Section 10 Of Income Tax Act

1) Section 10 (1) – Exemption on Agricultural Income

The following is the list of exemptions on agricultural income under Section 10 (1):

1. Sale of agricultural produce
2. Agricultural operations such as sowing, cultivation, and tilling

1. Agricultural land in India yielding rent or revenue
2. Earning from farm building required for agricultural purposes
3. For preservation and growth or product certain agricultural operations are exempted, such as weeding, pruning, cutting, etc.

Example:

Ms. Monica owns a farm where she grows vegetables. She spends a significant amount of time and money on agricultural operations such as sowing seeds, cultivating the plants, and tilling the soil. At the end of the season, she sells her produce at the local market and earns Rs.2,50,000 from these sales. 

Exemptions Applied:

The Rs.2,50,000 earned from selling the vegetables is considered agricultural income.

Under Section 10 (1), this income from the sale of agricultural produce is exempt from tax.

The income Ms. Monica earns from her farming activities is exempt from tax because:

It comes from the direct sale of agricultural produce.

2) Section 10(2) – Exemption on the Income of a HUF

The following is the list of exemptions on income of HUF under Section 10 (2):

1. Income must be paid out of family’s income, in case the income received by the individual
2. The income must be paid out from the income received from estate belonging to the family in case of impartible estate

Example

Ms. Priya is a member of a HUF. She receives an income of Rs.1,00,000 from the HUF and Rs.15,000 as dividend income. The dividend income is considered her personal income. The Rs.1,00,000 received from the HUF is not taxable. However, the dividend income of Rs.15,000 is taxable.

3) Section 10(2A) – Exemption of Income from a Partnership Firm

The following is the list of exemptions on income from partnership of firm under Section 10 (2A):

1. Profit earned by co-owner or partner is exempted from tax

1. Income should be taxed as Partnership firm under the Income Tax Act 1961 and the partnership firm must be classified under the act
2. The tax exempted is limited to a certain amount of the share of the profit earned by the partners of the Firm or LLP

Example

Ms. Suzy is a partner in a partnership firm named XYZ & Co. The firm has three partners, and it is classified as a partnership firm under the Income Tax Act, 1961. For the financial year, XYZ & Co. earns a total profit of Rs.9,00,000. According to the partnership deed, Ms. Suzy’s share of the profit is 30%.

Exemptions Applied:

Ms. Suzy’s share of the profit from the firm is Rs.2,70,000 (30% of Rs. 9,00,000).

This profit share of Rs.2,70,000 is exempt from tax in Ms. Suzy’s hands under Section 10(2A).

The profit share of Rs.2,70,000 received by Ms. Suzy is exempt from tax because it is her share of the profit from a partnership firm.

The partnership firm, XYZ & Co., is taxed separately as per the Income Tax Act, 1961.

Therefore, the income Ms. Suzy earns as her share of the firm’s profit is not taxable in her individual tax return.

4) Section 10(4) – Exemptions on the Income earned by an NRI from India

The following is the list of exemptions on the income earned by an NRI from India under Section 10 (4):

1. Redemption of bonds yielding premium income

1. Credited amount in a Non-Resident (External) Account yielding interest
2. Exemption as specified by the government from the income earned in the form of interest from bonds or securities
3. The credited amount in a Non-Resident (External) Account yielding interest earned by resident outside India.

Example

Ms. Deepika, an NRI residing in the UK, has invested in Indian government bonds and maintains an NRE account in an Indian bank. She earns Rs.50,000 from the redemption of these bonds and Rs.20,000 as interest credited to her NRE account.

Exemptions Applied:

The Rs.50,000 earned from the redemption of the bonds is exempt from tax.

The Rs.20,000 interest earned in her NRE account is also exempt from tax.

Ms. Deepika’s income from the redemption of bonds is exempt because it is specified under Section 10(4) as premium income from bonds. The interest credited to her NRE account is exempt from tax, as specified under Section 10(4).

5) Section 10(5) – Exemption on Leave Travel Concession

The following is the list of exemptions on leave travel concession under Section 10 (5):

1. Received from existing employer in a particular financial year for employee and their family
2. Entitled for a specific amount from employer on the condition of travel concession across India while on leave
3. Must be received in connection with future travel from previous or existing employer.

Example

Ms. Dolly, an employee of LMN Ltd., receives an LTC of Rs.50,000 from her employer for her family’s travel expenses within India. This concession is provided for travel planned during her leave in the upcoming summer.

Exemptions Applied:

Ms. Dolly receives Rs. 50,000 from her current employer in the financial year for her family’s travel within India. This amount is exempt from tax under Section 10(5) because it is intended for travel while she is on leave. The exemption applies as the amount is for future travel, aligning with the conditions set by the employer.

