Income Tax Act Section 10: Explained
What is Section 10 Income Tax Act?
Section 10 of the Income Tax Act defines income/allowances that are not part of the main income of an individual. These incomes are exempted from taxation as per the provisions laid down in Section 10. The tax law also deals with special allowances given to salaried individuals. Let us learn more about the provisions of Income Tax Section 10 in detail.
List of Exempted Income Under Section 10 of Income Tax Act
Section 10(1) - Agricultural Income Exemption Under Section 10
Section 10(1) of the Income Tax Act exempts agricultural income for agricultural lands situated in India. All the below mentioned agricultural incomes are exempted from taxation:
- Rental income earned from agricultural land
- Income earned from agricultural operations such as sowing, tilling, cultivation, etc.
- Income earned from offering growth and preservation services such as cutting, weeding, etc.
- Earning from sale proceeds of the agricultural produce
- Income earned from any farm building used in agricultural activities
Section 10(2) - Exemption on Income Received from a HUF
Section 10(2) of the Income Tax Act offers tax exemptions on the part of the income earned by an individual from a HUF. Any income paid out to an individual from the family income is considered tax-free.
Section 10(2A) - Exemption on Income Received from a Partnership Firm
The income earned from a partnership firm as per the pertinent deed is eligible for tax exemption under Section 10(2A) of the Income Tax Act. For example, if you are a 30% right (as per the deed) on the income earned by a partnership firm, which has earned Rs 1 lakh profit in a financial year, the income of Rs 30,000 received from the firm will be tax-free. However, if the firm pays you more than Rs 30,000 (more than what is mentioned in the partnership deed), you will be liable to pay taxes.
Section 10(4) - Exemption on Income Earned by an NRI
There are two types of income earned by Non-Residents of India that are eligible for tax exemption:
- Interest earned and capital gains made from investments made in bonds and securities specified by the government of India.
- Interest earned by a person resident outside India on credit in a Non-Resident (External) Account
Section 10(5) - Tax Exemption on Travel Concession
The leave travel concession received by an individual is exempted from taxation under Section 10(5) of the Income Tax Act. Any travel concession received by an individual for his/her employer or his/her previous employer in connection to the travel is tax-free. The exempted amount cannot be more than the actual spending by the individual during the travel.
For example, if the travel concession is Rs 5,000, but the individual has spent only Rs 3,000, he/she can enjoy the tax exemption only on Rs 3,000. The travel concession that includes the individual’s family members is also eligible for tax exemption under the section.
Section 10(6) - Remunerations Received for Representing Indians in a Foreign Nation
Any remuneration received by an individual representing India in a foreign nation and who is not a citizen of India is exempted from taxation under section Section 10(6). The remuneration can be of the following types:
- Any remuneration as prescribed by the government of India
- Remuneration received as an official
- Remuneration received being an employee of a foreign enterprise
- Remuneration received being a staff/employee of a philanthropic institution established outside India
Section 10(7) – Exemption on Allowance or Perquisites Paid by the Government
Section 10(7) of the Income Tax Act exempts allowances or perquisites from taxation that are paid by the government of India to an individual for his rendering of services outside India.
Section 10(10BC) – Exemption on Remuneration Received Against a Disaster
Any remuneration amount that an individual receives from an institution as compensation for damage/suffering from a natural disaster is exempted from taxation under Section 10(10BC) of the Income Tax Act. This includes remunerations received from the Central government, State government, or any local authority.
Section 10(10C) – Exemption on Amount Received from Voluntary Retirement Scheme
Section 10(10C) of the Income Tax Act offers tax exemption of the amount received by an individual for his/her voluntary retirement or termination of his/her services under a voluntary retirement scheme. The following categories of employees are allowed to claim the tax exemption under the section:
- Any company (public sector or private)
- Institution formed under a Central, State, or Provincial Act
- Any local authority
- Any co-operative society
- An university approved under UGC Act
- Working under central or state government
- Any institution specified by the central government
- Any institution of management as specified by the central government
Section 10(CC) – Tax on Perquisites
In case the employer decides to pay taxes on the perquisites offered to an employee, the prerequisites are exempted from taxation on the part of the employee.
Section 10(10D) – Exemption on LIC Maturity Amount
Section 10(10D) of the Income Tax Act exempts tax on the amount received from the maturity of a LIC policy including the bonus.
Section 10(11) – Tax Exemption on Contributions made and Interest Earned from Provident Fund and Sukanya Samriddhi Account
The contributions made and interest earned from PF and Sukanya Samriddhi Account are tax-free under Section 10(11) of the Income Tax Act.
Section 10(13A) Tax Exemption HRA
The amount received by an individual as housing rent allowance from his/her employer is exempted from taxation under Section 10(13A).
Sec 10 of the Income Tax Act also deals with the special allowances paid to salaried employees. The section is divided into two further subsections-
- Section 10(14) (i)
- Section 10(14) (ii)
Section 10(14) (i) - Exemption on Special Allowances
Section 10(14) (i) offers tax exemption on special allowances paid to an employee as a remuneration for the expenses incurred during performing employment duties. There is no limit on the amount that can be paid to the employee. However, the extended allowances must be used only for the meant purpose.
