EXEMPT INCOME (Section 10)

   

Section 10 is specifically dedicated to grant various exemptions to assessees of all class on Incomes earned by them. Below is a comprehensive summary of such exemptions, catch out if you could grab one:-  

Section

Eligible Assessee

Type of Income

Limits

Conditions for claiming Exemption

10(1)

Any assessee

Agricultural Income

Entire amount

  1.  Rent or Revenue   

10(2)

Any individual, being a member of HUF

Amount received as share of income from the HUF

Entire amount

Only those members can claim exemption who are entitled to demand share on partition or entitled to maintenance under Hindu Law.

10(2A)

Any assessee, being a partner of a partnership firm.

Amount received as share of profits from the firm

Entire amount

  1. Exemption is allowable only if the partnership firm of which the assessee is a partner is assessed as such.

  2. Emoluments other than share of profit received from the firm such as remuneration, interest, etc. remain taxable.

10(4)(i)

Any assessee, being a non-resident

Amount received as interest or premium on redemption on specified bonds or securities

Entire amount

  1. Bonds or securities must be specified by the Central Government by notification in Official Gazette on or before 1st June’2002.

10(5)

An individual

Amount received as leave travel concession from employer or former employer

Entire amount received or the amount actually spent for the purpose of travel whichever is less.

For Conditions in detail refer ‘Leave Travel Concession’ under Salaries Head.

10(6)(vi)

An individual, being a person who is not a citizen of India

Amount received as remuneration as an employee of a foreign enterprise for services rendered by him during his stay in India.

Entire amount

  1. The foreign enterprise must not carry on any business in India.

  2. The stay of the assessee in India should not exceed a period of 90 days. 

  3. The remuneration so paid is not liable to be deducted from income of employer chargeable under the Income- tax Act, 1961.

10(6B)

A non-resident (not being a foreign company) and a foreign company.

Tax paid on income (does not include Salary, Royalty, and Technical fees) by Central govt. or by an Indian Concern to the Central govt.

Entire amount

  1. Income is received from Government or an Indian Concern.

  2. Income must be derived in pursuance of an agreement entered into by the Central Government with the government of a foreign state or an international organization.

  3. The agreement must be entered into before the 1st day of June, 2002.

10(6C)

Foreign companies notified by the Central Government.

Royalty or fees for technical services.

Entire amount

  1. Income must be derived in pursuance of an agreement entered into with the Central Government

  2. The agreement must be for providing services in projects connected with the security of India.

  3. Services may be provided in India or outside.

10(10)

An individual

Gratuity.

As per conditions specified in the section

For Conditions in detail refer Gratuity under Salaries Head.

10(10A)

An individual

Commuted pension

As per conditions specified in the section

For Conditions in detail refer ‘Pension’ under Salaries Head.

10(10AA)

An individual

Leave encashment

As per conditions specified in the section.

For Conditions in detail refer ‘Leave Encashment’ under Salaries Head.

10(10B)

An individual

 Retrenchment Compensation

Least of
(i) an amount calculated as per section 25F (b) of the Industrial Disputes Act, 1947; or
(ii) Rs. 5, 00,000 or
(iii) actual amount
received.

  1. The limits do not apply to any compensation received in accordance with any scheme of the Central Government.

10(10C)

An employee individual

Compensation for voluntary retirement (V.R.S)

Maximum of         Rs. 5,00,000.

  1. The scheme of voluntary retirement should be framed as per Rule 2BA of the Income Tax Rules.

10(10CC)

An employee individual

Tax on non-monetary perquisites paid by the employer

Entire amount

  1. Tax can be paid by the employer not withstanding Section 200 of the Companies Act.

10(11)

An individual

Payments received from a provident fund

Entire amounts

The provident fund should fall within the purview of the Provident Funds Act, 1925 or should be set up and notified by the Central Government.

(For Detailed discussion see Salaries Module)

10(12)

An individual

Accumulated balance in a recognized provident fund

To the extent provided in rule 8 of Part of the Fourth Schedule of the Income-tax Act.

        

10(13A)

An individual

House rent allowance

Least of the following:

 i. HRA actually received

 ii. Rent paid – 10% of Salary.

 iii. 50% of Salary if residing in Kolkata, Mumbai, Delhi or Chennai and 40% of Salary in other cases; wherein salary includes Basic +DA + commission based on fixed percentage of turnover.

As per rule 2A  

(For Detailed discussion see Salaries Module)

10(14)

An individual

Prescribed allowances

As per rule 2BB

As per rule 2BB.

(For Detailed discussion see Salaries Module)

10(15)

All assessee 

Interest, premium on
redemption and other
payments on securities, bonds, annuity certificates,
saving certificates and notified deposits.

As Specified.

For detailed discussion on exemptions available to various assesses refer Income from other sources module.

10(16)

An individual

Scholarships

Entire amount

Scholarships should be received to meet the cost of education. It’s not necessary that the scholarship should be financed by Govt. only.

10(17)

A Member of Parliament or of any State Legislature or of any Committee thereof.

