2. Income Exempt From Tax ( Sec 10)
Those income on which tax is not levied is
generally known as income exempt from tax.
This is also known as “ Tax Free” Income.
3. Agricultural Income ( u/s 10(1) )
Agriculture income means any income derived
from land which is used for agriculture purpose
and which is assessed to land Revenue in India.
Conditions for an income to be agricultural
Income
1.Rent or revenue should be derived from land.
2.Land must be used for agricultural purpose
3.Land must be situated in India
4. Receipt from HUF (U/S 10(2)
• Any sum received by an individual as a
member of HUF out of the estate of income of
the family is exempt from tax and not
included in the total income of the individual.
• The logic behind this is that HUF is already
taxed on this income and hence no tax should
be levied on distribution of the income of
HUF.
5. Partner’s share in the profit of the
firm: [U/S 10(2A)]
• In case of a person who is a partner of a firm
which is separately assessed in that case the
amount of this share in the profits of the firm
ascertain as per the partnership deed is
exempted from tax.
6. Interest to non- resident [ U/S
10(4) ]
• Deposits in under mentioned bank accounts:
(i) Non Resident External Rupee Account (NRE)
(ii) Foreign Currency Non-resident Account (FCNR)
• Units of Unit Trust of India and specified mutual
funds, other specific securities, bonds and savings
certificates
• Dividend declared by Indian company.
• Long term capital gains arising from transfer of
equity shares in a company
7. Leave Travel Concession [ U/S 10(5)
The Value of leave travel concession received or due to an individual
is exempted to the extent it is actually spent.
Thus, the exemption is available to any individual in respect of the
value of any travel concession or assistance received by or due to
him,
– From his employer for himself and his family, in connection
with his proceeding on leave to any place in India.
– From his employer or former employer for him self and his
family, in connection with his proceeding to any place in India
after retirement service or After the termination of service.
8. Foreign Allowances and perquisites to Government
Employees outside India [U/S 10(7) ]
• Sub-section (7) of section 10 states that any
allowance or perquisites paid or allowed as
such out side India by the Government to a
citizen of India for rendering services outside
India will be totally exempted from tax.
9. Death cum Gratuity ( Sec 10(10) )
• The following receipt are exempt under this head:-
a. Any Death – cum retirement gratuity received under
1. The revised pension rules of the Central Government or
2. The Central Civil Services ( Pension ) Rules, 1972
b. Any other Gratuity Received
By an employee on
1. His retirement
or
2. His becoming incapacitated prior to such retirement or
3. Termination of his employment.
0R
By the widow, children or dependents of such employee on his death.
10. Commutation of Pension ( Sec 10 ( 10
A) )
• FULL exemption of commuted value of pension received by person
getting commutation of pension under Civil Pension (Commutation)
Rules or similar rule. This is generally applicable in case of Central
Government employee or State Government employee or a local
authority or a corporation established under Cetral or State or Provincial
• In case of pension received from any other employer under any other
scheme , maximum exempt is 33% of the if the employee also receives
gratuity .
• In any other case i.e employee not getting gratuity , 50 % but the
commuted value is determined having regard to age ,health ,rate of
interest and officially recognised mortality rate.
• Full amount of commuted value of pension given by a Fund set up by LIC
under a pension scheme as per Clause 23AA B.
11. Encashment of Earned Leave ( Sec 10 {
10AA})
Status of Employee Nature of leave
Encashment
Taxability
Government/ Non-
Government employee
Leave encashment during
Continuity of employment
It is chargeable to tax.
Government employee
Leave encashment at the
time of retirement / leaving
job
It is fully exempt from tax
under section 10(10AA)(i)
Non-Government
employee
Leave encashment at the
time of retirement / leaving
job
It is fully or partially exempt
from tax in some cases
under section 10(10AA)(ii)
12. Retrenchment Compensation ( sec 10
{10 B} )
• The retrenchment compensation received by
a workman is exempt provided that in general
it does not exceed the sum calculated on the
basis provided in Section 25F(b) of Industrial
Disputes Act, 1947 or any such amount as is
specified by the Central Govt. by a
Notification, whichever is less.
