For salaried individuals who are in the tax paying slab, Section 10 Of Income Tax Act is a relief provider. It defines different kinds of income not taxable in India to help bring down tax liability on such income sources. From house rent and medical allowances to education and travel perks, there are numerous opportunities to explore. This article discusses Section 10 of Income Tax Act, its inclusions, exemptions and benefits to individuals.
What’s Section 10 of Income Tax Act?
Section 10 Of income tax Act lists all exemptions a taxpayer could claim after the benefits/returns are received. These exemptions apply to income which isn’t part of your overall income.
Features associated with the Section 10 Exemptions
Important features Of Section 10 of Income Tax Act Of 1961:
- Comprehensive Coverage: Section 10 ensures that at least two sources of income generated afford sufficient relaxation in computing income tax. This includes the assured sum, bonuses & maturity proceeds.
- Protection Across Life Stages: From the initial investment phase to the policy maturity or surrender, Section 10 grants consistent tax exemption, offering financial protection and peace of mind all through the life of the policyholder.
- Income from Reinvestment: If the policyholder decides to reinvest the maturity proceeds in another life insurance policy, the resulting income tax-free under Section 10 continues uninterrupted for tax-planning purposes.
Who May Claim Tax Exemptions Under Section 10?
The Tax exemption limit under Section 10 of Income tax Act depends upon the age of the individual:
- Below 60 years: Rs. 2.7 Lakhs each financial year.
- 60 – 80 years: Rs. 3 Lakhs.
- Above 80 years: Rs. five Lakhs.
The increased tax exemptions of Rs. 3 Lakhs & Rs. five Lakhs are given to Indians only.
Income Tax Exemptions Under Section 10
| Allowance/Exemption | Description | Section | Eligibility |
| House Rent Allowance (HRA) | Exemption for salaried individuals residing in rented accommodation. | Section 10 (13A) | Salaried individuals |
| Leave Travel Allowance (LTA) | Tax exemption on leave travel allowance for travel within India by the employee and dependents. | Section 10 (5) | Employees and their dependents |
| Pension Scheme | Exemption on pension received by individuals. | Section 10 | Pensioners |
| Encashment Of Leaves | Tax exemption on the encashment of leaves by employees. | Section 10 (10AA) | Employees |
| Gratuity Income | Tax exemption on gratuity income received by employees. | Section 10 (10) | Employees |
| Income Under Voluntary Retirement Scheme (VRS) | Tax exemption on income received under the Voluntary Retirement Scheme. | Section 10 (10C) | Employees opting for VRS |
| Perquisites | Tax exemption on several perquisites provided by the employer. | Section 10 | Employees receiving perquisites |
| Agricultural Activities | Tax exemption on income derived from agricultural activities. | Section 10 (1) | Farmers and individuals in agricultural activities |
| Life Insurance Policy | Tax exemption on benefits received from life insurance policies. | Section 10 (10D) | Policyholders |
| Sukanya Samriddhi Yojana | Tax exemption on the amount, including interest and withdrawals from Sukanya Samriddhi Yojana accounts. | Section 10 (11A) | Account holders of Sukanya Samriddhi Yojana |
What are the Exemptions Under Section 10?
The following are the subsections describing various kinds of tax exemptions under Section 10 of Income tax Act:
Section 10 (1): Earnings From Agricultural Activities in India
Indian farmers, people or Hindu Undivided Families (HUFs) earning a livelihood from agriculture are exempt from taxes under Section 10 (1). The following kinds of income coming from agriculture are exempted :
- Sale of agricultural produce.
- Agricultural operations such as sowing, cultivation, and tilling
- Income from agricultural land in India, including rent or revenue.
- Earnings from farm buildings used for agricultural purposes.
- Income from agricultural operations aimed at preservation and growth, such as weeding, pruning, and cutting
Section 10 (2): Income Received as a Member of a HUF
Any earnings or earnings from the business or investments such as a fellow member of a Hindu Undivided Families (HUFs) will be tax-exempted under the following situations under Section 10 (2):
- The profit share or income is paid to the member from the overall income of the family.
