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Section 10 of Income Tax Act

Exemption Under Section 10

Last Updated 13th May 2021

Section Exemption Limit
Section 10(1) Fully Exempt
Section 10(2) Fully Exempt
Section 10(10D) Fully Exempt
Section 10(13A) Partially Exempt
Section 10(14) Partially Exempt
INCOME TAX CALCULATOR

Section 10

Section 10 of the Income Tax Act, 1961 includes those incomes which do not form part of the total income while calculating the tax for an individual. Thus, these incomes are excluded from the calculation, and they are known as exempted incomes. The main objective of Section 10 is to reduce the tax burden of the salaried individual by ways of providing exemptions.

Income Tax Section 10

Sections Particulars Exemption limit
Sec 10(1) Agricultural Income (from agricultural land, farm house, or sapling seedling grown in nursery) for self employed Fully exempt from tax
Sec 10(2) Income received from HUF (Hindu-undivided family) by a tax payer in his capacity as a member of HUF Fully exempt from tax
Sec 10(10C) Compensation received at the time of voluntary retirement for salaried employees Exempt from tax up to a certain limit of compensation amount ₹ 5,00,000
Sec 10(10D) Amount received under life insurance policy including policy bonus Fully exempt from tax
Sec 10(11)(12) Amount withdrawn from Provident fund by salaried employees Fully exempt from tax
Sec 10(10BC) Compensation received in case of any disaster from central government Fully exempt from tax
Sec 10(13A) House rent allowance (HRA) to salaried employees (rent paid by the employees to stay in a rented house) Fully exempt from tax and 50% of salary amount if residential house is in metro cities otherwise 40% in non-metro
Sec 10(14) Children education allowance (salaried employees can claim a pre defined allowance for two children) Exemption up to ₹ 100 per month per child
Sec 10(14) Special compensatory allowance for hilly areas or climate allowance or high altitude allowance to salaried employees Exemption up to ₹ 7,000 per month
Sec 10(14) rule 2BB Border area allowance or remote area or any disturbed area allowance to salaried employees Exemption up to ₹ 1,300 per month
Sec 10(14) Tribal area allowance in: Madhya Pradesh, Tamilnadu, Assam, UP, Karnataka, West Bengal, Bihar, Orissa and Tripura to salaried employees Exemption up to ₹ 200 per month
Sec 10(14) Compensatory field area allowance available in various areas of AP, Manipur, Sikkim, Nagaland, HP, UP and J&K to salaried employees Exemption up to ₹ 2,600 per month
Sec 10(14) Transport allowance granted to employee for the purpose of commuting from home to office salaried employees Exemption up to ₹ 1,600 ( ₹ 3,200 for blind, deaf and dumb ) per month
Sec 10(15) Income from tax free securities to all assesses (Income received as interest from securities, bonds, deposits notified by government) Fully exempt from tax
Sec 10(23D) Income from mutual fund (Any income earned from mutual funds registered under SEBI or set-up by any PSU or authorized by RBI) Fully exempt from tax
Sec 10(34) Income from dividends (Tax paid by the company over the profits is considered as the final payment of tax no further credit to be claimed as dividends) Fully exempt from tax
Sec 10(38) Long term capital gains on transfer of shares and securities Fully exempt from tax
Sec 10(43) Reverse Mortgage (Any amount received by the individual as loan in lump-sum or in installments in transaction of reverse mortgage) Fully exempt from tax
Sec 10(44) New Pension System exemption (Any income received by any person on the behalf of New pension system) Fully exempt from tax
Sec 10(49) Income of National financial holdings company Fully exempt from tax

Special Allowances Under Section 10 for Salaried Employees

Section 10 (14)

Section 10(14)(i) of the Income Tax Act, covers those special allowances or benefits which are given to the employee for meeting expenses that are incurred in the course of performing the duties of his employment. Such benefits are not extended as part of perquisites. For the allowances covered under this section, there is no limit on the amount an employer can extend to the employee. However, it should be noted that the extended amount is utilized entirely for the purpose for which it was given.

Special allowances prescribed in Rule 2BB for the purpose of section 10(14)(i) are:

  • Daily Allowance: The allowance received by the employee to meet the daily expenses due to his absence in the regular place of duty is called daily allowance. Such allowance can also be extended within the period of the journey during transfer.
  • Helper Allowance: The allowance which is granted to meet the expenses of a helper, and that helper is hired to be engaged in performing the duties of the office is also extended.
  • Uniform Allowance: It is the allowance that is granted to meet the expenses of purchase or maintenance of uniform, which needs to be worn during the performance of duties.
  • Travelling Allowance: The allowance that is granted to meet the expenses incurred during the travel on course of a tour or transfer. The allowance includes the sum extended to meet the fair of the transfer along with picking and transporting the personal items to the place of transfer.
  • Conveyance Allowance: The allowance provided to meet the expenses incurred on conveyance in the course of performing one’s duties for the employment or office.
  • Research Allowance: In educational and research institutions, the allowance granted to encourage the academic, research and training pursuits.

