Purpose:
This section provides a full tax exemption on the income of local authorities, such as municipalities, panchayats, and other governing bodies, to support public welfare and governance.
Key Conditions for Exemption:
✅ Applicable to:
- Municipal Corporations(e.g., BMC, NDMC)
- Municipalities
- Panchayats(Village Councils)
- Port Trusts
- Other legally recognized local governing bodies
✅ Exemption Covers:
- Property taxes, water charges, fees, and other incomefrom civic services.
- Income from municipal bonds or investments.
- Grants received from the government.
✅ Does Not Cover:
- Commercial activities(e.g., if a municipality runs a profit-making business).
Example 1: Municipal Corporation’s Property Tax Income
- Local Authority:Mumbai Municipal Corporation (BMC)
- Income Sources:
- Property Tax: ₹500 Crores
- Water Charges: ₹200 Crores
- Government Grants: ₹300 Crores
- Total Income:₹1,000 Crores
- Taxable Income:₹0 (Fully exempt under Section 10(20))
Example 2: Panchayat’s Market Fee Collection
- Local Authority:A Village Panchayat in Tamil Nadu
- Income Sources:
- Market Fees: ₹50 Lakhs
- Rental Income from Panchayat Land: ₹10 Lakhs
- Total Income:₹60 Lakhs
- Taxable Income:₹0 (Exempt as it is a local authority’s income)
Example 3: Municipal Commercial Activity (Taxable)
- Local Authority:Delhi Municipal Corporation
- Income Sources:
- Property Tax: ₹200 Crores (Exempt)
- Profit from a Shopping Mall (Commercial Venture):₹20 Crores
- Exempt Income (Civic Services):₹200 Crores
- Taxable Income (Business Income):₹20 Crores (Taxable under “Profits & Gains from Business”)
