property from which income is derived should be held under trust
(d) The accounts of the trust/institution should be audited
(e) Trust must get itself registered with the Commissioner of Income-tax
(f) The charitable trust created on or after 1.4.1962 should satisfy the following further conditions:
(i) it should not be created for the benefit of any particular community or caste;
(ii) no part of the income of such charitable trust or institutions should enure directly or indirectly for the benefit of the settlor or other specified persons; and
(iii) the property should be held wholly for charitable purposes. The following incomes of a religious or charitable trust or institution are not included in its total income, provided the above conditions are satisfied:
(g) Income from property held under trust wholly for charitable or religious purposes
(h) Income from property held under trust which is applied in part only for charitable or religious purposes
(i) Income from property held under trust which is applied for charitable purposes outside India (j) voluntary contribution forming part of corpus, corpus means income in the form of voluntary contribution with a specific directions
Exemption allowed to the extent of income applied for charitable purpose in India plus 15% of the income so accumulated. Assessee can accumulate more than 15% by filing form 10 before the due date specified u/s 39(1) and depositing the money in a mode given under section 11(5). Period of accumulated maximum 5 years.
Corpus donations are fully exempt.
53. Income of Trusts or Institutions from Voluntary Contributions also Exempt as given above (Section 12)
54. Registration of Trust before the end of the previous year from which exemption is required is compulsory to claim Exemption (Section 12A)
55. Procedure for registration. (Section 12AA)
“Assessee to apply for registration in Form 10A”
56. Income of Political Parties: (Section 13A)
It should be a registered political party
In this case the following incomes are exempt:
(i) Income under from house property
(iii) Income from capital gains
(iv) Income from voluntary contribution other than contribution by way of electoral bond provided the name and address of the donor who gives donation of ₹20,000 or more is given
(v) Income from contribution by way of Electoral Bond even no name and address of the donors is provided
1. No donation exceeding ₹2,000 should be received by such political party otherwise than by an account payee cheque or account payee draft or use of ECS through a bank account or such other electronic as may be prescribed or through electoral bond.
2. It should furnish return of income on or before due date specified under section 139(1). Income of Electoral Trust exempt (Section 13B)