Section 10 of the Income Tax Act

According to Section 10 of the Income Tax Act 1961, salaried employees are entitled to enjoy the tax exemption. The objective of this section of the Income Tax Act is to reduce the burden of the different structures of the tax, such as rent allowance, allowance for children's education, travel allowance, gratuity, and so on. This article will help you understand the tax exemptions that will ultimately broaden the ways of appreciation of tax while filing for ITR.

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Income Tax Return (ITR) Meaning

An Income tax return (ITR) is a form to file details about income and tax to the Income Tax Department. The taxpayer has to pay tax based on the tax liability calculated on his or her income. In case the return shows that the taxpayer has paid excess tax, he is eligible to receive an income tax refund from the Income Tax Department.

What is Section 10 of the Income Tax Act?

Section 10 of the Income Tax Act aims to provide exemptions to a salaried professional while paying income tax. This section mainly focuses on income sources that are not a part of the total income. Thus, this total income is primarily calculated by analysing the total amount of tax liability of a salaried professional. The tax rebate that is given to salaried professionals falls under this section of the Income Tax Act, of 1961.

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Individuals Receiving Allowances Exempt

There are certain kinds of allowances that are considered special allowances under this section of the Income Tax Act, of 1961. Exemption of Special Allowance under section 10(14)(i) and section 10(14)(ii) is granted to certain individuals:

  • Special allowances have been granted under this section of the income tax act to high court judges.

  • UNO employees are entitled to receive this allowance.

  • The judges of the Supreme Court and High Court are entitled to receive the sumptuary allowance.

  • Those who are Indian citizens working as government employees outside India are considered the beneficiary of this allowance.

  1. Section 10(1): Exemption of Agriculture Income

    According to this section, those who are taxpayers and earn income from agriculture are entitled to get tax exemptions. Those citizens who enjoy the income relating to the farmhouse can get the exemption from tax based on certain conditions.

    The income could be in the form of the following:

    • Rent or revenue received from agricultural land situated in India

    • Basic operations such as cultivation, tilling and sowing

    • Subsequent operations for the growth and preservation of the product such as weeding, cutting, pruning, etc.

    • Sale of agricultural produce

    • Income derived from farm building required for agricultural operations

  2. Section 10(2): Exemption on the income of the HUF

    As per section 10(2), those who earn the income of HUF are entitled to get tax exemption provided,

    • The income received by the individual must be paid out of the income of the family.

    • in the case of an impartible estate, the income must be paid out of the income of the estate belonging to the family.

    Please go through the given illustration for a better understanding:

    Example: Mr. Mahesh is part of a HUF. Now he earns an income of Rs 1,00,000 from the HUF and Rs 10,000 as interest income. The interest income in this case becomes his income. The income of Rs 1,00,000 is not taxable since it is received from the HUF, however, the interest income of Rs 10,000 is taxable.

  3. Section 10(2a): Exemption of income from partnership firm.

    Several benefits are enjoyed by the partner of a firm. Let’s go through the benefits offered under section 10(2a). The profit which is earned by a co-owner or the partner is exempted from tax. The partnership firm must be classified and taxed as a partnership firm under the Income Tax Act, of 1961. Such tax exemption is limited to the share of profit by the partners of LLP/firm.

    Example: The profit for FY 2021-22 of XYZ partnership firm is Rs 5,00,000. Mr. Sharma’s share in the partnership firm is 40%. Thus, the income from the firm earned by Mr. Sharma is Rs 2,00,000 which is 40% of Rs 5 lakh. This amount of Rs 2 lakh is exempt from tax.

  4. Section 10(4): Exemption of income from NRI

    Those who are Non-Resident Indians are entitled to enjoy tax exemptions on certain investments. These include:

    • Income earned by way of interest on bonds or securities of the government specified for exemption

    • Premium income on redemption of such bonds

    • Interest income on credit in a Non-Resident (External) Account

    • Interest income earned by a resident outside India from the credit in a Non-Resident (External) Account

  5. Section 10(5): Exemption on leave travel concession

    According to section 10(5), an employee can get a tax exemption on his leave travel. Under this section of the Income Tax Act, all the employees (including Indian and foreign citizens) are entitled to enjoy this benefit. Conditions for this section are:

    • The travel concession must be received from the existing employer for travel of the employee/ individual and his/ her family in the particular financial year

    • It must be received by the existing or previous employer in connection with his/ her future travel.

    The employees are entitled to get travel concession in respect to any amount from their employer on a leave across India.

  6. Section 10(6): Exemption on remuneration to Indian citizens who are working outside India

    This is a special package for those individuals who are working outside India and representing India in that country. Individuals who are officials at an embassy, high commission, consulate or trade representative of a foreign state, or individuals acting as a member of these officials, enjoy the benefits of this section.

