![EXEMPTED INCOMES [Section – 10, 10AA, 11 to 13A]](https://incometaxmanagement.in/wp-content/uploads/2023/09/Exempted-Incomes-Section-10-1024x683.jpg)
1. Agricultural Income [Section 10(1)]
Agricultural income is totally exempt, provided it falls within the definition of agricultural income given under section 2(1A). Agricultural income, though exempt, is to be aggregated in case of certain assessees for the purpose of determining the rate of tax on non-agricultural income. A detailed discussion is given in Chapter 13.
2. Sum received by a Member from HUF [Section 10(2)
Any sum received by an individual, as a member of a Hindu undivided family, shall be exempt in the hands of the member:
3. Share of Profit of a Partner from a Firm [Section 10(2A)]
In case of a person being a partner of a firm (which includes limited liability partnerships) his share in the total income of the firm shall be exempt from tax.
4. Interest on Non-resident (External) Account [Section 10(4)]
In the case of an individual assessee any income by way of interest on money standing to his credit in a Non-Resident (External) Account in any bank in India shall also be exempt if certain conditions are satisfied.
4A. A Exemption of certain income received by a specified fund [Section 10(4D) inserted] [W.e.f. A.Y.2020-21]
The following incomes received by a specified fund shall be exempt. –
(i) Any income accrued or arisen to, or received by a specified fund as a result of transfer of capital asset referred to in section 47(viiab), on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in ‘convertible foreign exchange or as a result of transfer of securities (other than shares in a company resident in India) or
(ii) any income from securities issued by a non-resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India or
(iii) any income from a securitisation trust which is chargeable under the head “profits and gains of business or profession”, to the extent such income accrued or arisen to, or is received is attributable to units held by non-resident (not being the permanent establishment of a nonresident in India) ‘or is attributable to the investment division of offshore banking unit, as the case ,nav he computed in the prescribed manner’.(see rule 21A1 inserted by Notification No. 90/2021, dated 9.8.2021)
5. Exemption of income of a non-resident as a result of transfer of non-deliverable forward contracts entered into with an offshore banking unit of International Financial Services Centre (IFSC) [Section 10(4E)] [Inserted W.e.f. A.Y. 2022-23]
Any income accrued or arisen to, or received by a non-resident as a result of transfer of non- deliverable forward contracts entered into with an offshore banking unit of International Financial Services Centre which commenced operations on or before 31.3.2024 and fulfils prescribed conditions shall be exempt.
6. Exemption of income of a non-resident by way of royalty or interest on account of lease of an aircraft paid by a unit of an International Financial Services Centre (IFSC) [section 10(4F)] [Inserted W.e.f. A.Y. 2022-23]
Any income of a non-resident by way of royalty or interest on account of lease of an aircraft in a previous year paid by a unit of an International Financial Services Centre as referred to in section 8OLA(1A) shall be exempt, if the unit
(a) is eligible for deduction under section 80LA for that previous year and
(b) has commenced operation on or before 31.3.2024.
Explanation. —For the purposes of this clause, “aircraft” means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof;
7. Travel concession or assistance received by an individual from his employer [Section 10(5)]
[Exemption will not be available if the employee opts to be taxed under section 115BAC]
The employee is entitled to exemption under section 10(5) in respect of the value of travel concession or assistance received by or due to him from his employer or former employer for himself and his family, in connection with his proceeding—
(a) on leave to any place in India.
(b) to any place in India after retirement from service or after the termination of his service.
The exemption shall be allowed subject to the following:
(i) where journey is performed by air — Maximum exemption shall be an amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination;
(ii) where places of origin of journey and destination are connected by rail and the journey is performed by any mode of transport other than by air — Maximum exemption shall be an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and
(iii) where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed between such places — The amount eligible for exemption shall be:
(A) where a recognised public transport system exists, an amount not exceeding the 1 St class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and
(B) where no recognised public transport system exists, an amount equivalent to the air- conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.
Exemption will, however, in no case exceed, actual expenditure incurred on the performance of journey.
HOW MANY TIMES CAN EXEMPTION BE CLAIMED?
- The assessee can claim exemption in respect of any two journeys in a block of 4 years. For this purpose, the first block of 4 years was calendar years 1986-89, second block was 1990- 93, third block was 1994-97, fourth block was 1998-2001, fifth block was 2002-05, sixth block was 2006-09, seventh block was 2010 to 2013, eighth block was 2014-17, the ninth block is 2018-2021 and tenth block will be 2022-2025.
- If the assessee has not availed of the exemption of LTC in a particular block, whether for both the journeys or for one journey, he can claim the exemption of first journey in the calendar year immediately succeeding the end of the block of four calendar years. In other words, maximum one journey can be carried forward and that too only for the first journey in the following calendar year unless the period is otherwise extended. Such journey undertaken during the extended period will not be taken into account for determining the tax exemption of two journeys for the succeeding block.
Exemption available only in respect of two children
The exemption relating to LTC shall not be available to more than two surviving children of an individual after 1.10.1998.