- The income is the result of business performed by the family.
Note: Any interest earned by way of this income generated as a member of HUF is taxable.
Section 10 (2A): Tax Exemption on Profit Share Received as Co-owner of Partnership Firm or Limited Liability Partnership(LLP)
Section 10 (2A) exempts taxes on profits share received by each partner from a partnership firm under the following conditions:
- The partnership firm is taxed under the Income Tax Act, 1961.
- Each shareholder should get the same proportion of profit as mentioned in the partnership firm.
- Each partner will be limited to tax exemptions as co-owner or shareholder of The firm.
Section 10 (3): Income from Eligible Awards for Outstanding Contributions Exempt from Taxes
Section 10 (3) gives tax exemptions for monetary awards and grants made by the Central or State Governments for literary, arts, science or sports merits.
Section 10 (4): Income Made by an NRI coming from India is exempt from tax
Under Section 10 (4) an NRI may claim complete tax exemption on investment or savings account income in India provided the following conditions:
- Interest earned on rupee denominated bonds and securities specified by the Government of India.
- From income from redemption of these securities and bonds.
- Interest income of Non-Resident on money deposits in non-resident external accounts in any bank.
Section 10 (5): Salaried Individuals Receive Tax Exemption on Leave Travel Concession
The benefits are given to dependent family as spouses, parents, kids and siblings travelling in India.
Section 10(5), or leave travel allowance exemption, is applicable for individual taxpayers. The LTA exemption applies only to the domestic travel expenses, such as airfare, train or bus fare, incurred by the employee. Other expenses, such as transportation within the destination, sightseeing, hotels, and food, are not covered. Additionally, the exemption is limited to LTA provided in your CTC by the employer.
For example, if an employee is given LTA of Rs 30,000 and incurs travel expenses of Rs 20,000, only the amount actually spent on travel would be exempt from taxes and the remaining Rs 10,000 would be included as taxable income.
Section 10 (6): Exemption for Income Received by An Individual Working Abroad as an Indian Representative
An individual working outside India as a representative of India or a dignitary / employee visiting India as a foreign representative of a company / state can claim tax exemption under Section 10 (6).
Section 10 (7): Allowances & Perquisites Paid by the Indian Government are exempted from Tax
An employee might qualify for Tax exemption under Section 10 (7) of the Income tax Act, 1961 on all allowances & perquisites paid out by the Government of India for furnishing its services abroad.
Section 10 (10): Gratuity Benefits Tax Exemption
Government workers receive gratuity benefits under Section 10 (10), but
In the case of employees working in the private sector, depends on whether they are covered under the Payment of Gratuity Act or not
Section 10(10A) – Commuted Pension
If you are a Government employee, under this section, you receive tax exemption on the money you get from accumulated pensions.
Section 10(10AA) – Leave Encashment
Employees are allowed a certain number of leaves during the period of their service. It is upto the employees to avail such leaves or not. In case the leaves are not availed, they either get lapsed to get accumulated for future or are allowed to be encashed at the end of every year or at the time of retirement/resignation. If the employee wished to encash such leave during the period of service then it is fully taxable. However, if such leaves are encashed at the time of resignation/retirement, they are eligible for deduction under section 10(10AA). Further, leave encashment for government employees is completely exempt. In case of a non-government employee, the exemption will be the lower of the follows:
- Rs. 25,00,000
- Leave Salary Actually Received
- Average 10 Months Salary
- Cash Equivalent of Unavailed Leave Credit at the time of retirement
| Scenario | Taxability |
| Leave Encashment During Service | Fully Taxable |
| Leave Encashment at Resignation/Retirement | |
| Government Employee | Fully Exempt |
| Non-Government Employee | Exempt up to the lower of the following: |
| – ₹25,00,000 | |
| – Leave Salary Actually Received | |
| – Average 10 Months Salary | |
| – Cash Equivalent of Unavailed Leave | |
Section 10(10B) – Retrenchment Compensation
Retrenchment compensation is the amount paid at the time of transfer of employment or closing down of the industrial undertaking. Taxpayers receiving such compensation can claim an exemption u/s 10(10B) of the lower of the following:
- Compensation Received
- Rs. 5,00,000
- 15 days Avg pay x Completed years of service
Section 10 (10BC): Tax Exemption on Compensation Received by Victims of Disaster
The tax exemptions are on the compensation amount received by the State/Central Government or local authority on the victims of the disaster or their legal heirs under Section 10 (10BC).
