Section 10 of the Income Tax Act

What is Section 10 of the Income Tax Act?

Section 10 of the Income Tax Act 1961 outlines specific types of income that are exempt from taxation. This means that these income sources are not included in your total taxable income, reducing your overall tax liability. Some common examples of income exempted under Section 10 include agricultural income, certain types of gratuity, and specific allowances provided by employers like house rent allowance and travel allowance.

Exemptions Under Section 10 of the Income Tax Act

There are certain kinds of allowances that are considered special allowances under Section 10 of the Income Tax Act.

1. Section 10(13A) of the Income Tax Act

   Section 10(13A) of the Income Tax Act, 1961, provides for the exemption of House Rent Allowance (HRA) received by an employee from their employer. This provision offers tax benefits on the HRA received by employees to meet their rental housing expenses.

   Conditions for HRA Exemption

   To claim HRA exemption under Section 10(13A), the following conditions must be met:

   • Actual HRA Received: The employee must be receiving HRA from their employer.

   • Rent Payment: The employee must be paying rent for their residential accommodation.

   • No Self-Owned Accommodation: The employee should not own a residential property in the city where they are employed or where they reside.

   Calculation of HRA Exemption

   The amount of HRA exemption is calculated based on the following factors:

   • Actual HRA Received: This is the amount of HRA received from the employer.

   • 50% of Salary (for metro cities) or 40% of Salary (for non-metro cities): This is calculated based on the employee's basic salary and DA.

   • Actual Rent Paid Minus 10% of Salary: This is the excess rent paid over 10% of the employee's salary.

   The lowest of these three amounts is the maximum amount that can be claimed as HRA exemption.

2. Section 10(5) of the Income Tax Act

   Section 10(5) of the Income Tax Act provides for an exemption from income tax on Leave Travel Allowance (LTA) received by salaried individuals. This exemption is applicable only for domestic travel within India and covers expenses like airfare, train fare, or bus fare. Other expenses, such as accommodation and food, are not eligible for exemption.

   To claim this exemption, certain conditions need to be met:

   • The LTA must be received from the employer as part of the salary package.

   • Travel must be undertaken for self and/or family members.

   • Travel must be undertaken during the leave period.

   • Proof of travel, such as tickets and bills, must be submitted.

   It's important to note that the LTA exemption is subject to certain limits and conditions, which may vary from year to year.

3. Section 10(26) of the Income Tax Act

   Section 10(26) of the Income Tax Act provides tax exemption to members of Scheduled Tribes (STs) residing in specific areas of India. This exemption applies to income earned from any source within these designated areas or from dividends and interest on securities. 

   The purpose of this exemption is to support the economic development and upliftment of ST communities in these regions. It aims to reduce their tax burden and encourage financial growth.

4. Section 10(14)(i) of the Income Tax Act

   Section 10(14)(i) of the Income Tax Act provides tax exemptions for certain allowances given by an employer to cover expenses incurred in the course of performing your job. These allowances are exempt from tax as long as they are actually spent for the specified purposes.

5. Section 10(11) of the Income Tax Act: Provident Fund Interest

   • Interest earned on your Provident Fund (PF) is generally tax-exempt.

   Note: However, from April 1, 2021, interest on contributions exceeding ₹2.5 lakhs per year is taxable. 

6. Section 10(34) of the Income Tax Act: Dividend Income

   • Dividends received from Indian companies were previously tax-exempt up to ₹10,000.

   • This exemption was removed from FY 2021-22 onwards. Now, all dividend income is taxable in the hands of the recipient.

7. Section 10(26AAA) of the Income Tax Act: Income of Sikkimese Individuals

   Sikkimese individuals enjoy tax exemption on income earned within Sikkim and on dividends and interest on securities.

8. Section 10(38) of the Income Tax Act: Long-Term Capital Gains on Equity Shares

   • Until FY 2017-18, long-term capital gains (LTCG) from selling equity shares or equity-oriented mutual funds were tax-exempt if Securities Transaction Tax (STT) was paid.

   • From FY 2018-19 onwards, LTCG on such investments is taxable at 10% (12.5% from FY 2024-25) if the gains exceed ₹1 lakh (₹1.25 lakh from FY 2024-25).

9. Section 10(34) of the Income Tax Act: Dividend Income 

   Dividends received till 31st March 2020 from Indian companies were exempt from tax up to Rs. 10,000.

