List of Exempted Incomes (Tax-Free) Under Section-10

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1.  Agricultural Income [Section 10(1)]

Agricultural income and its tax treatment in India fall under Section 10(1) of the Income Tax Act, 1961. Section 10(1) deals with the exemption of agricultural income from income tax. Here's what you need to know about agricultural income and its tax treatment under Section 10(1):

(1). Definition of Agricultural Income:

Agricultural income is defined under Section 2(1A) of the Act as:

• Any rent or revenue derived from land which is situated in India and is used for agricultural purposes.
• Any income derived from such land by agriculture operations including processing of agricultural produce so as to render it fit for the market or sale of such produce.
• Any income attributable to a farm house subject to satisfaction of certain conditions specified in this regard in Section 2(1A).
• Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.

Agricultural income includes the following:

• Income from cultivation of land
• Income from horticulture
• Income from animal husbandry
• Income from fishing
• Income from forestry
• Income from processing of agricultural produce

Agricultural income does not include the following:

• Income from sale of agricultural land
• Income from farm houses that do not meet the specified conditions
• Income from agricultural products that have been processed beyond the stage of making them fit for the market
• Income from non-agricultural activities, such as manufacturing, trading, or services

(2). Tax treatment of agricultural income

Agricultural income is exempt from income tax under Section 10(1) of the Income Tax Act. However, it is considered for the purpose of determining the rate of tax applicable to non-agricultural income. This is known as the partial integration of agricultural income.

This means that if you earn income from agricultural activities, you do not have to pay tax on it. However, there are certain conditions and exceptions to this rule.

Examples of Agricultural Income that Exempt from Income Tax

Here are some examples of agricultural income that is exempt from income tax under Section 10(1):

• Income from the cultivation of crops, such as wheat, rice, and vegetables.
• Income from the sale of fruits, flowers, and other horticultural produce.
• Income from the sale of milk, eggs, and other animal produce.
• Income from the sale of saplings and seedlings grown in a nursery.
• Income from the rent of land used for agricultural purposes.

Conditions for Exemption

For income to be considered as agricultural income and qualify for exemption, it must fulfill the following conditions:

• The income should be derived from land located in India.
• The land should be used for agricultural purposes, such as cultivation of crops, dairy farming, poultry farming, etc.

If these conditions are met, the income will be treated as agricultural income and will be exempt from tax.

Exceptions to Exemption

While agricultural income is generally exempt from tax, there are certain exceptions to this rule:

• If the income is derived from any process carried out after the harvest, such as processing of agricultural produce, it will not be considered as agricultural income and will be taxable.
• If the income is derived from any activity that is not directly related to agricultural operations, such as rent from agricultural land, it will not be considered as agricultural income and will be taxable.
• If the income is derived from the sale of agricultural land, it will not be considered as agricultural income and will be taxable.

It is important to note that income from plantations, such as tea, coffee, and rubber, is not considered as agricultural income and is taxable.

(3). Combined Income for Individuals and HUFs:

For individuals and Hindu Undivided Families (HUFs), agricultural income is combined with other income (if any) to determine the tax liability. However, agricultural income remains exempt from income tax.

(4). Agricultural Income for Non-Individuals:

In the case of entities other than individuals and HUFs, such as companies, firms, or associations of persons (AOPs), agricultural income is not combined with other income. It is taxed separately at a flat rate of 30%. The agricultural income is not eligible for any deductions or exemptions.

(5). Clubbing of Agricultural Income:

Another important aspect to consider is the clubbing of income. If an individual has agricultural income and any other income, such as income from a business or profession, both incomes will be treated separately for tax purposes. The agricultural income will continue to be exempt under Section 10(1), while the other income will be taxed as per the applicable tax rates.

Agricultural income earned by an individual taxpayer can also be clubbed with the income of their spouse, minor child, or any other person in certain cases. This is done to prevent tax evasion by transferring agricultural income to other family members.

(6). Proof and Documentation:

Taxpayers are required to maintain proper records and documentation to establish the source and nature of their agricultural income. This documentation may include land records, crop details, income from agricultural activities, and any other relevant documents.

(7). Conclusion

Understanding the tax treatment of agricultural income is essential for individuals involved in agricultural activities. While agricultural income is generally exempt from tax, it is important to be aware of the conditions and exceptions to this rule. By following the provisions of Section 10(1) of the Income Tax Act, individuals can ensure that they comply with the tax regulations and make informed decisions regarding their agricultural income.

2.  Sum received by a Member from HUF [Section 10(2)

Under Section 10(2) of the Income Tax Act, 1961, the sum received by a member from a Hindu Undivided Family (HUF) out of the family income or out of the income of the impartible estate is exempt from income tax. This exemption is available irrespective of whether the sum is received by way of gift, advancement, withdrawal, or otherwise.

The exemption under Section 10(2) is based on the principle that a member of an HUF has a pre-existing right in the assets of the HUF. Therefore, any sum received by a member from the HUF cannot be said to be a gift or income.

However, it is important to note that the exemption under Section 10(2) is available only if the sum is received out of the family income or out of the income of the impartible estate. If the sum is received from any other source, such as from the sale of HUF assets, then it will be taxable in the hands of the member.

Here are some examples of situations where the exemption under Section 10(2) will be available:

• A member of an HUF receives a monthly allowance from the HUF.
• A member of an HUF receives a lump sum amount from the HUF on the occasion of his/her marriage or education.
• A member of an HUF receives a share of the profits of the HUF business.
• A member of an HUF receives a share of the income from the HUF's agricultural land.

The following conditions must be met for the exemption to be available:

There are certain conditions that need to be fulfilled in order for the sum to be exempt from tax.

• The first condition is that the sum should be received by the member in his capacity as a member of the HUF. This means that if you receive any money or assets from your HUF as an individual, it will not be exempt from tax.
• The second condition is that the sum should be received by the member in accordance with the provisions of the HUF. This means that the sum should be received as per the rules and regulations of the HUF. If the sum is received in violation of the HUF's provisions, it may not be exempt from tax.

It is important to note that the exemption under Section 10(2) is available only to the extent of the member's share in the income of the HUF. This means that if the sum received by the member exceeds his share in the income of the HUF, the excess amount will be taxable.

