Incomes exempt from income tax

Section 10 of the Income Tax Act, 1961 specifies those income which are exempt from income
tax. i.e. incomes on which no income tax is payable. Let us understand such incomes:-

General exemptions

A. Agricultural income

Under the constitution of India, taxation of agricultural income is the right of state governments.
The Central Government cannot levy tax on such income. Section 2(1A) gives a detailed
definition of agricultural income. Income derived from agricultural operation from land, which is
situated in India, will be exempt agricultural income. Income from agriculture upto and exclusive
of the processing stage will be agricultural income. Income from processing stage and onwards
will be taxable income. Similarly, income from a farmhouse used for agricultural purposes will be
treated as agricultural income.

Thus income from basic operations on land like cultivation, growing crops, etc. and secondary
operations like removal, digging, etc. can be classified as agricultural income and is exempt from
tax.

However, income from sale of trees, breeding of livestock, fishing activities, poultry farming
cannot be classified as agricultural income and is not exempt from income-tax. Income from a
farm house used for any purpose other than agricultural uses will not be treated as agricultural
income.

B.Receipt by a member out of HUF income

Any sum received by a member of a Hindu Undivided Family from out of the income of the family
as well as the income received by an individual member from out of the income of the impartible
estate is exempt. Impartible estate means property which cannot be disposed off or divided by
the holder of the property.

An HUF is separately taxed on its income. The rate of tax levied on a Hindu Undivided Family is
quite high. Therefore, in order to avoid the same income from being taxed twice, distribution of
HUF income amongst members is exempt from Income Tax.

C.Share of income of a partner from a firm

Any sum received by a partner from a firm as his share in the total income of the firm is exempt
from tax. The logic of such exemption is similar to that for granting exemption to income as share
from HUF.

D.Casual or non - recurring receipts

Any receipts which are of casual or non-recurring nature are exempt upto a sum of Rs. 5000 ( Rs.
2500 in case of winnings from races ) in each previous year. Casual income is income which is
accidental, received without stipulation or a receipt which is of a fortuitous nature and which
cannot be foreseen. for example Prize won for taking part in a competition, reward for finding a
lost child, etc

However, the following income will not be treated as casual or non-recurring:-

 • Capital gains
• Receipts arising from business or from the exercise of profession or occupation
• Receipts by the way of addition to the remuneration of an employee.

E.Amount received under a life insurance policy - including the bonus allocated on such
policy
Any amount received under a life insurance policy including bonus either on maturity of the policy,
of otherwise, is exempt from tax. However, this exemption is not available to receipts under a
Keyman Insurance Policy.
F.Payments from Public Provident Fund
Any payments received from The Public Provident Fund (PPF) are exempt from tax.
G.Any scholarship granted to meet the cost of education is exempt.
H.Income of a minor upto Rs. 1,500
Any income which arises to a minor child of an assessee is added or clubbed to the parent's
income under Section 64(1A) of the Act. Section 10(32) however gives exemption from such
clubbing upto a maximum of Rs1,500 annually per child.
I.Dividend received by a shareholder
Any income received by way of dividend from a domestic company, or from UTI or from a
recognised mutual fund by a shareholder/unit holder is fully exempt from tax.
J.Awards & rewards
Any award or reward, whether in cash or kind from Central or any state Government or any other
approved body in public interest is exempt from income tax.
K.Pensions received by gallantry award winners
Family pension received by individual who has been in the service of the Central or State
Goverment and has been awarded "Param Vir Chakra" or "Maha Vir Chakra" or "Vir Chakra" or
other notified gallantry award or by members of his family is exempt from income tax.
Interest incomes of certain types
The following interest income is exempt from income tax:-

• Interest on notified securities, bonds, certificates, deposits, etc

• Interest on notified Capital Investment Bonds
• Interest on notified Relief Bonds
• Interest on notified bonds in the hands of non-residents
• Interest on Non-Resident (External) Account in the hands of a non-resident Indian in any
bank in India in accordance with the provisions of the Foreign Exchange Regulation Act,
1973
• Interest on notified savings certificate
• Interest on Gold Deposit Bonds, 1999
• Interest on bonds issued by a local authourity and specified by the Central Government
by notification in the Official Gazatte w.e.f financial year 2000-2001.

