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HomeIncome TaxExplore Section 10 Benefits: Income Exemptions to Save Big

Explore Section 10 Benefits: Income Exemptions to Save Big

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Exempted income is not included in taxable income, but taxable income is still eligible for deductions. It is pertinent to note that Section 10 exemptions are subject to certain conditions and limits. To claim exemption, the taxpayer must meet these conditions.

Section 10 of the Income Tax Act outlines the criteria for exempt income, which refers to the majority of income not subject to taxation. However, it’s essential to remember that exempt income cannot be deducted for tax purposes. It is subject to specific conditions and limitations that the taxpayer must meet to claim exemption.

Did You Know? Exemptions and conditions for each type of income may vary, and certain limits may apply.

Income Exempt from Tax under Section 10

This section includes a list of income presumed exempt from taxation. Section 10 exempts the following types of exempt income:
1. Exemption for Agricultural Income [Section 10(1)]

This section (section 10(1)) states that agricultural income earned in India is tax-free. Section 2(1A) of the Income-tax Act considers agricultural income. Section 2(1A) defines agricultural income as:

  • Any rent or income obtained from Indian agricultural land.
  • Any revenue generated by agricultural activities on such lands, such as selling agricultural products or processing them to make them marketable.
  • Any income related to a farmhouse provided the specific requirements set out in section 2 are met (1A). Any income generated from selling saplings or seedlings grown in nurseries is categorised as agricultural income.

Also Read: Assessment or Reassessment Notice of Income Tax Act

2. Exemption on HUF Income [Section 10(2)]

According to Section 10(2), people who make HUF-related income are eligible for tax Section 10(2) says people who make HUF-related income are eligible for tax exemption, provided that:

  • The family’s income must be used to pay for the individual’s income.
  • If there is an impartable estate, the family’s share of the estate’s income must be used to pay for the income.

3. Exemption of Revenue from a Partnership Company Under [Section 10(2A)]

Section 10 provides that firm partnership income is not subject to tax (2A). In this case, the Income Tax Act of 1961 requires the partnership firm to be taxed as a partnership firm. The taxpayer must get the same proportion of the profit or income specified in the partnership agreement.

For example, the partnership firm’s total profit for FY 2021-22 is 20,00,000. According to the partnership agreement, Mr Arun will receive 40% of the profits. Additionally, he is eligible for income from the company for 4,00,000, or 40% of 10 lakh. Taxes are not due on this 4 lakh income.

But, Mr Arun is ineligible for the exemption if he earns 50% of the profit. So the partnership agreement does not allow for this 50%.

Interest-Based Income from Certain Bonds and Securities for Non-Resident Indians (NRIs) [Section 10 (4) (i) and (ii)]

NRIs might benefit from tax exemption if they receive income through bank accounts or interest on security bonds in India. Following FEMA, 1999, an individual’s interest income earned on funds credited to a non-resident (external) account at any Indian bank is exempt from income tax. 

The exception, however, only applies to those who meet the FEMA 1999 definition of a resident outside India. In addition, they have been permitted by the RBI to maintain the account above. Indian citizens and people of Indian descent who are non-residents and receive income from interest on recognised savings certificates are granted tax exemptions under this clause.

Also Read: Taxable Income – What Is Taxable Income & Learn How Tax Is Calculated on Income

5. Interest Paid on Notified Savings Certificates is Exempt under Section 10(4B)

Individuals’ interest income from saving certificates issued by the Central Government is wholly exempt from tax if they are Indian citizens or a PIO (Person of Indian Origin) and non-resident. The foreign currency or foreign exchange specified in the Foreign Exchange Act of 1973, FEMA, or any other Act passed by the Government must have been invested in such saving certificates, which must have been announced in the Official Gazette of the Central Government. 

The exemption would not apply if the securities were issued on or after June 1, 2002, and the interest income would then be subject to total taxation.
6. Exemption on Leave Travel Concession Section 10(5): 

Employees may be eligible for tax exemptions on travel expenses under Section 10(5). All employees (including Indian citizens and foreign nationals) are eligible for this benefit under this section of the Income Tax Act.

  • During the relevant fiscal year, the employer must reimburse the employee’s or the person’s family’s travel expenses.
  • Employees can receive travel perks from their employer while on leave anywhere in India, regardless of the cost.

7. Remuneration or Salary Received by an Individual Not a Citizen of India Section 10(6) 

According to Section 10(6), any compensation received by a person who represents India abroad but is not an Indian citizen is exempt from taxation (6). Remuneration can be of the following types, and let’s discuss them:

  • It can be any type of compensation change prescribed by the Indian government.
  • The remuneration should be unofficial.
  • Remuneration received for being an employee of a foreign exchange or enterprise.
  • Pay received for working for a charitable organisation outside of India.