Section 10 (10C): Voluntary Retirement or Termination Benefits Exemption from Taxes
Any amount received by an employee at the time of voluntary retirement would be taxed as profit in lieu of salary. The taxpayer can avail an exemption u/s 10(10C) as least of the following:
- Last drawn salary x Remaining months of service
- Compensation Received
- Rs. 5,00,000
- 3 months’ salary x Completed years of service
Section 10 (10CC): Exemption from Tax for Perquisites Paid by An Employer
Several employers collect the taxes on non-monetary advantages or prerequisites for their workers. In such circumstances, the employer has already paid taxes and it’s tax-free to the employees under Section 10 (10CC).
Section 10 (D): Exemption from Tax on Life Insurance Policy Payouts
Under this section, you get an exemption for the income you receive from a life insurance policy or bonus. However, the below insurance policies shall not be eligible:
- Insurance policies where the premium amount is more than 10% of the sum assured.
- Life insurance policy has taken on a specially-abled dependent family member
- Key man insurance policy
Section 10 (11): Exemption from Tax on Payment from Statutory Provident Fund
Under this section, you receive exemptions for interest from a provident fund upon resignation or retirement.
Note: From 1st April 2021 onwards, the exemption under section 10(11) will not apply to interest income accrued during the previous year on contributions exceeding Rs. 2,50,000 made by the person/employee to that fund in any previous year.
Section 10 (13A): House Rent Allowance Tax Exemption
Section 10(13A) of the Income Tax Act covers House Rent Allowance (HRA). The part of your salary you receive to cover house rent and accommodation expenses is exempted from taxation.
However, a few exceptions are included in Section 10(13A) Rule 2A. The exemption is allowed for the least of the following amounts:
- Actual HRA received
- 50% of [basic salary + DA] for those living in Delhi, Mumbai, Chennai, Kolkata or
- 40% of [basic salary + DA] for those living in other cities
- Actual rent paid (-) 10% of [basic salary + DA]
Under Section 10(13A) of the Income Tax Act, the following types of expenses are covered under House Rent Allowance (HRA) for exemption from income tax:
Rent paid: The actual rent paid by the taxpayer for the residential accommodation they occupy.
Brokerage or commission: Any brokerage or commission paid to a real estate agent or broker for securing the rented accommodation.
Maintenance charges: Expenses incurred towards maintenance charges for the rented accommodation, such as society maintenance fees or charges for common fad
Lease agreement costs: Costs associated with preparing and registering the lease agreement, if applicable.
It is important to note that only expenses directly related to the rental accommodation occupied by the taxpayer are eligible for exemption under Section 10(13A) of the Act.
Let’s take a look at the below example.
An employee living in Mumbai with a basic salary of Rs. 40,000 per month, receiving an HRA of Rs. 20,000 per month, and paying rent of Rs. 15,000 per month.
Condition 1: Actual HRA received – Rs. 2,40,000 (Rs.20,000 per month)
Condition 2: Metro city 50% of [basic salary + DA] – Rs. 2,40,000 (50% of Rs.4,80,000)
Condition 3: Actual rent paid (-) 10% of (basic salary + DA) – Rs.1,32,000 (Rs.1,80,000 – Rs.48,000)
Least of the above is the amount of Exempted HRA – Rs. 1,32,000, HRA chargeable to tax – Rs. 1,08,000 (Rs. 2,40,000 – Rs.1,32,000).