• The maximum exemption is Rs. 5 lakhs where
retrenchment is on or after 1-1-1997.
13. Payment Received on Voluntary
Retirement ( Sec 10 {10C} )
• Any amount received by an employee of a Public Sector Company or of
any other company at the time of voluntary retirement is exempt to the
extent such amount does not exceed Rs. 5 lacs, provided the scheme of
such voluntary retirement is in accordance with the guidelines prescribed
under rule 2BA of Income Tax Rules 1962.
• If an exemption has been allowed under this section for any assessment
year, no exemption there under is allowable in relation to any other
assessment year.
• Further, the benefit of the exemption has been extended to employees of
an authority established under a Central, State or Provincial Act, or a local
authority or to employees of a Co-operative Society, University, Indian
Institute of Technology and Notified Institute of Management.
14. Payment Received Under a Life Insurance Policy
( Sec 10 { 10 D} )
• Under the provisions of section 10(10D) of the
Income-tax Act, 1961, Maturity/Death claims
proceeds of life insurance policy, including the
sum allocated by way of bonus on such policy,
is exempted from income- tax.
15. Payment From Statutory Provident
Fund ( Sec 10 { 11 } )
Statutory provident fund is set up under the
provisions of the Provident Funds Act, 1925. This
fund is maintained by Government and Semi-
Government organizations, local authorities,
railways, universities and recognized educational
institutions.
Any payment received from such provident fund
would be exempt from tax without any monetary
or other limits
16. Payment From Recognized Provident
Fund ( Sec 10 { 12 } )
• Recognised Provident fund is one which is recognized by the
commissioner of income-tax is accordance with the rules
contained in Part A of the Fourth Schedule to the Income Tax
Act. It includes a provident fund established under a scheme
framed under the Employees Provident Funds Act, 1952. This
fund is maintained by private sector organization.
17. Payment From Recognized Provident
Fund ( Sec 10 { 12 } )
Conditions for amount to be exempted from tax from Recognised
Provident Fund is as follows
Employee has to rendered continuous service for a period of 5 or
more years
If not continuous service, the employment of the employee has
been terminated on reason of employees ill health, or by the
contraction of discontinuance of employer’s business or any other
cause beyond the control of the employer
In case the employee obtains employment with any other
employer and the balance standing in his Recognised Provident
Fund is transferred to his account in a recognised Provident Fund
maintained by the new employer.
18. Payment From an Approved
Superannuation Fund ( sec 10 {13})
• Superannuation is a retirement Benefit by employer .
• It is a contribution made by employer each year on your behalf towards
the group superannuation policy held by the employer.
• Some other points are :
• Superannuation Fund is a retirement benefit given to employees by the
Company.
• Normally the Company has a link with agencies like LIC Superannuation
Fund, where their contributions are paid.
• The Company pays 15% of basic wages as superannuation contribution.
There is no contribution from the employee.
19. Payment From an Approved
Superannuation Fund ( sec 10 {13})
This contribution is invested by the Fund in various securities as per
investment pattern prescribed.
Interest on contributions is credited to the members account. Normally the
rate of interest is equivalent to the PF interest rate.
On attaining the retirement age, the member is eligible to take 25% of the
balance available in his/her account as a tax free benefit.
The balance 75% is put in a annuity fund, and the agency (LIC) will pay the
member a monthly/quarterly/periodic annuity returns depending on the
option exercised by the member. This payment received regularly is taxable.
In the case of resignation of the employee, the employee has the option to
transfer his amount to the new employer. If the new employer does not have
a Superannuation scheme, then the employee can withdraw the amount in
the account, subject to deduction of tax and approval of IT department, or
retain the amount in the Fund, till the superannuation age.