8. Government Perquisites and Allowances Paid to Workers Serving Outside of India [Section 10(7)]

Any benefits or perks the Government provides to an Indian national in exchange for delivering services outside India are exempt.

Before such revenue is considered to accrue or emerge in India, the following requirements must be met:

  • Salary should be in the taxable income category;
  • The Indian Government should be the payer;
  • The beneficiary must be an Indian national, whether resident or not;
  • Services should be provided outside of India.

While the income of the Indian citizen in the situation above will be considered to accrue or arise in India, all allowances or perks granted by the Government to the aforementioned Indian citizens for their services rendered outside of India are exempt under section 10 (7) of the Income Tax Act.
9. Those Working in India Under the Joint Technical Assistance Program From Other Countries [Section 10(8)]

The earnings of those working in India under programs for cooperative technical assistance in accordance with an agreement made between the Central Government and the government of a foreign State should be exempt, provided that the agreements’ conditions provide for such exemption.

The compensation received, either directly or indirectly, from the foreign state’s government for these services performed in India. Any other income earned by that person outside India is not considered to have occurred there. They are liable to pay income or social security taxes to the foreign state government on this income.

10. Family Income of a Worker Participating in a Cooperative Technical Assistance Program [Section 10(9)]

The income of any member of the family of any such individual as is described in section 10(8) accompanying him to India, which accrues or arises outside India and is not presumed to accrue or arise in India, and in respect of which such member is obligated to pay any income or social security tax to the Government of that foreign State or place of origin of such member, as the case may be, is exempt from tax, as per section 10(9).

11. Exemption from Tax on Perquisites Paid by the Employer Under Section 10(10CC)

Businesses sometimes cover employees’ non-cash benefits tax bills. In this situation, the employee regards the employer’s tax paid as a tax exemption.

12. Life Insurance Policy Maturity Tax Exemption Section 10(10D)

According to Section 10(10D) of the Income Tax Act, an Indian citizen is not required to pay taxes on the maturity sum or bonus received from a LI policy. However, some requirements to be eligible for the benefit include:

Policies issued before 1 April 2012, with a premium payment not exceeding 20% of the sum insured.

Also Read: What is Depreciation Under the Income Tax Act

Income Exempt from Tax as Per Section 10 [Tabular Format]

Section

Exemptions

Section 10(1)

Income through agricultural means

Section 10(2)

The amount received through a coparcener from a HUF

Section 10(2A)

Income received by business partners as a shared amount

Section 10(5)

Concession in travel given to a citizen of India

Section 10(6A), (6B), (6BB), (6C)

Tax paid on income of a foreign firm

Section 10(7)

Allowance to government employees who are abroad

Section 10(8A)

Income earned by a consultant

Section 10(8B)

Income earned by staff of a consultant

Section 10(10)

Gratuity

Section 10(10AA)

Encashed leave amount

Section 10(10B)

Relocation compensation to workers

Section 10(10BC)

Compensation obtained in the event of a disaster

Section 10(10C)

Compensation due to retirement from a PBC or any other firm

Section 10(10D)

The amount by Life Insurance Policy

Section 10(11)

Payment received via statutory provident fund

Section 10(12)

Payment received via authorised fund

Section 10(13A)

House Rent Allowance

Section 10(14)

Allowance for business expenses

Section 10(15)

Income received in the form of interest

Section 10(16)

Income received in the form of a scholarship

Section 10(17)

Allowance for MLAs and MPs.

Section 10(18)

Income in the form of pension for heroism award

Section 10(19A)

Income from a single palace of an exruler

Section 10(20)

Income received by a localised body

Section 10(22B)

Income earned by a news agency

Section 10(23AA)

Income acquired through the regimental fund

Section 10(23MB)

Insurance pension fund income

Section 10(23BB)

Income earned by khadi and village industries

Section 10(23BBE)

Income received by IRDA

Section 10(23D)

Income earned by mutual funds

Section 10(23EA)

Income earned through an IPF

Section 10(23ED)

Income exemption of IPF

Section 10(24)

Income earned by authorised trade unions

Section 10(26), 10(26A)

Income earned by Schedule Tribe members

Section 10(29A)

Income received by community boards

Section 10(30)

Income earned in the form of subsidies

Section 10(35A)

Income from a securitisation trust

Section 10(43)

Any income to reverse mortgage

Section 10(44)

Income generated through the NPS trust

Section 10(49)

Any income earned by the NFHC
 

Conclusion

Salary and non-salary account holders have separate exemptions from income under Section 10. Only a few exemptions are available to salary account users, including housing allowances, leave travel allowances, leave encashment amounts, pensions, and gratuities.

Dividends, agricultural income, interest on funds, capital gains, etc., are exemptions for non-salary account holders. The Income Tax Act of 1961’s schedule contains several annexures that were added and modified to cover many subjects not previously covered. The Income Tax Act has undergone numerous schedule changes to make it more comprehensive and detailed.

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