Section 10 of the Income Tax Act

According to Section 10 of the Income Tax Act 1961, salaried professionals can enjoy income tax exemption. Union Budget 2023 announced a significant change in Section 10(10AA) (ii) to increase the payment limit of leave encashment for non-government employees from Rs. 3 lakhs to Rs. 25 lakhs. Also, tax exemption under Section 10(10D) on maturity benefits from the life insurance policies (except ULIP plans) issued after 01 April 2023 will be provided only if the total premiums paid are up to Rs. 5 lakhs. These changes will continue for the financial year 2024-25.

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NOTE: The tax benefits under Section 10 (specifically under Section 10(10D) investments) are available only under the old tax regime. The new tax regime introduced in the Union Budget 2023 under Section 115BAC has removed many tax deductions and exemptions available for taxpayers.

Income Tax Return (ITR) Meaning

An Income tax return (ITR) is a form to file details about income and your tax liabilities to the Income Tax Department. The taxpayer has to pay tax based on the tax liability calculated on their 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 of 1961 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.

Features of Section 10 of the IT Act, 1961:

  • Total Income Calculation: The total income is primarily calculated by analysing a salaried professional's total amount of tax liability.

  • Benefits For: Tax deductions provided to salaried professionals fall under this Income Tax Act section, mainly under Section 10(10D).

  • Tax Exemptions Allowed For: The objective of Section 10 is to reduce the burden of the different tax structures, such as rent allowance, tuition fee for children's education, travel allowance, gratuity, and so on. 

Individuals Receiving Allowances Exemption

Certain kinds of allowances are considered special under Section 10 of the Income Tax Act.

Exemption of Special Allowance under Section 10(14) (i) and Section 10(14) (ii) is granted to specific individuals who are:

  • High Court judges

  • UNO employees

  • Supreme Court and High Court judges are entitled to receive the Sumptuary Allowance

  • Indian citizens working as government employees outside of India

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

    According to this section, agricultural income from land situated in India is entitled to tax exemptions. 

    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 a 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 family's income.

    • 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 a Partnership Firm

    The partner of a firm enjoys several benefits under Section 10(2A). Under this section, the profit which a co-owner or the partner earns 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 the profit earned by the partners of the LLP/Firm.

    Example: 

    XYZ partnership firm's FY 2021-22 profit 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 Received by an NRI from India:

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

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

    • Premium income on redemption of such bonds

    • Interest income from the credited amount 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 the travel of the employee/ individual and their family in the particular financial year

    • The current or previous employer must receive it in connection with their future travel.

    • The employees are entitled to travel concessions with respect to any amount from their employer on leave across India.

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  6. Section 10(6): Exemption on Remuneration to Indian Citizens Who are Working Outside India

    This is a special package for individuals 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 also 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 the Government of India provides to its employees for furnishing its services outside India are entitled to tax exemptions. Indian citizens who are government employees are entitled to avail of 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 a tax exemption in the hands of the employee.

  9. Section 10(10D): Exemption on the Tax of Life Insurance Policy Maturity

    The maturity amount and the bonus of a ULIP Plan, Capital Guarantee Plan, or an life insurance policy earned by a citizen of India is exempt from tax under Section 10(10D) of the Income Tax Act. However, the following are some of the criteria to receive the benefit under Section 10(10D):

    • 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.

    Changes in Benefits under Section 10(10D) According to the Union Budget 2023 (will continue for 2024-25): 

    Under the Section 10(10D), the tax exemption benefits on the maturity amount of the Life insurance policy issued after 1st April 2023 are allowed as per the following conditions:

    • For a ULIP policy, if the total premium amount paid is up to Rs. 2.5 lakhs.

    • If the total premiums paid for other life insurance policies are up to Rs. 5 lakhs. 

    NOTE: Taxpayers can avail of the tax benefits under Section 10(10D) only under the old tax regime. It must be noted that the deductions u/ Section 10(10D) are not provided with the new tax regime, which is the new default income tax regime from 01st April 2023.

