ETED

D INCOMES

(31 EXEMPTED INCOMES

Certain incomes which are |Section 101
not nentioned in the Act are fully exempted and they
hey are
included in the Total Gross Income. es which do not
part of the 'total These are called incomes i form
income Thev are fully exempted, in the sense that they
tnc ney are
are not
n
even included in the Gross Income.
The following are such exempted incomes (in relation to indi
dividual
assessee only):
(A)Agricultural Incomeetc.:
OAgricultural Income: As Agriculure is a state subject, the Central Governmess
ment
has no powers to mpose tax on agricultural income. Hence, agricultural income
me
Is fully tax-frec. However, this provision was misused by many assessees (2)
Hence, from assessnment year 1974- 75, the agricultural income is added to tha
non-agncultural taxable income of non-company assessees, and then tax
n
agncultural income is allowed as deduction from total tax payable.
Thus, the agncultural income is totally tax-free, yet it is included in the total
ncome for rate purposes, so that the assessee is required to pay income-taxat
higher rates on his non-agriculrural income. If the non-agricultural income of
an assessee from all sources is (Rs. 2,50,000; for senior citizen and super senior
citizen Rs. 3.00.000 and 5,00,000 respectively.) or less, no income-tax is payable
urespective of the amount of agricultural income. [Section 10 (1)]
Note:Such partial integration is done to compute the tax on non-agriculural
ncome only when the following two conditions are satisfied :
() Non-agricultural income of an assessee exceeds the maximum 1)
exemption limit of Rs. 2,50, 000 or (Rs. 3,00,000 or Rs. 5,00,000 for
senior citizen or super senior citizen assessee); and
(ii) The net agricultural income also exceeds Rs. 5,000.
2) Receipts from H. U. F. : Any sum received by an individual as a memberof
Hindu Undivided Family is exempted, provided it is paid out of the income of
the family [Section10(2)|
3) Share of total income ofa partner from a firm: (Which
is separately assessed(2
as such) in the hands ofa partner of that firm is fully exempted from tax.

[Section 10(2)
(B) Incomes of Non-Resident and
Foreign Citizens
d) Interest to a non-resident:
Any income from interest (including premium
secunties notified by the Central
onredemption)
Govemment dend
received by a non- resiu
1S exempted.
 EXEMPTED INCOMES91
In the case of an individual, being a citizen of India or a person of
(i) Indian origin, who is also a non-resident person any interest on money
standing to his credit in a 'Non-resident External Account' in any bank
in India under FEMA, 1999 is exempted.
t
I n the case ofan individual, being a citizen of India or a person of India
origin, who is also a non-resident, any income from interest on such
vings certificates issued (befor 1-6-2002) by the Central Government
provided that he has macde such investment (subscribed) in convertible
foreign exchange remitted under the provisions of FEMA, 1999. [Sec.
10 (4) G). (ii) and (4B)]
aRemuneration received by foreign diplomates of allcategories: The following
incomes ofindividuals who are not the citizens of India are exempted

)Remuneration received by foreign diplomates etc. [Sec. 10(6)%i)]

) Remuneration received by a foreign citizen an employee of a foreign
enterprise, provided his stay in India does not exceed 60days.
[Sec. 10(6)(vi)]
(c)Remuneration received by a non-citizen who is non-resident for services
rendered ona foreign ship provided his total stay in India does not exceed
90 days in the previous year. [Sec. 10(6) (vii)]
(d) Remuneration received by a non-citizen as an employee of a foreign
government during his training in India in any undertaking owned or
approved by the Central Government. ISec. 1006)xi)]
C)Certain Incomes of Indian Citizens:
C) Leave Travel Concession (L.T.C.): In the case ofan Indian citizen employee
the value of any travel concession or assistance
as the Central Govt.
(subject to such conditions
may prescribe) received by him or due to him from his
employer (or former employer), for himselfand his family, in connection with
his
proceeding on leave or after retirement to any place in India is exempted.
Here, the word 'family' includes the spouse and children as well as the
parents, brothers and sisters mainly or wholly dependent on him.
[Sec. 10 (5)]
Foreign Allowance etc.: Any allowance or perquisite paid by the Indian
Ovemment to a citizen of India for rendering services outside India. (Basic
salary is taxable.).
[Sec. 10(7]
KEmuneration from Foreign Government under co-operative technical
assistance programmes in accordance with agreement with the Central
Government.
R [Sec. 10(8)]
Uneration or fees received by non-resident consultants and their
foreign
employees.
Inco Sec. 10(8A)]
e of any member of the family of such individual accompanying
1a, which arises outside
India and is not deemed to accrue or him to
arise India.
in
[Sec. 10(8B), (9)]
92 EXEMPTED INCOMES

(D) Incomes of Employees:

