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Income - Exempt From Income Tax

Income Tax Act under its various provisions gives exemptions or concessions in taxes depending on the nature of income. Depending on the nature of income you have, you may be eligible for certain deductions. Let’s have a look of all such key provisions that bring benefits to the assessee:

SECTION - 10

Exempt from Income Tax in a Snap Shot

Section Eligible Assessee Nature of income Amount exempt
10(1) Any assessee Agricultural income Entire amount of such income
10(2) Any individual as a member of HUF Any sum received as a member of HUF Entire amount so received
10(5) An individual Leave travel concession or assistance received or due from employer or former employer Amount received or actually spent, on travel to any place in India as specified in Rule 2B, whichever is lower.
10(7) A citizen of India Amount paid or allowed by the government for services rendered outside India Entire amount
10(8) An Individual Remuneration for duties assigned in India and any other income accrues or arises outside India Entire amount
10 (9) An individual who is a member of the family of person referred to in section 10(8), 10(8A) & 10 (8B). Any income accrues or arises outside India Entire amount
10 (10) An individual Death cum Retirement Gratuity As per conditions
10 (10A) An individual Commuted Pension As per conditions
10 (10AA) An individual Leave Encashment As per conditions
10 (10B) An individual Compensation/award received at the time of his retrenchment An amount calculated as per section 25 F(b) of the Industrial Dispute Act 1947 or 5,00,000/ whichever is lower. In special case any amount received as per any scheme approved by the Government
10 (10BB) Any person Any payment received under Bhopal Gas Leak Disaster (Processing of Claims Act), 1985 Entire amount
10(10BC) Any individual or his legal heirs Any compensation received from state or central government or local authority on account of any disaster Entire amount
10 (10C) Individual employee Amount received on voluntary retirement as an employee from specified employers Amount received as per scheme not exceeding Rs.5,00,000/-
10(10CC) Individual employee Tax on income derived as perquisite other than monetary payment Entire amount of such tax
10(10D) An individual Amount received under life insurance policy including any bonus allowed on such policy Entire amount
10(11) An individual Amount received from provident funds Entire amount
10(11A) An individual being girl (Applicable from A.Y 15-16) Amount received from Sukanya Samriddhi account Entire amount
10(12) An individual employee participating in recognized provident fund Accumulated balance due and payable under recognized provident fund Amount as provided in Rule 8 of part A of fourth schedule
10(12A) An individual (Applicable from A.Y. 2017-18) Any payment from the National Pension System Trust to an Assessee (Inserted from AY 2019-2020) on dosure of his account or on his opting out of the pension scheme referred to in section 80CCD To the extent the it does not exceed 40% (60% applicable from A.Y.-2020-21) of the total amount payable to him at the time of such closure or his opting out of the scheme
10(12B) An individual (Applicable from A.Y. 2018-19) Any payment from the National Pension System Trust to an employee under the pension scheme referred to in section 800CCD, on partial withdrawal made out of his account in accordance with the terms and conditions as spedfied under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013) and the regulations made thereunder To the extent it does not exceed 25% of the amount of contributions made by him
10(13) An individual Any payment received from approved Superannuation Fund Entire amount
10(13A) An individual employee House Rent allowance As per Rule 2A
10(14) An individual Special allowance granted to meet expenses incurred in performance of duties As per Rule 2BB
10 (15)(i) All assessee Interest, premium on redemption, securities, Bonds, certificates, as notified by government Entire amount
10 (15)(iib) Individual or HUF Interest on notified Capital Investment Bonds Entire amount
10 (15)(iic) Individual or HUF Interest on notified Relief Bonds Entire amount
10(15)(vi) All assessee Interest on -

  • notified gold deposit bond issued under the Gold Deposit Scheme, 1999; or

  • deposits certificates issued under the Gold Monetization Scheme, 2015 (Applicable from A.Y. 2016-17)