For example, if the total income of the HUF is Rs. 10 lakhs and you are entitled to a 50% share in the income, then you can receive up to Rs. 5 lakhs from the HUF without attracting any tax. However, if you receive more than Rs. 5 lakhs, the excess amount will be taxable.

It is also worth mentioning that the exemption under Section 10(2) is available only to individuals who are members of the HUF. If you are not a member of the HUF, any sum received from the HUF will be taxable in your hands.

The following are some examples of cases where the exemption under Section 10(2) will be available:

• A member of an HUF receives a gift from the HUF.
• A member of an HUF receives a loan from the HUF.
• A member of an HUF receives a salary from the HUF for managing the HUF's affairs.
• A member of an HUF receives a share of the HUF's profits.

Here are some examples of situations where the exemption under Section 10(2) will not be available:

• A member of an HUF receives a gift from another member of the HUF.
• A member of an HUF receives a sum from the HUF as his/her share in the sale proceeds of HUF assets.
• A member of an HUF receives a salary from the HUF business.
• A member of an HUF receives a rent from the HUF property.

It is important to note that the exemption under Section 10(2) is only available for sums received by a member of an HUF out of the income of the HUF. Any sums received by a member of an HUF from his or her own individual income or from any other source will be taxable in the hands of the member.

3.  Share of Profit of a Partner from a Firm [Section 10(2A)]

According to Section 10(2A), any share of profit received by a partner from a firm is exempt from tax. However, this exemption is subject to certain conditions and limitations.
Firstly, the exemption is only applicable if the firm is engaged in a business or profession. If the firm is not involved in any business activity, the partner's share of profit will not be eligible for the exemption.
Secondly, the exemption is limited to the amount of share of profit that is included in the partner's total income. If the partner's share of profit exceeds the total income, the excess amount will not be eligible for the exemption.
Additionally, the exemption is not available if the partner's share of profit is received in the form of interest, salary, bonus, commission, or any other remuneration. The exemption only applies to the share of profit received as a partner.
It is important to note that the exemption under Section 10(2A) is not automatic. The partner needs to fulfill certain conditions to avail of the exemption. These conditions include:

• The partner's share of profit should be determined in accordance with the partnership deed or agreement.
• The partner should be an individual or a Hindu Undivided Family (HUF). The exemption is not available to companies, firms, or any other type of entity.
• The partner should be a resident of India. Non-resident partners are not eligible for the exemption.

Once the partner fulfills these conditions, they can claim the exemption while filing their income tax return. The share of profit exempted under Section 10(2A) should be mentioned separately in the return.
Here are some examples of situations where the exemption under Section 10(2A) will be available:

• A partner in a trading firm receives his/her share of profit from the firm.
• A partner in a manufacturing firm receives his/her share of profit from the firm.
• A partner in a professional firm, such as a law firm or a chartered accountancy firm, receives his/her share of profit from the firm.

It is important to note that the exemption under Section 10(2A) is not available to the following:

• Salaried partners: A partner who receives a salary from the firm is not entitled to the exemption under Section 10(2A) on his/her salary income.
• Interest on capital: A partner who receives interest on his/her capital investment in the firm is not entitled to the exemption under Section 10(2A) on his/her interest income.

4.  Interest on Non-resident (External) Account [Section 10(4)]

Interest on Non-resident (External) Account (NRE) is exempt from income tax in India under Section 10(4)(ii) of the Income Tax Act, 1961. This exemption is available to both individuals and Hindu Undivided Families (HUFs) who are non-residents of India.

An NRE account is a type of bank account that can be opened by non-residents of India to deposit foreign currency. The interest earned on NRE accounts is exempt from income tax in India, regardless of whether the account holder is a resident of India for the purposes of the Foreign Exchange Management Act, 1999 (FEMA).

Conditions :

To be eligible for the exemption under Section 10(4)(ii), the following conditions must be met:

• The account holder must be a non-resident of India.
• The account must be an NRE account.
• The interest must be earned on the foreign currency deposited in the account.

If all of the above conditions are met, then the interest earned on the NRE account will be exempt from income tax in India.

The exemption under Section 10(4)(ii) is a significant benefit for non-residents of India who have NRE accounts. It helps to reduce their tax burden and encourages them to invest in India.

Examples:

Here are some examples of cases where the exemption under Section 10(4)(ii) will be available:

• An Indian citizen who lives and works in the United States opens an NRE account in India to deposit his US dollar savings. The interest earned on the NRE account will be exempt from income tax in India.
• A Hindu Undivided Family (HUF) which is registered as a non-resident entity opens an NRE account in India to deposit its foreign currency savings. The interest earned on the NRE account will be exempt from income tax in India.
• An NRI opens an NRE account with a bank in India and deposits funds that have been earned overseas. He/she earns interest on the NRE account. The interest earned is exempt from income tax in India.
• An NRI opens an NRE account with a bank in India and deposits funds that have been transferred from his/her NRO account. He/she earns interest on the NRE account. The interest earned is exempt from income tax in India.
• An NRI opens an NRE account with a bank in India and deposits funds that have been received as a gift from his/her relatives in India. He/she earns interest on the NRE account. The interest earned is exempt from income tax in India.

It is important to note that the exemption under Section 10(4)(ii) is only available for interest earned on NRE accounts. Interest earned on other types of bank accounts, such as Non-Resident Ordinary (NRO) accounts and Resident Ordinary (RO) accounts, is taxable in India.

Documentation and Compliance

In order to avail the tax exemption on NRE account interest, NRIs need to ensure they are compliant with the necessary documentation and reporting requirements. They must provide the required documents, such as a valid passport, visa, and proof of NRI status, to open an NRE account.

Additionally, NRIs need to report their NRE account details and interest income in their income tax returns. Even though the interest income is exempt from tax, it is still necessary to disclose the income in the tax return filing.

Other Considerations

While the tax treatment of interest on NRE accounts is favorable for NRIs, there are a few other considerations to keep in mind. NRIs should be aware of the currency conversion rates and any associated charges when transferring funds to and from their NRE accounts.

Furthermore, NRIs should also consider the tax implications in their country of residence. While the interest income may be tax-free in India, it may still be subject to tax in the country where the NRI is a tax resident. NRIs should consult with a tax advisor or professional to understand the tax implications in their specific situation.