Exception: The above rule will not apply in respect of children born before 1.10.1998 and also in case of multiple birth after one child.
| IMPORTANT NOTES :
1. In case the LTC is encashed without performing the journey, the entire amount received by the employee would be taxable. 2. Family for this purpose includes: (a) the spouse and children of the employee; (b) parents, brothers & sisters of the employee, who are wholly or mainly dependent upon him. 3. The exemption can be availed for the journey undertaken while on leave during the tenure of service or even after retirement/termination from service. 4. The exemption is allowed only in respect of fare. Expenses incurred on porterage, conveyance from residence to the railway station/airport/bus stand and back, boarding and lodging or expenses during the journey will not qualify for exemption. 5. Exemption is available in respect of shortest route. Where the journey is performed from the place of origin to different places in a circular form or in any other manner, the exemption for that journey will be limited to what is admissible for the journey from the place or origin to the farthest point reached, by the shortest route. |
8. Remuneration to persons who are not citizens of India [Section 10(6)]
In case of an individual who is not a citizen of India, the following income shall be exempt:
(i) Remuneration received by diplomats, etc. [Section 10(6)(ii)]:
(ii) Remuneration received by a foreign national as employee of a foreign enterprise [Section 10(6)(vi)]:
(iii) Non-resident employed on a foreign ship [Section 10(6)(viii)]:
(iv) Remuneration of employee of foreign Government during his training in India [Section 10(6)(xi)]:
9. Allowances or perquisites outside India [Section 10(7)]
Any allowances or perquisites paid or allowed, as such, outside India by the Government to a citizen of India, for rendering services outside India, are exempt.
10. Death-cum-Retirement Gratuity received by an employee [Section 10(10)]
Gratuity is a payment made by the employer to an employee in appreciation of the past services rendered by the employee. Gratuity can either be received by:
(a) the employee himself at the time of his retirement; or
(b) the legal heir on the event of the death of the employee.
Gratuity received by an employee on his retirement is taxable under the head “Salary” whereas gratuity received by the legal heir of the deceased employee shall be taxable under the head “Income from other sources”.
However, in both the above cases, according to section 10(10), gratuity is exempt upto a certain limit. Therefore, in case gratuity is received by employee, salary would include only that part of the gratuity which is not exempt under section 10(10).
Exemption of Gratuity under Section 10(10)
| Government Employees & employees of local authority |
Employees covered under Gratuity Act | Any other employee |
| Fully exempt | Minimum of the following 3 limits:
(1) Actual gratuity received, or (2) 15 days’ salary for every completed year, or part thereof exceeding six months 7 days’ salary for each season in case of employee in seasonal establishment; or (3) Rs. 20,00,000 Meaning of Salary: (i) Basic Salary plus dearness allowance. (ii) Last drawn salary. Average salary for preceding 3 months in case of piece rates employees (iii) No. of days in a month to be taken as 26 |
Minimum of the following 3 limits:
(1) Actual gratuity received (2) Half months’ average salary of each completed year of service. (3) Rs. 20,00,000 Meaning of Salary: (i) Basic salary plus D.A. to the extent the terms of employment so provide Commission, if fixed percentage of turnover. (ii) Average salary of last 10 months preceding the month in which event occurs. (iii) Only completed year of service is to be taken. |
(i) Where an assessee receives gratuity and part of it is taxable because it is not fully exempt under section 10(10), the employee can claim relief under section 89 on account of such gratuity.
(ii) Where an employee had received gratuity in any earlier year(s) and had claimed exemptions under section 10(10) in respect of the gratuity received earlier also, he will still be entitled to this exemption but the limit which at present is Rs. 20,00,000 shall be reduced by the amount of exemption(s) availed in the earlier year(s). There will be no change in the other two limits.
(iii) If gratuity is received from more than one employer in the same previous year, by an employee, the limit of Rs. 20,00,000 would apply to the aggregate of gratuity received from one or more employers.
(iv) Gratuity is exempt. if the relationship of employer and employee exists between the payer and the payee. If such relationship does not exist, the exemption shall not be available, e.g., gratuity payable by the LIC of India to its Insurance Agents does not qualify for exemption as agents are not employees of the Corporation.
(v) The words “completed service” occurring in section 10(10) should be interpreted to mean an employee’s total service under different employers including the employer other than the one from whose service he retired, for the purpose of calculation of period of years of his completed service, provided he was not paid gratuity by the former employer. [CIT v PM Mehra (1993) 201 ITR 930 (Born)].
(vi) Any gratuity paid to an employee, while he continues to remain in service with the same employer is taxable under the head “Salaries” because gratuity is exempt only on retirement or on his becoming incapacitated or on termination of his employment or death of the employee. In this case, however the assessee can claim relief under section 89.
(vii) The CBDT vide its instruction in F. No. 194/0/73-IT, dated 19.6.1973 has clarified that the expression “termination of employment” would cover an employee who has resigned from the service.
11. Payment in commutation of pension received by the employees [Section 10(10A)]
Uncommuted pension i.e. the periodical pension:
It is fully taxable in the hands of all employees, whether government or non-government.
Commuted pension:
Exemption of commuted pension u/s 10(10A)
| Govt. employees, employees of local authorities and employees of statutory corporations | Any other employee
|
| Fully exempt | (a) If gratuity is not received Commuted value of half (1/2) of pension which he is normally entitled to receive.
(b) If gratuity is also received Commuted value of 1/3rd of pension which he is normally entitled to receive. |
Pension received by the employee is taxable under the head “Salaries”. However, the family pension received by the legal heirs after the death of the employee is taxable in the hands of the legal heir under the head “Income from other sources” because in this case there is no relationship of employer and employee. Treatment of family pension is discussed in detail under the head “Income from other sources”.
Example :
A retired on 15.4.2021 from B Company Ltd. He was entitled to a pension of Rs. 8,000 p.m. At the time of retirement, he got 75% of the pension commuted and received Rs. 2,40,000 as commuted pension. Compute the taxable portion of the commuted pension if—
(i) He is also entitled to gratuity.
(ii) He is not entitled to gratuity.
Solution :
- 75% of Commuted Pension is equal to Rs. 2,40,000.
Hence commuted value of 1/3 of the pension would amount to Rs. 2,40,000 x 100/75 x 1/3 = Rs. 1,06,667;
Rs. 1,06,667 would, therefore, be exempt and balance Rs. 1,33,333 would be taxable.
