Section 10(1) of the Income Tax Act, 1961, is one of the most important provisions for computing the taxable income of an individual. It deals with the exemptions allowed from the total income of an individual. In this blog, we will discuss the provisions of Section 10(1) in detail, along with the exemptions available under this section.
Introduction to Section 10(1):
Section 10(1) of the Income Tax Act, 1961, provides a list of incomes that are exempted from income tax. It states that any income falling under this section shall not be included in the total income of the assessee while computing the income tax liability.
Exemptions under Section 10(1):
Agricultural Income: Any income earned from agricultural operations carried out on land situated in India is exempted from income tax. This exemption is available to individuals as well as Hindu Undivided Families (HUFs).
Gratuity: The gratuity received by an employee from his employer is exempt from income tax. However, the exemption is subject to certain conditions. For example, the gratuity must be received on retirement, death, or disablement. The exemption is also subject to a maximum limit of Rs. 20 lakhs.
Leave Travel Allowance (LTA): LTA received by an employee for traveling with his family within India is exempt from income tax. However, this exemption is subject to certain conditions, such as the employee must actually undertake the journey, and the exemption is available only for two journeys in a block of four years.
House Rent Allowance (HRA): HRA received by an employee for meeting the rent expenses of his residential accommodation is exempt from income tax. However, the exemption is subject to certain conditions, such as the employee must be living in rented accommodation, and the exemption is limited to the least of the actual HRA received, 50% of the salary (for employees living in metro cities), or 40% of the salary (for employees living in non-metro cities).
Interest on EPF: Interest earned on the balance in the Employee Provident Fund (EPF) account is exempt from income tax.
Retrenchment Compensation: Any compensation received by an employee at the time of retrenchment, closure, or transfer of his business is exempt from income tax.
VRS Compensation: Any compensation received by an employee at the time of voluntary retirement is exempt from income tax, subject to certain conditions.
Scholarships: Any scholarship granted to meet the cost of education is exempt from income tax.
In addition to the exemptions mentioned above, there are a few more exemptions available under Section 10(1) of the Income Tax Act, 1961. Let’s take a look at them:
Commuted Pension: Any commuted pension received by an employee is exempt from income tax. However, the exemption is limited to one-third of the total pension received, or the amount received as commutation of pension, whichever is less.
Retrenchment Compensation received by workmen: Retrenchment compensation received by a workman under the Industrial Disputes Act, 1947, is exempt from income tax, subject to certain conditions.
Payment from Statutory Provident Fund: Any payment from a Statutory Provident Fund is exempt from income tax. However, if the employee contributes more than the prescribed limit, the excess amount will be taxable.
Payment from Public Provident Fund: Any payment from a Public Provident Fund account is exempt from income tax.
Payment from Recognized Provident Fund: Any payment from a recognized Provident Fund is exempt from income tax subject to certain conditions. If the employee has worked for less than five years, the amount withdrawn will be taxable.
Payment from National Pension System (NPS): Any payment received from the National Pension System is exempt from income tax, subject to certain conditions.
Medical Allowance: Any medical allowance received by an employee is exempt from income tax. However, the exemption is limited to a maximum of Rs. 15,000 per year.
Conveyance Allowance: Any conveyance allowance received by an employee for commuting between his residence and place of work is exempt from income tax. However, the exemption is limited to a maximum of Rs. 1,600 per month.
Education Allowance: Any education allowance received by an employee for the education of his children is exempt from income tax. However, the exemption is limited to a maximum of Rs. 100 per month per child up to a maximum of two children.
Uniform Allowance: Any uniform allowance received by an employee for the purchase or maintenance of uniform is exempt from income tax. However, the exemption is limited to the actual amount received or Rs. 5,000 per year, whichever is less.
Telephone Allowance: Any telephone allowance received by an employee for the purpose of business is exempt from income tax. However, the exemption is limited to the actual amount received or Rs. 1,800 per month, whichever is less.
Food Coupons: Any food coupons or meal vouchers received by an employee are exempt from income tax. However, the exemption is limited to a maximum of Rs. 50 per meal.
Rent-Free Accommodation: Any rent-free accommodation provided by an employer to an employee is exempt from income tax. However, the exemption is limited to certain conditions and limits, such as the actual rent paid by the employer or 15% of the salary, whichever is less.
It is important to note that the exemptions mentioned above are subject to certain conditions and limits. Taxpayers should carefully read the provisions of this section and consult a tax expert to understand their applicability. Taxpayers should also maintain proper documentation and records to support the claims of exemptions in case of any scrutiny by the tax authorities.
Conclusion:
Section 10(1) of the Income Tax Act, 1961, provides various exemptions from income tax to individuals and HUFs. It is important for taxpayers to understand the provisions of this section to ensure that they do not pay more tax than required. The above-discussed exemptions are some of the major ones available under this section. Taxpayers should consult a tax expert to understand the applicability of these exemptions to their specific situation.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
- What is Section 10(1) of the Income Tax Act?
Section 10(1) of the Income Tax Act provides for exemptions from income tax for certain incomes, allowances, and perquisites.
2. What are the types of income that are exempt under Section 10(1)?
Section 10(1) provides exemptions for a variety of incomes, including agricultural income, income from life insurance policies, and interest on certain types of securities.
3. Is the exemption for agricultural income unlimited?
No, the exemption for agricultural income is limited to Rs. 5,000 per year.
4. Are all life insurance policies eligible for exemption under Section 10(1)?
No, only policies that meet certain criteria, such as having a minimum sum assured, are eligible for exemption.
5. What types of securities are eligible for exemption under Section 10(1)?
Certain types of securities, such as bonds issued by the Indian government or notified securities issued by a local authority, are eligible for exemption.
6. Is commuted pension received by an employee exempt from income tax?
Yes, commuted pension received by an employee is exempt from income tax, subject to certain limits.
7. Are payments from a Public Provident Fund exempt from income tax?
Yes, any payment from a Public Provident Fund account is exempt from income tax.
8. Is rent-free accommodation provided by an employer to an employee exempt from income tax?
Yes, rent-free accommodation provided by an employer to an employee is exempt from income tax, subject to certain conditions and limits.
9. Is there a maximum limit for the exemption of medical allowance received by an employee?
Yes, the exemption for medical allowance received by an employee is limited to a maximum of Rs. 15,000 per year.
10. Should taxpayers maintain proper documentation and records to support their claims of exemptions under Section 10(1)?
Yes, taxpayers should maintain proper documentation and records to support their claims of exemptions under Section 10(1) in case of any scrutiny by the tax authorities.