Conclusion

The tax treatment of interest on Non-resident (External) Accounts under Section 10(4) of the Income Tax Act provides a significant benefit for NRIs. The tax exemption on NRE account interest allows NRIs to earn tax-free income on their foreign investments in India. However, NRIs need to ensure compliance with documentation and reporting requirements to avail the tax exemption. It is also important to consider other factors such as currency conversion rates and tax implications in the country of residence. Overall, NRE accounts offer an attractive investment option for NRIs looking to earn tax-free returns on their foreign income.

5.     A Exemption of certain income received by a Specified Fund [Section 10(4D) inserted] [W.e.f. A.Y.2020-21]

Under Section 10(4D) of the Income Tax Act, a specified fund is eligible for certain exemptions on its income. This provision aims to encourage investments in specific funds that contribute to the welfare of society.

What is a Specified Fund?

A specified fund refers to a fund established by the government or any other entity for the promotion of charitable, religious, or educational purposes. The income generated by such funds is exempt from tax, provided it meets the conditions specified under Section 10(4D).

To qualify for the exemption, the specified fund must apply its income solely for the purposes for which it was established. It should not distribute any part of its income to its members, trustees, or contributors. Additionally, the fund should maintain separate books of account to record its income, expenses, and investments.

The exemption under Section 10(4D) covers various types of income, including dividends, interest, capital gains, and rental income. However, any income derived from business activities or commercial ventures is not eligible for the exemption.

Income eligible for exemption

The following income received by a specified fund is eligible for exemption under Section 10(4D):

• Income from investments in securities of the Government of India or a State Government.
• Income from deposits with banks and other financial institutions in India.
• Income from interest on loans made to Indian companies.
• Income from any other source, subject to certain conditions.

Conditions for exemption

The exemption is subject to the following conditions:

• The specified fund must be approved by the Central Government.
• The income must be used for the purpose of providing financial assistance to Indian companies for the activities mentioned above.
• The specified fund must maintain proper accounts of its income and expenditure.
• The fund must be registered under Section 12AA of the Income Tax Act
• The fund must apply its income for charitable purposes within the specified time limits

Benefits of the Exemption

The exemption of certain income received by a specified fund provides several benefits:

• Encourages donations: The exemption encourages individuals and corporates to contribute to specified funds, as they can claim tax benefits on their donations.
• Promotes social welfare: The funds can utilize the exempted income to carry out activities that promote social welfare, such as providing healthcare facilities, supporting educational initiatives, or conducting scientific research.
• Financial sustainability: The exemption helps specified funds to generate income from investments and other activities, ensuring their financial sustainability and ability to continue their charitable work.

Here are some examples of income that is exempt from income tax under Section 10(4D):

• Income received by a specified fund from the transfer of shares in a company incorporated outside India.
• Income received by a specified fund from the sale of government bonds issued by a foreign government.
• Income received by a specified fund from a securitization trust that is engaged in the business of securitizing assets.
• Income received by a specified fund from any other source, as notified by the Central Government in the Official Gazette.

Conclusion

Section 10(4D) of the Income Tax Act provides an exemption for certain income received by a specified fund. This exemption encourages contributions to funds that support social welfare causes and promote scientific research, healthcare, education, and other charitable purposes. By providing tax benefits to donors and ensuring the financial sustainability of specified funds, this provision plays a crucial role in promoting social welfare and advancing various charitable initiatives.

6.  Exemption of income of a non-resident as a result of transfer of non-deliverable forward contracts entered into with an offshore banking unit of International Financial Services Centre (IFSC) [Section 10(4E)] [Inserted W.e.f. A.Y. 2022-23]

Section 10(4E) of the Income Tax Act, 1961 provides an exemption from tax on income arising from the transfer of non-deliverable forward (NDF) contracts entered into by a person with an Offshore Banking Unit (OBU) located in an International Financial Services Centre (IFSC).

NDF contracts are financial contracts that are settled in cash, rather than in the underlying asset. They are often used to hedge against currency fluctuations or interest rate movements.

OBUs are banking units that are located in IFSCs and that are regulated by the Reserve Bank of India. IFSCs are financial centers that are designed to attract foreign investment and to promote the development of the Indian financial sector.

The exemption under Section 10(4E) is available to any person who enters into NDF contracts with an OBU located in an IFSC. The income arising from such contracts is deemed to accrue or arise outside India, and is therefore exempt from tax in India.

Conditions to get Exemption

The following conditions must be met for the exemption to be available:

• The NDF contract must be entered into by a person with an OBU located in an IFSC.
• The NDF contract must be settled in cash.
• The income arising from the NDF contract must not be attributable to any business or profession carried on by the person in India.
• The non-deliverable forward contracts must be entered into with an offshore banking unit of the IFSC. The IFSC is a dedicated financial hub that provides a favorable tax and regulatory environment for international financial services.
• The non-resident individual must be a party to the contract. The exemption does not apply to income derived indirectly through partnerships or other entities. The non-resident individual must be directly involved in the transfer of the non-deliverable forward contracts.
• The income must arise from the transfer of non-deliverable forward contracts. Other types of income, such as interest or dividends, may not qualify for the exemption. It is essential to accurately classify the income to determine if it falls within the scope of Section 10(4E).

If all of the above conditions are met, then the income arising from the NDF contract will be exempt from tax in India.

The exemption under Section 10(4E) is a significant benefit for businesses and individuals who enter into NDF contracts. It helps to reduce their tax burden and encourages them to use Indian IFSCs for their financial transactions.

Examples of Situations for getting Exemption under Section 10(4E)

Here are some examples of situations where the exemption under Section 10(4E) will be available:

• An NRI individual enters into an NDF contract with an OBU of an IFSC to speculate on the future exchange rate between the Indian rupee and the US dollar. The NRI individual earns a capital gain from the transfer of the NDF contract. The capital gain earned by the NRI individual will be exempt from income tax in India.
• An NRI individual enters into an NDF contract with an OBU of an IFSC to hedge against the risk of currency fluctuations. The NRI individual earns an interest income from the NDF contract. The interest income earned by the NRI individual will be exempt from income tax in India.
• An NRI individual enters into an NDF contract with an OBU of an IFSC to invest in the Indian stock market. The NRI individual earns a dividend income from the NDF contract. The dividend income earned by the NRI individual will be exempt from income tax in India.

