Section 10 of Income Tax Act: Eligibility, Allowances, and Exemptions

Section 10 of the Income Tax Act: To Reduce Your Tax Liabilities

Section 10 of the Income Tax Act acts as the liberator for salaried individuals who fall under the tax-paying slab. It outlines various types of income that are not taxable in India. Hence, taxpayers can significantly reduce their tax liability on various sources of income. 

From allowances for house rent and medical expenses to perks for education and travel, many opportunities await exploring. All these exemptions fall under different subsections of Section 10 of the Income Tax Act, 1961. Continue reading; we'll get all the important details about Section 10, its inclusions, exemptions, and benefits to the individuals.

What is Section 10 of the Income Tax Act?

Section 10 of the Income Tax Act is a provision that lists all those exemptions that a taxpayer can claim while paying income tax after getting the benefits/returns. These exemptions focus on various income sources that are not a part of your total income. 

Features of Section 10 Exemptions

The following are the significant features of Section 10 of the Income Tax Act of 1961:

1. Comprehensive Coverage: Section 10D ensures that not just one but multiple sources of income generated provide sufficient relaxation while calculating income tax. This includes the sum assured, any bonuses received, and maturity proceeds.

2. Protection Across Life Stages: From the initial investment phase to the maturity or surrender of the policy, Section 10D provides consistent tax exemption, offering financial protection and peace of mind throughout the life journey of the policyholder.

3. Income from Reinvestment: If the policyholder chooses to reinvest the maturity proceeds in another life insurance policy, the income generated from such reinvestment remains tax-free under Section 10D, ensuring uninterrupted tax benefits for prudent financial planning.

Who can Claim Tax Exemptions Under Section 10D?

Depending upon the age of an individual, the tax exemption limit under Section 10 of the Income Tax Act, 1961 is mentioned as follows:

The higher tax exemptions of 3 Lakhs and 5 Lakhs are provided to Indian residents only.

Income Tax Exemptions Under Section 10

• House Rent Allowance
• Leave Travel Allowance
• Pension Scheme
• Encashment of Leaves
• Gratuity Income
• Income Under VRS
• Perquisites
• Agricultural Activities
• Life Insurance Policy
• Sukanya Samriddhi Yojana

What are Exemptions Under Section 10?

All the subsections specifying various forms of tax exemptions under Section 10 of the Income Tax Act, 1961 are listed below:

1. Section 10 (1): Earnings Through Agricultural Activities in India

Indian farmers, individuals, or Hindu Undivided Families (HUFs) earning their livelihood from agricultural activities get tax relief under Section 10(1). The following type of income through agriculture is eligible for exemption: 

• Income from the farm produce sale
• Rent or income generated from agricultural land 
• Income derived from agricultural operations, such as producing, raising, or maintaining the land. 

2. Section 10(2): Income Derived as a Member of a HUF

Under Section 10 (2), any income or profits made from the business or investments as a member of a Hindu Undivided Families (HUFs) will be tax-exempted under the following cases:

• The profit share or income is paid to the member from the total income made by the family. 
• The income is generated from business activities carried out by the impartible belonging to the family. 

* Remember any interest earned through this income derived as a member of HUF is fully taxable. 

3. Section 10 (2A): Tax Exemption on Profit Share Received as a Co-owner of a Partnership Firm

Section 10 (2A) offers a tax exemption on profits share received by each partner from a partnership firm under the following circumstances:

• The partnership firm is taxed as per the provisions of the Income Tax Act, 1961.
• Each shareholder should receive the same proportion of profit as mentioned in the partnership firm. 
• The tax exemptions for each partner will be limited to their income as a co-owner or shareholder of the firm.

4. Section 10 (3): Tax Exemption on Income from Eligible Awards Due to Outstanding Contributions

Section 10 (3) offers tax exemptions to the monetary awards and grants received from the Central or State Governments for outstanding contributions to literature, arts, science, and sports. 