- 75% of commuted pension is equal to Rs. 2,40,000.
Hence commuted value of 50% of pension would amount to Rs. 2,40,000 x 100/75 x ½ = Rs. 1,60,000.
Therefore, Rs. 1,60,000 would be exempt and Rs. 80,000 would be taxable.
12. Leave Encashment [Section 10(10AA)]
Exemption of leave encashment at the time of retirement u/s 10(10AA)
| Govt. employee i.e. Central and State Govt. employees | Any other Employee |
| Fully exempt
|
Minimum of the following four limits:
(i) Leave encashment actually received; or (ii) 10 month’s average salary; or (iii) Cash equivalent of unavailed leave calculated on the basis of maximum 30 days leave for every year of actual service rendered; (iv) Rs. 3,00,000 |
| Meaning of salary
(i) Basic salary plus D.A. to the extent the terms of employment so provide plus Commission, if fixed percentage of turnover. (ii) Average salary of last 10 months immediately preceding the date of retirement. |
Amount specified by the Government from time to time is given in the table below:
| Date of Retirement | Rs. | |
| Between 1-1-1988 and 3 1-3-1995 | 79,920 | |
| Between 1-4-1995 and 30-6-1995 | 1,30,320 | |
| Between 1-7-1995 and 1-7-1997 | 1,35,360 | |
| After 1-7-1997 and upto 1-4-1998 | 2,40,000 | |
| After 1-4-1998 | 3,00,000 | |
| 1. If the employee had received leave encashment in any one or more earlier previous year(s) also and had availed of the exemption in respect of such amount, then the limit given in clause (d), specified above, shall be reduced by the amount of exemption(s) availed earlier.
2. Where the leave encashment is received by the employee from more than one employer in the same previous year, the specified limit given in clause (d) above would apply to the aggregate of leave encashment received from one or more employers. 3. Leave salary received by the family of a government servant, who died in harness, is not taxable in the hands of the recipient. [Circular Wo. 309, dated 3.7.1981]. 4. Leave salary paid to legal heirs of a deceased employee in respect of privilege leave standing to the credit of such employee at the time of his/her death is an ex-gratia payment on compassionate grounds in the nature of gifts. Thus the payment is not in the nature of salary. [Letter No. 35/1/65, dated 5.11.1965]. 5. The assessee can claim relief from tax under section 89 in respect of leave encashment. |
||
Example :
E, an employee of XYZ Pvt. Ltd. retired from the company on 30.11.2021. At the time of his retirement, he received 2,88,000 as leave salary from his employer. The following information is provided by the employee:
| Rs. | ||
| (1) | Salary at the time of retirement (p.m.) | 18,000 |
| (2) | Period of Service | 20 years & 8 months |
| (3) | Leave encashment | 2,88,000 |
| (4) | Leave availed while in service | 14 months |
| (5) | Balance unavailed leave at the time of retirement | 16 months |
| (6) | Average salary for the months of February, 2021 to November, 2021 | 17,600 |
| (7) | Leave entitlement | 11/2 month for every completed year of service |
Compute the amount of taxable leave encashment.
Solution:
The minimum of the following four amounts will be exempt:
(a) Leave encashment actually received = Rs. 2,88,000
(b) 10 months’ average salary, i.e., Rs. 17,600 x 10 = Rs. 1,76,000
(c) Leave encashment for 6 months @ Rs. 17,600 p.m. = Rs. 1,05,600.
(d) Amount specified by the Government, i.e., Rs. 3,00,000
Hence Rs. 1,05,600 would be exempt and the balance of Rs. 1,82,400 would form part of gross salary.
| Although he is entitled to 1 1/2 month’s leave for every completed year of service, for the purpose of calculating limit for clause (c) above, the calculation will be done on the basis of maximum 30 days’ leave for every completed year of service. Therefore, the maximum leave allowable for purpose of clause (c), i.e., 30 days x 20 = 600 days, i.e., 20 months. Leave already availed by employee is 14 months. Therefore, the unavailed leave calculated on basis of 30 days leave for every completed year of service is 6 months (20 – 14). |
13. Compensation on retrenchment [Section 10(10B)]
Any compensation received by a workman at the time of his retrenchment, under the Industrial Disputes Act, 1947 or under:
(a) any other Act or rules or any order or notification issued there-under; or
(b) any standing order; or
(c) any award, contract of service or otherwise,
shall be exempt to the extent of minimum of the following limits:
(i) Actual amount received;
(ii) 15 days’ average pay for every completed year of service or part thereof in excess of 6 months;
(iii) Amount specified by the Central Government, i.e. Rs. 5,00,000
Compensation received in excess of the aforesaid limit is taxable and would, therefore, form part of Gross Salary. However, the assessee shall be eligible for relief under section 89 read with rule 21A.
| 1. Where retirement compensation is received by a workman in accordance with any scheme which the Central Government having regard to the need for extending special protection to the workman in the undertaking to which such scheme applies, has approved in this behalf, the entire amount of compensation so received shall be exempt under section 10(10B).
2. Where retrenchment compensation received by a workman exceeds the amount which qualifies for exemption under the new clause, he will be entitled to relief under section 89 read with rule 21A of the Income-tax Rules, in respect of such excess. |
14. Payments under Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 [Section 10(10BB)]
Any payments made, under the above Act or any scheme made thereunder, shall be exempt in hands of the recipient.
15. Exemption for compensation received or receivable on account of any disaster [Section 10(10BC)]
Any amount received or receivable from the Central Government or a State Government or a local authority by an individual or his legal heir by way of compensation on account of any disaster shall be exempt.