7.  Exemption of income of a non-resident by way of royalty or interest on account of lease of an aircraft paid by a unit of an International Financial Services Centre (IFSC) [Section 10(4F)] [Inserted W.e.f.  A.Y. 2022-23]

Section 10(4F) specifically applies to income earned by a non-resident from a unit of an International Financial Services Centre (IFSC) in India. An IFSC is a designated area that provides various financial services to residents and non-residents. The exemption under Section 10(4F) is aimed at encouraging the leasing of aircraft in IFSCs and attracting global aviation companies to set up operations in India.

Under this provision, any income received by a non-resident from royalty or interest on the lease of an aircraft, which is paid by a unit of an IFSC, is exempt from income tax in India. This exemption applies to both individuals and companies who are non-residents for tax purposes.

It is important to note that the exemption is applicable only to income derived from the lease of an aircraft. Income from other sources, such as the lease of other assets or services provided by non-residents, would not qualify for this exemption.

The rationale behind this exemption is to promote the growth of the aviation sector in India. By providing tax incentives to non-residents who lease aircraft through IFSCs, the government aims to attract global aviation companies and increase the availability of aircraft for domestic and international operations.

Additionally, this exemption helps in creating a level playing field for IFSCs in India compared to other global financial centers. It ensures that non-residents who choose to lease aircraft through IFSCs are not subject to any additional tax burden, thereby making India a more attractive destination for aviation-related activities.

Furthermore, the exemption under Section 10(4F) also contributes to the overall development of the IFSC ecosystem in India. It encourages the establishment of IFSC units that specialize in aircraft leasing and related financial services, leading to the creation of job opportunities and the growth of ancillary industries.

Section 10(4F) of the Income Tax Act, 1961 provides an exemption from income tax for royalty income received by a non-resident on account of leasing of aircraft or ship in a previous year, paid by a unit of an International Financial Services Centre (IFSC) as referred to in sub-section (1A) of section 80LA, if the unit has commenced its operations on or before the 31st day of March, 2024.

This exemption is available to non-residents who lease their aircraft or ships to IFSC units that are eligible for deduction under section 80LA and have commenced their operations on or before 31st March, 2024.

Conditions:

The following conditions must be met for the exemption to be available:

• The lessor must be a non-resident.
• The aircraft or ship must be leased to an IFSC unit that is eligible for deduction under section 80LA and has commenced its operations on or before 31st March, 2024.
• The income must be royalty income.

If all of the above conditions are met, then the royalty income received by the non-resident will be exempt from income tax in India.

The exemption under Section 10(4F) is a significant benefit for non-residents who lease their aircraft or ships to IFSC units. It helps to reduce their tax burden and encourages them to use Indian IFSCs for their financial transactions.

This exemption is also in line with the Government of India's objective to promote the development of IFSCs as global financial hubs.

Examples:

Here are some examples of situations where the exemption under Section 10(4F) will be available:

• A non-resident individual leases an aircraft to a unit of an IFSC for a period of five years. The income earned by the non-resident individual from the lease will be exempt from income tax in India.
• A non-resident company leases an aircraft to a unit of an IFSC for a period of three years. The income earned by the non-resident company from the lease will be exempt from income tax in India.

7.  Travel Concession or Assistance received by an individual from his employer [Section 10(5)]

[Exemption will not be available if the employee opts to be taxed under section 115BAC]

The employee is entitled to exemption under section 10(5) in respect of the value of travel concession or assistance received by or due to him from his employer or former employer for himself and his family, in connection with his proceeding—

(a)        on leave to any place in India.

(b)        to any place in India after retirement from service or after the termination of his service.

The exemption shall be allowed subject to the following:

(i)         where journey is performed by air — Maximum exemption shall be an amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination;

(ii)        where places of origin of journey and destination are connected by rail and the journey is performed by any mode of transport other than by air — Maximum exemption shall be an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and

(iii)       where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed between such places — The amount eligible for exemption shall be:

(A)       where a recognised public transport system exists, an amount not exceeding the 1 St class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and

(B)        where no recognised public transport system exists, an amount equivalent to the air- conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.

Exemption will, however, in no case exceed, actual expenditure incurred on the performance of journey.

HOW MANY TIMES CAN EXEMPTION BE CLAIMED?

• The assessee can claim exemption in respect of any two journeys in a block of 4 years. For this purpose, the first block of 4 years was calendar years 1986-89, second block was 1990- 93, third block was 1994-97, fourth block was 1998-2001, fifth block was 2002-05, sixth block was 2006-09, seventh block was 2010 to 2013, eighth block was 2014-17, the ninth block is 2018-2021 and tenth block will be 2022-2025.
• If the assessee has not availed of the exemption of LTC in a particular block, whether for both the journeys or for one journey, he can claim the exemption of first journey in the calendar year immediately succeeding the end of the block of four calendar years. In other words, maximum one journey can be carried forward and that too only for the first journey in the following calendar year unless the period is otherwise extended. Such journey undertaken during the extended period will not be taken into account for determining the tax exemption of two journeys for the succeeding block.

Exemption available only in respect of two children

The exemption relating to LTC shall not be available to more than two surviving children of an individual after 1.10.1998.

Exception: The above rule will not apply in respect of children born before 1.10.1998 and also in case of multiple birth after one child.

8.  Remuneration to persons who are not citizens of India [Section 10(6)]

Section 10(6) of the Income Tax Act, 1961 provides an exemption from income tax for certain income received by an individual who is not a citizen of India.

The following are the different types of income that are exempt under Section 10(6):

• Remuneration received by an individual who is not a citizen of India as an official or member of the staff of the embassy or high commission or legation or consulate or commission or the trade representation of the foreign state.
• Remuneration received by an individual who is not a citizen of India as a trade commissioner or other official representative in India of the Government of the foreign state.
• Remuneration received by an individual who is not a citizen of India as a professor or teacher at a university or other educational institution in India.
• Remuneration received by an individual who is not a citizen of India as an employee of a foreign enterprise which is engaged in a project in India which is connected with the security of India.
• Remuneration received by an individual who is not a citizen of India as an employee of a foreign enterprise which is engaged in a project in India which is approved by the Central Government.

