Introduction
Taxes are an essential source of revenue for the government to finance various welfare programs and developmental activities. Income tax is levied on the income earned by individuals and entities, and it is governed by the Income Tax Act, 1961. Section 10 of the Income Tax Act provides certain exemptions, which means that some income sources are not considered taxable. These exemptions play a crucial role in reducing the tax liability of individuals and entities.
Here are the main headings to understand exemptions under Section 10 of the Income Tax Act:
What is Section 10 of the Income Tax Act?
Section 10 of the Income Tax Act lists out the incomes that are exempt from tax. These exemptions are in addition to the deductions that an individual or entity can claim under various sections of the Income Tax Act. The section provides exemptions for various types of incomes, such as agricultural income, dividends, and interest income, among others.
Types of Exemptions under Section 10
a. Agricultural Income
Agricultural income is exempt from tax under Section 10(1) of the Income Tax Act. However, the exemption is only applicable if the income is derived from agricultural land situated in India and is used for agricultural purposes. If the income is earned from processing or sale of agricultural produce, it is taxable.
b. Leave Travel Allowance (LTA)
Leave Travel Allowance is an exemption provided to salaried individuals who travel with their family in India. The exemption covers the expenses incurred on travel, accommodation, and meals. The exemption is limited to two journeys in a block of four years.
c. House Rent Allowance (HRA)
House Rent Allowance is provided to employees to cover their rental expenses. The exemption is available under Section 10(13A) of the Income Tax Act. The exemption is calculated based on the salary, HRA received, and actual rent paid. The exemption is not available if an employee is living in a self-owned property or not paying any rent.
d. Dividend Income
Dividend income is exempt from tax under Section 10(34) of the Income Tax Act. However, the dividend income received from mutual funds is taxable at the rate of 10%.
e. Interest Income
Interest income from savings bank account is exempt up to Rs. 10,000 under Section 80TTA of the Income Tax Act. Interest income from post office savings account is also exempt up to Rs. 3,500 per annum under Section 10(15)(i).
f. Long-term Capital Gains
Long-term capital gains on the sale of equity shares and equity-oriented mutual funds are exempt from tax under Section 10(38) of the Income Tax Act. The exemption is available if the securities are held for more than one year.
Conditions for claiming exemptions under Section 10
To claim exemptions under Section 10, there are certain conditions that must be met. For example, to claim the agricultural income exemption, the income must be derived from agricultural land and used for agricultural purposes. Similarly, to claim the HRA exemption, the employee must provide proof of rent paid, and the amount of exemption is limited to the actual HRA received.
Exemptions for charitable and religious institutions
Section 10 provides exemptions for income earned by charitable and religious institutions. The income earned by these institutions is exempt if it is used for charitable or religious purposes. However, the institution must be registered under Section 12AA of the Income Tax Act to claim these exemptions.
Exemptions for startups
Section 10 provides various exemptions for startups to encourage entrepreneurship and innovation. For example, startups with a turnover of up to Rs. 25 crores are exempt from paying taxes for the first three years of their operations. They are also exempt from paying taxes on capital gains if the gains are invested in specified funds or assets.
Exemptions for senior citizens
Section 10 provides certain exemptions for senior citizens, such as those above 60 years of age. For example, senior citizens are exempt from paying taxes on interest income up to Rs. 50,000 per annum under Section 80TTB. They are also eligible for higher exemptions on medical expenses and standard deductions.
Limitations on exemptions under Section 10
It is important to note that there are limitations on the exemptions provided under Section 10. For example, the exemption for agricultural income is limited to income derived from agricultural land situated in India and used for agricultural purposes. Similarly, the exemption for long-term capital gains on equity shares and equity-oriented mutual funds is limited to securities held for more than one year.
Exemptions for income earned outside India
Section 10 also provides exemptions for income earned outside India by individuals who are not residents in India. Such income may include income from foreign sources such as employment, business, or investments. However, there are certain conditions that must be met to claim these exemptions.
Exemptions for income earned by diplomatic missions
Section 10 provides exemptions for income earned by diplomatic missions in India. The income earned by these missions is exempt from tax under the Vienna Convention on Diplomatic Relations, 1961.
Exemptions for income earned by certain entities
Section 10 also provides exemptions for income earned by certain entities such as political parties, trade unions, and scientific research associations. However, these entities must meet certain conditions to claim the exemptions.
Conclusion
Section 10 of the Income Tax Act provides various exemptions to individuals and entities. These exemptions play a crucial role in reducing the tax liability of taxpayers. It is essential to understand these exemptions to ensure that the taxpayers are not overburdened with taxes. The government provides these exemptions to promote certain activities and incentivize the taxpayers to invest in various sectors. Therefore, it is crucial to use these exemptions judiciously and ensure that they are used for the intended purposes.
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 of the Income Tax Act?
Section 10 of the Income Tax Act provides for various exemptions from tax for certain types of income.
2. Who is eligible for exemptions under Section 10?
Exemptions under Section 10 are available to individuals, HUFs, firms, companies, and other types of entities.
3. What are the types of income that are exempt under Section 10?
Some types of income that are exempt under Section 10 include agricultural income, income from life insurance policies, HRA received by employees, leave travel allowance, and interest income on certain savings schemes.
4. What are the conditions for claiming exemptions under Section 10?
To claim exemptions under Section 10, certain conditions must be met. For example, to claim the agricultural income exemption, the income must be derived from agricultural land and used for agricultural purposes. Similarly, to claim the HRA exemption, the employee must provide proof of rent paid, and the amount of exemption is limited to the actual HRA received.
5. What are the limitations on exemptions under Section 10?
Exemptions under Section 10 are subject to certain limitations. For example, the exemption for long-term capital gains on equity shares and equity-oriented mutual funds is limited to securities held for more than one year.
6. Are there exemptions available for income earned outside India?
Yes, Section 10 provides exemptions for income earned outside India by individuals who are not residents in India. However, there are certain conditions that must be met to claim these exemptions.
7. Are there exemptions available for senior citizens?
Yes, Section 10 provides certain exemptions for senior citizens, such as those above 60 years of age. For example, senior citizens are exempt from paying taxes on interest income up to Rs. 50,000 per annum under Section 80TTB.
8. What are the exemptions available for startups?
Section 10 provides various exemptions for startups to encourage entrepreneurship and innovation. For example, startups with a turnover of up to Rs. 25 crores are exempt from paying taxes for the first three years of their operations.
9. What are the exemptions available for charitable and religious institutions?
Section 10 provides exemptions for income earned by charitable and religious institutions. The income earned by these institutions is exempt if it is used for charitable or religious purposes. However, the institution must be registered under Section 12AA of the Income Tax Act to claim these exemptions.
10. Can exemptions under Section 10 be carried forward to future years?
No, exemptions under Section 10 cannot be carried forward to future years. They must be claimed in the year in which the income is earned.