Exemptions available to non-residents

A. Travel concession to non-citizen of India [Section 10 (6) (i)]
Travel Fare or the value of any free or concessional passage received by an individual, who is not
a citizen of India is exempt provided it is received:-

• from his employer for himself, his spouse and children for proceeding on home leave out
of India.
• from his employer or former employer for himself, his spouse and children for proceeding
to his home country out of India, after retirement from or termination of his service.

This exemption is available only on respect of travelling for home leave and not for mid term
passages on for compensation granted for refraining from availing of home leave. In determining
whether a passage of the spouse or children has been in connection with the home leave of the
employee, the passage of the employee himself, either along with his family or within 6 months
either way alone, must be considered.
B.Remuneration of foreign state representatives [section 10(6)(ii)]
Remuneration received by an individual who is a citizen of the foreign country as an official of an
embassy, high commission, legation, commission, consulate or trade representation of a foreign
state or as a member of the staff of any of these offices, for services in such capacity is exempt
provided Indians are accorded similar benefits in that foreign country.
C.Remuneration of employees of a foreign enterprise [section 10(6)(vi)]
Remuneration received by such non-citizen individual as an employee of a foreign enterprise for
service rendered in India during stay in India is exempt, subject to the following conditions:

• The foreign enterprise is not engaged in any trade or business in India.

• His stay in India does not exceed in all a period of 90 days in the previous year, and
• Such remuneration is not deductible in obtaining the employer's taxable income.

D.Certain income of a foreign technician [services commencing on or after 1/4/1993]

[section 10 (5B)]
This exemption is available only in respect of the tax paid by the employer on the salaries of the
technician upto a period of 48 months from the date of his arrival in India. It is not available after
the expiry of such 48 months. This exemption is available to an individual who renders services
as a technician as an employee of the government or of a local authority or of any corporation set
up for carrying on approved scientific research or in any business carried on in India. This is
subject to the following conditions :

• The services should have commenced after 31st March 1993;

• The individual should be a non-resident in India in all the four financial years immediately
preceding the financial year in which he arrived in India. The Central Government,
however, has the power of waive this condition.

The word "technician" used above means :

A person having a specialised knowledge and experience in

• constructional or manufacturing operations or in the generation of electricity or any other

form of power,
• agriculture, animal husbandry, dairy farming, deep sea fishing or ship building,
• any other notified field and

who is employed in a capacity in which such specialised knowledge and experience is actually
utilised.
E.Remuneration on foreign ship : [Section 10 (6) (viii)]
Salaries received by any non-resident individual for services rendered in connection with
employment on a Foreign Ship are exempt provided that his total stay in India does not exceed
90 days in the aggregate in the previous year.
F.Remuneration of foreign government employee during training in India [section 10(6)(xi)]
Any remuneration received by any individual, who is not a citizen of India, as an employee of the
Government of a foreign state during his stay in India is exempt, if the stay is in connection with
his training in any establishment, office or undertaking which is owned by:

• the Government, or
• any company in which the entire paid-up capital is held by the Central Government or by
State Government or by both, or
• any company, which is subsidiary of (ii) or
 • any statutory corporation, or
• any society which is registered under Societies Registration Act, 1860 or any
corresponding law, and which is wholly financed by the Central Government or by State
Government or by both.

G.Tax on royalty and technical fees paid to a foreign company. [section (10)(6A)]
Where, under an agreement entered after 31 March 1976 between a foreign company and the
Government or an Indian concern, the tax on royalty or fees payable to them for technical
services, is to be borne by the Government or the Indian concern the tax so paid is exempt.
H.Tax on other payments :[section 10(6B)]
Where under an approved agreement between the Central Government and the Foreign
Government or an international organisation, the tax on income (other than salary, royalty or fees
for technical services) derived by a non-resident or a foreign company from the government or
the Indian concern, is borne by the said government or Indian concern, the tax so borne is
exempt.
I.Tax on income derived by the government of a foreign state or a foreign enterprise as
consideration for acquiring an aircraft or an aircraft engine on lease [section 10 (6BB)]
Where the government of a foreign state or a foreign enterprise derives income from an Indian
company as a consideration for acquiring an aircraft or an aircraft engine on lease and tax on
such income is payable by the Indian company, the tax so paid is exempt from tax. The other
conditions to be satisfied for getting this exemption are :