The exemption under Section 10(6) is available only to individuals who are not citizens of India. It is also important to note that the exemption is not available for all types of income received by non-residents. Only the specific types of income listed above are exempt from income tax under Section 10(6).

Here are some examples of cases where the exemption under Section 10(6) will be available:

• A diplomat who is a citizen of the United States and is stationed in India will be exempt from income tax on the remuneration that he receives from the US government.
• A professor from the United Kingdom who is teaching at a university in India will be exempt from income tax on the remuneration that he receives from the university.
• An engineer from France who is working on a project in India that is connected with the security of India will be exempt from income tax on the remuneration that he receives from the French company that he is employed by.

The exemption under Section 10(6) is a valuable benefit for non-residents who are working or teaching in India. It helps to reduce their tax burden and encourages them to come to India and work or teach.

9.  Allowances or perquisites outside India [Section 10(7)]

Section 10(7) of the Income Tax Act, 1961 provides an exemption from income tax for allowances or perquisites paid by the Government to its employees for performing services outside India.

The following conditions must be met for the exemption to be available:

• The employee must be an employee of the Government of India.
• The allowance or perquisite must be paid for performing services outside India.

If all of the above conditions are met, then the allowance or perquisite paid to the employee will be exempt from income tax.

The exemption under Section 10(7) is a significant benefit for government employees who are posted outside India. It helps to reduce their tax burden and encourages them to serve in foreign countries.

Here are some examples of cases where the exemption under Section 10(7) will be available:

• A government employee who is posted to the Indian embassy in the United States will be exempt from income tax on the allowances and perquisites that he receives from the Government of India for serving in the United States.
• A government employee who is sent on a deputation to the World Health Organization in Geneva will be exempt from income tax on the allowances and perquisites that he receives from the Government of India for serving in Geneva.

10. Death-cum-Retirement Gratuity received by an employee [Section 10(10)]

Gratuity is a payment made by the employer to an employee in appreciation of the past services rendered by the employee. Gratuity can either be received by:

(a)        the employee himself at the time of his retirement; or

(b)        the legal heir on the event of the death of the employee.

Gratuity received by an employee on his retirement is taxable under the head “Salary” whereas gratuity received by the legal heir of the deceased employee shall be taxable under the head “Income from other sources”.

However, in both the above cases, according to section 10(10), gratuity is exempt upto a certain limit. Therefore, in case gratuity is received by employee, salary would include only that part of the gratuity which is not exempt under section 10(10).

Exemption of Gratuity under Section 10(10)

(i)         Where an assessee receives gratuity and part of it is taxable because it is not fully exempt under section 10(10), the employee can claim relief under section 89 on account of such gratuity.

(ii)        Where an employee had received gratuity in any earlier year(s) and had claimed exemptions under section 10(10) in respect of the gratuity received earlier also, he will still be entitled to this exemption but the limit which at present is Rs. 20,00,000 shall be reduced by the amount of exemption(s) availed in the earlier year(s). There will be no change in the other two limits.

(iii)       If gratuity is received from more than one employer in the same previous year, by an employee, the limit of Rs. 20,00,000 would apply to the aggregate of gratuity received from one or more employers.

(iv)       Gratuity is exempt. if the relationship of employer and employee exists between the payer and the payee. If such relationship does not exist, the exemption shall not be available, e.g., gratuity payable by the LIC of India to its Insurance Agents does not qualify for exemption as agents are not employees of the Corporation.

(v)        The words “completed service” occurring in section 10(10) should be interpreted to mean an employee’s total service under different employers including the employer other than the one from whose service he retired, for the purpose of calculation of period of years of his completed service, provided he was not paid gratuity by the former employer. [CIT v PM Mehra (1993) 201 ITR 930 (Born)].

(vi)       Any gratuity paid to an employee, while he continues to remain in service with the same employer is taxable under the head “Salaries” because gratuity is exempt only on retirement or on his becoming incapacitated or on termination of his employment or death of the employee. In this case, however the assessee can claim relief under section 89.

11. Payment in Commutation of Pension received by the Employees [Section 10(10A)]

Section 10(10A) of the Income Tax Act in India relates to the tax treatment of payments made in commutation of pension received by employees. Commutation of pension refers to the lump-sum payment that an employee receives in lieu of a portion of their regular pension. Here's an overview of Section 10(10A):

Payment in commutation of pension received by the employees is exempt from income tax up to a certain limit under Section 10(10A) of the Income Tax Act, 1961.

The exemption limit is as follows:

• Central Government employees: Entire amount of the commuted pension is exempt.
• State Government employees: Entire amount of the commuted pension is exempt.
• Employees of local authorities and statutory corporations: Entire amount of the commuted pension is exempt.
• Other employees: One-third (1/3^rd.) of the commuted pension is exempt.

If the commuted pension exceeds the exemption limit, the excess amount is taxable as income.

To avail the exemption under Section 10(10A), the employee must submit a declaration to the employer at the time of commutation of pension. The declaration must state that the employee has not received any gratuity from the employer.

Here are some examples of cases where the exemption under Section 10(10A) will be available:

• A central government employee receives a commuted pension of Rs. 10 lakh. The entire amount of the commuted pension will be exempt from income tax.
• A state government employee receives a commuted pension of Rs. 5 lakh. The entire amount of the commuted pension will be exempt from income tax.
• An employee of a local authority receives a commuted pension of Rs. 3 lakh. The entire amount of the commuted pension will be exempt from income tax.
• An employee of a private company receives a commuted pension of Rs. 6 lakh. One-third of the commuted pension, i.e., Rs. 2 lakh, will be exempt from income tax.

The exemption under Section 10(10A) is a significant benefit for employees who opt to commute their pension. It helps to reduce their tax burden and provides them with a lump sum amount of money that they can use for their retirement needs.

12. Leave Encashment [Section 10(10AA)]

Exemption of leave encashment at the time of retirement u/s 10(10AA)

Amount specified by the Government from time to time is given in the table below:

 Example :

E, an employee of XYZ Pvt. Ltd. retired from the company on 30.11.2021. At the time of his retirement, he received 2,88,000 as leave salary from his employer. The following information is provided by the employee:

Compute the amount of taxable leave encashment.