(
(1) Any death-cum-retirement gratuity received by a government servant orh
an employee under the Payment of Gratuity Act, 1972
or received by anu
employee on his retirement or on termination of his employment, subject
certain limitations (Gratuity received by a non-government
emplovee
employees covered under the Payment of Gratuity Act, 1972 is exempted
(`ec. 10(10))
up
Rs 10,00,000).
(2) Any p: ment in commutation of pension
received by employees of Centralo
State Government of local
or a authority or of a statutory corporation. In case
of employee in private sector, such payment is exempted subject to
limits
following
(a) in a case where the employee also receives any gratuity, the commuted
value of one-third of the pension which he is normally entitled to
receive
is exempted, and
b) in any other case, the commuted value of one-half of such pension is
exempted. [Sec. 10 (10A)]
(3) Any payment received by an employee of Central or State Government for
leave encashment at the time of his retirement. For other
employees, it is
exempted subject to following limits:
(i) Cash equivalent of leave salary. (ii) 30 days' salary for each completed
year ofservices. (iii) Maximum 10 months' salary (based on last 10 months
average salary), or (iv) Maximum amount Rs. 3,00,000, whichever is the least
is exempted from tax.
Sec. 10(10AA)]
(4) Retrenchment Compensation: Any compensation received by a workman
under the Industrial Disputes Act, 1947 subject to certain conditions. (Up to
a maximum amount of Rs.
5,00,000) [Sec. 10 (10B)]
Compensation received by victims of Bhopal gas leakage disaster is fully
exempted from tax. [Sec. 10 (1OBB)]
Similarly, compensation on account of any disaster (means catastrophe, mishap,
calamity or grave occurrence in any area, arising from natural or man-made
causes) received or receivable from Central Government or State Government
or local
authority is also fully exempted from tax. Sec. 10(10BC]
5) Amount received on voluntary retirement:
Anypayment (upto a maximum or
Rs. 5 lakhs) received or receivable by an
employee of a public sector company
or any other from
company or any state government at the time of his volunta
retirement. Sec. 10(10C)'|
6)
(6) The amount of tax actually paid by an employer, on the income in the natue
of perquisite, not provided for
by way of monetary payment, on behalf of an
employee. Sec.10 (1cC
The benefit
of such exemption has been extended to the employees serving with any
under a central or state or
provincial
Act. The maximum amount authot
exemption is Rs. 5 lakKn
 EXEMPTED INCOMES93

But this
Life Insurance Policy is tax-free.
amount (including bonus) on
[Sec. 10(10D)]
Any Insurance Policy.
does not apply to a Keyman Provident Fund Act, 1925
orby )Any payment from a provident
fund to which the
fund set up by the Central
Government.

ct t
any or from
appliesany other provident [Sec. 10(11)]
accordance with the Sukanya
eo from an account, opened in
)Any payment Government Saving Bank
2014 made under the
Samriddhi Account Rules, (Sec. 10 (11A)]
10 Act, 1873 is exempted. fund payable to the
accumulated balance of a recognised provident
(10) The Act. [Sec. 10(12)]
cas conditions laid down in the
employee, subject to
employee on
win Any payment
from the National Pension System
Trust to
scheme to the
an

account or on his opting

out of the pension
closure of his
ute amount payable to
him at that time.
extentit does not exceed 40% of total Sec. 10 (12A)]|
cEive
Trust to an employee on

payment from the National Pension System

aon Any to the extent it does
not exceed
withdrawal made out of his account
104 partical [Sec. 10(12B)]
him.
25% of the amount contributed by
nt f super-annuation fund subject to conditions
Anypayment from an approved [Sec. 10 (13)]
laid down in the Act.
his employer to the extent it
(11) House rent allowance granted to an assessee by
lete [Sec. 10(13A)]
is exempted from tax.
ODL the Central Govt.)
special allowance or benefit (declared exemption by
lea (12) Any
and exclusively incurred
DAA specially granted to meet expenses wholly, necessarily
in the performance of his duties, e.g., travelling expenses. Sec. 10(14)]
Up E) Interest on Securities
details given in the
105 Income from interest on certain securities: Referto the
bonds issued by
chapter: Income from other sources. (This also includes
BB local authorities and bonds issued under the authority of Central Government.)
1S [Sec. 10 (15)]
(1)
(1) Monthly payment on 15-Year Annuity Certificates.
(2) Annual payment of National Deposit Gold Bonds
0
(3) Interest on certain certificates, e.g. Treasury Savings. Deposit
Certificates, Post Office Savings, Bank, National Plan Certificates etc.
4)Interest
4) on fixed deposit notified by Central Govt.
(5) Interest on foreign-loans paid by govt. or local authority etc.
(6) Dividend received from an Indian company.
(7) Dividend received from UTI or any recognised Mutual Fund.
(8) Any payment received under Sukanya Samriddhi, Account Rules, 2014.
9)Interest on Gold Deposit Bonds issued under the Gold Deposit Scheme
1999 or w.e.f. Assessment Year 2017-18 Interest on Deposit Certificate
issued under the Gold Monetisation Scheme, 2015.
94 EXEMPTED INCOMES

