The following incomes specified under section 10, which are fully exempted from Income Tax.
- Agricultural Income-
Agricultural Income as per section 10(1) earned by the taxpayer in India is exempt from tax. Agricultural income is in excess of Rs 5,000, it is aggregated with the total income of the individual or HUF, for the purposes of computing tax on the total income. However no tax charged on agricultural income but an increased income tax on the other income.
Agricultural income is considered for rate purposes while computing the income tax liability, if following two conditions are cumulatively satisfied:
- Net Agricultural income exceeds Rs. 5,000/- for previous year, and
- Total income, excluding net Agricultural income, exceeds the basic exemption limit.
- Receipts from Hindu Undivided Family-
Under section 10 (2), Any sum received by an individual as a member of a Hindu Undivided Family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, amount received out of income of family estate by any member of such HUF is exempt from tax.
- Share from Partnership Firm
Under section 10(2A), any share of profit from Partnership Firm, exempt in the hands of partners, whether it is taxable in the hands of the firms or not.
- Leave Travel Concession-
Under section 10 (5), Leave Travel Concession is given to employee by his employer to cover his travelling expenses when he goes on vacations. Exemption is available for any amount of travel to an employee alone or with his family. Family includes his spouse, children, dependent father or mother, dependent brother or sister. Children include not more than two children whether adopted or step child. Exemption of LTA is allowed for travelling in India only not cover out of India.
- Allowances or Perquisites paid to government employees for rendering their services out of India-
Under section 10 (7), All the perquisites and allowances paid by the Government to its employees, who are citizens of India, for services rendered outside India are exempt from tax.
- Gratuity-
Under section 10 (10), If employees get Gratuity at the time of Resignation, Retirement, or Superannuation-
- Gratuity Received by Govt. Employees - Section 10 (10) (i) grant exemption for gratuity received by govt. employees is fully exempt.
- For non-government employees- Partially Exempted.
In case of Death of Employee, Gratuity received by his wife or his legal heirs are fully exempt in their hands.
- Commuted Pension-
Under Section 10 (10A), an employee who is eligible for pension decides at the time of retirement to receive a lump sum amount.
- For Govt. Employees- Commuted pension received by Govt. employee or employee of local authorities or statutory corporations is fully exempt.
- Leave Salary-
Under section 10 (10AA), at the time of retirement or superannuation or resignation-
- For Govt. Employees- Leave encashment at the time of retirement or superannuation or otherwise received by a Govt. employee, is fully exempt. No tax would be levied on that amount.
- For other Employees- Partially Exempted.
Leave encashment received by his family members after the death of employee is not taxable in the hands of family members
- Receipts from LIC
Under Section 10(10d) – Any sum received under a life insurance policy is fully exempt in the following cases-
- Any sum received from insurance company on insurance of a dependent handicapped under section 80DD.
- Any sum received from insurance company when a dependent or a member of family is suffering from a notified disease under section 80DDA.
- Policy issued on or after April 1st, 2013 for a disabled person as per section 80U or a person with disease or ailment specified in section 80DDB – Exemption will be available only when annual premium payable exceeds 15% of sum assured.
- Any sum received under a key man insurance policy.
- Any other policy (not being the case when sum received on the death of a person).
- Policy issued before April 1st, 2003, Exempted from Income Tax.
- Policy issued on or after April 1st, 2003 but before April 1st, 2012, Exemption will be available only when annual premium payable exceeds 20% of sum assured.
- Policy issued on or after 1st April 2012, Exemption will be available only when annual premium payable exceeds 10% of sum assured.
- Any other policy (sum received on the death of a person), Exempted from Income Tax.
- Payment received from provident fund-
Under section 10 (11) & 10(12) Repayment/ Redemption on retirement, resignation or termination is Tax free as under-
- Statutory Provident Fund (SPF) – Under section 10 (11), the amount redeemed at the time of retirement is exempt from Income Tax.