Solution:

The minimum of the following four amounts will be exempt:

(a)        Leave encashment actually received =  Rs.  2,88,000

(b)        10 months’ average salary, i.e., Rs. 17,600 x 10 = Rs. 1,76,000

(c)        Leave encashment for 6 months @ Rs. 17,600 p.m. = Rs. 1,05,600.

(d)        Amount specified by the Government, i.e., Rs. 3,00,000

Hence Rs. 1,05,600 would be exempt and the balance of Rs. 1,82,400 would form part of gross salary.

13. Compensation on Retrenchment [Section 10(10B)]

Section 10(10B) of the Income Tax Act in India provides an exemption for compensation received by employees on retrenchment. This exemption is intended to provide relief to employees who are retrenched or terminated from their employment. Here are the key points related to Section 10(10B):

Any compensation received by a workman at the time of his retrenchment, under the Industrial Disputes Act, 1947 or under:

(a)        any other Act or rules or any order or notification issued there-under; or

(b)        any standing order; or

(c)        any award, contract of service or otherwise,

shall be exempt to the extent of minimum of the following limits:

(i)         Actual amount received;

(ii)        15 days’ average pay for every completed year of service or part thereof in excess of 6 months;

(iii)       Amount specified by the Central Government, i.e. Rs. 5,00,000

Compensation received in excess of the aforesaid limit is taxable and would, therefore, form part of Gross Salary. However, the assessee shall be eligible for relief under section 89 read with rule 21A.

To avail the exemption under Section 10(10B), the employee must meet the following conditions:

• The employee must be a workman as defined under the Industrial Disputes Act, 1947.
• The employee must be retrenched from his employment.
• The compensation must be received by the employee on or after the 1st of April, 1976.
• The employee must not have received any gratuity from the employer.

Here are some examples of cases where the exemption under Section 10(10B) will be available:

• A workman is retrenched from his employment and receives a compensation of Rs. 10 lakh. The entire amount of compensation will be exempt from income tax.
• A workman is retrenched from his employment and receives a compensation of Rs. 15 lakh. 50% of the compensation, i.e., Rs. 7.5 lakh, will be exempt from income tax.
• A workman is retrenched from his employment and receives a compensation of Rs. 20 lakh. 50% of the compensation, i.e., Rs. 10 lakh, will be exempt from income tax.

14. Payments under Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 [Section 10(10BB)]

Section 10(10BB) of the Income Tax Act, 1961 provides an exemption from income tax for payments made under the Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985.

The following conditions must be met for the exemption to be available:

• The payment must be made under the Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985.
• The payment must be made to a person who was affected by the Bhopal Gas Leak Disaster.

If all of the above conditions are met, then the payment will be exempt from income tax in the hands of the recipient.

15. Exemption for Compensation received or receivable on account of any Disaster [Section 10(10BC)]

Section 10(10BC) of the Income Tax Act, 1961 provides an exemption from income tax for compensation received or receivable on account of any disaster.

The following conditions must be met for the exemption to be available:

• The compensation must be received or receivable from the Central Government or State Government or a local authority.
• The compensation must be received or receivable on account of any disaster.

The term "disaster" is defined to include any disaster due to any natural or man-made causes or by accident or negligence which results in substantial loss of human life or damage to property or environment and the magnitude of such disaster is beyond the coping capacity of the community of the affected area.

If all of the above conditions are met, then the compensation received or receivable on account of any disaster will be exempt from income tax in the hands of the recipient.

Here are some examples of cases where the exemption under Section 10(10BC) will be available:

• A person receives a compensation of Rs. 10 lakh from the Central Government for the loss of his property due to an earthquake. The entire amount of the compensation will be exempt from income tax.
• A person receives a compensation of Rs. 5 lakh from the State Government for the medical expenses incurred by him due to a flood. The entire amount of the compensation will be exempt from income tax.

16. Amount received on Voluntary Retirement [Section 10(10C)]

Section 10(10C) of the Income Tax Act provides an exemption to employees who receive a certain amount on voluntary retirement or separation from service. This exemption is applicable to both government and non-government employees.

According to the provisions of Section 10(10C), any amount received by an employee as a voluntary retirement compensation is exempt from tax up to a maximum limit of Rs. 5,00,000. This exemption is available to employees who have completed a minimum of 10 years of continuous service or have reached the age of 40 years at the time of voluntary retirement.

The compensation received or receivable by the employee of the following, on voluntary retirement, under the Golden Hand Shake Scheme, is exempt under section 10(10C):

(i)         a public sector company; or

(ii)        any other company; or

(iii)       an authority established under a Central, State or Provincial Act; or

(iv)       a local authority; or

(v)        a co-operative society; or

(vi)       a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956; or

(vii)      an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961; or

(viii)     such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(ix)       State Government;

(x)        Central Government;

(xi)       Institutions having importance throughout India or in any State or States as may be notified.

Exemption shall be available, subject to the following conditions:

(a)        The compensation is received only at the time of voluntary retirement or termination of his services in accordance with any scheme or schemes of voluntary retirement or in the case of public sector company, a scheme of voluntary separation. Even if the compensation is received in instalments, the exemption shall be allowed.

(b)        Further, the scheme of the said companies or authorities or societies or universities or the institutes referred to in clauses (vii) and (viii) above, as the case may be. governing the payment of such amount, are framed in accordance with such guidelines (including inter alia criteria of economic viability) as may be prescribed. In the case of public sector companies, if there is a scheme of voluntary separation, it shall also be according to the said prescribed guidelines.

Quantum of Exemption:

The amount of exemption is

• the actual amount of compensation received or
• Rs. 5,00,000,

whichever is less.

17. Tax on non-monetary perquisites paid by employer [Section 10(10CC)]

As per Section 10(10CC) of the Income-tax Act, 1961, any tax borne by employers on a non-monetary benefit is exempt from tax in the hands of employees.

Examples of non-monetary perquisites:

• Accommodation provided by the employer
• Car provided by the employer
• Medical facilities provided by the employer
• Leave travel allowance (LTA)
• Meal coupons
• Gift vouchers

Taxation of non-monetary perquisites:

The value of non-monetary perquisites is taxable in the hands of employees as per the rules prescribed by the Income-tax Act, 1961. The value of the perquisite is determined by the fair market value of the benefit.