( Allowances, Awardsetc.
of education.
to meet the cost
Sec. 10 (16
(1) Scholarship granted Parliament or Members ofSta
(2) Daily allowance received by Members of the tate
Legislature or of any of its committee. exempted subject to certain
Other allowances received by these persons are tain
conditions.
allowance received by any person
who is a member of
Any constituency [Sec. 10(17)
State Assembly. or in kind, for awards ofliteran
Awards: Any payment made, whether in cash ary,
(3 attainment or for proficiency
in sports and game
scientific or artistic work or [Sec. 10 (17A)J]
Governments.
instituted by Central or State
as reward by the Central or
made, whether in cash or in kind,
Any payment
such purpose as may be approved by Central
State Government for whether in cash or in
interest. Any payment made,
Government in the public
of gallantry awards
State Govermment in pursuance
kind, by the Central or
instituted or approved by
the Central Government.
received by family
winners and family pension
(4) Pension to gallantry award
members of armed
forces. [Sec. 10(18)and 10(19))
of an Ex-ruler. This
one palace in the occupation
5) The annual value of any from income-tax
annual value was exempted
should be the palace whose
c o m m e n c e m e n t of the
Constitution (26 the Amendment) Act, 1971.
before the
[Sec. 10 (19A)]

Illustration-1: Shri Nandi, a state governmentemployee, participated for the

as an amateur artist and entertained the audience. A

first time in a music concert
Nandi. Is the
moved that he gave a cash prize of Rs. 5,00,000 to
listener was so

hands of Nandi ?
incometaxable in the Nandi is a casual income as it is neither
from his
cash prize given to
Ans.: The taxable.
employment nor from the exercise of his profession. It is fully
incomes.
Remember that no exemption is allowable in respect of casual
(G) Miscellaneous Incomes
Income ofa memberofScheduled Tribe residing Nagaland,
in Manipur, Tripurn
(1) of the state of Jammu
and
Arunachal Pradesh, Mizoram or Ladakh region
from source arising by reason of
his employment therein and
Kashmir any
income from securities and dividend
income. [Sec. 10(26) &(26A))
from any
accrues or arises to him
(2) Income of "Sikkimese" individual which
on securiue
or by way of dividend or interest
source in the state of Sikkim
in case ofa woman marryi1n
(wherever generated) is fülly exempted (except [Sec. 10 (26AAA)
non-Sikkimese individual). nd

of the who carries on

assessee the business of growing a
(3) In the case
from
amount of any subsidy received
manufacturing tea in India, the
 EXEMPTED INCOMES95
Board under any scheme for replantation or replacement of tea bushes as the
Central Govt. may specify. [Sec. 10 (30)]
In the case of an assessee who carries on the business of growing and
4)
manufacturing rubber, coffee, cardamom or such othercommodity inIndia,as
the Central Govt. may notify, the amount ofany subsidy received through the
concerned Board under any such scheme for replantation etc. [Sec. 10(31)
In the of an assessee whose total income includes minor child's (not
case
(5) income
being a minor child suffering from permanent physical disability)
allowed to
Us 64 of the Act, an exemption upto Rs. 1,500 per child is to be
[Sec. 10 (32)]
him
on transfer ofunits under U/s. 64 of U.T.I. [Sec. 10(33)]
(6) Capital profit
in Section 115-0) by wayof
N o tax is payable on any income (referred to
dividend from a domestic company. Any income arising to an assessee, being
a shareholder, on account of shares (not being listed on a
of buy-back
to in Section 115QA
recognised stock exchange) by the company as referred
Sec. 10(34) & (34A)]
unitholder from the Unit Trust of
(8) Income received from units received bya Sec. 10(351
India or Mutual Fund.
from eligible equity
chargeable to tax if it arises1-3-2003
(9)Long term capital gain is not but before
ofa
shares which are purchased on or after
company,
1-3-2004 and held for a period of 12 months or more. Sec. 10(36)]
(10) Any capital gain (whether long-term) from transfer of
short-term or
individual or a
agricultural land (by way of compulsory acquisition) by any
was used by the
Hindu Undivided Family shall be exempted (provided it
assessee or his parents for agricultural purposes during preceding 2 years).
[Sec. 10(37)]
units:
(11) Long-term capital gain arising from sale of shares and
Conditions:
0 Transfer takes place on or after 1-4-04
exchange or units are sold to
() Transferred through a recognised stock
the mutual fund
(ui) Transfer is subject to Securities Transaction Tax. [Sec. 10(38)]
02) Where the is a member of an Association of Persons or Body of
assessee
Individuals (other than a company or a co-operative society or a registered
society), income-tax shall not be payable by the assessee in respect ot hs
share in the income of such AOP or BOI provided that the AOP has paid
1ncome-tax at the maximum marginal tax rate or any higher rate. If, however,
the AOP or BOI has not to pay any tax than member's share shall be chargeable
to tax as a part of his total income.
(13 Any amount received by an individual as a loan, either in lump sum or in
instalments, in a transaction of reverse mortgage. [Sec. 10(43)]
14) Perquisites/Allowances to chairman/members of UPSC are fully exempted
from tax. Sec. 10(45)]