   From FY 2021-22: Dividend income is now taxable in the hands of the recipient.

10. Section 10(26AAA) of the Income Tax Act: Sikkim Tax Exemption

    Sikkimese individuals earning income within Sikkim or through dividends/interest on securities are exempt from Income Tax under this section.

11. Section 10(38) of the Income Tax Act: Long-Term Capital Gains on Equity Mutual Funds

    Long-term capital gains from selling equity-oriented mutual fund shares were exempt from Income Tax until March 31, 2018. However, Securities Transaction Tax still applied.

12. Section 10(23C) of the Income Tax Act: Tax Exemption for Educational/Medical Institutions

    Educational or medical institutions with annual receipts below Rs. 5 crore are exempt from Income Tax under this section.

13. Section 10(37) of the Income Tax Act

    This section offers tax exemption on capital gains from the compulsory acquisition of urban agricultural land. To qualify, the land must have been used for agricultural purposes for at least 2 years prior to the sale, and the acquisition scheme must be approved by the central government or RBI.

14. Section 10(10A) of the Income Tax Act

    Government employees can enjoy tax exemption on the accumulated pension they receive.

15. Section 10(10D) of the Income Tax Act

    The maturity amount and the bonus of a Life Insurance Policy earned by a citizen of India are exempt from tax under Section 10(10D) of the Income Tax Act. However, the following are some of the criteria to receive the benefit:

    • Policies issued before 1st April 2012 and the premium paid on this policy is not more than 20% of the sum assured.

    • Policies issued after 1st April 2012 and the premium paid on this policy is not more than 10% of the sum assured.

    • Maturity and bonus amount on the life insurance policy to a person with disability or disease specified under Section 80U and 80DDB.

    

16. Section 10(35) of the Income Tax Act: Capital Gains from Specified Mutual Funds

    Until 31st March 2020: Any income earned from the sale of specified mutual fund units was tax-free.

17. Section 10(10) of the Income Tax Act: Gratuity

    • Government Employees: Gratuity received by government employees is fully exempt from tax.

    • Private Sector Employees: Gratuity received by private sector employees is exempt up to a certain limit, depending on factors like the Payment of Gratuity Act.

    • Section 10(14): Employer-Provided Allowances

18. Internet Allowance Under Section 10 of the Income Tax Act 

    Any internet allowance provided by your employer is tax-exempt under Section 10(14) of the Income Tax Act.

19. Food Allowance Under Section 10 of the Income Tax Act 

    Section 10(14) of the Income Tax Act allows food allowance of up to Rs. 26,400 per year (assuming two meals a day and 22 working days per month) is also tax-exempt.

20. Section 10(1) of the Income Tax Act: Exemption of Agriculture Income

    According to this section, agricultural income from land situated in India is entitled to tax exemptions.

    The income could be in the form of the following:

    • Rent or revenue received from agricultural land situated in India

    • Basic operations such as cultivation, tilling and sowing

    • Subsequent operations to grow and preserve the product such as weeding, cutting, pruning, etc.

    • Sale of agricultural produce

    • Income derived from farm building required for agricultural operations

21. Section 10(2) of the Income Tax Act: Exemption on the Income of a HUF

    As per Section 10(2), those who earn the income of HUF are entitled to get tax exemption, provided:

    • The income received by the individual must be paid out of the income of the family.

    • In the case of an impartible estate, the income must be paid out of the income of the estate belonging to the family.

22. Section 10(4) of the Income Tax Act: Exemption of Income Received by an NRI from India

    Those who are Non-Resident Indians (NRI) are entitled to enjoy tax exemptions on certain investments. These include:

    • Income earned by way of interest on bonds or securities specified by the government for exemption

    • Premium income on redemption of such bonds

    • Interest income from the credited amount in a Non-Resident (External) Account

    • Interest income earned by a resident outside India from the credit in a Non-Resident (External) Account

23. Section 10(6): Exemption on Remuneration to Indian Citizens Who are Working Outside India

    This is a special package for those individuals who are working outside India and representing India in that country. Individuals who are officials at an embassy, high commission, consulate or trade representative of a foreign state, or individuals acting as a member of these officials, enjoy the benefits of this section.