 Entire amount
10 (15)(vii) All assessee Interest on Bonds -

  • Issued by a local authority or by a State Pooled Finance Entity; and

  • Specified in the Official Gazette

 Entire amount
10 (16) An individual Scholarship to meet cost of education Entire amount
10 (17A) Any assessee Award or Reward as approved by the Central Government received in cash or in kind Entire amount
10 (19) Widow, children or nominated heir of member of the Armed Forces of the Union Family pension received Entire amount
10 (23AA) Any person Any income on behalf of any Regimental Fund or Non- Public Fund established by the Armed Forces Entire amount
10 (23AAA) Any person Any income on behalf of a fund notified by the Board for welfare of employees Entire amount
10(33) Any assessee Income arising from transfer of units held as capital assets of Unit Scheme 1964. Entire income
10(34) Any assessee Dividends referred to in section 115-O, except for dividend chargeable to tax in accordance with the provisions of section 115BBDA (exception applicable from A.Y. 2017-18) Entire amount
10(35) Any assessee Income received in respect of Units of specified mutual fund, specified undertaking, specified Company, other than on transfer of such units Entire income
10(36) Any assessee Long term capital gains on transfer of eligible equity shares Entire amount
10(37) Individual or HUF Capital gains arising out of sale of agricultural land Entire gain
10(37A) Individual or HUF (Applicable retrospectively from A.Y. 2015-16) Capital gains in respect of transfer of a specified capital asset arising to an individual or a HUE, who was the owner of such specified capital asset as on the 2nd day of June, 2014 and transfers that specified capital asset under the land pooling scheme notified under the provisions of Andhra Pradesh Capital Region Development Authority Act 2014 Entire gain
10(38) Any assessee Long term capital gains on sale of equity shares or units of equity oriented fund or a unit of a business trust if

  • the transaction of sale is undertaken on or after 01 October 2004; and

  • is chargeable to securities transaction tax (not applicable in case of a transaction undertaken on a recognized stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency)

With effect from A.Y. 2018-19, the aforesaid exemption will be available to equity shares acquired on or after 01 October 2004 only if on such acquisition securities transaction tax was chargeable. Certain exceptions in this regard such as acquisition of shares in IPO, FPO, bonus, right issue, etc., for which condition of chargeability of securities transaction tax on acquisition is not applicable, would be notified. 		Only up to Rs. 1,00,000/-, however income to be included for computing book profit under section 115JB. (Amended from AY 2019-2020) On or above Rs. 1,00,000, rate of Tax is 10 % (Plus surcharge and Cess as applicable)
10(43) An individual Amount received as loan Entire amount

Gratuity

Gratuity is exempt only when it is received on –

  • retirement

  • becoming incapacitated prior to such retirement

  • resignation

  • termination of services.

Exemption is also available for gratuity received by the widow, children or dependents of the employee on his death.

Particulars Amount of exemption
Gratuity received by Government & Local Authority Employees Fully exempt under section 10(10)(i)
Gratuity in case of employees covered by Payment of Gratuity Act, 1972 Lower of following amount is exempt:

  • [15/26] x Salary last drawn x completed years of service or part thereof in excess of 6 months

  • Maximum amount 20,00,000

  • Actually received

[Salary = Basic Pay + Dearness Allowance]
Gratuity in respect of any other employee Lower of following amount is exempt:

  • 1/2 x average salary x completed years of service (ignore fraction)

  • Maximum amount 20,00,000

  • Actually received

[Salary = Basic Pay + Dearness Allowance + Commission based on the % of Turnover
Notes:

  • Average Salary = Average salary drawn for last 10 months preceding month of retirement.

  • Gratuity received during continuation of service is not exempt under this section.

  • The aggregate exemption allowable to an employee in one or more previous years should not exceed the maximum amount (currently 20 lakh)

Completed years of service include period of service under current employer as well as previous employer (if no gratuity has been received from the former employers at that time)

Pension

Particulars Government Employee Non-Government Employee receiving gratuity Non-Government Employee not receiving gratuity From approved pension fund of LIC or other Insurer
Uncommuted Pension Fully Taxable Fully Taxable Fully Taxable Fully Taxable
Commuted Pension Fully Exempt [section 10(10A)(i)] 1/3rd of full value will be exempt [section 10(10A)(ii)] 1/2 of full value will be exempt [section 10(10A(iii)] Fully Exempt

Leave Salary (Encashment)

Particulars Central or State Government Employee For any other employee
Encashment of leave during service Fully Taxable. However relief can be taken under section 89 Fully Taxable. However relief can be taken under section 89
Encashment of leave during retirement Fully Exempt Amount exempt shall be lower of following:

  • Earned leave in months x Average Salary;

  • Average monthly Salary x 10;

  • Maximum Amount 3,00,000;

  • Actual amount received

Average monthly salary for this purpose means average salary drawn in last 10 months immediately preceding the retirement.

The aggregate exemption allowable to an employee in one or more previous years should not exceed the maximum amount (currently 3 lakh)

Salary = Basic Pay + Dearness Allowance (forming part of retirement benefits) + Commission based on the % of turnover

Steps to determine period of leave in months:

  • No. of actual completed years of service

  • Number of days leave entitlement for each completed year of service as per rules of the employer (not exceeding 30 days for each year)

  • Gross total leave in days (step 1 x step 2)

  • Less: Leave enchased & availed during continuation of service (in days)

  • Period of earned leave (in days) (step 3 - step 4)

  • Period of leave in months (step 5/30)

Deduction in Respect of Remuneration from Certain Foreign Sources in the Case of Professors, Teachers etc.