• the Indian company should be engaged in the business of operation of aircrafts;

• the consideration should not be for providing spares, facilities or services in connection
with the operation of leased aircraft;
• the payment should be made under an agreement entered into after 31-3-1997 but
before 1-4-1999 and should be approved by the Central Government.

J.Income of notified foreign companies. [section 10(6C)]

Any income of a notified foreign company, by way of fees for technical services received under an
agreement for providing services in or outside India in the projects connected with the security of
India, is exempt.
Exemptions in respect of salary incomes
A.Travel concession to a citizen of India :[section 10(5)]
Any travel concession or assistance received by an individual,

• from his employer for himself and his family for proceeding on leave to any place in India,
• from his employer or former employer for himself and his family for proceeding to any
place in India after retirement or termination of his service.

will be exempt to the following extent:-

1.In case of journey by air, air economy fare of the national carrier by the shortest route will be
exempt.
2.In case of journey by rail, air-conditioned first class rail fare by the shortest route will be exempt.
3.In case of journey by other means where rail link exists between place of origin of journey and
place of destination, air-conditioned first class rail fare by the shortest route will be exempt.
4.In case of journey by other means where rail link does not exists between place of origin of
journey and place of destination, but a recognised public transport system exists, first class or
deluxe class fare on such transport system will be exempt. Where no such public transport
system exists, air-conditioned first class rail fare by the shortest route will be exempt.
For this purpose, family means:-

• Spouse and children, and

• Parents, brothers and sisters, if they are wholly or mainly dependent on him.
The exemption will be available to an individual in respect of 2 journeys performed in a block of 4
calendar years. Where such travel concession is not availed of by the employee during such
block of 4 calender years, he will be entitled to additional exemption of travel concession in the
first year of the next block of 4 years. eg an employee has undertaken 3 journeys between 1994
and 1998. He is entitled to travel concession exemption only in respect of 2 journeys. However, if
he had not performed any journey during this period, then for the next block 1999 to 2003, he
would be entitled to exemption in respect of 3 journeys provided the first journey takes place in
1999.
B.Allowances and perquisites outside India : [section 10(7)]
Any allowances or perquisites which are paid outside India by the Indian government to a citizen
of India for rendering services outside India are exempt from Income Tax in India. It must be
carefully noted that this exemption is available only to the Government employees.
C.Retrenchment compensation [section 10(10B)]
Any compensation received by a workmen under the Industrial Dispute Act, 1947 or under any
other Act or Rules thereunder or under any agreement, at the time of his retrenchment is exempt.
This exemption is limited to,

• an amount calculated under the Industrial Dispute Act, 1947; or

• such notified amount which is not less than Rs. 50,000

whichever is less.
It has been provided that the above-referred limit will not apply at all, in respect of any
compensation received by a workman in accordance with the scheme approved by the Central
Government.
D.Payments to persons under the Bhopal Gas Leak Disaster (Processing of claims) Act
[section 10(10BB)] are exempt.
E.Amounts received on voluntary retirement by certain employees [section 10(10C)]
Any amount received on voluntary retirement by an employee under any scheme of voluntary
retirement is exempt from tax. This exemption is available only to employees of :

• a public sector company

• any other company
• a statutory corporation
• a local authority
• a co-operative society
• a recognized university
• an Indian Institute or Technology
• the Central Government
• any State Government
• such institute of Management which the Central government may notify.