    The employees of the foreign companies are too, entitled to enjoy the tax benefit under this act, subject to the following limitations:

    • The foreign company should not be engaged in any business or trade in India

    • The living tenure of the employees should not be more than 90 days in India

    • Under this act, the remuneration of the employer is not entitled to be deducted

  7. Section 10(7): Exemption on allowances and perquisites paid by the Government

    All the allowances and the perquisites that are provided by the government of India to its employees for furnishing its services outside India are entitled for tax exemptions. Indian citizens who are government employees are entitled to avail this benefit.

  8. Section 10(10CC): Exemption on tax on perquisites paid by the employer

    Sometimes, employers pay taxes for non-monetary perquisites on behalf of their employees. In such a case, the tax paid by the employer is treated as tax exemption in the hands of the employee.

  9. Section 10(10D): Exemption on the tax of LIC maturity

    The maturity amount and the bonus of a LIP policy earned by a citizen of India are exempt from tax under Section 10(10D) of the Income Tax Act. However, the following are some of the criteria to receive the benefit:

    • Policies issued before 1st April 2012 and the premium paid on this policy is not more than 20% of the sum assured

    • Policies issued after 1st April 2012 and the premium paid on this policy is not more than 10% of the sum assured

    • Maturity and bonus amount on the life insurance policy to a person with disability or disease specified under Section 80U and 80DDB.

  10. Section 10(11): Exemption on payment made in provident fund and Sukanya Samriddhi Account

    Any amount received in terms of contribution or interest from a provident fund account on retirement or termination of service is exempted. Also, any payment made from the Sukanya Samriddhi Account is eligible for tax exemption under Section 10(11).

  11. Section 10(10BC): Exemption on the remuneration received against a disaster

    The employee is entitled to enjoy the exemption on tax if he receives compensation for natural disasters from the Central Government, the State Government or a local authority.

  12. Section 10(13A): Exemption on House Rent Allowance (HRA)

    The salaried employees are entitled to receive the allowance on the house rent paid, which is exempted from tax. The part of the salary an employee receives towards rent and accommodation is exempt from tax under this section. The following are the conditions:

    • Actual HRA received by the employee

    • HRA is 40 % of the salary for the rented property in non-metro cities or 50 % of the salary for metro cities.

    • Actual rent paid is less than 10% of salary.

  13. Section 10(14): Exemption of special allowance

    An employer can offer a special allowance to its employees to support the employee’s expenses. These expenses should be incurred by the employee during performing his duties. There is no specified limit on the amount an employer provides his employee as a special allowance, but allowances must be utilized only for the mentioned purpose.

    This section is further sub-divided into two parts, namely,

    1. Exemption of allowance under section 10(14)(i)

      • Travel allowance: This allowance is provided by the employer to meet the employee’s expense of travelling while performing office duties.

      • Daily allowance: The employee can receive a daily allowance to meet his daily expenses. Such a type of allowance is given when the employee is not at his actual place of duty.

      • Uniform allowance: Employees who need to purchase or maintain their uniform while on duty can receive a uniform allowance.

      • Academic or research allowance: The allowance is granted to aim encouragement for research, academic or training pursuits among the employees.

      • Helper allowance: This allowance is given to meet the expense of hiring a helper to perform office duties.

    2. Exemption of allowance under section 10(14)(ii)

      The allowance is granted to meet expenses that are incurred during performing one’s duties. If these allowances are received above the prescribed limits, they are then taxable in the hands of the employees. For this section, the allowances are prescribed in Rule 2BB.

      • Children's Education Allowance: An allowance of Rs. 100 each month per child up to two children is given.

      • Tribal Area Allowance: An allowance of Rs. 200 per month for tribal areas, schedule areas, and agency areas.

      • Compensatory Field Area Allowance: The employee can claim either a Compensatory Field Area Allowance of Rs. 2,600 per month or a Border Area Allowance.

      • Border Area Allowance: This allowance is allowed for army personnel and ranges from Rs 200 to Rs 1,300 per month.

      • Special Compensatory Allowance: For employees working in hilly regions of the country, allowances like high altitude allowance, uncongenial climate allowance, snowbound area allowance, or avalanche allowance are offered which range from Rs. 300 to Rs. 7,000 per month.

      • Counter Insurgency Allowance: Individuals from the armed forces who are living away from their homes receive this allowance with a limit is Rs 3,900 per month.

      • High Active Field Area Allowance: Members of the armed forces receives this allowance with a limit of Rs. 4,200 per month.

      • Island Duty Allowance: Members of armed forces posted in the area of Andaman and Nicobar Islands and Lakshadweep Group of Islands are eligible to receive this allowance with a limit of Rs. 3,200 per month.

  14. Section 10(15) the income earned from interest exempt from the tax

    Those who earn income from interest are exempted as per the rules of section 10(15). The below-mentioned table provides the details.

