🧾 Exemptions Under Section 10 of the Income Tax Act Explained

Section 10 of the Income Tax Act, 1961, delineates various income categories exempt from taxation, aiding taxpayers in legally reducing their taxable income. Understanding these exemptions is crucial for effective tax planning.

🔑 Key Exemptions Under Section 10

1. Section 10(1): Agricultural Income

• Description: Income derived from agricultural land in India, including rent or revenue from such land.
  
  
• Exemption: Fully exempt from tax.
  
  
• Note: While exempt, it’s considered for rate purposes when computing tax on non-agricultural income.
  
  

2. Section 10(2): Income of a Hindu Undivided Family (HUF)

• Description: Amount received by a member from the income of a HUF.
  
  
• Exemption: Fully exempt.
  
  

3. Section 10(2A): Share of Profit from Partnership Firm

• Description: Share of profit received by a partner from a partnership firm or LLP.
  
  
• Exemption: Fully exempt.
  
  
• Note: Interest or remuneration received by partners is taxable.
  
  

4. Section 10(4): Interest on Non-Resident (External) Account

• Description: Interest earned on NRE accounts by non-resident individuals.
  
  
• Exemption: Fully exempt.
  
  

5. Section 10(5): Leave Travel Concession (LTC)

• Description: Amount received by an employee from the employer for travel expenses.
  
  
• Exemption: Exempt for travel within India, subject to conditions.
  
  

6. Section 10(10): Gratuity

• Description: Gratuity received by employees upon retirement or death.
  
  
• Exemption:
  
  
  • Government employees: Fully exempt.
    
    
  • Non-government employees covered under the Payment of Gratuity Act: Exempt up to ₹20 lakhs.
    
    
  • Others: Exempt up to ₹10 lakhs.
    
    

7. Section 10(10A): Commuted Pension

• Description: Lump-sum pension received by employees.
  
  
• Exemption:
  
  
  • Government employees: Fully exempt.
    
    
  • Non-government employees: Partially exempt.
    
    

8. Section 10(10D): Life Insurance Policy Proceeds

• Description: Sum received under a life insurance policy, including bonus.
  
  
• Exemption: Fully exempt, subject to conditions regarding premium amounts and policy issuance dates.
  
  

9. Section 10(11): Provident Fund

• Description: Payments from statutory provident fund.
  
  
• Exemption: Fully exempt.
  
  

10. Section 10(13A): House Rent Allowance (HRA)

• Description: HRA received by salaried individuals.
  
  
• Exemption: Least of the following:
  
  
  • Actual HRA received.
    
    
  • 50% of salary (for metro cities) or 40% (for non-metro cities).
    
    
  • Rent paid minus 10% of salary.
    
    

11. Section 10(14): Special Allowances

• Description: Allowances granted to meet expenses wholly, necessarily, and exclusively incurred in the performance of duties.
  
  
• Exemption: Amounts actually spent, subject to prescribed limits.
  
  

12. Section 10(15): Interest on Specified Securities

• Description: Interest received on certain notified securities and bonds.
  
  
• Exemption: Fully exempt.
  
  

13. Section 10(16): Scholarships

• Description: Scholarships granted to meet the cost of education.
  
  
• Exemption: Fully exempt.
  
  

14. Section 10(17): Allowances to MPs and MLAs

• Description: Daily allowances received by Members of Parliament and State Legislatures.
  
  
• Exemption: Fully exempt.
  
  

15. Section 10(32): Income of Minor Child

• Description: Income of a minor child included in the income of the parent.
  
  
• Exemption: ₹1,500 per child per annum.
  
  

16. Section 10(34): Dividend Income

• Description: Dividend received from domestic companies.
  
  
• Exemption: Exempt up to ₹10 lakhs; beyond that, taxable.
  
  

17. Section 10(38): Long-Term Capital Gains (LTCG) on Equity

• Description: LTCG on sale of equity shares or equity-oriented mutual funds.
  
  
• Exemption: Up to ₹1 lakh; gains above ₹1 lakh taxed at 10% without indexation.
  
  

📌 How to Claim Exemptions

1. Maintain Proper Documentation: Keep records of all income and related documents.
   
   
2. Form 16: Ensure your employer provides Form 16 reflecting exemptions.
   
   
3. ITR Filing: While filing Income Tax Returns, report exempt income under the ‘Exempt Income’ section.
   
   
4. Form 12BB: Submit to your employer for claiming HRA, LTA, etc.
   
   

📊 Conclusion

Understanding the various exemptions under Section 10 of the Income Tax Act can significantly aid in tax planning and reduce your taxable income. Always ensure compliance with the conditions specified for each exemption and maintain proper documentation to substantiate your claims.

Note: Tax laws are subject to amendments. It’s advisable to consult a tax professional or refer to the latest provisions of the Income Tax Act for accurate and updated information.