Section 10 of the Income Tax Act, 1961 provides for various exemptions that are available to individuals and Hindu Undivided Families (HUFs) from income tax. In this blog, we will discuss the different exemptions that are available under section 10 of the Income Tax Act.
- Agricultural Income
The first and foremost exemption under section 10 is for agricultural income. Any income earned by an individual or HUF from agricultural activities is exempt from income tax. However, it should be noted that agricultural income should be from land located in India, and the individual or HUF should be the owner or tenant of the land.
- Gratuity
Gratuity is a retirement benefit that is paid by an employer to an employee. Under section 10(10)(iii), any gratuity received by a government employee, or an employee of a statutory corporation or local authority, is exempt from income tax. For other employees, the exemption is limited to the least of the following:
a. 15 days’ salary for each completed year of service or part thereof in excess of six months b. Rs. 20 lakh c. Actual gratuity received
- Leave Travel Concession (LTC)
LTC is a benefit provided by an employer to an employee for travel within India. Under section 10(5), any amount received by an employee as LTC is exempt from income tax, subject to certain conditions. The exemption is limited to the actual expenses incurred on travel and does not include expenses incurred on boarding and lodging.
- House Rent Allowance (HRA)
HRA is a common component of salary provided by an employer to an employee to meet the cost of rented accommodation. Under section 10(13A), HRA received by an employee is exempt from income tax to the extent of the least of the following:
a. Actual HRA received b. Rent paid minus 10% of salary c. 50% of salary if the employee lives in a metro city or 40% of salary if the employee lives in a non-metro city
- Leave Encashment
Leave encashment is a benefit provided by an employer to an employee when the employee does not take leave and instead receives the monetary value of the leave. Under section 10(10AA), any leave encashment received by an employee at the time of retirement is exempt from income tax, subject to certain limits.
- Scholarships
Scholarships provided to students for their education are also exempt from income tax under section 10(16). The exemption is available for scholarships provided to meet the cost of education and does not include any allowance for the purpose of travel or any other purpose.
- Provident Fund
Provident Fund is a retirement benefit provided by an employer to an employee. Under section 10(11), the amount received by an employee from a recognized Provident Fund at the time of retirement is exempt from income tax. However, if the employee withdraws the amount before the completion of the specified period, the amount may be subject to tax.
- National Pension Scheme (NPS)
National Pension Scheme is a retirement benefit scheme introduced by the Government of India. Under section 10(12A), any amount received by an employee from the NPS is exempt from income tax. However, the exemption is limited to 40% of the total amount received on retirement or maturity.
- Interest on Savings Bank Account
Under section 10(15)(i), the interest earned on a savings bank account up to Rs. 10,000 in a financial year is exempt from income tax. This exemption is available to individuals and HUFs.
- Capital Gains on Sale of Residential House Property
Under section 10(38), any long-term capital gains earned by an individual or HUF from the sale of a residential house property is exempt from income tax if the gains are invested in another residential house property within a specified period.
- Income of Minor Child
Under section 10(32), the income earned by a minor child is exempt from income tax up to a certain limit if the income is from investments made out of gifts given by the parent.
- Charitable and Religious Institutions
Under section 10(23C), the income earned by a charitable or religious institution is exempt from income tax, subject to certain conditions.
- Capital Gains on Investment in Equity Shares or Units of Equity Oriented Mutual Funds
Under section 10(38), any long-term capital gains earned by an individual or HUF from the sale of equity shares or units of equity oriented mutual funds are exempt from income tax if the securities are held for more than 12 months and the Securities Transaction Tax (STT) is paid on the sale.
- Dividend Income
Under section 10(34), dividend income earned by an individual or HUF from a domestic company is exempt from income tax. However, the company has to pay a dividend distribution tax (DDT) before distributing dividends to its shareholders.
- Income from Life Insurance Policies
Under section 10(10D), the amount received by an individual or HUF from a life insurance policy, including bonus, is exempt from income tax if the premium paid does not exceed 10% of the sum assured.
- Medical Allowance
Under section 10(14), any medical allowance received by an employee from an employer is exempt from income tax up to a limit of Rs. 15,000 in a financial year.
- Transport Allowance
Under section 10(14), any transport allowance received by an employee from an employer is exempt from income tax up to a limit of Rs. 1,600 per month.
- Conveyance Allowance
Under section 10(14), any conveyance allowance received by an employee from an employer for commuting between the place of work and residence is exempt from income tax up to a limit of Rs. 1,600 per month.
Conclusion
In conclusion, section 10 of the Income Tax Act provides various exemptions that are available to individuals and HUFs. These exemptions provide relief from income tax and encourage savings and investments. It is important to understand the conditions and limits of these exemptions to avail the benefits properly. It is always advisable to consult a tax expert to understand the nuances of these exemptions and how they can be best utilized. In addition to the above, there are many more exemptions provided under section 10 of the Income Tax Act that individuals and HUFs can avail of.
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Frequently Asked Questions (FAQs)
Q1.) Can I claim exemption on the HRA received from my employer?
Yes, you can claim exemption on House Rent Allowance (HRA) received from your employer under Section 10(13A) of the Income Tax Act subject to certain conditions.
Q2.) Are the allowances received by Members of Parliament and Members of Legislative Assembly exempt from tax?
Yes, the allowances received by Members of Parliament and Members of Legislative Assembly are exempt from tax under Section 10(17) of the Income Tax Act.
Q3.) Is the interest earned on post office savings schemes exempt from tax?
Under Section 10(15)(i)(x) of the Income Tax Act, interest earned on post office savings schemes such as Public Provident Fund (PPF) and National Savings Certificate (NSC) is exempt from tax.
Q4.) Are there any exemptions available for income earned by a disabled person?
Yes, under Section 80U of the Income Tax Act, a disabled person can claim a deduction of up to Rs. 1.25 lakh from their total income.
Q5.) Is the scholarship received by a student exempt from tax?
Under Section 10(16) of the Income Tax Act, any scholarship granted to meet the cost of education is exempt from tax.
Q6.) Are there any exemptions available for income earned by a member of the armed forces?
Yes, under Section 10(14)(ii) of the Income Tax Act, any allowances received by a member of the armed forces are exempt from tax.
Q7.) Is the gratuity received by an employee exempt from tax?
Under Section 10(10)(ii) of the Income Tax Act, gratuity received by an employee is exempt from tax up to a certain limit.
Q8.) Are the proceeds received from a life insurance policy exempt from tax?
Under Section 10(10D) of the Income Tax Act, any proceeds received from a life insurance policy are exempt from tax if the premium paid is not more than 10% of the sum assured.
Q9.) Are there any exemptions available for income earned by a government employee posted outside India?
Yes, under Section 10(7) of the Income Tax Act, any income earned by a government employee posted outside India is exempt from tax.
Q10.) Are the gains from the sale of agricultural land exempt from tax?
Under Section 10(37) of the Income Tax Act, any gains from the sale of agricultural land is exempt from tax if certain conditions are met.