This exemption is limited to a maximum of Rs. 5 lakhs only. This exemption is available only once
to any individual employee.
The scheme for voluntary retirement to avail this exemption should be framed in accordance with
the guidelines, which may be prescribed by the Central Government. The scheme should also
approved by the Chief Commissioner.
It may be noted here that the above exemption is not available to any employee other than those
specified above. Thus if an employee of a partnership firm receives any amount on voluntary
retirement, the same shall not be exempt under this clause.
The mains conditions for such a scheme are as follows:-
1. It applies to an employee who has completed 10 years of service or completed 40 years of
age;
2. It applies to all employees including workers and executives of a company or of an authority or
of a co-operative society, as the case may be, excepting directors of a company or of a co-
operative society;
3. The scheme of voluntary retirement has been drawn to result in overall reduction in the existing
strength of other employees;
4. The vacancy caused by the voluntary retirement is not be filled up;
5. The retiring employee of a company shall not be employed in another company or concern
belonging to the same management;
6. The amount receivable on account of voluntary retirement of the employee does not exceed
the amount equivalent to three months salary for each completed year of service or salary at the
time of retirement multiplied by the balance months of service left before the date of his
retirement on superannuation.
F.Payments from Provident Funds [section 10(11)]
Any payment from a Provident Fund to which Provident Fund Act, 1925, applies is exempt. The
principal as well as interest is exempt from tax.
Payments from recognised Provident Fund: [section 10(12)]
Receipts from a recognised provident fund are exempt from income tax.
Exemptions in respect of Institutions and Associations
A.Income of a local authority [Section 10(20)]
The following incomes of a Local authority are exempt :
i Income which is taxable under the head

• Income from house property.

• Capital gains,
• Income from other sources, or

ii Income from a trade or business carried on by it and which accrues or arises from

• the supply of a commodity or service (except water and electricity) within the area of its
own jurisdiction.
• the supply of water or electricity in any area.

B.Income of a Housing Authority [section 10(20A)]

Any income of an authority constituted in India by or under any law enacted for the purpose of
dealing with and satisfying the need for housing accommodation or for the purpose of planning,
development or improvement of cities, towns and villages is exempt.
C.Income of a Scientific Research Association [section 10(21)] is exempt provided it
satisfies the following conditions:-
a. it applies its income or accumulates it for application wholly and solely for the objects for which
it is established.
b. it invests or deposits its funds in the prescribed manner.
This exemption will not be available in relation to any business income unless the business is
incidental to the attainment of its objectives and separate books of accounts are maintained for
such business.
D.Income of a News Agency in India [section 10(22B)]
Any income of a notified news agency set up in India solely for collection and distribution of news
is exempt. The exemption is available for the period which shall be notified. The maximum period
which the government can notify at any one time is three years.
The exemption is further subject to the conditions that the news agency applies its income or
accumulates it solely for collection and distribution of news and does not distribute its income in
any manner to its members.
E.Income of a Sports Association [section 10(23)]
Any income of a notified association or institution established in India, which has its object the
control, supervision, regulation or encouragement in India of the games of cricket, hockey,
football, tennis or other notified games. However, this is subject to the following conditions:-
 • It should apply its income or accumulate it for application wholly and exclusively for the
object for which it is established.
• It should invest or deposit its funds in the prescribed manner.
• It should not distribute any part of its income to its members except as grants to affiliated
bodies.

This exemption will not be available in relation to any business income unless the business is
incidental to the attainment of its objectives and separate books of account are maintained for
such business.
F.Income of a professional association :[section 10(23A)]
Any income of an association or institution established in India for control, supervision, regulation
or encouragement of the profession of law, medicine, accountancy, engineering, architecture or
such other profession, as the Central Government may specify from time to time is exempt.
The following two conditions must be satisfied for availing of this exemption:-

• The association should apply or accumulate its income solely for the objects for which it
was established and
• The association should be approved by the Central Government.
• The above exemption is not available to :
• income taxable under the head, "income from house property", or
• any income received for rendering any specific services, or
• income by way of interest or dividends from its investments.