However, the exemption is not allowable in respect of amount received or receivable to the extent such individual or his legal heir has been allowed a deduction under the Income-tax Act. on account of any loss or damage caused by such disaster.
16. Amount received on Voluntary Retirement [Section 10(10C)]
The compensation received or receivable by the employee of the following, on voluntary retirement, under the Golden Hand Shake Scheme, is exempt under section 10(10C):
(i) a public sector company; or
(ii) any other company; or
(iii) an authority established under a Central, State or Provincial Act; or
(iv) a local authority; or
(v) a co-operative society; or
(vi) a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956; or
(vii) an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961; or
(viii) such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf;
(ix) State Government;
(x) Central Government;
(xi) Institutions having importance throughout India or in any State or States as may be notified.
Exemption shall be available, subject to the following conditions:
(a) The compensation is received only at the time of voluntary retirement or termination of his services in accordance with any scheme or schemes of voluntary retirement or in the case of public sector company, a scheme of voluntary separation. Even if the compensation is received in instalments, the exemption shall be allowed.
(b) Further, the scheme of the said companies or authorities or societies or universities or the institutes referred to in clauses (vii) and (viii) above, as the case may be. governing the payment of such amount, are framed in accordance with such guidelines (including inter alia criteria of economic viability) as may be prescribed. In the case of public sector companies, if there is a scheme of voluntary separation, it shall also be according to the said prescribed guidelines.
Quantum of Exemption:
The amount of exemption is
- the actual amount of compensation received or
- 5,00,000,
whichever is less.
| 1. The exemption is available to an employee only once and if it has been availed for an assessment year it shall not be allowed to him for any other assessment year.
2. The assessee shall not be eligible for relief under section 89 in case he has claimed exemption under section 10(10C). On the other hand, if he claims relief under section 89, he cannot claim exemption under section 10(10C). |
17. Tax on non-monetary perquisites paid by employer [Section 10(10CC)]
The income-tax actually paid by the employer himself on a non-monetary perquisite provided to the employee shall be exempt in the hands of the employee.
18. Amount received under a life insurance policy [Section 10(10D)]
Any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, is wholly exempt from tax. However, the following sum received are not exempt under this section:
(a) any sum received from a policy under section 80DD (3) or section 80DDA (3); or
(b) any sum received under a Keyman insurance Policy; or
(c) any sum received, under an insurance policy issued on or after 1.4.2003 but on or before 31.3.2012 in respect of which the premium payable for any of the years during the terms of the policy exceeds 20% of the actual capital sum assured.
However, such sum received on the death of a person shall he exempt: or
(d) any sum received, under an insurance policy issued on or after 1.4.2012 in respect of which the premium payable for any of the years during the terms of the policy exceeds 10% of the actual capital sum assured.
However, the above provision of’ sub-clauses (c) and (d) shall not apply to any sum received on the death of a person. [First proviso]
Further, any sum received under an insurance policy issued on or after 01.04.2013 for the insurance on the life of any person who is—
(i) a person with disability or a person with severe disability as referred to in section 80U, or
(ii) suffering from disease or ailment as specified in the rules made under section 80DDB, the figures ‘10%’ mentioned in the sub-clause (d) shall be substituted by ‘15%’. [Third Proviso]
In other words, if the premium payable during any previous year for a policy issued on or after 1.4.2012 exceeds 10% / 15%, of the actual capital sum assured, the entire amount received under such policy shall be taxable.
No exemption in respect of ULIP if the annual premium exceeds Rs. 2,50,000.
Nothing contained in this clause shall apply with respect to any unit linked insurance policy, issued on or after 1.2.2021, if the amount of premium payable for any of the previous year during the term of such policy/policies exceeds Rs. 2,50,000. [Fourth Proviso]. In other words, amount received on maturity of such policy shall be taxable.
Provided also that if the premium is payable, by a person, for more than one unit linked insurance policies, issued on or after the 1.2.2021, the exemption of this clause shall apply only with respect to those unit linked insurance policies, where the aggregate amount of premium does not exceed the amount referred to in fourth proviso (i.e. Rs. 2,50,000) in any of the previous year during the term of any of those policies. [Fifth Proviso]. In other words, if the aggregate amount of premium exceeds Rs. 2,50,000, the amount received on maturity of each policy shall he taxable.
However, the above fourth and fifth provisos shall not apply to any sum received on the death of a person. [Sixth Proviso]
Important Notes:
- Where the premium/aggregate premium of such policy/policies exceed Rs. 2,50,000 such ULIP shall he treated as capital asset under section 2(14).
- As per section 45(1B), any profits or gains arising from receipt of such amount by such person shall be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of such person of the previous year in which such amount was received and the income taxable shall be calculated in such manner as may be prescribed.
| Keyman insurance policy means a Life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with the business of the first mentioned person and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration. |
19. Provident Fund [Section 10(11)]
Any payment from a Provident Fund to which the Provident Funds Act, 1925 applies or from Public Provident Fund set up by the Central Government shall be exempt.
Taxability of Interest on statutory provident fund where contribution is exempt [Provisos inserted under section 10(11)] [W.e.f. A.Y. 2022-23]
The provisions of this clause [i.e. exemption under section 10(11)] shall not apply to the interest income accrued during the previous year in the account of the person to the extent it relates to the amount or the aggregate of amounts of contribution made by the person exceeding Rs. 2,50,000 in any previous year in that find, on or after 1.4.2021, computed in such manner as may be prescribed. [First proviso]
However, if the contribution by such person is in a fund in which there is no contribution by the employer of such person, the provisions of the first proviso shall have the effect as if Rs. 2,50,000, had been substituted by Rs. 5,00,000. [Second proviso]
20. Interest and withdrawals from Sukanya Samriddhi Account [Section 10(11A)]
Any payment from an account opened in accordance with the Sukanya Samriddhi Account Rules, 2014 shall not be included in the total income of the assessee. As a result, the interest accruing on deposits in, and withdrawals from any account under the scheme would be exempt.