Section 10 (14): Exemption on Special Allowances Received
Employers may offer employees certain allowances to cover their expenses. Section 10 (fourteen) exempts such allowances at time of tax calculation.
Section 10(14) also includes a tax exemption of Rs.26,400 in a year for food allowance provided by your employer assuming two meals a day and 22 working days in a month.
Under Section 10(14), the Internet allowance provided by your employer is exempted from taxation.
This section provides exemptions for expenses incurred due to your employer’s business. It includes travelling, conveyance, research allowance and more, provided such expenses are actually spent for the given purposes.
Section 10(14)(ii) – Children Education Allowance
Taxpayers with children’s education allowance can an exemption of Rs. 100 per month for two children every year.
In case the taxpayer is blind or deaf and dumb or handicapped, and receiving a transport allowance can also claim an exemption of Rs. 3,200 per month.
Section 10 (15): Earnings From Interest on Investments – Tax Exemption
Interest income earned on post office savings bank account, premium on redemption or other payment on notified securities, bonds, annuity certificates or other savings certificates is exempt upto the following limits:
- Rs. 3,500 for individuals
- Rs. 7,000 for joint account holders.
Individuals earning Income from interests are exempted from Tax under Section 10 (15) of the income tax Act, 1961. Types of income and exemptions are listed as:
| Section | Description | Eligible Entities |
| Section 10 (15) (i) | Exemption on interest from the sum assured, maturity amount of specific bonds, securities, and certificates. | All taxpayers |
| Section 10 (15) (iib) | Interest earned from capital investment bonds (notified before 1st June 2001). | Individuals and Hindu Undivided Families (HUFs) |
| Section 10 (15) (iic) | Interest earned on relief bonds. | Individuals and HUFs |
| Section 10 (15) (iid) | Interest on bonds purchased in foreign exchange (notified before 1st June 2001). | NRIs or Indian residents receiving as a gift from NRIs |
| Section 10 (15) (iii) | Interest from securities purchased by the Central Bank of Ceylon. | Central Bank of Ceylon |
| Section 10 (15) (iiia) | Interest earned from deposits at the scheduled bank with RBI approval for a scheduled bank abroad. | Scheduled banks abroad |
| Section 10 (15) (iiib) | Interest paid to the Nordic Investment Bank. | Nordic Investment Bank |
| Section 10 (15) (iiic) | Interest to the European Investment Bank on loans given by the Bank and the central government. | European Investment Bank and the central government |
| Section 10 (15) (a) | Interest earned on loans from a local authority or government (before 1st June 2001) for assets lent from outside India. | Taxpayers with such loans |
| Section 10 (15) (b) | Interest earned on industrial undertakings in India/loan contracts (before 1st June 2001) for recognized overseas financial institutions. | Recognized overseas financial institutions |
| Section 10 (15) (c) | Interest earned on industrial undertakings outside India on raw materials, machines, or components (before 1st June 2001). | Taxpayers with such loans |
| Section 10 (15) (d) | Interest received by specified institutions in India (money borrowed before 1st June 2001). | Taxpayers who commit to pay such cash |
| Section 10 (15) (e) | Interest (where rates are approved) received from other financial institutions outside India under loan agreements (before 1st June 2001). | Taxpayers with such loan agreements |
| Section 10 (15) (h) | Interest earned by Indian industrial undertakings on funds raised in foreign currency under specific loan agreements from sources outside India (before 1st June 2001). | Taxpayers with such loan agreements |
Section 10(23C) – Tax Exemption for Educational and Medical Institutions
Educational or medical institutions whose aggregate annual receipts do not exceed Rs.5 crore are eligible for exemption under this section.
