Exemptions under Section 10

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Exemptions under Section 10

Section 10 of the IT Act (1961) consists of those incomes that do not form part of the total salary while calculating the employee’s tax. Thus, these incomes are exempted from the computation, and they are called exempted incomes. The main objective of Section 10 is to decrease the tax burden for the salaried individual by ways of granting exemptions.

Sections Particulars Exemption Limit
Sec 10(1) Agricultural Income (from agricultural land, farmhouse, or sapling seedling was grown in the nursery) for self-employed Fully exempt from tax
Sec 10(2) Income received from HUF (Hindu-undivided family) by a taxpayer in his capacity as a member of HUF Fully exempt from tax
Sec 10(10C) The 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 the life insurance policy, including policy bonus. Fully exempt from tax
Sec 10(11)(12) The amount is withdrawn from the Provident fund by salaried employees. Fully exempt from tax
Sec 10(10BC) The compensation received in case of any disaster from the 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 the salary amount if the 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, Tamil Nadu, 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 an employee to commute 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 the government) Fully exempt from tax
Sec 10(23D) Income from the 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 instalments in the transaction of the reverse mortgage) Fully exempt from tax
Sec 10(44) New Pension System exemption (Any income received by any person on behalf of the New pension system) Fully exempt from tax
Sec 10(49) The income of the National financial holdings company Fully exempt from tax

Special Allowances Under Section 10 for Salaried Employees

Section 10 (14)

As per Section 10(14)(i) of the IT Act, the special endowments given to the employee for meeting expenditures are included in performing the duties of his/her job. Such profits are not extended as part of pre-requisites. There is no restriction on the amount an employer can extend to the individual for the grants covered under this section. But it should be noted that the extended amount is used entirely for the purpose for which it was provided.

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

  • Daily Allowance: The employee’s allowance 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 granted to meet the expenses of a helper and that helper is hired to be engaged in performing the office’s duties is also extended.
  • Uniform Allowance: It is the allowance granted to meet the expenses of purchase or maintenance of uniform, which needs to be worn during duties’ performance.
  • Travelling Allowance: The allowance is granted to meet the expenses incurred during the travel on a tour or transfer course. The allowance includes the sum extended to meet the transfer’s fair and picking and transporting the personal items to the transfer place.
  • Conveyance Allowance: The allowance provided to meet the expenses incurred on conveyance in performing one’s duties for the employment or office.
  • Research Allowance: In educational and research institutions, the allowance granted to encourage 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 duties’ performance at the usual place of work. Nevertheless, there are no restrictions on how 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 not related to the actual expenses experienced. The special allowances prescribed under Rule 2BB for 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 available for this allowance, 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, 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 Armed Forces members on the subject of certain conditions. The exemption available is up to ₹ 4,200 per month.
  • Island Duty Allowance: This allowance is granted to Defence Forces members in the islands of Lakshadweep and Andaman and Nicobar Islands on subject to certain conditions. The exemption available is up to ₹ 3,200 per month.

Special Individuals Receiving Allowances ExemptExemptions under Section 10

There are specific individuals whose case the allowance received is 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.

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FAQs about Exemptions Under Section 10

What are exemptions under section 10?

Under section 10 of the Income Tax Act, agriculture income is treated as tax-free income. 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 provided by the employer to the employee for performing the duties of his employment.

What is Section 10 26AAA of tax?

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. In contrast, section 17 of the Income Tax covers the definition of salary, perquisites and profits instead of salary.