Tax exemption under Section 10(10CC):

Section 10(10CC) of the Income-tax Act, 1961 provides an exemption from tax on any tax borne by employers on a non-monetary benefit. This means that if the employer pays the tax on a non-monetary perquisite, the employee will not be taxed on the value of the perquisite.

Example:

An employer provides accommodation to its employees. The fair market value of the accommodation is Rs. 10,000 per month. The employer pays the income tax on the value of the accommodation. The employee will not be taxed on the value of the accommodation as the employer has paid the tax.

18. Amount received under a Life Insurance Policy [Section 10(10D)]

Section 10(10D) of the Income Tax Act, 1961 provides an exemption from income tax for the amount received under a life insurance policy, including the sum assured, bonus, and maturity benefit.

The exemption is available to the policyholder and the beneficiary of the policy.

There is no limit on the amount of exemption that can be claimed under Section 10(10D).

The exemption is available for all types of life insurance policies, including term plans, endowment plans, and money-back plans.

The exemption is also available for the amount received on surrender of a life insurance policy.

However, the following sum received are not exempt under this section:

(a)        any sum received from a policy under section 80DD (3) or section 80DDA (3); or

(b)        any sum received under a Keyman insurance Policy; or

(c)        any sum received, under an insurance policy issued on or after 1.4.2003 but on or before 31.3.2012 in respect of which the premium payable for any of the years during the terms of the policy exceeds 20% of the actual capital sum assured.

However, such sum received on the death of a person shall he exempt: or

(d)        any sum received, under an insurance policy issued on or after 1.4.2012 in respect of which the premium payable for any of the years during the terms of the policy exceeds 10% of the actual capital sum assured.

However, the above provision of’ sub-clauses (c) and (d) shall not apply to any sum received on the death of a person. [First proviso]

Further, any sum received under an insurance policy issued on or after 01.04.2013 for the insurance on the life of any person who is—

(i)         a person with disability or a person with severe disability as referred to in section 80U, or

(ii)        suffering from disease or ailment as specified in the rules made under section 80DDB, the figures ‘10%’ mentioned in the sub-clause (d) shall be substituted by ‘15%’. [Third Proviso]

In other words, if the premium payable during any previous year for a policy issued on or after 1.4.2012 exceeds 10% / 15%, of the actual capital sum assured, the entire amount received under such policy shall be taxable.

No Exemption in respect of ULIP if the annual premium exceeds Rs. 2,50,000.

As per the Finance Act, 2021, the exemption under Section 10(10D) of the Income Tax Act, 1961 is not available for the amount received under a unit-linked insurance plan (ULIP) if the annual premium payable for any of the previous years during the term of the policy exceeds Rs. 2,50,000.

Nothing contained in this clause shall apply with respect to any unit linked insurance policy, issued on or after 1.2.2021, if the amount of premium payable for any of the previous year during the term of such policy/policies exceeds Rs. 2,50,000. [Fourth Proviso]. In other words, amount received on maturity of such policy shall be taxable.

Provided also that if the premium is payable, by a person, for more than one unit linked insurance policies, issued on or after the 1.2.2021, the exemption of this clause shall apply only with respect to those unit linked insurance policies, where the aggregate amount of premium does not exceed the amount referred to in fourth proviso (i.e. Rs. 2,50,000) in any of the previous year during the term of any of those policies. [Fifth Proviso]. In other words, if the aggregate amount of premium exceeds Rs. 2,50,000, the amount received on maturity of each policy shall he taxable.

However, the above fourth and fifth provisos shall not apply to any sum received on the death of a person. [Sixth Proviso]

Important Notes:

1.         Where the premium/aggregate premium of such policy/policies exceed Rs. 2,50,000 such ULIP shall he treated as capital asset under section 2(14).

2.         As per section 45(1B), any profits or gains arising from receipt of such amount by such person shall be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of such person of the previous year in which such amount was received and the income taxable shall be calculated in such manner as may be prescribed.

19. Provident Fund [Section 10(11)]

Any payment from a Provident Fund to which the Provident Funds Act, 1925 applies or from Public Provident Fund set up by the Central Government shall be exempt.

The exemption under Section 10(11) is available for the following amounts received from a PF:

• The sum assured on the death of the employee.
• The maturity benefit on the retirement of the employee.
• The withdrawal of the PF balance on resignation or termination of employment.

The exemption under Section 10(11) is available for all types of PFs, including the Employees' Provident Fund (EPF), the Public Provident Fund (PPF), and the Recognised Provident Fund (RPF).

However, the exemption is not available for the following amounts received from a PF:

• Any interest income earned on the PF balance.
• Any loan taken against the PF balance.
• Any amount received on surrender of the PF policy.

Taxability of Interest on statutory provident fund where contribution is exempt [Provisos inserted under section 10(11)] [W.e.f. A.Y. 2022-23]

The provisions of this clause [i.e. exemption under section 10(11)] shall not apply to the interest income accrued during the previous year in the account of the person to the extent it relates to the amount or the aggregate of amounts of contribution made by the person exceeding Rs. 2,50,000 in any previous year in that find, on or after 1.4.2021, computed in such manner as may be prescribed. [First proviso]

However, if the contribution by such person is in a fund in which there is no contribution by the employer of such person, the provisions of the first proviso shall have the effect as if Rs. 2,50,000, had been substituted by Rs. 5,00,000. [Second proviso]

20. Interest and withdrawals from Sukanya Samriddhi Account [Section 10(11A)]

Section 10(11A) of the Income Tax Act, 1961 provides an exemption from income tax for the interest and withdrawals from a Sukanya Samriddhi Account (SSA). The exemption is available to the account holder and the account holder's guardian.

The exemption under Section 10(11A) is available for the following amounts received from an SSA:

• The interest income earned on the SSA balance.
• The partial withdrawal of the SSA balance on or after the girl child attains 18 years of age for the purpose of marriage or higher education.
• The full withdrawal of the SSA balance on the maturity of the account or on the marriage of the girl child after she attains 18 years of age.