20. House Rent Allowance ( Sec 10{13A} )
• House rent allowance (HRA) is received by the salaried class. A deduction
is permissible under Section 10(13A) of the Income Tax Act, in accordance
with Rule 2A of the Income Tax Rules.
• You can claim exemption on your HRA under the Income Tax Act if you
stay in a rented house and get a HRA from your employer.
• The HRA deduction is based on salary, HRA received, the actual rent paid
and place of residence.
• The place of residence is important. For Mumbai, Kolkata, Delhi or
Chennai, the tax exemption on HRA is 50 percent of the basic salary, while
for other cities it is 40 percent of the basic salary.
• The city of residence is to be considered for calculating HRA deduction.
21. Special Allowance ( sec 10 {14})
Name of Allowance Nature of Allowance
Travelling allowance/
transfer allowance
Any allowance granted to meet the cost of travel on tour or
on transfer.
Conveyance allowance Conveyance allowance granted to meet the expenditure on
conveyance in performance of duties of an office.
Daily allowance Any allowance granted to meet the ordinary daily charges
incurred by the employee.
Helper allowance Any allowance granted to meet the expenditure on a
helper engaged in the official activities.
Research allowance Any allowance granted for encouraging the academic
research & other professional pursuits.
Uniform allowance Any allowance granted to meet the expenditure on the
purchase or maintenance of uniform for wear during the
office hours.
22. Interest From Certain
Investments( Sec 10 { 15} )
• Income by way of interest, premium on redemption
or other payment on such securities, bonds, annuity
certificates, savings certificates, other certificates
issued by the Central Government and deposits as
the Central Government is exempted from tax.
23. Scholarships ( Sec 10 { 16 } )
• Scholarship granted to meet the cost of
education is totally exempt from tax and will
not be included in the computation of income
24. Sec 17
Allowances received by the
member of parliament or state
legislature ( Sec 10 {17 } )
Awards/Rewards ( Sec 10 { 17A} )
25. Pension ( Sec 10 { 18 } )
• Pension received by an individual who has
been in service of Central or state
Government and has been awarded, ”Parama
Vir Chakra)””Maha Vir Chakra” or Vir Chakra
or
• Family pension received by any member of
the family in case of death of the awards is
exempted from tax
26. Family pension received by the family member
of armed forces ( Sec 10 { 19 }]
• Family pension received by the widow or
children or nominated heirs, of a member of
armed forces including parliament forces of
the union , where the said member dies in the
course of operation duties shall be exempted
from tax.
27. Income of Minor Child ( Sec 10 { 32 } )
• If investment is done on parents’s income in name of minor
child(age less than 18 years) is clubbed with parents income
and has to be shown in parent’s Income Tax Return.
• A minor’s income is clubbed with that of the parent with the
higher income or if the parents of the minor child are
separated, then the minor child’s income will be included in
the income of the parent who is maintaining the child
• A minor’s income is clubbed after an exemption of Rs. 1,500/-
per child per annum
28. Income From Transfer of units of UTI
( Sec 10 { 33 } )
• Any income arising from transfer of capital
asset being a unit of Unit Scheme, 1964 and
where the transfer of such an asset takes
place on or after 1st April 2002, it shall be
exempt from tax
29. Income by way of Dividend
{U/S 10(34)}
Income by way of dividend as referred in
section 115-0 is exempted from tax in the
hands of the shareholders.
Section 115-0 provides that every domestic
company declaring dividend (including interim
dividend) shall pay the tax on dividend.
In view of this, tax being levied on a
company on distributed profits, the dividend
income in the hands of the shareholders will
now be exempt from tax u/s 10(34).
30. Others
• Income from Mutual Fund etc. {U/S 10(35)}
• Long Term capital gains or Transfer of Equity
Shares in a Company or Units of an Equity
oriented fund {u/S 10(38)}