- Recognized Provident Fund (RPF)- Under section 10 (12),
(a) The Contribution made by an employer up to 12% is exempt from Income Tax.
(b) Interest earned up to 9.5% on PF balance (employee’s + employer’s contributions) is tax free.
The amount redeemed at the retirement or resignation is Tax free if the assessee continues the service for 5 years or more.
- Public Provident Fund (PPF) -This scheme also covered under triple EEE (Exempt, Exempt, Exempt) category, means that the amount which you have deposited is covered under section 80C, the interest earned thereon is tax free and even the maturity amount is also tax free.
- Special Allowance Exemption-
Under section 10(14), there are certain special allowances, which are fully exempted from Income tax-
- Allowances granted to High Court Judges.
- Allowance given to a UNO employee.
- Sumptuary allowance received by Supreme Court and High Court judge
- Allowances granted to government employees who are Indian citizens, working abroad.
- Interest income exempt from tax-
- Scholarship and Rewards-
Under section 10 (16), any scholarship, which cover the education expenses like tuition fees etc., received from Trust, Government, University or Board etc. is exempt from Income Tax.
- Gallantry awards-
Under section 10 (18), Individual who has received any of the gallantry awards, or their pension of service to Central or State Government or awarded ‘Param Vir Chakra’ or ‘Mahavir Chakra’ or ‘Vir Chakra’ or such other award notified by the Central Government exempt from Income Tax and any amount received as a family pension by any member of the family of such an individual will also qualify for exemption.
- Tax free mutual funds-
Under section 10 (23D), any income of following mutual funds (subject to provisions of sections 115R to 115T) is exempt from tax-
- A mutual fund registered under the Securities and Exchange Board of India Act or regulation made thereunder.
- A mutual fund set-up by a public sector bank, or a public financial institution or authorised by RBI (subject to conditions notified by the Central Government).
- Dividends on shares and units
Under section 10(34) & (35), the dividend income and income of units of mutual funds received by the assessee exempt from income tax.
- Capital Gain on compulsory acquisition of urban Agricultural Land-
Under section 10(37), Any Capital Gains arises on compensation received on compulsory acquisition of urban agricultural land is exempt from Income tax.
- Long-term capital gains of transfer of shares and securities-
Under section 10(38), Long-term capital gains arising on transfer of shares and securities covered under Security Transaction Tax, are not chargeable to tax in the hands of any person, if following conditions are satisfied .
- The asset transferred should be equity shares of a company or units of an equity oriented mutual fund or a unit of a business trust.
- The transaction should be liable to securities transaction tax, at the time of transfer.
- Such asset should be a long-term capital asset.
- Transfer should have taken place on or after October 1, 2004.
Exemption from long term capital gains under section 10(38) shall be available w.e.f April 1, 2017 even where STT is not paid, provided that – the transaction is undertaken on a recognised stock exchange located in any International Financial Service Centre or consideration is paid or payable in foreign currency.
- Income from international sporting event-
Under section 10 (39), any specified income (which is from such international event and which is notified by the Central Govt.) of specified persons from any international event held in India shall be fully exempted if;
- Such event is approved by the international body regulating the international sport relating to such event.
- It has participation by more than two countries; and
- Is notified by the Central Govt. in this regard.
- Income received as grant by a subsidiary company-
Under Section 10(40), Income of any subsidiary company by way of grant or otherwise received from its Indian holding company which is engaged in the business of generation/ transmission/distribution of power is exempt, only if;
- Such receipt is for settlement of dues in connection with reconstruction.
- Or revival of an existing business of power generation.
The exemption is available if the reconstruction or revival is by way of transfer of business to the Indian company notified under section 80 IA(4)(v)(a).
- Income from transfer of asset of an undertaking engaged in the business of generation, transmission or distribution of power-
Under section 10(41), Income from transfer of capital asset of an undertaking engaged in the business of generation, transmission or distribution of power where such transfer takes place on or before 31.3.2006 and transfer is made to the Indian company as notified u/s 80IA.