21. Payments from Recognised Provident Fund [Section 10(12)]
The accumulated balance due and becoming payable to an employee participating in a Recognised Provident Fund, to the extent provided in Rule 8 of Part A of the Fourth Schedule of Income-tax Act, 1961, shall be exempt.
For detailed discussion see Chapter on ‘Salaries’.
Taxability of Interest on recognised provident fund where contribution is exempt [Proviso inserted under section 10(12)]
The provisions of this clause (i.e., exemption under section 10(12)) shall not apply to the interest income accrued during the previous year in the account of the person to the extent it relates to the amount or the aggregate of amounts of contribution made by the person exceeding Rs. 2,50,000 in any previous year in that fund, on or after 1.4.2021, computed in such manner as may be prescribed. [First proviso]
However, if the contribution by such person is in a fund in which there is no contribution by the employer of such person, the provisions of the first proviso shall have the effect as if Rs. 2,50,000, had been substituted by Rs. 5,00,000 [Second proviso]
22. Amount payable at the time of closure or opting out of National Pension Scheme to be exempt to the extent of 60% of the total amount payable [Section 10(12A)]
Any payment from National Pension System Trust to an assessee on account of closure or his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed 60% (40% up to A.Y. 2019-20) of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax.
However, the whole amount received by the nominee, on death of the assessee shall he exempt from lax.
| The word “employee’ has been substituted by the word “assessee” w.e.f. A.Y. 2019.20. It means that both employee or self-employed person shall be entitled to exemption under this section. |
23. Tax-exemption to partial withdrawal from National Pension System (NPS) by an employee [Section 10(12B)]
Any payment from the National Pension System Trust to an employee under the pension scheme referred to in section 80CCD, on partial withdrawal to the extent it does not exceed 25% of the amount of contributions made by him shall be exempt from Lax.
24. Any payment from an approved Superannuation Fund [Section 10(13)]
Any payment from an approved superannuation fund shall be exempt provided it is made:
(i) on death of a beneficiary; or
(ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement, or
(iii by way of refund of contributions on the death of a beneficiary; or
(iv) by way of refund of contributions to an employee on his leaving the service in connection with which the funds is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act (i.e. 1.4.1962) and any interest thereon; or
(v) by way of transfer to the account of the employee under a pension scheme referred to in section 80CCD and notified by the Central Government. [Clause (v)]
25. House rent allowance [Section 10(13A)]
For detailed discussion see Chapter on ‘Salaries’.
26. Notified special allowance [Section 10(14)]
For detailed discussion see Chapter on ‘Salaries’.
27. Interest, premium or bonus on specified investments [Section 10(15)]
(A) Exemption in case of any assessee [Section 10(15)(i)]
Any income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf, subject to such conditions and limits as may be specified in the said notification.
| Post office saving bank account: Interest of Rs. 3,500 in case of an individual account and Rs. 7,000 in this case of joint account shall he exempt under section 10(15)(i). [Notification No. 32/2011, dated 3.62011] |
(B) Exemption in case of interest on Gold Deposit Bond and Deposit certificates
Interest on Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetization Scheme 2015 notified by the Central Government shall be exempt.
(C) Exemption in case of interest on bonds issued by a local authority
Any interest on bonds issued by a local authority or by a State Pooled Finance Entity and which are specified by the Central Government by notification shall he exempt in the hands of the investor.
(D) Interest on deposit with offshore banking unit [Section 10(15)(viii)]
Any income by way of interest received by a non-resident or a person who is not ordinarily resident in India on a deposit made in an offshore banking unit, shall be exempt in the hands of the depositor.
28. Scholarships granted to meet the cost of education [Section 10(16)]
Scholarships granted to meet the cost of education are exempt.
29. Daily and constituency allowance, etc. received by MPs and MLAs [Section 10(17)]
The following incomes shall be exempt in hands of the persons specified:
(i) daily allowance received by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof;
(ii) any allowance received by any person by reason of his membership of Parliament under the Members of Parliament (Constituency Allowance) Rules, 1986;
(iii) any constituency allowance received by any person by reason of his membership of any State Legislature under any Act or Rules made by that State Legislature.
Note—If MP or MLA opts to be taxed under section 115BAC, the above exemption shall not be allowed.
30. Award or Reward [Section 10(17A)]
Any payment made, whether in cash or in kind, shall be exempt from tax provided it is made: (i) in pursuance of any award instituted in the public interest by the Central Government or any State Government or instituted by any other body and approved by the Central Government in this behalf; or (ii) as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the public interest.
31. Pension received by certain awardees/any member of their family [Section 10(18)]
Any income by way of pension/family pension received by an individual or any member of his family shall be exempt if such individual has been in the service of Central]State Government and has been awarded Param Vir Chakra or Maha Vir Chakra or Vir Chakra or such other gallantry award as may he notified.
32. Exemption of the family pension received by the family members of armed forces (including para-military forces) personnel killed in action in certain circumstances [Section 10(19)]
Where the death of a member of the armed forces (including paramilitary forces) of the Union has occurred in the course of operational duties, in such circumstances and subject to such conditions as may be prescribed, the family pension received by the widow or children or nominated heirs, as the case may be, shall be exempt from tax.
33. Annual value of one palace of the ex-ruler [Section 10(19A)]
The ‘annual value’ in respect of any one palace which is in the occupation of an ex-ruler is exempt from tax.