Where the gross total income of an individual who is a citizen of India includes any remuneration received by him outside India from any University or other educational institution established outside India or any other association or body established outside India, for any service rendered by him during his stay outside India in his capacity as a professor, teacher or research worker in such University, institution, association or body, there shall be allowed, in computing the total income of the individual, a deduction from such remuneration of an amount equal to

  • sixty per cent of such remuneration for an assessment year beginning on the 1st day of April, 2001;

  • forty-five per cent of such remuneration for an assessment year beginning on the 1st day of April, 2002;

  • thirty per cent of such remuneration for an assessment year beginning on the 1st day of April, 2003;

  • fifteen per cent of such remuneration for an assessment year beginning on the 1st day of April, 2004,

as is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year:

Provided that no deduction under this section shall be allowed unless the assessee furnishes a certificate, in the prescribed form, along with the return of income, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.

Explanation

For the purposes of this sections, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

Deduction in Respect of Professional Income from Foreign Sources in Certain Cases

Where the gross total income of an individual resident in India, being an author, playwright, artist, musician, actor or sportsman (including an athlete), includes any income derived by him in the exercise of his profession from the Government of a foreign State or any person not resident in India, there shall be allowed, in computing the total income of the individual, a deduction from such income of an amount equal to

  • sixty per cent of such income for an assessment year beginning on the 1st day of April, 2001;

  • forty-five per cent of such income for an assessment year beginning on the 1st day of April, 2002;

  • thirty per cent of such income for an assessment year beginning on the 1st day of April, 2003;

  • fifteen per cent of such income for an assessment year beginning on the 1st day of April, 2004,

as is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year :

Provided that no deduction under this section shall be allowed unless the assessee furnishes a certificate, in the prescribed form, along with the return of income, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.

Explanation

For the purposes of this section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

Deduction in Respect of Interest on Deposits in Savings Accounts

  • Where the gross total income of an assessee [(other than the assessee referred to in section 80TTB)], being an individual or a Hindu undivided family, includes any income by way of interest on deposits (not being time deposits) in a savings account with

    • a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);

    • a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or

    • a Post Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898),

    there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee a deduction as specified hereunder, namely:

    • in a case where the amount of such income does not exceed in the aggregate ten thousand rupees, the whole of such amount; and

    • in any other case, ten thousand rupees.

  • Where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.

Explanation

For the purposes of this section, "time deposits" means the deposits repayable on expiry of fixed periods.

Deduction in respect of Interest on Deposits in Case of Senior Citizens

  • Where the gross total income of an assessee, being a senior citizen, includes any income by way of interest on deposits with

    • a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);

    • a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or

    • a Post Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction

      • in a case where the amount of such income does not exceed in the aggregate fifty thousand rupees, the whole of such amount; and

      • in any other case, fifty thousand rupees.

  • Where the income referred to in sub-section (1) is derived from any deposit held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.

Explanation

For the purposes of this section, "senior citizen" means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.

Deduction in Case of a Person with Disability

  • In computing the total income of an individual, being a resident, who, at any time during the previous year, is certified by the medical authority to be a person with disability, there shall be allowed a deduction of a sum of seventy-five thousand rupees:

    Provided that where such individual is a person with severe disability, the provisions of this sub-section shall have effect as if for the words "seventy-five thousand rupees", the words "one hundred and twenty-five thousand rupees" had been substituted.

  • Every individual claiming a deduction under this section shall furnish a copy of the certificate issued by the medical authority in the form and manner, as may be prescribed, along with the return of income under section 139, in respect of the assessment year for which the deduction is claimed :

    Provided that where the condition of disability requires reassessment of its extent after a period stipulated in the aforesaid certificate, no deduction under this section shall be allowed for any assessment year relating to any previous year beginning after the expiry of the previous year during which the aforesaid certificate of disability had expired, unless a new certificate is obtained from the medical authority in the form and manner, as may be prescribed, and a copy thereof is furnished along with the return of income under section 139.

Explanation

For the purposes of this section

  • "disability" shall have the meaning assigned to it in clause (i) of section 2 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996), and includes "autism", "cerebral palsy" and "multiple disabilities" referred to in clauses (a), (c) and (h) of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);

  • "medical authority" means the medical authority as referred to in clause (p) of section 2 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996), or such other medical authority as may, by notification, be specified by the Central Government for certifying "autism", "cerebral palsy", "multiple disabilities", "person with disability" and "severe disability" referred to in clauses (a), (c), (h), (j) and (o) of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);

  • "person with disability" means a person referred to in clause (t) of section 2 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996), or clause (j) of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);

  • "person with severe disability" means—

    • a person with eighty per cent or more of one or more disabilities, as referred to in sub-section (4) of section 56 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996); or

    • a person with severe disability referred to in clause (o) of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999).

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