Understanding Section 10 of the Income Tax Act: Exempted Income

What is Section 10 Income Tax Act?

Section 10 of the Income Tax Act outlines certain types of income and allowances that are excluded from an individual’s taxable income. These specified incomes are exempt from taxation according to the provisions in Section 10. Additionally, the law addresses specific allowances provided to salaried employees. Let’s delve into the detailed provisions of Income Tax Section 10 to understand these exemptions better.

List of Exempted Income Under Section 10 of Income Tax Act

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

Section 10(1) of the Income Tax Act exempts agricultural income derived from agricultural lands in India. The following types of agricultural income are not subject to taxation:

– Rental income from agricultural land.
– Income from agricultural activities such as sowing, tilling, and cultivation.
– Earnings from services related to growth and preservation like cutting and weeding.
– Profits from selling agricultural produce.
– Income from farm buildings used for agricultural purposes.

Section 10(2) – Exemption on Income Received from a HUF

Section 10(2) of the Income Tax Act provides tax exemptions on income received by an individual from a Hindu Undivided Family (HUF). Any portion of the family income distributed to an individual is considered tax-free under this provision.

Section 10(2A) – Exemption on Income Received from a Partnership Firm

Section 10(2A) of the Income Tax Act exempts income received by a partner from a partnership firm, as specified in the partnership deed. For instance, if you have a 30% share according to the deed and the firm earns a profit of Rs 1 lakh in a financial year, the Rs 30,000 you receive will be tax-free. However, if you receive more than your entitled Rs 30,000, the excess amount will be taxable.

Section 10(4) – Exemption on Income Earned by an NRI

There are two types of income for Non-Residents of India that qualify for tax exemption:

1. Interest and capital gains from investments in specified government bonds and securities.
2. Interest earned by non-residents on funds in a Non-Resident (External) Account (NRE).

Section 10(5) – Tax Exemption on Travel Concession

The leave travel concession (LTC) received by an individual is tax-exempt under Section 10(5) of the Income Tax Act. Any travel allowance from an employer, past or present, for personal travel is tax-free, provided the exemption amount does not exceed the actual travel expenses incurred. For instance, if the travel concession is Rs 5,000 but only Rs 3,000 is spent, only Rs 3,000 will be exempt from tax. The exemption also applies to travel concessions for the individual’s family members.

Section 10(6) – Remunerations Received for Representing Indians in a Foreign Nation

Under Section 10(6) of the Income Tax Act, remuneration received by a non-citizen representing India abroad is exempt from taxation. This includes:

1. Government-prescribed remuneration.
2. Payments received as an official representative.
3. Compensation as an employee of a foreign enterprise.
4. Earnings as staff or employees of a philanthropic institution established outside India.

Section 10(7) – Exemption on Allowance or Perquisites Paid by the Government

Section 10(7) of the Income Tax Act exempts from taxation any allowances or perquisites paid by the Government of India to an individual for services rendered outside India.

Section 10(10BC) – Exemption on Remuneration Received Against a Disaster

Section 10(10BC) of the Income Tax Act exempts from taxation any compensation received by an individual from an institution for damage or suffering due to a natural disaster. This includes payments from the Central government, State government, or any local authority.

Section 10(10C) – Exemption on Amount Received from Voluntary Retirement Scheme

Section 10(10C) of the Income Tax Act provides tax exemption for amounts received by an individual upon voluntary retirement or termination under a voluntary retirement scheme. Eligible employees include those working for:

– Any public or private company
– Institutions established under Central, State, or Provincial Acts
– Local authorities
– Co-operative societies
– Universities approved under the UGC Act
– Central or State governments
– Institutions specified by the central government
– Management institutions specified by the central government.

Section 10(13A) Tax Exemption HRA

Section 10(13A) of the Income Tax Act exempts housing rent allowance (HRA) received by an individual from their employer from taxation.

Section 10(14)(i) – Exemption on Special Allowances

Section 10(14)(i) of the Income Tax Act provides a tax exemption for special allowances given to employees to cover expenses incurred while performing their job duties. There is no cap on the amount that can be paid, but the allowances must be used specifically for their intended purpose.

The allowances that qualify for tax exemption under Section 10(14)(i) include:

Section 10(14) (ii) – Non-Taxable Allowances (Up to a Certain Limit)

Section 10(14) (ii) of the Income Tax Act deals with allowances received by an employee that are exempted from taxation if the allowance amount is under the prescribed amount.

The allowances and their tax-free limits are defined as follows:

Section 10(15) – Tax Exemption on Interest Income

Interest income earned by individuals is exempted from taxation as per the provisions laid under Section 10(15) of the Income Tax Act.

The table below explains different parts of the section offering tax exemptions for different types of interest incomes.