34. Income of a local authority [Section 10(20)]
The following income of a local authority shall he exempt:
(i) Income which is chargeable under the head, ‘Income from house property’.
(ii) Income from ‘Capital gains’, or
(iii) ‘Income from other sources’, or
(iv) Income from a trade or business carried on by it which accrues or arises from the supply of
(a) water or electricity within or outside its own jurisdictional area. or
(b) any other commodity or service within its own jurisdictional area.
In other words, the entire income of a local authority shall be exempt from tax except the income derived from the supply of commodity or service (other than water and electricity) outside its own jurisdictional area.
35. Income of an approved research association [Section 10(21)]
Under this clause, income of a research association, which is approved, is exempt from tax if certain conditions are satisfied.
36. Income of specified news agency [Section 10(22B)]
Any income of such news agency, set-up in India solely for collection and distribution of news, as the Central Government may notify, in this behalf, is totally exempt. The exemption is available, provided the news agency applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its member.
37. Income of certain funds of national importance [Section 10(23C)]
Any income received by any person on behalf of the following is exempt from tax:
(i) The Prime Minister’s National Relief Fund or the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund); or
(ii) The Prime Minister’s Fund (Promotion of Folk Art); or
(iii) The Prime Minister’s Aid to Students Fund; or
(iv) The National Foundation for Communal Harmony; or
(v) The Swachh Bharat Kosh, set up by the Central Government; or
(vi) The Clean Ganga Fund, set up by the Central Government; or
(vii) The Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund in respect of any State or Union territory; or
(viii) Any university or other educational institution existing solely for educational purposes and not for purpose of profit; or
(ix) Any hospital or other institution for the reception and treatment of persons
- suffering from illness or
(ii) mental defectiveness or
(iii) during convalescence or
(iv) requiring medical attention or rehabilitation, existing solely for philanthropic purpose and not for purpose of profit.
The exemption under clause (vii) and (viii) shall be available only to following type of universities/ hospitals/institutions (hereinafter called institutions).
(A) Institutions which are wholly or substantially financed by the Government, [Section 10(23C) (iiiab) and (iiiac)], or
(B) Institutions whose aggregate annual receipts do not exceed l crore [Section 10(23C) (iiiad) and (iiiae)], or
(C) Institutions, other than covered under (A) and (B) above, which may be approved by the prescribed authority. [Section 10(23C) (vi) and (via)].
(x) The provision also empowers the prescribed authority, on an application, to grant exemption from income-tax by giving approval in respect of
(a) any other fund or institution established for charitable purposes, having regard to its objects and importance throughout India or throughout any one or more States [Section 10(23C) (iv)]; and
(b) any trust or institution, which is either wholly for public religious purposes or wholly for public religious and charitable purposes. and which is administered and supervised in a manner so as to ensure that its income is properly applied for its purposes. [Section 10(23C) (v)]
38. Income of notified mutual funds [Section 10(23D)]
Any income of the following mutual funds shall be exempt from tax:
(i) a Mutual Fund registered under the Securities and Exchange Board of India Act. 1992 or regulations made thereunder;
(ii) such other notified Mutual Fund set up by a public sector hank or other public sector banks or a public financial institution or authorised by the Reserve Bank of India and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf.
39. Distributed income received by a unit holder from the business trust [Section l0(23FD)]
Any distributed income, referred to in section 115UA, received by a unit holder from the business trust, not being that proportion of the income, which is of the same nature as the income referred to in section 10(23FC) shall be exempt in the hands of the unit holder.
40. Exemption in respect of certain income of wholly owned subsidiary of Abu Dhabi Investment Authority and of Sovereign Wealth Fund [Section 10(23FE)]
Any income of a specified person in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India, whether in the form of debt or share capital or unit shall be exempt. if the investment—
(i) is made on or after 01,04.2020 but on or before 31.3.2024;
(ii) is held for at least 3 years; and
(iii) is in a business trust referred to in section 2(13A) (i); or other notified enterprises, Alternative Investment Fund, domestic company, non-banking financial company etc.
41. Income of trade union [Section 10(24)]
‘income from house property’ and ‘income from other sources’ of a registered union, within the meaning of the Indian Trade Unions Act, 1926 or an Association of such Trade Unions, formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen, is exempt from income-lax.
42. Income of a member of Scheduled Tribe residing in certain specified areas [Section 10(26)]
Section 10(26) grants exemption to certain incomes of a member of a Scheduled Tribe residing in specified areas or in the States of Arunachal Pradesh. Manipur, Mizoram or in Ladakh region of State of Jammu & Kashmir’ if certain conditions are satisfied.
43. Income of an individual being a Sikkimese [Section 10(26AAA)]
The following income, which accrues or arises to a Sikkemese individual, shall be exempt from income-tax
(a) income from any source in the State of Sikkim; or
(b) income by way of dividend or interest on securities.
However, this exemption will not be available to a Sikkimcse woman who, on or after 1.4.2008, marries a non-Sikkimese individual.
44. Income of minor clubbed in the hands of a parent [Section 10(32)]
Under section 64(1A), the income of a minor child is includible in the total income of the parent under the circumstances mentioned therein, section 10(32) provides that such parent in whose income the minor’s income is included shall be entitled to exemption to the extent such income does not exceed of Rs. 1,500 in respect of each minor child, whose income is so includible. In other words, the exemption shall he allowed to the extent of the income of each minor child included or Rs. 1,500 per child, whichever is less.
45. Income arising to a shareholder on account of buy back of shares [Section 10(34A)]
Any income arising to an assessee, being a shareholder, on account of buy back of shares including share listed on a recognised stock exchange by the company as referred to in section 115QA shall be exempt.
