When we discuss saving on taxes, exemptions can make a massive difference. A part of the Income Tax Act 1961 has a key role in shaping these exemptions and ensuring the coverage is wide enough to include taxpayers from diverse income brackets. Section 10 lists different kinds of income that don’t have to pay tax, either in full or in part. This section helps taxpayers legally reduce their taxable income lawfully. Nevertheless, it is vital to note that this advantage can only be redeemed under the old regime and not under the new regime.
So, if you desire to know how you can decrease your tax liability legally, you’re in the proper place.
Overview of Section 10 of the Income Tax Act
Section 10 of the Income Tax Act spells out diverse kinds of income that don’t get taxed at all or get taxed.
The idea is to provide alleviation in specific income avenues, allowing individuals to decrease their tax burden. These exemptions are not confined to any particular income source or slab but encompass a medley of eligibility, beginning from salary features like gratuity funds and HRA to scholarships, agricultural income, and more. Therefore, if you have provable income from whichever of these sectors, you can claim exclusions, subject to any clauses of Section 10 and lower your taxable income.
Popular Income Exemptions Under Section 10
There are diverse sub-clauses under Section 10. These comprise but are not confined to profit sharing, salary parts, and income from minor family members. To determine which slab you qualify for, you need to go through these sections.
1. Exemption on Agricultural Income – Section 10(1)
Money made from farming tasks like irrigation, crop growing, and land cultivation is free from tax. This is performed to support agricultural and sustainable initiatives.
Now, in case your agricultural income surpasses Rs 5,000 and your total income, exempting agricultural income, exceeds the elementary exemption limit, you may be subject to tax under the partial integration scheme.
In taxation, partial integration refers to a means for estimating the tax rate relevant to non-agricultural income when a person has both agricultural and non-agricultural sources of revenue.
2. Exemption on Gratuity – Section 10(10)
For employees who get gratuity at the time of resignation or retirement, Section 10 presents tax relief. The sum of gratuity that is exempt from tax depends on whether the Gratuity Act covers you or not.
For employees covered under the Gratuity Act: Exemption is calculated as fifteen days’ salary for each concluded year of service.
For others: The minimum of the following is exempt:
Rs 20 lakh
Actual gratuity received
Half a month’s salary for each concluded year of service
3. Exemption on House Rent Allowance (HRA) – Section 10(13A)
One of the most well-known exemptions is the HRA, which pertains specifically to salaried employees who receive HRA as a fraction of their salary. The exemption is computed based on:
50% of your salary (for those residing in metro cities) or 40% (for non-metro cities)
The actual HRA received
Rent that is paid, less 10% of your salary
Now, there may be a scenario where your employer does not provide you with designated funds to encompass your residential allotment. In this case, where your employer does not provide you with any exclusive funds as HRA, you can still claim tax benefits on your rent through Section 80GG of the Income Tax Act. For this, you’ll need to possess rent receipts, evidence of monthly rent payments, and a rent agreement.
4. Exemption on Leave Travel Allowance (LTA) – Section 10(5)
Another helpful exemption under Section 10 is for LTA. You can claim LTA for the cost of travel for yourself and your family during holidays, provided you travel within India. This exemption can be demanded for two trips in a phase of four years.
A common misconception that can prove to be erroneous is the extent of coverage on this exemption. It only concerns the travel charge and does not include shelter or any other expenditures incurred during the travel.
5. Exemption on Income from Minor Children – Section 10(32)
This clause is contentious and may confuse taxpayers. Nonetheless, the idea here is to understand that all income from minors is not fined under the Child Labour Act. Thus, any income acquired by your minor child, from means like investments or interest, is usually clubbed with your income for tax purposes. Nevertheless, an exemption of Rs 1,500 per child is present under this section for up to two children.
6. Exemption on Retrenchment Compensation – Section 10(10B)
Getting laid off is a nightmare for any salaried individual. However, Section 10, sub-clause 10B also provides some relief here. If you’re retrenched, the reward you get is exempt up to fixed limits. The exempt amount will be the minimum of:
Rs 5 lakh
Actual compensation received
15 days’ salary for each concluded year of service
A person’s retrenchment payment is qualified for exemption if the closure is due to restructuring, company downsizing or a total closure of the business.
7. Exemption on Educational Scholarships – Section 10(16)
If you or your child is getting an educational scholarship, there’s some good news – this scholarship sum is wholly exempt from tax under Section 10, sub-clause 16. You don’t need to worry if this scholarship is from a private institution, as the exemption covers all forms and sources of scholarships.
8. Exemption of Profit Sharing from a Partnership Firm – Section 10(2A)
If you’re a partner in a partnership firm, any part of the profit you get from the firm is wholly exempt from tax. The logic is plain, since the firm is already taxed on its profits, you do not need to pay any tax again on the share you get.
9. Exemption on Income of Members of HUF – Section 10(2)
If you are a member of a Hindu Undivided Family (HUF), the income you get as a member is exempt from tax only if it is not received in your personal capacity.
The table below provides the maximum exemption available in respect of Section 10 of the Income Tax Act.
| Age Group | Maximum Tax Exemption |
| Up to 60 years | Rs 2.5 lakhs |
| 60-80 years | Rs 3 lakhs |
| 80 years and above | Rs 5 lakhs |
Exemptions and deductions under section 10 of the Income Tax Act are not present under the new regime.
Exemptions Under Section 10 of the Income Tax Act
Section 10 provides exemptions under different sub-clauses as specified:
- Section 10(3) – Income From Eligible Awards Due to Outstanding Contribution to Literature, Arts, Science, or Sports
- Section 10(4) – Tax Exemption on Income Made by an NRI From India
- Section 10(6) – Exemption on Income Received by an Individual Working Overseas as a Representative of India
- Section 10(7) – Exemption on Perquisites of Allowances Paid by the Government of India to an Indian Citizen Working Abroad
- Section 10(10CC) – Exemption on Tax Paid by an Employer on Perquisites
- Section 10(10C) – Exemption on Money Received by an Employee Under a Voluntary Retirement Scheme
- Section 10(10D) – Exemption on Payouts From a Life Insurance Policy
- Section 10(11) – Exemption on Returns From a Retirement Fund Like EPF and Sukanya Samriddhi Account
- Section 10(10BC) – Tax Exemption on Any Amount Received to Cope With a Disaster
- Section 10(14) – Exemption on Special Allowances Accrued as Part of Salary
- Section 10(15) – Exemption on Income From Interest Payments
- Section 10(23C) – Income of Specific Funds and Institutions
- Section 10(34) – Dividend Income
- Section 10(37) – Capital Gains on Agricultural Land
- Section 10(26) – Income of Members of a Scheduled Tribe
- Section 10(38) – Equity-based Long-Term Capital Gains
Bottom Line
Section 10 has an itemised list of exemptions that allow taxpayers to lower their taxable income and thus, their tax liabilities. Knowledge of these exemptions, together with the conditions for claiming them, can bring a nice relief to your tax burden. When filing an income tax return, taxpayers need to familiarize themselves with these exemptions and their requirements.
We recommend that you think about speaking to a tax expert, as they can help you make the most of Section 10 exceptions.