  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. In addition, 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% for metro cities.

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

    **New Budget Update: Delhi, Mumbai, Chennai, and Kolkata are recognized as metro cities for HRA exemption under section 10(13A), with the condition that 50% of the basic salary is considered. Bengaluru, Hyderabad, and Pune will also qualify as metro cities. Enabling employees in these cities to receive HRA exemption based on 50% of their basic salary, aligning with the current metro city standards.

  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 while performing his duties. There is no specified limit on the amount an employer provides his employee as a special allowance, but allowances must be utilised only for the mentioned purpose.
    This section is further subdivided 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 travel expenses 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 uniforms while on duty can receive a uniform allowance.

      • Academic or Research Allowance: The allowance is granted to encourage employees' research, academic or training pursuits.

      • 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 while 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 living away from their homes receive this allowance with a monthly limit of Rs. 3,900.

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

      • Island Duty Allowance: Members of armed forces posted in Andaman and Nicobar Islands, and Lakshadweep Group of Islands are eligible to receive this allowance with a limit of Rs. 3,250 per month.

  14. Section 10(15) the Income Earned from Interest on Investments

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

    Section Income Tax-exempt citizens.
    10(15)(i) The exemption would be availed on the interest, redemption, or premium on bonds, securities, deposits, and certificates that 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 off interest to Nordic Investment Bank  Nordic Investment Bank
    10(15)(iiic)  In the execution of an agreement on 25-11-1993, the interest is payable to the European Investment Bank for granting the loan 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 before 1-6-2001 All the assets which are committed to lent on money from sources outside the nation
    10(15)(iv)(b)  Under the loan agreement, received the interest from the industrial undertaking in India before 1-6-2001. Approved the financial institutions of foreign nations
    10(15)(iv)(c)  Receiving the interest at a certain rate from the industrial undertaking of India on debt or lent before the date of 1-6-2001 in a foreign nation for 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 before 1-6-2001 at an approved rate from certain financial institutions on the lending money in India  All the assessees who 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 before 1-6-2001 under the certain loan agreement  All the assessees who 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. In addition, various subsections of the act can legally enable the taxpayer to avoid paying taxes under specified allowances or incomes.

FAQ's

  • What is Section 10?

    Section 10 of the Income Tax Act, 1961, deals with exemptions from total income. It provides a list of items that are not included in the total income of an individual. Some of the most common exemptions under Section 10 include:
    • Agricultural income

    • House rent allowance (HRA)

    • Leave travel allowance (LTA)

    • Medical allowance

    • Children's education allowance

    • Gratuity

    • Life insurance premiums (under Section 10(10D))

    • Tuition fees

    • Home loan repayments

    • Donations to charity

  • What comes under section 10?

    Section 10 of the Income Tax Act, 1961 provides for exemptions from total income under various heads. It is a long section with 15 sub-sections, each of which deals with a different type of exemption. Some of the most common exemptions under Section 10 include:
    • House rent allowance (HRA)

    • Leave travel allowance (LTA)

    • Income from life insurance policies (under Section 10(10D))

    • Children's education allowance

    • Medical allowance

    • Conveyance allowance

    • Allowance for handicapped dependent

  • What is Section 10 exemption in income tax?

    Section 10 exemption in income tax refers to the various types of income that are exempt from tax under Section 10 of the Income Tax Act, 1961. These exemptions are available to both salaried and self-employed individuals.

    Some of the most common Section 10 exemptions include:

    • House rent allowance (HRA)

    • Leave travel allowance (LTA)

    • Children's education allowance

    • Medical allowance

    • Income from certain investments like life insurance u/ Section 10(10D)

  • What is Section 10 of the Income Tax Clause 21?

    Section 10(21) of the Income Tax Act, 1961 provides for exemption from income tax to any income of an Approved Scientific Research Association, which is applied solely for research purposes. This includes income earned from research grants, donations, or any other sources that are used for research activities.

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