Section 10(26) – Tax Exemptions for Scheduled Tribe Members in Specific Northeastern States
If you are a member of a Scheduled Tribe in Tripura, Nagaland, Mizoram, Manipur, and Arunachal Pradesh, you are eligible for tax exemptions against income earning either from any source in the states mentioned above or earning through dividends or interest on securities under Section 10(26) Of the Income Tax Act.
Section 10(26AAA) – Tax Exemption for Sikkimese Individuals
If you are a Sikkimese individual earning either from any source in Sikkim or earning through dividends or interest on securities, this part of your income comes under tax exemption under Section 10(26AAA).
Section 10(34) – Exemption on Dividends
This section includes exemptions from the dividends that you receive from investing in an Indian company. However, this exception is only limited to an amount of Rs.10,000, exceeding which you have to pay tax.
Note: This is applicable only for the dividends received till 31st March 2020.
Section 10(34A) – Exemption on Buy-Back of Shares
The amount received on shares bought back by a domestic company before 01.10.2024 is fully exempt from tax u/s 10(34A).
Section 10(35) – Exemption on Income from Specified Mutual Funds
Any income that you gain from the sale of specified mutual fund units.
Note: This is applicable only for the income earned till 31st March 2020.
Section 10(37) – Exemption on Capital Gains from Compulsory Acquisition of Urban Agricultural Land
This section provides exemptions for capital gains due to the compulsory acquisition of urban agricultural land, provided the below conditions are fulfilled:
land should be used for agricultural purposes for 2 years before its sale date
compulsory acquisition scheme should be approved by the central government or RBI
Section 10(38) – Exemption on Long-Term Capital Gains from Sale of Equity Shares and Equity-Oriented Mutual Funds
When you get long-term capital gains by selling equity shares of an equity-oriented mutual fund, it is exempted from Income Tax calculation. However, the Securities Transaction Tax must be paid.
Note: This is applicable only for the long-term capital gain earned till 31st March 2018.
Section 10AA – Units In Special Economic Zones
An assessee being an entrepreneur conducting business in an SEZ, set up after 01/04/2006 and before 01/04/2021 will be eligible for deduction as follows:
- For the first consecutive five assessment years, one can claim a deduction of 100% of profit and gains derived from exports and 50% of profit and gains for the next five assessment years.
- 50% of profit as debited in the profit and loss account and credited to reserves will be allowed as a deduction for the next consecutive five assessment years.
Documents Required to Claims Section 10 Exemption
The following documents are required to claim Tax exemption under Section 10 Of income tax Act when filing an Income Tax return:
- Income tax login credentials.
- PAN card.
- Aadhaar card.
- Bank statement/passbook.
- Relevant documents of different incomes.
How to Claim Exemptions Under Section 10?
Claiming exemptions under income tax section 10 involves a few steps to ensure the eligible income is deducted out of the taxable income. Here is how you can claim sec 10 exemption list:
- Determine Eligibility: Verify you qualify for the exemption under Section 10 by verifying the criteria in that subsection.
- Collect Required Documents: Collect papers confirming your eligibility for the exemption. That includes salary slips, rent receipts, insurance policy documents.
- Fill in the Details in Income Tax Return (ITR): In the relevant sections of the ITR form, jot down the Income exempted under Section 10.
- Submit Proofs: Attach or even send the required proofs and documents with your ITR to prove your claim for exemptions.
- Verification: The Income Tax Department will verify the particulars and documentation submitted after submission. Make sure all information matches the proofs submitted.
Final Words
Section 10 Of Income tax Act offers numerous exemptions that taxpayers may make use of to lower their tax liabilities. Knowing which exemptions Under Section 10 apply and how to claim them can save you considerable tax savings. This particular comprehensive provision extends over several sources of income and gives tax relief at various stages in life and on various sources of income. But you always want to speak to a tax professional about how to get the best from the Income tax Act but still follow the law.
Utilising income tax section 10 provisions, taxpayers can deal with their finances and lower their overall tax burden for improved financial wellness and planning for the future.