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Section 10 of the Income Tax Act, 1961 provides tax-saving benefits to a salaried professional.
This section focuses on such income which falls under the exempted category and is not
included in the total income for the year.
1. Section 10(1)
2. Section 10(2)
3. Section 10(2A)
4. Section 10(3)
5. Section 10(4)
6. Section 10(5)
7. Section 10(6
8. Section 10(7)
9. Section 10(10CC)
10. Section 10(10C)
11. Section 10(10D)
12. Section 10(11
13. Section 10(10BC)
14. Section 10(13A)
15. Section 10(14)
16. Section 10(15)
Let us now take a closer look at each.
Let us say that Mr. Bhupinder owns 5 acres of agricultural land in Chandigarh. He rents it out to
marginal farmers every month and receives a rent of ₹1,000 per 0.01 acres of land. This means,
each month, he earns a rent of ₹(100*1000*5)= ₹5,00,000. Multiple it by 12 and his annual
income from rent of his farmland is ₹60 Lakh. As per Section 10(1), the entire amount will be
exempt from income tax.
Where the income or the profit share has been paid to the member from the total
income made by the family
Where, in case of an impartible estate, the income is generated through business
activities carried out by the estate belonging to the family
To understand it better, let’s consider an example. Mr. Kartik is part of an HUF in Himachal
Pradesh. As a member of the estate owned by the family, he receives an annual income of ₹1
Crore. He also receives an interest income of ₹6 Lakh per year. As per Section 10 (2), his annual
income of ₹1 Crore will not be taxable since this is the money he made as a member of a valid
HUF in India, but ₹6 Lakh is his personal income from interest earnings. This amount will be
fully taxable as per his income tax slab rate.
The partnership firm must be taxed as per the provisions of Income Tax Act, 1961
Each shareholder must receive profit shares in the same proportion as mentioned in the
partnership deed
The applicable tax exemption for each partner will be limited to their income as co-
owners or shareholders of the firm in question
The following example will further simplify the provisions of this clause for you.
Let’s say Ms. Rekha is a partner in a limited liability partnership (LLP) firm. The firm’s income
from agricultural activities for FY 21-22 was ₹8 Crore. As per the partnership deed of the firm,
Ms. Rekha is 1/5th owner of the firm, which means she is eligible to receive 20% of the profit
made by the firm. So, Rekha’s income from the firm, which is 20% of ₹8 Crore i.e. ₹1.6 Crore, is
fully tax-exempt under Section 10(2A). She also makes ₹25 Lakh each year from her bank
savings and investments. This amount will be fully taxable as per the rate applicable for the
income tax slab to which Ms. Rekha belongs.
Another important point to note is that if instead of 20% of the company’s profit share, she
received a smaller or a larger share, say 30%, her entire profit share from the LLP for the year
would have been taxable.
4. Section 10 (3): Income From Eligible Awards Due to Outstanding Contribution to Literature, Science,
Arts, or Sports
In accordance with the changes stipulated under Direct Taxes Amendment Act (1974), Section
10 (3) offers full tax exemption to monetary awards and grants received from the Central
Government or State Governments for outstanding contributions to literary, arts, scientific, and
sports fields.
Let’s say Ayusha has won a gymnastics competition organised by the State Government of
Madhya Pradesh. As first prize, she received a gold medal and a cash prize of ₹5 Lakh. As per
Section 10 (3), the entire prize amount of ₹5 Lakh will be tax-exempt.
6. Section 10(5): Tax Exemption Available on Leave Travel Concession Offered to Salaried People in
India
This is an income tax exemption available to individual taxpayers. Section 10(5) of I-T Act, 1961
states that an employee can claim full tax exemption on the LTA component of their salary. This
is applicable to both Indian and foreign employees. The section also states that the benefit will
be extended to the employee’s dependent family members, including:
Spouse
Children
Parents
Siblings
However, in order to be eligible for tax exemption, the following conditions must be satisfied:
On LTA received from an employer for the employee and their dependents in a financial
year
For upcoming travel of employees (current or former)
The exemption limit will depend on the actual amount spent in a financial year on travel
by an eligible employee and their dependents
The exemption will not be available if the employee is not travelling with their family
Let’s understand this with an example. Let’s say Mr. Prakash receives a leave travel allowance
of ₹40,000 per year as part of his salary. He takes his family for two vacations. In the first, the
cost of air travel (up and down) comes to ₹21,000. In the second, it comes up to ₹15,000. The
total is ₹(21,000+15,000)= ₹36,000. According to this section, Mr. Prakash can claim tax
exemption on his travel expenses of up to ₹36,000 for the year, even though the leave travel
allowance (LTA) component in his annual salary is ₹40,000.
The foreign entity or employer, paying the remuneration, should not be involved in any
business or trade activities in India
The tenure of stay in India of a foreign employee should not exceed 90 days
The remuneration received by the employee must not have been deducted from the
income of the foreign employer in India
To understand this better, here’s an example:
Let’s say Mr. Gopinath worked as a Defence and Air Attache at an Indian embassy abroad for
295 days in 2021. Let’s say his remuneration was ₹27 Lakh per annum. After the end of his stint,
he returned to India and moved to a new job in the Ministry of Defence.
So, as per provisions of Section 10(6) of I-T Act, 1961, Mr. Gopinath’s income for 295 days
during his stay abroad, will be fully tax-exempt, which in this case comes up to
₹27,00,000/365*295= ₹21,82,192 (Approx.)