G.Income of Regimental Fund or Non-Public Fund established by Armed Forces. [section

10(23AA)].
Any income of any Regimental Fund or Non-Public Fund established by the armed forces for the
welfare of the past and present members of such forces or their dependents is exempt.
H.Income of any person on behalf of a Notified Fund for Welfare of Employees or their
Dependents. [section 1023AAA)]
Any income of any person on behalf of a fund (notified by the CBDT) for welfare of employees or
their dependents (if the employees are members of such a fund) is exempt from tax.
The following two conditions must be satisfied for availing this exemption:-

• The fund applies or accumulates its income wholly and exclusively for the objects for
which it was established.0
• The fund invests its funds and contributions received in the prescribed manner.

I.Income of a fund set up by the Life Insurance Corporation of India under a Pension
Scheme. [section 10(23AAB)]
Any income of a fund set up by the LIC of India or any other approved insurer under a Pension
Scheme is exempt. The fund should be such:-

• to which contribution is made by any person for the purpose of receiving pension from
such fund;
• which is approved by the Controller of Insurance or the Insurance Development and
Regulatory Authority

J.Income of Khadi and Village Industries Institutions [section 10(23B)]

• Any income of institution established for the purpose of development of Khadi and Village
Industries from the production, sale or marketing of Khadi or products of village industries
is exempt.
• However, for availing this exemption the following conditions must be satisfied :
 • The institution must be constituted as Public Charitable Trust or registered under the
Societies Registration Act, 1860 or under any similar act in force.
• The institution should exist solely for the development of Khadi and / or Village Industries,
and not for profit motive.
• The institution should apply its income of accumulate if for the application, solely for the
development of Khadi and Village Industries.
• The institution should be approved by the Khadi and Village Industries Commission for
the purpose. Such approval can be only for three years at a time.

K.Income of Khadi and Village Industries Board [section 10(23BB)]

Any income of an authority, whether known by the above name or any other name, established in
a state or under a State Act for the development of Khadi and Village Industries in the state, is
exempt.
L.Income of certain funds and institutions [section 10(23C)]
Income of the following types of funds and institutions is exempt provided certain conditions are
satisfied:-
1. Prime Minister's National Relief Fund
2. Prime Minister's Fund (Promotion of Folk Art)
3. Prime Minister's Aid to Students Fund
4. National Foundation for Communal Harmony
5. Approved University or Educational Institution
6. Approved Hospital
7. Approved Charitable Fund or Institution
8. Approved Public Religious Trust or Charitable Trust
M.Income of Mutual Fund and Unit Trust of India [section10(23D)] is exempt subject to the
provision that the Mutual Fund or UTI shall pay tax on income distributed by it at the rate of 20per
cent if it is a debt oriented fund. In case of open ended equity oriented fund, such taxes need not
be paid.
N.Income of a Venture Capital fund [section 10(23FA)] (upto Financial Year 1999-2000)
Any income by way of dividends or long-term capital gains of a venture capital fund or a venture
capital company from investments made by way of equity shares in a venture capital undertaking
is exempt from tax.
Venture Capital Fund or Company refers to the entity which is making the investment and which
is entitled to the exemption in this section. For this purpose, the venture capital fund or venture
capital company has to be approved by the Central Government on application made in the
prescribed manner in accordance with rules made in this behalf. Such approval shall not be for a
period exceeding 3 years at a time. Venture Capital Fund means a fund operating under a trust
registered under the Registration Act, 1908 established to raise monies for investments mainly by
way of acquiring equity shares of a venture capital undertaking in accordance with the prescribed
guidelines. Venture Capital Company means a company which has made investments by way of
acquiring equity shares of a venture capital undertaking in accordance with the prescribed
guidelines.
Venture Capital Undertaking refers to the entity in which investment is made. Venture Capital
Undertaking means a domestic company whose shares are not listed on a recognised stock
exchange in India and which is engaged in:-
1.The business of software, information technology, production of basic drugs in the
pharmaceutical sector, bio-technology, agriculture and allied sectors and other notified sectors; or
2.The production or manufacture of any article or substance for which patent has been granted to
the National Research Laboratory or any other scientific research institution approved by DoT.
Income of a Venture Capital fund [section 10(23FB)] (on and from Financial Year 1999-
2000)
Any income of a VCF or a VCC set up to raise funds for investment in a VCU is exempt.
VCC means a company which has been granted a certificate of registration by SEBI and which
fulfils the conditions laid down by SEBI with the approval of the Central Government.
VCF means a fund operating under a trust deed registered under the Registration Act, 1988,
which has been granted a certificate of registration by SEBI and which fulfils the conditions laid
down by SEBI with the approval of the Central Government or which operates as a venture
capital scheme made by the Unit Trust of India.
VCU means a domestic company whose shares are not listed in a recognised stock exchange in
India and which is engaged in the business for providing services, production or manufacture of
an article or thing but does not include activities or sectors which are specified by SEBI with
approval of the Centarl Government.
O.Income of an Infrastructure Capital Fund or an Infrastructure Capital Company [section
10(23G)]
Any income by way of dividends, interest or long term capital gains of an infrastructure capital
fund or an infrastructure capital company or a co-operative bank from investments made by way
of shares or long term finance in any enterprise wholly engaged in the business of (i) developing,
(ii) maintaining and operating, (iii) developing, maintaining and operating any infrastructure facility
approved by the Central Government in this connection is exempt from tax.
Infrastructure Capital Company means a company which has made investments in shares or long
term finance to an enterprises wholly engaged in the business of developing, maintaining and
operating infrastructure facility.
Infrastructure Facility means:-