Section 10 (14) (ii)

Under Section(14)(ii) of the Income Tax Act, 1961, those allowances are included which are extended to meet expenses incurred during the performance of the duties at the usual place of work. However, there is no limit on the amount which an employer can extend to the employee under such allowance.

These special allowances are taxable in the hands of the employee if received more than a specified sum. The taxability is irrespective of the actual expenses incurred. The special allowances prescribed under Rule 2BB for the purpose of section 10(14)(i) along with their exemption limit are:

  • Children Education Allowance: The exemption limit for this allowance is ₹ 100 each month for one child and the benefit is available for up to two children.
  • Tribal Area Allowance: This includes an allowance for Tribal areas, Schedule areas, Agency areas. Such areas are pre-specified. The exemption available is ₹ 200/month.
  • Compensatory Field Area Allowance: If the exemption is availed for this allowance, then the individual cannot claim an exemption for Border Area Allowance. The exemption available is up to ₹ 2,600 per month.
  • Border Area Allowance: This allowance includes border area allowance, remote locality or disturbed area or difficult area allowance. This allowance is basically for army personnel. The exemption available is within the range of ₹ 200 to ₹ 1,300 per month.
  • Compensatory Modified Area Allowance: If the individual claims exemption for this allowance, then no exemption can be claimed for border area allowance.
  • Special Compensatory Allowance: This allowance is extended for hilly areas. It includes high altitude allowance, uncongenial climate allowance, snowbound area allowance, or avalanche allowance. The exemption available varies between ₹ 300 to ₹ 7,000 per month, depending on certain conditions.
  • Counter Insurgency Allowance: This allowance is granted to members of the Armed Forces for operating away from their permanent residence areas. The exemption available is ₹ 3,900 per month. If this exemption is claimed, then the individual cannot claim any exemption for border area allowance.
  • High Active Field Area Allowance: This allowance is extended to the members of the Armed Forces on the subject of certain conditions. The exemption available is up to ₹ 4,200 per month.
  • Island Duty Allowance: This allowance is granted to the members of Armed Forces in the area of Andaman and Nicobar Islands and Lakshadweep Group of Islands on subject to certain conditions. The exemption available is up to ₹ 3,200 per month.

Special Individuals Receiving Allowances Exempt

There are specific individuals in whose case the allowance received by them are exempt as special allowance exemption under section 10(14). These specific individuals are:

  • The allowances received by the employees of UNO.
  • The allowances received by the High Court Judges.
  • The sumptuary allowance received by the High Court and Supreme Court Judges.
  • The allowances granted to government employees who are working abroad and are citizens of India.

Budget Highlights 2021

  • Tax Related Announcements in Budget 2021

    Taxation Related

    • Senior citizens above the age of 75 years who have only pension and interest income are now exempt from filing Income Tax Returns.
    • Tax holiday on affordable housing projects extended for 1 year till March 31, 2022.
    • Tax holiday for start-ups increased by one more year till March 31, 2022.
    • A dividend payment in REIT (Real estate investment trusts) and INVIT (Infrastructure investment trusts) exempt from TDS.

    Tax Assessment and Filing Related

    • Details of capital gains and interest from banks, post offices, etc will be pre-filled to ease filing of IT returns.
    • National faceless income tax appellate tribunal will be set up for individual taxpayers.
    • Dispute resolution committee will be set up for small taxpayers.
    • The time frame for reopening of income-tax assessment cases reduced from 6 years to 3 years.

    Savings Related

    • Late contribution to EPF by the employer for employees will not be allowed as a deduction to the employer.

    Others

    • A budget of Rs. 35,000 crore allotted for Covid-19 vaccines.

FAQs

What are exemptions under section 10?

Under section 10 of the Income Tax Act, agriculture income is fully exempt. It also includes various allowances, some of which are fully exempt, some partially exempt and some are taxable.

What is Section 10(14) of income tax?

Section 10(14) covers those allowances which are provided by the employer to the employee for performing the duties of his employment.

What is Section 10 26AAA of tax?

The section 10(26AAA) covers the income of a Sikkimese individual which is arising either in the state of Sikkim or by way of dividend or interest on securities, is not to be included in total income for tax calculation.

What are exemptions under section 10 & 17 in income tax?

Section 10 of the Income Tax covers the income which does not form part of the total income while section 17 of the Income Tax covers the definition of salary, perquisites and profits in lieu of salary.


Our News - May 2021
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  • 2021-02-02 : Income tax won’t be taxed twice for NRIs
    Union Budget 2021-2022 proposes to provide relief from double taxation for NRIs on money accrued in foreign retirement accounts by claiming relief on tax deducted on such money in India. Currently, there is a mismatch in the year of taxability of such funds in India and the respective foreign country.
  • 2021-02-01 : Dispute resolution committee and National faceless income tax appellate tribunal to be set up
    FM proposed the setting up of the National faceless income tax appellate tribunal for individual taxpayers. Details of capital gains and interest from banks, post offices, etc will be pre-filled to ease filing of IT returns. Further, a Dispute a resolution committee will be set up for small companies.
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