8. Section 10(7): Exemption on Perquisites or Allowances Paid by the Government of India to an Indian
Citizen Working Abroad
This section offers tax exemption to an employee of the Indian Government stationed abroad
on perquisites or allowances earned by them for rendering their services.
Let’s say Mridula, who works as a secretary at an Indian high commission, is eligible to claim
₹45,000 every year for medical treatments at an outdoor facility. She uses the full amount
allocated to her for the year. According to this section, this perquisite will be fully tax-exempt.
Let’s say company A pays a gym membership fee of ₹5,000 per month for its managers. So,
while the employee receives a non-monetary benefit worth ₹60,000 every year, the employer
pays the tax on this amount, and under Section 10(10CC), this amount becomes fully tax-
exempt in the hands of the eligible employees.
10. Section 10(10C): Exemption on Money Received by an Employee Under a Voluntary Retirement
Scheme
This section stipulates that any money received by an employee as part of a voluntary
retirement or golden handshake arrangement will be fully tax-exempt. This will also include an
employee’s termination of service, provided the relevant conditions are satisfied. To receive tax
exemption under this scheme, an individual must be an employee of one of the following
organisations:
On life insurance policies issued after 1st April, 2012, the premium paid shouldn’t
exceed 10% of the sum insured
On life insurance policies issued before 1st April, 2012, the premium shouldn’t exceed
20% of the sum insured
Only applicable on a life insurance policy held by a policyholder, who is disabled or ill as
specified by the provisions under Sections 80U and 80DDB
This section is also applicable to payouts received from an ULIP (full form: Unit Linked
Insurance Plan) and all other forms of life insurance schemes
Budget 2023 Update
As per Union Budget 2023, a policyholder can claim tax exemptions under this section, provided:
The total premium paid on life insurance policies, other than ULIPs, cannot exceed ₹5
Lakh
For ULIPs, the total premium paid cannot exceed ₹2.5 Lakh
Let’s understand it better with an example. Let’s say Sonu gets a ULIP for 15 years. He has to
contribute ₹45,000 per year for the next 5 years. So, in all, he pays ₹2,25,000. He is assured a
sum of ₹7,50,000 on maturity. As per this section, the entire return from his ULIP investment will
be tax-exempt.
12. Section 10(11): Exemption on Returns From a Retirement Fund Like EPF and Sukanya Samriddhi
Account
Any amount received by an employee from the savings and interest payment from a retirement
savings scheme, such as Employees’ Provident Fund, after retirement is tax-free. Also, the
principal and interest payments received from Sukanya Samriddhi Yojana are fully exempt from
income tax.
Example: Ms. Ray retired as an employee of a private company in Kolkata. Upon retirement, she
received ₹10,00,000 from her provident fund savings. As per Section 10(11), she will not have
to pay income tax on this entire amount.
13. Section 10(10BC): Tax Exemption on Any Amount Received to Cope With a Disaster
Under this section, any amount received from the central government, a state government, or a
local authority by an individual or their legal heirs on account of a natural or man-made
disaster, will not be considered while calculating the income tax liability of the individual (or
their legal heirs) for the year.
However, it must be noted that only an amount received as compensation for a disaster, as
defined in Section 2(d) of the Disaster Management Act, 2005, will be considered for exemption
under this particular Income Tax section. The disaster could be natural, man-made, a massive
accident, or result from negligence and lead to substantial human loss, suffering, environmental
degradation or severe damage to property.
Let’s now understand this better with a simple example. Let’s say 60 victims lose their lives due
to a train accident in Orissa. The Government of Orissa announces a compensation of ₹1 Crore
for the dependent family members of each dead victim. Rakhi Singh passed away in the train
accident and is survived by an unmarried, dependent daughter, Rekha. This compensation of ₹1
Crore will be fully tax-exempt and won’t be counted towards Rekha’s annual income.
₹12,000
40% of ₹20,000 (since Bangalore is a non-metro city) i.e. ₹8,000
₹(10,000-10% of ₹20,000) = ₹(10,000-2,000) i.e. ₹8,000
Therefore, Neha can claim a tax exemption of ₹8,000 on the HRA component of her salary even
though she pays a monthly rent of ₹10,000.
Section 10(14)(i):
1. Daily Allowance
Employees receive this allowance to meet their daily expenses when they are not in the actual
place of work.
2. Travel Allowance
This type of allowance is paid to an employee for the travel expenses incurred during an official
visit.
3. Uniform Allowance
If you are associated with a company where it is mandatory to wear a uniform while you are on
duty, its purchase or maintenance costs are covered under this allowance.
4. Helper Allowance
This is provided to the employees who need an assistant or helper for carrying out official
duties. The exemption is available under Section 10 of the IT Act for the salary that the helper is
paid.
5. Conveyance Allowance
This helps in meeting the expenses of transportation incurred while you are travelling for
official work.
Section 10(14)(ii)
You are liable to pay taxes on these special allowances only if they exceed the prescribed limit.
The following are some of the allowances under this subsection and their respective limits:
3. Border area
This allowance is also limited to armed forces personnel. It can range from ₹200 to ₹1,300,
depending on whether one is working in a difficult area, remote locality, or a disturbed area.
4. Special Compensatory Payment
If you work in a snowbound area, hilly or high-altitude location, you are eligible for this
allowance. The prescribed limit can range between ₹300 and ₹7,000, based on certain
conditions.
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Final Word
Section 10 of Income Tax Act offers tax benefits to individuals, HUFs, and other specified
taxpayer entities, subject to fulfilment of conditions. Now that you have gone through the
article, hopefully, you will have a better understanding of how to maximise your tax savings.
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