    Section Income Tax exemption to
    10(15)(i) The exemption would be availed on the interest, redemption or premium on bonds, securities, deposits and certificates which are subject to some conditions and limitations. All assesses
    10(15)(iib) Interest on the bonds of Capital Investment should be notified before the date of 01-06-2002 HUF/Individual
    10(15)(iic) Interest on Relief bonds HUF/Individual
    10(15)(iid) Interest on declared bonds (which should be declared before 1-6-2002) and should be bought in foreign exchange which must be subject to some limitations and conditions. NRI-Individual/NRI gift the bonds to the individual.
    10(15)(iii) Securities’ interest Issue department under the central bank of Ceylon
    10(15)(iiia)  The interest on deposits with the scheduled bank with the approval from RBI  Incorporation of bank broad
    10(15)(iiib)  Paying of interest to Nordic Investment Bank  Nordic Investment Bank
    10(15)(iiic)  In the execution of an agreement which takes place on 25-11-1993, the interest is payable to the European Investment Bank for granting of the loan by it between that bank and the central government.  European Investment Bank
    10(15)(iv)(a)  Receiving the interest from the local authority or the government on money lent to it prior to 1-6-2001  All the assess which have committed to lent on money from sources outside the nation
    10(15)(iv)(b)  Under the agreement of loan, received the interest from the industrial undertaking in India prior to 1-6-2001.  Approved the financial institution of foreign nations
    10(15)(iv)(c)  Receiving the interest on a certain rate from the industrial undertaking of India on debt or lent prior to the date of 1-6-2001 in a foreign nation for the purpose of purchasing the capital plant, raw materials and machinery within certain limitations and conditions.  All the assesses who have committed to lending such cash
    10(15)(iv)(d)  Receiving the interest prior to 1-6-2001 at an approved rate from certain financial institutions on the lending money in India  All the assess which have committed to lend such money
    10(15)(iv)(e)  Receiving the interest at an approved rate from the country’s financial institutions on the lending of money from outside India prior to 1-6-2001 under the certain loan agreement  All the assess which have committed to lend such money
    10(15)(iv)(h)  Receiving interest from any company concerning approved debentures or bonds All assesses

Conclusion:

Section 10 of the Income Tax Act focuses on the income tax exemptions that a salaried Indian citizen can avail of. Various subsections of the act can legally enable the taxpayer to avoid paying taxes under specified allowances or incomes.

Read More: Income Tax Login

FAQ's

  • Which individuals are eligible for tax exemption of special allowance under the section of 10(14)?

    Exemption of Special Allowance under section 10(14)(i) and section 10(14)(ii) is granted to certain individuals:
    • Special allowances have been granted under this section of the income tax act to high court judges.
    • UNO employees are entitled to receive this allowance.
    • The judges of the Supreme Court and High Court are entitled to receive the sumptuary allowance.
    • Those who are Indian citizens working as government employees outside India are considered the beneficiary of this allowance.
  • What is the HRA exemption under section 10?

    The salaried employees are entitled to receive the allowance on the house rent paid, which comes under tax exemption. The part of the salary an employee receives towards rent and accommodation is exempt from tax under this section. The following are the conditions:
    • Actual HRA received by the employee
    • HRA is 40 % of the salary for the rented property in non-metro cities or 50 % of the salary for metro cities.
    • Actual rent paid is less than 10% of salary.
  • What is the tax emption under Section 10(12)?

    Interest accrued on the contribution made to the 'Recognized Provident Fund' and 'Statutory Provident Fund' by an employee, is fully exempted under section 10(11) and section 10(12). Amendments to these sections have been by adding provision:
    • Interest accrued, during the previous year, extends the exemption limit
    • Interest should relate to the contribution made by the employee
    • When the employer’s contribution is included, tax exemption limit above which interest income is taxable will be Rs. 2.5 lakhs
    • When there is no employer’s contribution, tax exemption limit above which interest income is taxable will be Rs. 5 lakhs.
    • The amendment is effective from the Assessment Year 2022-2023
  • How to file for ITR?

    User can file ITR in two ways namely- offline and online. For filing offline ITR, one can download the applicable ITR, fill the form offline, save the generated XML file and then upload it. For filing online ITR, one needs to enter relevant data directly at e-filing portal and submit it. Filing of ITR 1 and ITR 4 online can be done online. One can visit the official website of the Income Tax Department for filing the ITR.
  • What is provisions of section 10(14)(i) read with rule 2BB(1)?

    Section 10(14)(i) provides exemption towards prescribed special allowance, given to the employees, to meet expenses incurred towards the performance of the official duty. The exemption is available only if the expenses are incurred solely for official duty by the employees. Rule 2BB(1) lists down the prescribed allowances.
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