5. Section 10 (4): Tax Exemption on Income Made by an NRI from India

Under Section 10 (4), a Non-Resident Indian (NRI) can claim full tax exemption on the income made from their investments or savings account in India meeting the following conditions:

• Income from the interest earned from rupee-denominated bonds and securities specified by the Government of India (GOI). 
• From income earned from the redemption of such securities and bonds. 
• Any interest income earned by non-resident from their money deposits in Non-Resident External accounts in any bank. 

Section 10 (4) is categorized into the following subsections:

6. Section 10 (5): Tax Exemption on Leave Travel Concession Offered to Salaried Individuals

Under Section 10 (5) of the Income Tax Act, 1961, a salaried individual can claim full tax exemption on the LTA received under their salary. The benefits are extended to the dependent family members, including spouses, parents, children, and siblings travelling within India. The individual can claim benefits under the following circumstances:

• The exemption is eligible for travel expenses for air, rail, and road transportation.
• Available for the upcoming travel of employees.
• The exemption will not be available for the employees if they are not travelling with their families.

7. Section 10 (6): Exemption on the Income Received by an Individual Working Abroad as an Indian Representative

An individual working outside India as a representative of India or a dignitary/ employee visiting India as a foreign representative of a company/ state can claim the tax exemption under Section 10 (6). The individuals can claim tax exemption if:

• They work in an embassy/ Indian High Commission/ Indian mission/ consulate or commission.
• Visiting India on a business as a foreign state or company representative.
• The foreign company is not engaged in any business or trade in India.
• The foreign employee stays in India for a period of 90 days only.
• The remuneration of an employer should not be deducted from the income of a foreign employer. 

8. Section 10 (7): Tax Exemption on Allowances and Perquisites Paid by the Government of India

Under Section 10 (7) of the Income Tax Act, 1961, an employee can claim tax exemption on all the allowances and perquisites paid by the Government of India for furnishing its services outside India. These benefits are eligible for Indian citizens working as a government employee. 

9. Section 10 (10A): Tax Exemption on Gratuity Benefits

The gratuity benefits received by government employees are tax exempted. 

10. Section 10 (10BC): Tax Exemption on the Remuneration Received by Victims of Disaster

The tax exemptions are applied to the compensation amount received by the victims of the disaster or their legal heirs from the State/ Central Government or local authority.

11. Section 10 (10C): Tax Exemption on Voluntary Retirement or Termination Benefits

The money received by a government employee at the time of voluntary retirement or termination is tax exempted under Section 10 (10C) of the Income Tax Act, 1961. The maximum exemption amount is Rs. 5 Lakhs. 

12. Section 10 (10CC): Tax Exemption on Perquisites Paid by an Employer

Some employers bear the taxes for non-monetary benefits or prerequisites offered to their employees. In such conditions, since the employer has already paid taxes, it becomes tax-free in the hands of the employees. 

13. Section 10 (10D): Tax Exemption on Life Insurance Policy Payouts

Under Section 10 (10D) of the Income Tax Act, 1961, the benefits, including maturity, survival, death, or bonus payout received from a life insurance policy, are fully exempted from tax. The following criteria are applicable to receive the benefits: 

• Life insurance policies are issued after 1st April 2012, and the premium paid is not more than 20% of the sum assured. 
• Life insurance policies are issued before 1st April 2012, and the premium paid does not exceed 10% of the sum assured.
• Life insurance policies on the life of a person with a disability as specified under Section 80U and 80DDB. 

Note: The tax benefits under Section 10 (10D) of the Income Tax Act, 1961 are applicable under the old tax regime. 

14. Section 10 (11): Tax Exemption on Payment from Statutory Provident Fund

Under Section 10 (11), the income and interest incurred from the contribution of employee provident fund is tax exempted. 

15. Section 10 (11A): Tax Exemption on Payment from Sukanya Samriddhi Yojana

Any amount, including interest and withdrawals made from an account of Sukanya Samriddhi Yojana, is fully exempt from tax. 