• a road, highway, bridge, airport, port, rail system, water supply project, irrigation project,
water treatment system, solid waste management system, sanitation and sewerage
system or any other public facility of a similar nature as may be notified;
• an industrial undertaking set up in any part of India for the generation or generation and
distribution of power if it begins generation of power between 1/4/1993 and 31/3/2003;
• an industrial undertaking which starts transmission or distribution by laying a network of
new lines for this purpose between 1/4/99 to 31/3/2003
• a project for providing telecommunication services on or after 1/4/1995.
• a specified housing project
• an undertaking for developing, developing and operating or maintaining and operating a
notified industrial park

Interest for this purpose includes any fee or commission received by a financial institution for
giving guarantee to or enhancing credit in respect of an enterprise which has been approved by
the Central Government for the purposes of this clause.
P.Income of trade union [section 10(24)]
Any income taxable under the head "Income from house property," and "Income from other
sources," of a Trade Union registered under the Indian Trade Union Act, 1926 or an association
of such Trade Unions and formed primarily for the purpose of regulating the relations between
workmen and employers or between workmen and workmen, is exempt.
Q.Income of a marketing authority : [section 10(29)]
In the case of an authority constituted under any law for the marketing of commodities, any
income derived from letting of godowns or warehouses for storage, processing or facilitating the
marketing of commodities is exempt.
R.Income of the Coffee Board, Rubber Board, Tea Board, Tobacco Board, Marine Products
Export Development Authority, Agricultural and Processed Food Products Export
Development Authority and Spices Board. [Section 10(29A)].is exempt.
S.Income of Investor Protection Fund
Any income of Income Investor Fund set up by recognised stock exchanges in India as notified by
the Central Government is exempt. However, any amount with the Fund which is shared shall be
taxable in the year of sharing.
T.Income of Insurance Development and Regulatory Authority is exempt
Income of units in Free Trade Zones [Section 10A].
Income of an industrial undertaking situated in a Free Trade Zone such as Kandla Free Trade
Zone, Santacruz Electronics Export Processing Zone, Falta Export Processing Zone, Madras
Export Processing Zone, Cochin Export Processing Zone, Noida Export Processing Zone, or
situated in an Electronic Hardware Technology Park or in a Software Technology Park is exempt
provided it is a new unit and exports at least 75 per cent of its production. This exemption is
available for a period of five consecutive years falling within a block of eight years beginning from
the year in which the unit commenced production. With effect from 1 April 2000, for the next 10
consecutive financial years, such units shall get a 100 % income tax holiday. No dedcution under
this section will be allowed after financial year 2009-2010. Therefore, any unit set up after
financial; year 2000-2001 will be eligible to claim exemption for less number of years i.e. units set
up in 2001-2002 can claim deduction for 9 years, units set up in 2002-2003 can claim this
deduction for 8 years and so on. In case of existing units which are already claiming this
exemption, deduction will be allowed only for the unexpired period of the aforesaid 10 years. This
benefit will also be extended to units initially located in a Free Trade Zone or Export Processing
Zone and subsequently located in a Special Economic Zone due to conversion of the FTZ / EPZ
into a SEZ, such that the period of 10 years will be reckoned from the year in which the unit was
first set up in a FTZ / EPZ. The following are the main conditions for claiming this deduction :-