The allowances that are tax-free under Section 10(14) (i) are defined as follows:
|Type of Allowance||Description|
|Daily Allowance||Remuneration for daily expenses incurred by the employee due to his/her absence at the workplace for some reason, or allowance extended to him/her during the transfer period.|
|Helper Allowance||Compensation paid to the employee for hiring a helper in order to perform office work.|
|Uniform Allowance||Amount paid to meet the expense of purchasing and maintaining uniforms that are to be worn at the workplace.|
|Travelling Allowance||Amount paid to cover up the expenses incurred while travelling for the purpose of work.|
|Conveyance Allowance||Remuneration against the expenses of conveyance while performing office work.|
|Research Allowance||Allowances paid by several institutions to its employees compensate for the expenses and motivate them for the research work.|
Section 10(14) (ii) - Non-Taxable Allowances (Up to a Certain Limit)
Section 10(14) (ii) of the Income Tax Act deals with allowances received by an employee that are exempted from taxation if the allowance amount is under the prescribed amount.
The allowances and their tax-free limits are defined as follows:
|Type of Allowance||Description|
|Climate Allowance||Allowance paid to those who are working in hilly regions of India. The allowances range from Rs 800 to Rs 7,000 per month.|
|Tribal or Scheduled Areas Allowance||Allowance of Rs 200 paid to those working in tribal areas of West Bengal, Odisha, UP, Bihar, Tripura, MP, and Karnataka.|
|Remote Areas Allowance||Allowances ranging from Rs 200 to Rs 1,300 paid to those working in remote or disturbed parts of India.|
|Children Education Allowance||Allowance of Rs 100 paid for the education of each child of a government employee. The allowance can be availed for up to 2 children, i.e; Rs 200 per month.|
|Armed Forces Allowance||Allowance extended to armed forces for their service in posted areas having an altitude of above 9,000 ft. The allowance paid to ones serving in the range of 9,000-15,000 ft is Rs 1,060 per month, and to those serving above 15,000 ft is Rs 1,600 per month.|
|Allowance for Serving in Underground Mines||Allowance of Rs 800 paid to those working in underground mines for central government approved projects.|
|Transport Allowance for Physically Disabled Government Employees||Allowance of Rs 1,600 per month paid to government employees against expenses incurred while travelling for any government assignment.|
|Island Allowance||Allowance of Rs 3,250 paid to the armed forces working in Lakshadweep and Andaman & Nicobar Island.|
Section 10(15) - Tax Exemption on Interest Income
Interest income earned by individuals is exempted from taxation as per the provisions laid under Section 10(15) of the Income Tax Act.
The table below explains different parts of the section offering tax exemptions for different types of interest incomes.
|Section 10(15)(i)||Offers tax-exemption on income earned from interest and capital gains from deposits, bonds, and other securities with certain conditions and up to a certain limit.|
|Section 10(15)(iib)||Offers tax-exemption for HUFs/individuals on interests earned on the capital investment bonds.|
|Section 10(15)(iic)||Tax-exemption offered to HUFs/individuals on interest earned from Relife bonds.|
|Section 10(15)(iid)||Tax-exemption offered to NRIs for interest earned on declared bonds bought in foreign exchange, with certain conditions and limits.|
|Section 10(15)(iii)||Offers tax exemptions on the interest earned from Securities issued from the central bank of Ceylon.|
|Section 10(15)(iiia)||Tax exemptions offered on the interests earned from deposits made in a scheduled bank approved by RBI.|
|Section 10(15)(iiib)||Tax exemption interest paid to the Nordic Investment Bank.|
|Section 10(15)(iiic)||Tax exemption offered on the payable interest to the European Investment Bank in a particular case.|
|Section 10(15)(iv)(a)||Tax exemption on interest earned from the money lent to a local authority or the government before 1/06/2001.|
|Section 10(15)(iv)(b)||Tax exemption on interest received from money lent to the industrial undertaking in India before 1/06/2001.|
|Section 10(15)(iv)(c)||Tax exemption on interest earned on money lent to the industrial undertaking of India before 1/06/2001 in a foreign country for buying plant (capital), furnishing raw materials, and purchasing machinery, with certain conditions and limits.|
|Section 10(15)(iv)(d)||Tax exemption on interest earned on money lent to specified financial institutions in India before 1/06/2001.|
|Section 10(15)(iv)(e)||Tax exemption on interest earned on money lent from outside India to specified financial institutions in India before 1/06/2001.|
|Section 10(15)(iv)(f)||Tax exemption on interest earned from debentures and bonds of a company.|
Which parts of Section 10 of the Indian Tax Act offers a complete exemption on allowances?
Section 10(1) to Section 10(13) of the Income Tax Act deals with allowances that are completely tax-free.
Are perquisites tax-free?
Yes, perquisites are tax-free on the part of the employee only if the employer has paid taxes for the same.
Is Section 10(14) of the Income Tax Act applicable for self-employed individuals?
No, Section 10(14)(i) and Section 10(14)(ii) of the Income Tax Act are not applicable for self-employed individuals. They are only applicable for salaried employees.
What is the difference between Section 10(14)(i) and Section 10(14)(ii)?
Section 10(14)(i) deals with allowances that are completely tax-free, whereas, Section 10(14)(ii) deals with allowances that are tax-free only up to a certain limit.
What is uniform allowance?
Uniform allowance is mentioned in Section 10(14)(i) of the Income Tax Act. It offers tax-exemption on the allowance paid by employers to their employees for the purchase and maintenance of the uniform that is meant to be worn at the workplace.
How much children education allowance can I earn as a government employee?
You can earn up to Rs 200 for education of your two children (Rs 100 per child) per month as tax-free education allowance being a government employee.
How much tax exemption is allowed for helper allowance?
The entire helper allowance received from the employer is tax-free.
I earn rental income from agricultural land. How much do I need to pay in taxes?
Rental income earned from agricultural land is exempted from taxation as per Section 10(1) of the Income Tax Act.