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Exploring Section 10 of Income Tax Act: Comprehending Exemptions

Updated: Dec 13, 2023


Exploring Section 10 of Income Tax Act: Comprehending Exemptions
Exploring Section 10 of Income Tax Act: Comprehending Exemptions

Today, we will shine a spotlight on the significance of Section 10, a pivotal section to comprehend. Section 10 holds the key to understanding the concept of exempted income — those earnings that do not contribute to the calculation of an individual's total income for tax purposes.


 

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Let us explore the various forms of exempted income and shed light on their implications in the realm of taxation.


Discerning numerous sections related to section 10 of Income Tax Act:


Section 10(1) of the Income Tax Act provides an exemption for agricultural income. This exemption applies to agricultural land located in India.


The income derived from agricultural activities falls under this provision, including various forms such as rent or revenue obtained from agricultural land, basic operations involved in cultivation, tilling, and sowing, as well as subsequent activities for the growth and preservation of the agricultural product, such as weeding, cutting, pruning, etc.


Additionally, the sale of agricultural produce is also covered under this exemption. Furthermore, any income derived from farm buildings used for agricultural operations is eligible for this tax exemption. It is important to note that this exemption recognizes the significance of the agricultural sector and aims to support farmers and promote agricultural activities in the country.


Section 10 (13A) of the Income Tax Act

Introduces us to an important aspect of taxation, namely the House Rent Allowance (HRA). This provision grants individuals an exemption from tax on a portion of their salary that is specifically designated for covering house rent and accommodation expenses.


However, it's essential to be aware of the exceptions outlined in Section 10 (13A) Rule 2A. According to these rules, the HRA exemption is granted based on the least of the following amounts: the actual HRA received, 50% of the basic salary, and dearness allowance (DA) for individuals residing in Delhi, Mumbai, Chennai, Kolkata, or 40% of the basic salary and DA for those residing in other cities, and the actual rent paid minus 10% of the basic salary and DA.


Understanding these guidelines will help individuals navigate the intricacies of HRA taxation and make informed decisions regarding their financial planning.


Section 10 (5) of the Income Tax Act

Presents the concept of leave travel allowance (LTA) exemption, specifically applicable to individual taxpayers.


This exemption pertains to expenses incurred during domestic travel, including airfare, train, or bus fares, for the employee. It is important to note that expenses related to transportation within the destination, sightseeing, hotels, and food are not covered under this exemption.


Furthermore, the LTA exemption is limited to the amount provided in your cost-to-company (CTC) by your employer. To illustrate, if an employee receives an LTA of Rs. 30,000 and incurs travel expenses amounting to Rs. 20,000, only the actual expenditure on travel, i.eRs. 20,000, would be eligible for tax exemption, while the remaining Rs. 10,000 would be considered as taxable income.


Familiarizing oneself with these regulations ensures accurate tax planning and compliance with the provisions of Section 10 (5) of the Income Tax Act.


Section 10 (26) of the Income Tax Act

Section 10 (26) of the Income Tax Act grants tax exemptions to individuals belonging to Scheduled Tribes in Tripura, Nagaland, Mizoram, Manipur, and Arunachal Pradesh. If you are a member of any of these tribes, you are eligible for these exemptions as specified in Section 10 (26).


Section 10 (14) (I) of the Income Tax Act

Section 10 (14) (I) of the Income Tax Act provides exemptions for expenses incurred by employees concerning their employer's business. These exemptions cover various aspects such as travel, conveyance, research allowance, and more. The objective is to alleviate the tax burden on employees for these specific expenses under the provisions of Section 10 (14) (I).


Under Section 10 (11) of the Income Tax

Income Tax Act, you are entitled to exemptions on the interest earned from a provident fund upon resignation or retirement. This section also includes any payments made from a Sukanya Samriddhi Account. The purpose of Section 10 (11) is to provide tax relief for these specific financial transactions.


Section 10 (34) of the Income Tax Act

Provides exemptions for dividends received from investments made in an Indian company. However, this exemption is limited to an amount of Rs.10,000. If the dividend income exceeds this threshold, it becomes taxable and subject to applicable tax rates.


Under Section 10 (26AAA) of the Income Tax Act,

Individuals who are residents of Sikkim and earn income within the state or receive dividends or interest on securities are eligible for tax exemptions. This provision aims to provide relief for Sikkimese individuals in relation to their income generated within Sikkim or through dividends and interest earned from securities.


Section 10 (38) of the Income Tax Act

Pertains to the exemption of long-term capital gains derived from the sale of equity shares of an equity-oriented mutual fund. While these capital gains get exempted from income tax calculation, it is important to note that the Securities Transaction Tax (STT) must still get paid as per the prevailing rates.


Under Section 10 (37) of the Income Tax Act,

Capital gains arising from the compulsory acquisition of urban agricultural land are eligible for exemption.