    The employees of the foreign companies are, too, entitled to enjoy the tax benefit under this act, subject to the following limitations:

    • The foreign company should not be engaged in any business or trade in India

    • The living tenure of the employees should not be more than 90 days in India

    • Under this act, the remuneration of the employer is not entitled to be deducted

24. Section 10(7): Exemption on Allowances and Perquisites Paid by the Government

    All the allowances and the perquisites that are provided by the Government of India to its employees for furnishing its services outside India are entitled to tax exemptions. Indian citizens who are government employees are entitled to avail of this benefit.

25. Section 10(10CC): Exemption on Tax on Perquisites Paid by the Employer

    Sometimes, employers pay taxes for non-monetary perquisites on behalf of their employees. In such a case, the tax paid by the employer is treated as a tax exemption in the hands of the employee.

26. Section 10(11): Exemption on Payment Made in Provident Fund and Sukanya Samriddhi Account

    Any amount received in terms of contribution or interest from a provident fund account on retirement or termination of service is exempted. Also, any payment made from the Sukanya Samriddhi Account is eligible for tax exemption under Section 10(11).

27. Section 10(10BC): Exemption on the Remuneration Received Against a Disaster

    The employee is entitled to enjoy the exemption on tax if he receives compensation for natural disasters from the Central Government, the State Government or a local authority.

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

    The salaried employees are entitled to receive the allowance on the house rent paid, which is exempted from tax. The part of the salary an employee receives towards rent and accommodation is exempt from tax under this section. The following are the conditions:

    • Actual HRA received by the employee

    • HRA is 40 % of the salary for the rented property in non-metro cities or 50 % of the salary for metro cities.

    • Actual rent paid is less than 10% of salary.

29. Section 10(15) the Income Earned from Interest on Investments

    Those who earn income from interest are exempted as per the rules of Section 10(15). The table below provides the details.

    Section	Income	Tax exemption to
    10(15)(i)	The exemption would be availed on the interest, redemption or premium on bonds, securities, deposits and certificates which are subject to some conditions and limitations.	All assesses
    10(15)(iib)	Interest on the bonds of Capital Investment should be notified before the date of 01-06-2002	HUF/Individual
    10(15)(iic)	Interest on Relief bonds	HUF/Individual
    10(15)(iid)	Interest on declared bonds (which should be declared before 1-6-2002) and should be bought in foreign exchange which must be subject to some limitations and conditions.	NRI-Individual/NRI gift the bonds to the individual.
    10(15)(iii)	Securities’ interest	Issue department under the central bank of Ceylon
    10(15)(iiia)	The interest on deposits with the scheduled bank with the approval from RBI	Incorporation of bank broad
    10(15)(iiib)	Paying of interest to Nordic Investment Bank	Nordic Investment Bank
    10(15)(iiic)	In the execution of an agreement which takes place on 25-11-1993, the interest is payable to the European Investment Bank for granting of the loan by it between that bank and the central government.	European Investment Bank
    10(15)(iv)(a)	Receiving the interest from the local authority or the government on money lent to it prior to 1-6-2001	All the assets which are committed to lent on money from sources outside the nation
    10(15)(iv)(b)	Under the agreement of loan, received the interest from the industrial undertaking in India prior to 1-6-2001.	Approved the financial institution of foreign nations
    10(15)(iv)(c)	Receiving the interest at a certain rate from the industrial undertaking of India on debt or lent prior to the date of 1-6-2001 in a foreign nation for the purpose of purchasing the capital plant, raw materials and machinery within certain limitations and conditions.	All the assesses who have committed to lending such cash
    10(15)(iv)(d)	Receiving the interest prior to 1-6-2001 at an approved rate from certain financial institutions on the lending money in India	All the assess which have committed to lend such money
    10(15)(iv)(e)	Receiving the interest at an approved rate from the country’s financial institutions on the lending of money from outside India prior to 1-6-2001 under the certain loan agreement	All the assess which have committed to lend such money
    10(15)(iv)(h)	Receiving interest from any company concerning approved debentures or bonds	All assesses

Maximum Income Tax Exemption Allowed under Section 10

The following are the Income Tax exemption limits allowed under Section 10 of the IT Act:

• Below 60 years of age: Rs. 2.50 lakhs

• Between 60-80 years of age: Rs. 3 lakhs (only for the citizens resident in India)

• Above 80 years of age: Rs. 5 lakhs (only for the citizens resident in India)

Conclusion

Section 10 of the Income Tax Act focuses on the income tax exemptions that a salaried Indian citizen can avail of. Various subsections of the act can legally enable the taxpayer to avoid paying taxes under specified allowances or incomes.