• The undertaking has begun or begins to manufacture or produce articles or things or

computer software on or after 1/4/1980 in any FTZ or on or after 1/4/93 in any Electronic
Hardware Technology Park or Software Technolgy Park or on or after 1/4/2000 in any
SEZ.
• It is not formed by splitting or re-construction of an existing unit
• It is not formed by transfer of used plant & machinery

The assessee will have to bring the sale proceeds into India in convertible foreign exchange
within 6 months from the end of the financial year in order to avail of the exemption. This period of
6 months may be extended by the RBI on application made in this behalf. The deduction will be
proportionately reduced in case the entire sale proceeds are not brought into India as mentioned
above.
The benefit of this exemption will be lost in case the ownership or beneficial interest in the
undertaking is transfered by any means. The ownership or beneficial interest in the undertaking is
said to be transfered when not less than 51 % of the voting power on the last day of the financial
year is held by persons other than persons who held the said percentage on the last day of the
financial year in which the undertaking was set up. However, the benefit will not be lost if the
change in shareholding is merely on account of its becoming a company in which the public are
substantially interested or divestment of its equity shares is done by any venture capital company
or fund.
With effect from financial year 2000-2001, only that amount of profits which are proportional to the
export turnover over the total turmover will be exempt.
Income of 100 per cent Export Oriented Units [Section 10B].
Income of 100per cent Export Oriented Units is exempt provided it is a new unit and exports at
least 75per cent of its production. This exemption is available for a period of five consecutive
years falling within a block of eight years beginning from the year in which the unit commenced
production.
With effect from 1 April 2000, for the next 10 consecutive financial years, such units shall get a
100 % income tax holiday. No dedcution under this section will be allowed after financial year
2009-2010. Therefore, any unit set up after financial; year 2000-2001 will be eligible to claim
exemption for less number of years i.e. units set up in 2001-2002 can claim deduction for 9 years,
units set up in 2002-2003 can claim this deduction for 8 years and so on. In case of existing units
which are already claiming this exemption, dedcution will be allopwed only for the unexpired
period of the aforesaid 10 years. The following are the main conditions for claiming this
deduction :-

• The unit manufactures or produces any articles or things or computer software

• It is not formed by splitting or re-construction of an existing unit
• It is not formed by transfer of used plant & machinery
The assessee will have to bring the sale proceeds into India in convertible foreign exchange
within 6 months from the end of the financial year in order to avail of the exemption. This period of
6 months may be extended by the RBI on application made in this behalf. The deduction will be
propotionately reduced in case the entire sale proceeds are not brought into India as mentioned
above.
The benefit of this exemption will be lost in case the ownership or beneficial interest in the
undertaking is transfered by any means. The ownership or beneficial interest in the undertaking is
said to be transfered when not less than 51 % of the voting power on the last day of the financial
year is held by persons other than persons who held the said percentage on the last day of the
financial year in which the undertaking was set up. However, the benefit will not be lost if the
change in shareholding is merely on account of its becoming a company in which the public are
substantially interested or divestment of its equity shares is done by any venture capital company
or fund.
With effect from financial year 2000-2001, only that amount of profits which are proportional to the
export turnover over the total turmover will be exempt.
Income of certain industrial undertakings in the North Eastern Region [Section 10C].
Profits and gains of an undertaking set up in the North Eastern region in any Integrated
Infrastruture Development Center or Industrial Growth Center on or after 1/4/1998 are exempt
from Income Tax provided :-

• The unit manufactures or produces any articles or things

• It is not formed by splitting or re-construction of an existing unit
• It is not formed by transfer of used plant & machinery

Exemption is available for 10 years commencing from the year in which the unit commenced
operations