Section 10 (23C) of the Income Tax Act

Offers exemptions to educational or medical institutions that have an annual receipt total of up to Rs.5 crore.


For Government employees, Section 10 (10A) of the Income Tax Act grants tax exemptions on the money received from accumulated pensions.


Income generated from the sale of specified mutual fund units has been made eligible for exemption under Section 10 (35) of the Income Tax Act. This particular provision acknowledges the investment aspect of mutual funds and seeks to encourage individuals to engage in the mutual fund market by providing tax advantages on the proceeds derived from the sale of such units.


The intention is to promote investment participation and foster growth within the mutual fund industry by offering tax incentives on the income realized from these transactions.


In relation to the General Provident Fund (GPF), section 10 of Income Tax Act provides exemptions for GPF amounts up to Rs.2.5 lakhs. This exemption is covered under Section 10 (11) and Section 10 (12) and ensures that individuals' contributions to the GPF are not subjected to taxation, allowing them to save and accumulate funds for their future financial needs.


Section 10 (10D) of the Income Tax Act

Harbors an exemption for the income emanated from a life insurance policy or any bonuses received. This provision ensures that the earnings generated from life insurance policies, including the additional benefits, are not subject to taxation, promoting financial security and encouraging individuals to invest in life insurance for their future.


Section 10 (14) of the Income Tax Act

Section 10 (14) of the Income Tax Act also includes an exemption for food allowances. Under this provision, employees can benefit from a tax exemption of up to Rs. 26,400 per year for food allowance. This calculation is based on the assumption of two meals provided per day and 22 working days in a month.


Section 10 of Income Tax Act bestows exemptions for specific allowances provided put across by employers. One such allowance is the internet allowance, which falls under Section 10 (14).


This provision ensures that the internet allowance received from your employer is exempted from taxation. This exemption recognizes the importance of internet connectivity in today's digital age and aims to support employees in meeting their online communication and work-related needs.


What is the Maximum Exemption Under Section 10?


Section 10 imposes specific maximum limits for exemptions. For individuals below 60 years of age, the limit is Rs. 2.5 lakhs. Those between 60 and 80 years can claim up to Rs. 3 lakhs, and for individuals aged 80 and above, the limit increases to Rs. 5 lakhs. However, these higher limits are applicable only to residents of India.


How do I Claim Section 10 Exemptions on my Taxes?


To avail these exemptions, you must file an income tax return. Make sure to comply with the relevant guidelines and regulations.


What are Section 10 Allowances?


Section 10 encompasses a range of exemptions, including gratuity, travel allowance, rent allowance, allowances for children, and education allowances. Understanding these allowances can significantly reduce your taxable income.


Types of Exemption Under Section 10


GPF exemption in Income Tax Section 10

The Income Tax Act exempts up to Rs. 2.5 lakhs from taxation for contributions to the General Provident Fund (GPF). This exemption is available to all eligible taxpayers.


Internet allowance exemption under Section 10

Under Section 10(14), the internet allowance provided by your employer is exempt from taxation. This exemption eases the burden of taxable income.


Food allowance exemption under Section 10

Section 10(14) also extends an exemption of up to Rs. 26,400 per year for food allowances provided by your employer, assuming two meals a day and 22 working days in a month. This exemption lightens the tax load for employees.



Is Leave Encashment Exempted From Income Tax?


It's important to note that leave encashment received during your employment is fully taxable as part of your 'Income from Salary.' However, there are exceptions. Government employees (State or Central) enjoy tax exemption on leave encashment at the time of resignation.


In contrast, private sector employees' income from leave encashment after resignation or retirement is considered 'Income from Salary' and is taxable. Nevertheless, Section 10(10AA) of the Income Tax Act provides exemptions, and the remaining amount is subject to taxation according to your applicable income tax slab.


FAQs:

Q1. How does section 10 of Income Tax Act contribute to the overall taxation framework?

ANS. Section 10 of Income Tax Act provides a list of specific incomes that are exempt from taxation.


Q2. What are some examples of incomes exempt under Section 10?

ANS. Examples of incomes exempt under Section 10 include agricultural income, scholarships, allowances for government employees, and certain income from life insurance policies.


Q3. Are there any conditions or limitations for agricultural income to be exempt under Section 10?

ANS. Yes, agricultural income is exempt from taxation under section 10 of Income Tax Act, subject to certain conditions and limitations.


Q4. Could you provide a specific instance of income that falls under the exemption criteria outlined in section 10 of Income Tax Act?

ANS. No, not all scholarships are exempt from taxation under Section 10. Only scholarships granted to meet the cost of education are exempt, while other scholarships may be taxable.


Q5. What is the scope of exemption under Section 10 (9) of the Income Tax Act?

ANS. Section 10 (9) provides an exemption for the income earned by family members of foreign employees who are participating in the Cooperative Technical Assistance Program.



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