The Rs. 50,000 LTC received by Ms. Dolly is exempt from tax as it is granted by her existing employer for the purpose of family travel within India. The exemption covers the specific amount provided by the employer, ensuring it meets the conditions of being used for travel while on leave. The exemption also applies because the concession is linked to future travel, fulfilling the criteria of Section 10(5).

6) Section 10(6) – Exemption to Indian Citizens Working Outside the Country on their Remuneration

The following is the list of exemptions to Indian citizens working outside the country on their remuneration under Section 10 (6):

1. Employees must not stay in India for more than 90 days duration
2. Remuneration is not entitled for deduation under this act
3. Foreign company should not engage in any kind of trade or business in India under this act

Example

Ms. Shagufta, an Indian citizen, works for a foreign company based in the UAE. She earns a salary for her work there and visits India for a total of 85 days during the financial year.

Exemptions Applied:

Since Ms. Shagufta stays in India for only 85 days, she meets the condition of not exceeding 90 days. The remuneration she earns in the UAE is exempt from Indian income tax and is not subject to deductions under the Income Tax Act. The foreign company she works for does not engage in any trade or business in India, fulfilling the necessary condition.

Ms. Shagufta’s salary from her employment in the UAE is exempt from Indian tax because she stays in India for less than 90 days in the financial year. The income she earns abroad is not eligible for deductions, ensuring clarity in the exemption. The foreign company’s non-engagement in Indian trade or business validates the applicability of the exemption under Section 10(6).

7) Section 10(7) – Exemption on Allowances and Perquisites Paid by the Government

The following is the list of exemptions on allowances and perquisites paid by the government under Section 10 (7):

1. Tax exempted under this section for all the allowances and perquisites paid by the government to the employees for their service outside India
2. Can be availed by Indian citizens only who are government employees.

Example

Mr. Subir, an Indian citizen, is employed by the Indian government and is assigned to a diplomatic mission in the United States. As part of his employment, he receives various allowances and perquisites from the Indian government for his service abroad.

Exemptions Applied:

All allowances and perquisites received by Mr. Subir from the Indian government for his service outside India are exempt from tax under Section 10(7). This exemption applies specifically to Indian government employees like Mr. Subir who are engaged in service outside India.

8) Section 10(10CC) – Exemption on Tax on Perquisites Paid by the Employer

Under Section 10 (10CC) tax is exempted for non-monetary perquisites on behalf of the employees.

Example

Ms. Abhilasha is an employee of QRST Corporation. As part of her employment package, the company provides her with a company car for both official and personal use. Additionally, QRST Corporation also offers her accommodation in a company-owned apartment near the workplace.

Exemption Applied: 

Tax Exemption: As per Section 10(10CC), the total value representing non-monetary perquisites provided by QRST Corporation to Ms. Abhilasha is exempt from taxation. Therefore, she does not need to pay tax on this amount, reducing her taxable income accordingly.

9) Section 10(10D) – Exemption on the Tax of Life Insurance Policy

The following is the list of exemptions on tax on the maturity value of Life Insurance policy under Section 10 (10D):

1. Tax exempted for policies with premium paid not more than 20% of the sum assured and issued before 1 April 2012.
2. Tax is exempted for policies, if the premium paid is not more than 10% of the sum assured and issued before 1 April 2012.
3. Tax exempted on life insurance policies for persons with disability or diseases specified under Section 80U and 80DDB.

As per the Union Budget 2023, the tax exemption rules on life insurance policies issued after 1 April 2023 are:

1. Premium paid up to Rs.5 lakh for other life insurance policies
2. Total allowable premium paid up to Rs.2.5 lakh for ULIP policy

10) Section 10(11) – Exemption on Payment Made to Provident Fund and Sukanya Samriddhi Account

The following is the list of exemptions on contribution made to Provident Fund and Sukanya Samriddhi Account under Section 10 (11):

1. On retirement or termination of service, the contribution made to the Provident Fund account is exempted from tax

1. Tax exemption is also applicable for the contribution made to the Sukanya Samriddhi Account

11) Section 10(10BC) – Exemption on the Compensation Received for Natural Disaster

The tax exemptions are allowed on the compensation received for natural disaster under Section 10 (10BC) from the State Government, the Central Government, and local authority.

12) Section 10(13) – Exemptions on House Rent Allowance (HRA)

The following is the list of exemptions on House Rent Allowance (HRA) under Section 10 (1):

1. Tax exempted if actual rent paid is 10% less than the salary
2. The HRA would be exempted from tax if HRA on rented property in non-metro cities is 40% of the salary or 50% for metro cities
3. If the employee receives actual HRA then tax is exempted

13) Section 10(14) – Exemption of Special Allowance

Under special allowance act of Section 10 (14), exemption is granted based on the amount utilised for a specific purpose by the employee. The exemption depends on the following points:

1. Allowance amount.
2. Actual amount used for the purpose for which the allowance has been granted