46. Income received from securitisation trust [Section 10(35A)]
Any income by way of distributed income referred to in section 115T received from a securitisation trust by any person being an investor of the said trust shall be exempt.
47. Exemption of capital gains on compensation received on compulsory acquisition of agricultural land situated within specified urban limits [Section 10(37)]
Any capital gain (whether short-term or long-term) arising to an individual or a Hindu undivided family from transfer of agricultural land by way of compulsory acquisition shall be exempt provided the compensation or the enhanced compensation or consideration, as the case may be, is received on or after 1 .4.2004. The exemption is available only when such land has been used for agricultural purposes during the period of two years immediately preceding the date of compulsory acquisition by such individual or a parent of his or by such Hindu undivided family.
Enhanced compensation received on or after 1.4.2004 against agricultural land which was compulsorily acquired before 1.4.2004 shall be exempt provided such land had been used by individual or his parents or by such HUF for agricultural purpose, during the period of two years immediately preceding the date on which it was compulsorily acquired.
48. Exemption of specified income from international sporting event held in India [Section 10(39)]
Any specified income arising, from any international sporting event held in India. to the person or persons notified by the Central Government in the Official Gazette, shall be exempt if such international sporting event—
(a) is approved by the international body regulating the international sport relating to such event;
(b) has participation by more than two countries;
(c) is notified by the Central Government in the Official Gazette for the purpose of this clause.
| The specified income means the income, of the nature and to the extent, arising from the international sporting event, which the Central Government may notify in this behalf. |
49. Exemption of amount received by an individual as loan under reverse mortgage scheme [Section 10(43)]
Any amount received by an individual as a loan, either in lump sum or in instalment, in a transaction of reverse mortgage referred to in Section 47(xvi) shall be Exempt.
50 Exemption of income of New Pension Scheme Trust [Section 10(44)]
Any income received by any person for or on behalf of New Pension Scheme Trust under the provisions of Indian Trust Act of 1882 shall be exempt from income-tax.
51. Specified income arising to a notified body/authority/board/trust! commission [Section 10(46)]
Any specified income arising to a body or authority or Board or Trust or Commission (by whatever name called) or a class thereof which—
(a) has been established or constituted by or under a Central. State or Provincial AcL or constituted by the Central Government or a State Government, with the object of regulating or administering any activity for the benefit of the general public;
(b) is not engaged in any commercial activity; and
(c) is notified by the Central Government in the Official Gazette for the purposes of this clause shall be exempt from income-tax.
| “Specified income” means the income, of the nature and to the extent arising to a body or authority or Board or Trust or commission (by whatever name called) or a class thereof referred to in this clause, which the Central Government may, by notification in the Official Gazette, specify in this behalf |
52. Exemption in respect of income received by certain foreign companies [Section 10(48)]
Any income of a foreign company received in India in Indian currency on account of sale of crude oil, any other goods or rendering of services as may be notified by Central Government to any person in India shall be exempt subject to the following conditions being satisfied:
(i) The receipt of money is under an agreement or an arrangement which is either entered into by the Central Government or approved by it.
(ii) The foreign company, and the arrangement or agreement has been notified by the Central Government having regard to the national interest in this behalf.
(iii) The receipt of the money is the only activity carried out by the foreign company in India.
53. Exemption in respect of income of a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom [Section 10(48A) & 10(48B)]
Any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India shall be exempt:
Provided that –
(i) the storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government; and
(ii) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf.
Further, as per section 10(48B), any income accruing or arising to a foreign company on account of sale of leftover stock of crude oil, if any, from a facility in India after the expiry of an agreement or an arrangement referred to in section 10(48A) or on termination of the said agreement or the arrangement, in accordance with the terms mentioned therein, as the’ case may be, shall also be exempt subject to such conditions as may he notified by the Central Government in this behalf.
54. Exemption in respect of certain income of Indian Strategic Petroleum Reserves Limited [Section 10(48C)]
Any income accruing or arising to the Indian Strategic Petroleum Reserves Limited, being a wholly owned subsidiary of the Oil Industry Development Board under the Ministry of Petroleum and Natural Gas, as a result of arrangement for replenishment of crude oil stored in its storage facility in pursuance of directions of the Central Government in this behalf shall be exempt.
Provided that nothing contained in this clause shall apply to an arrangement, if the crude oil is not replenished in the storage facility within 3 years from the end of the financial year in which the crude oil was removed from the storage facility for the first time.
55. Income of a notified institution established for financing infrastructure and development to be exempt [Section 10(48D)]
Any income accruing or arising to an institution established for financing the infrastructure and development, set up under an Act of Parliament and notified by the Central Government for the purposes of this clause shall be exempt. for a period of 10 consecutive assessment years beginning from the assessment year relevant to the previous year in which such institution is set up.
56. Income of a Developmental Financing Institution to be exempt [Section 10(48E)]
Any income accruing or arising to a developmental financing institution, licensed by the Reserve Bank of India under an Act of the Parliament referred to in section 10(48D), and notified by the Central Government for the purposes of this clause shall be exempt, for a period of 5 consecutive assessment years beginning from the assessment year relevant to the previous year in which the developmental financing institution is set up.
However, the Central Government may, by issuing notification under this clause, extend the period of exemption under this clause for a further period, not exceeding 5 more consecutive assessment years, subject to fulfilment of such conditions as may be specified in the said notification.
57. Exemption in respect of income chargeable to equalization levy [Section 10(50)]
Any income arising from any specified service provided on or after 1.6.2016 and chargeable to equalisation levy shall be exempt.