Prescribed Allowances

Entire amount

Amendment: Under the amendment provided in Finance Bill 2006 the Pattern of exemptions will be as follows:

  1. Daily Allowance – Fully exempt for Member of Parliament as well as for Members of State Legislature

  2. Constituency Allowance – Fully exempt for Member of Parliament as well as for Members of State Legislature

  3. Any Allowance – Fully exempt for Member of Parliament as well as for Members of State Legislature

10(17A)

Any assessee

Awards received in cash or kind.

Entire amount.

The award/ reward should have been instituted by the Central or State Government, or by any other body and approved by the Central Government.

10(18)

Central or State Government employee.

Pension/ Family Pension

Entire amount

The individual was in service of Central/ State govt. & should have been awarded either "Param Vir Chakra" or the "Maha Vir Chakra" or the "Vir Chakra" or such other notified gallantry award.

10(19)

Widow or children or nominated heirs of the armed forces of the union.

Family pension

Entire amount

The death of a member of the armed forces (including para military forces) of Union occurs:

  • During performance of operational duties under notified circumstances

  • A certificate to this effect has been obtained from Head of the deptt. where the deceased member had last served.

10(23AA)

Any person

Any Income

Entire amount

Income should be received on behalf of any Regimental fund or Non-Public Fund established by the armed forces.

10(23AAA)

Any person

Any income

Entire amount

Fund should be established for following purposes & for the welfare of the employees or their dependents:

  • Cash benefits to a member of the fund in case of Superannuation; Event of his illness/ of spouse/ of dependent children; to meet cost of education of dependent children.

  • Cash benefits to the dependents of a member of the fund in the event of death of such member.

Employees are members of the fund.

Application of fund’s income exclusively towards the Set objectives.

Investment of fund’s income & members’ contribution in modes set

The fund has been duly approved by the commissioner as per rules on this behalf.

10(23AAB)

Any person

Any income

Entire amount

Income should be received on behalf of a fund established by LIC or any other insurer under a pension scheme duly approved by the Controller of Insurance/ IRDA

10(23D)

Mutual Funds

Any income

Entire amount u/s 11(5)

  • The Fund must be registered with SEBI; or

  • The Fund should be a notified one set up by a Public sector bank/ Public financial institution/ is authorized by RBI on this behalf.

10(24)

Trade Unions

Income from House Property & from Income from Other Sources

Entire amount

  • The trade union should be registered under the Trade Unions Act’ 1925.

  • The union should have been primarily formed for the purpose of regulations between employer & workmen or between workmen themselves.

10(26BB)

Corporation established under Central/ State govt.

Any income

Entire amount

The corporation must be formed for the purpose of promoting the interest of the notified minority communities.

10(26BBB)

Corporation established for welfare of Ex-servicemen

Any income

Entire amount

The corporation must be formed for the purpose of welfare & economic upliftment of Ex-servicemen.

10(32)

Individual

Any income

Rs. 1,500 or Income of the Minor,

Whichever is lower.

For detailed discussion refer Clubbing of Income module

10(33)

Any person

Income arising from transfer of Unit acquired under U/s 64 Scheme.

Entire amount

  • Transfer of such units takes place on or after April 1st’2002.

  • Noticeable fact is that a loss on sale of US 64 units cannot be setoff against any income in its year of purchase since income from US 64 is exempt from tax and no deduction can be allowed against already exempt income.

10(34) & 10(35)

Any person

Dividend received from an Indian company

Entire amount

Following  incomes are exempt from tax:

  • Any income by way of dividend received on which Corporate Dividend tax is payable.

  • Any income in respect of units of Mutual funds.

  • Income received from a Unit holder of UTI.

  • Remember that Dividend received from a Co-operative Society is not exempt from tax.

10(36)

Any person

Long Term Capital Gains

Entire amount

  • An eligible equity share being a Long term capital asset is transferred.

  • Such shares are acquired after March 1st’ 2003 but before March 1st’ 2004.

  • Such shares are held by the taxpayer for more than 12 months.

10(37)

Individual or HUF

Capital gains on transfer of agricultural land situated in area specified in item (a) or (b) of section 2(14)(iii)

Entire amount

  1. The capital gains must arise from compulsory acquisition of agricultural land held in an urban area and compensation is received on or after 1st April, 2004

  2. Such land was used by the HUF or in case of individual by himself or his parents, for a period of 2 years immediately preceding the date of transfer.

  3. Such transfer is by way of compulsory acquisition under any law, or a transfer whose consideration is determined or approved by the Central Government or the Reserve Bank of India.

  4. The consideration or compensation for such transfer is received by the assessee on or after 1st April, 2004

10(38)

Any person

Long term Capital Gain

Entire amount

  •  Long term Capital gain must arise on transfer of equity shares of a listed company or units of equity oriented mutual funds(a mutual fund wherein investible funds are invested in domestic companies for more than 65% of the total proceeds of such fund)   

  • Such transaction is chargeable to Securities Transaction Tax.