16. Section 10 (13A): Tax Exemption on House Rent Allowance

Under Section 10 (13A) of the Income Tax Act, 1961, a salaried employee can receive an allowance on the house rent paid, which is exempted from tax. The HRA exemptions are limited to the minimum of the following:

• The actual HRA received by the employee
• For employees residing in metro cities: 40% of the basic salary, and for employees residing in non-metro cities: 50% of the basic salary
• The rent amount paid after subtracting 10% of their salary

17. Section 10 (14): Exemption on Special Allowances Received

Employers can offer their employees certain allowances to support their expenses. Section 10 (14) exempts such allowances at the time of tax calculation. These allowances can be incurred while the employee is performing his duties. This section is further divided into the following sub-categories: 

18. Section 10 (15): Tax Exemption on Income Earned from Interest on Investments

Individuals earning income from interests are exempted from tax under Section 10 (15) of the Income Tax Act, 1961. The types of income and exemptions are listed as:

Learn more about how much money you can save under Section 80C and Section 80D of Income Tax of India, 1961.

Documents Required to Claim Section 10 Exemption 

The following documents are required to claim tax exemption under Section 10 while filing for an income tax return. 

• Income tax login credentials
• PAN card
• Aadhaar card
• Bank statement/ passbook
• Relevant documents of various incomes 

Final Words

Section 10 of the Income Tax Act discusses the exemptions a salaried Indian citizen can claim under certain earnings and interests from multiple sources. The taxpayer individual or a member of HUFs can claim such exemptions and maximize their tax savings. 

Now, when you know all the subsections and tax benefits under Section 10, you can get sufficient tax relief. However, we advise you to consult a tax professional before filing a claim under this section.

* Disclaimer: The information provided here regarding insurance products, companies, and other schemes is for general informational purposes only and is subject to change according to the specific terms without prior notice.

Frequently Asked Questions

Question: Is HRA fully exempted under Section 10?

Answer: Even though the HRA (House Rent Agreement) is a part of your salary, it is not fully taxable. Depending upon the structure of the salary, a part of the House Rent Allowance (HRA) is exempt from tax under Section 10 (13A). 

Question: Do I need to pay tax on the maturity proceeds of the life insurance policy?

Answer: Under Section 10(10D) of the Income Tax Act, 1961, the maturity proceeds of your life insurance policy are exempted from tax if the premium paid is not more than 10% of the sum assured in any year.

Question: Can I avail of tax benefits under Section 10 if I select new tax regime?

Answer: No, you can not claim tax exemption under Section 10 if you have selected the new tax slab. As per Union Budget 2020, the new tax regime has lower tax rates than the previous ones. 

Question: Is the amount received as LTA tax exempted under Section 10 of the IT Act?

Answer: Under Section 10 (5) of the Income Tax Act, 1961, the leave travel allowance is exempted from tax. Note that only expenses from travelling via bus, air, rail, etc., are covered, not the expenses for hotels or food. 

Question: What tax exemptions fall under Section 10 (10A)?

Answer: Section 10 (10A) of the IT Act, the amount received by a retiring employee as a commuted value of his/her pension, is exempted from tax. The commuted value is the lump sum payment made by an employer in the form of a pension that would be paid to the retired employee every month. 

Question: When can I avail the benefits of Section 10(10D)?

Answer: To avail of the benefits of Section 10(10D), you need to be an EPF member aged 58 years or 50 years for a reduced pension.  

Question: Is special allowance taxable for salaried employees?

Answer: Yes, salaried employees are entitled to pay taxes on the special allowances. These allowances are paid on a monthly basis and are further categorized into various forms. 

Question: What is Section 10?

Answer: Section 10 of the IT Act provides exemptions on the total income from multiple sources. It includes a long list of subsections that outline multiple sources of income excluded from the tax. The most common exemptions are:

• Agricultural income
• House rent allowance
• Medical allowance
• Life insurance premium
• Gratuity
• Tuition fee
• Leave travel allowance
• Children education allowance
• Donation to charity
• Home loan repayment 

Question: What is Section 10A of the Income Tax Act?

Answer: Under Section 10 (10A) of the Income Tax Act, the commuted value of a pension received by a government employee is exempt from tax.  

Question: What is Section 10(26) of the Income Tax Act?

Answer: Under Section 10(26), the individuals belonging to the Scheduled Tribes in Tripura, Manipur, Nagaland, Mizoram and Arunachal Pradesh are eligible for the tax exemptions.