58. [Section-10AA]: Special Provisions in respect of Newly-established Units in Special Economic Zones
(1). Assessees who are eligible for deduction:
Deduction under this section is available to all categories of assessees being entrepreneurs viz., individuals, firms, companies, etc. who derive any profits or gains from an undertaking being a unit engaged in the export of articles or things or providing any service.
Notes. –
- If an individual or HUF opts to be taxed under section 115BAC, he/it shall not be entitled to any deduction under section 10AA.
- If a company opts to be taxed under section 115BAA or 115BAA or 115BAB as the case may be. it shall not be entitled to any deduction under section 10AA.
- If a co-operative society opts to be taxed under section 115BAD, it shall not be entitled to any deduction under section 10AA.
(2). Essential conditions to claim deduction:
The deduction shall apply to an undertaking which fulfils the following conditions:
(i) It has begun or begins to nanotecture or produce articles or things or provide any service during the previous year 2005-06 or thereafter but before 1.4.2020 in any Special Economic Zone.
(ii) It should not be formed by the splitting up or reconstruction of a business already in existence. However, deduction is provided if the unit is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of the undertaking as is referred to and satisfying the conditions in section 33B.
(iii) It should also not be formed by the transfer of machinery or plant, previously used for any purpose, to a new business. However, the following are the two exceptions to this condition:
(1) Machinery or plant which was used outside India by any person other than the assessec shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled:
(a) The machinery or plant should not be previously used in India.
(b) The machinery or plant should be imported into India from a foreign country.
(c) No deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act to any person previously.
(2) Deduction under section 10AA. will be available if the total value of the second-hand machinery or plant transferred to the new undertaking does not exceed 20 per cent of the total value of the machinery or plant used in the industrial unit.
(iv) The assessee should furnish in the prescribed form [Form No. 56F], along with the return of income, the report of a chartered accountant certifying that the deduction has been correctly claimed in accordance with the provisions of this section.
(v) If there is any inter unit transfer of goods or services, it should be done at the market value.
(3). Period for which deduction is available
The deduction under this section shall he allowed as under for a total period of 15 relevant assessment years:
| 1 | For the first 5 consecutive assessment years beginning with the assessment year relevant to the previous year in which the unit begins to manufacture such articles or things or provide services | 100% of the profits and gains derived from the export of such articles or things or from services |
| 2. | Next 5 consecutive assessment years | 50% of such profits or gains |
| 3. | Next 5 consecutive assessment years | So much of the amount not exceeding 50% of the profits as is debited to profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to Special Economic Zone Reinvestment Reserve Account to be created and utilised for the purpose of acquiring new machinery or plant which should he put to use before the expiry of a period of 3 years next following the previous year in which the reserve was created. |
Example:
An undertaking is set up in a Special Economic Zone and begins manufacturing on 15.10.2019. The deduction under section 10AA shall be allowed as under:
(a) 100% of profits of such undertaking from exports from assessment year 2020-21 to assessment year 2024-25.
(b) 50% of profits of such undertaking from exports from assessment year 2025-26 to assessment year 2029-30.
(c) 50% of profits of such undertaking from exports from assessment year 2030-31 to assessment year 2034-35 provided the conditions mentioned in section 10AA (2) given below are satisfied.
(4). How to compute deduction for such undertakings [Section 10AA (7)]:
Deduction under this section shall be calculated as under:
| 1. Profit from business is to be computed as per provisions of computing the income under the head profits and gains of business or profession’.
2. “Export Turnover” means the consideration in respect of export by the undertaking, being the unit of articles or things or services received in, or brought into, India by the assessec but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things outside India or expenses, if any, incurred in foreign exchange in rendering of services (including computer software) outside India. [Explanation 1(i) to section 10AA] |
59. [Section-13A]: Incomes of Political Parties
The following incomes derived by a political party are not included in computing its total income:
(i) Income which is chargeable under the head ‘Income from house property’; or
(ii) Income chargeable under the head ‘Income from other sources’.
(iii) Any income by way of voluntary contribution from any person.
(iv) Any income by way of capital gains.
Requisite conditions:
The exemption of the above income shall be available only when the following conditions are satisfied:
(i) the political party keeps and maintains such books of accounts and other documents as will enable the Assessing Officer to properly deduce its income therefrom;
(ii) where the voluntary contributions other than contribution by way of electoral bond from a person exceeds Rs. 20,000, it keeps and maintains a record of such contribution and the name and address of the person who has made such contribution:
In other words, the political parties shall not be required to furnish the name and address of the donors who contribute by way of electoral bond.
(iii) the accounts of the political party are audited by a Chartered Accountant.
(iv) no donation exceeding Rs. 2,000 is received by such political party otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed or through electoral bond.
(v) the treasurer of such political party or any person authorised by the political party in this behalf must submit a report under section 29C (3) of the Representation of People Act. 1951 for the relevant financial year.
Political party for the purpose of this section means a political party registered under section 29A of the Representation of the People Act. 1951.
| If the report under section 29C (3) of the Representation of the People Act, 1951 is not submitted, no exemption under this section shall be available for that political party for such financial year. |
60. Income of an Electoral Trust shall be exempt [Section 13B]
Any voluntary contribution received by an electoral trust shall be treated as income of the electoral trust. However, such income shall be exempt if the following conditions are satisfied:
(a) The electoral trust distributes to any political party, registered under section 29A of the Representation of the People Act, 1951, during previous year 95% of the aggregate donations received by it during the said previous year along with the surplus, if any, brought forward from any earlier previous year, and
(b) Such electoral trust functions in accordance with the rules made in this regard by the Central Government.
| Meaning of electoral mast: “electoral trust” means a trust so approved by the Board in accordance with the scheme made in this regard by the Central Government. [Section 2(22AAA)] |
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