The exemption under Section 10(11A) is a valuable benefit for account holders and their guardians. It helps to reduce their tax burden and provides them with a financial cushion for the girl child's future.

Here are some additional details about the Sukanya Samriddhi Account:

• The SSA is a government-backed small savings scheme for girl children.
• The account can be opened by any guardian for a girl child up to the age of 10 years.
• The minimum deposit required to open an SSA is Rs. 250.
• The maximum deposit that can be made in an SSA in a financial year is Rs. 1.5 lakh.
• The interest rate on the SSA is revised every quarter by the government.

21. Payments from Recognized Provident Fund [Section 10(12)]

Section 10(12) of the Income Tax Act, 1961 provides an exemption from income tax for the following payments from a recognized provident fund (RPF):

• The contributions made by the employee to the RPF.
• The interest income earned on the RPF balance.
• The sum assured on the death of the employee.
• The maturity benefit on the retirement of the employee.
• The withdrawal of the RPF balance on resignation or termination of employment.

However, the exemption under Section 10(12) is not available for the following amounts received from an RPF:

• Any loan taken against the RPF balance.
• Any amount received on surrender of the RPF policy.
• Any interest income earned on the PF balance.
• The withdrawal of the PF balance before the completion of 5 years of service, unless the withdrawal is due to the employee's death, ill-health, or the discontinuance of the employer's business.

Here are some examples of how Section 10(12) applies to different types of payments from an RPF:

• Example 1: An employee dies in service and his family receives the sum assured of Rs. 10 lakh from his RPF account. The entire amount of Rs. 10 lakh is exempt from income tax.
• Example 2: An employee retires from service and receives the maturity benefit of Rs. 5 lakh from his RPF account. The entire amount of Rs. 5 lakh is exempt from income tax.
• Example 3: An employee resigns from service after 7 years and withdraws the PF balance of Rs. 3 lakh from his RPF account. The entire amount of Rs. 3 lakh is exempt from income tax.
• Example 4: An employee leaves his job after 3 years and withdraws the PF balance of Rs. 2 lakh from his RPF account. The entire amount of Rs. 2 lakh is taxable.

Here are some additional details about the recognized provident fund:

• An RPF is a provident fund that has been recognized by the Central Government under the Income Tax Act, 1961.
• RPFs are typically offered by employers to their employees.
• Employees can contribute a part of their salary to their RPF account.
• Employers also contribute a part of the employee's salary to the RPF account.
• The employee's contributions to the RPF account are eligible for a deduction from income tax under Section 80C of the Income Tax Act, 1961.
• The interest income earned on the RPF balance is exempt from income tax.
• The employee can withdraw the RPF balance on resignation or termination of employment.
• The employee can also transfer the RPF balance to another RPF maintained by their new employer.

22. Amount payable at the time of closure or opting out of National Pension Scheme to be exempt to the extent of 60% of the total amount payable [Section 10(12A)]

Section 10(12A) of the Income Tax Act, 1961 provides an exemption from income tax for the amount received from a National Pension System (NPS) trust on closure of the account or on opting out of the NPS. The exemption is available to the subscriber and the subscriber's nominee.

The exemption under Section 10(12A) is available for the following amounts received from an NPS trust:

• Up to 60% of the corpus withdrawn on closure of the account or on opting out of the NPS.
• The full amount of the corpus withdrawn on the death of the subscriber.

Here are some additional details about the exemption under Section 10(12A):

• The exemption is available for all types of NPS accounts, including individual accounts, corporate accounts, and government accounts.
• The exemption is also available for the corpus withdrawn from an NPS account on account of death or disability of the subscriber.
• The exemption is available even if the subscriber withdraws the entire corpus from the NPS account.
• The exemption is not available for the corpus withdrawn from an NPS account for the purpose of purchasing an annuity.

23. Tax-exemption to partial withdrawal from National Pension System (NPS) by an employee [Section 10(12B)]

Section 10(12B) of the Income Tax Act, 1961 provides an exemption from income tax for the amount received on partial withdrawal from a National Pension System (NPS) account. The exemption is available to the subscriber and the subscriber's nominee.

The exemption under Section 10(12B) is available for the following amounts received on partial withdrawal from an NPS account:

• Up to 25% of the total contributions made by the subscriber, including the government's contribution.
• The entire amount withdrawn for specified purposes, such as for the education of the subscriber's child or for the purchase of a house.

The exemption under Section 10(12B) is a valuable benefit for NPS subscribers and their nominees. It helps to reduce their tax burden and provides them with a financial cushion in times of need.

Here are some additional details about the partial withdrawal from NPS account:

• A subscriber can make a partial withdrawal from their NPS account after three years of subscribing to the NPS.
• A subscriber can make a partial withdrawal from their NPS account for the following purposes:
• To purchase or construct a residential house.
• To finance the education of the subscriber's children.
• To meet the medical expenses of the subscriber or the subscriber's family members.
• To meet the marriage expenses of the subscriber's daughter.
• To meet any other unforeseen expenses.
• A subscriber can make a partial withdrawal from their NPS account only once in a financial year.

24. Any payment from an approved Superannuation Fund [Section 10(13)]

According to Section 10(13) of the Income Tax Act, 1961, any payment from an approved superannuation fund is exempt from tax, provided that it is made:

(i)         on death of a beneficiary; or

(ii)        to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement, or

(iii        by way of refund of contributions on the death of a beneficiary; or

(iv)       by way of refund of contributions to an employee on his leaving the service in connection with which the funds is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act (i.e. 1.4.1962) and any interest thereon; or

(v)        by way of transfer to the account of the employee under a pension scheme referred to in section 80CCD and notified by the Central Government. [Clause (v)]

If the payment is made for any other reason, it will be taxable in the hands of the employee as "income from other sources".

Here are some examples of payments from an approved superannuation fund that are exempt from tax under Section 10(13):

• Lump sum withdrawal on retirement.
• Annuity payments received after retirement.
• Death benefit paid to the heirs of the employee.
• Refund of contributions on the death of the employee.
• Disability benefit paid to the employee.

25. House rent allowance [Section 10(13A)]

House Rent Allowance (HRA) is a common component of most employees' salary packages. It is provided by employers to help employees meet their rental expenses. However, when it comes to taxation, there are certain rules and regulations that govern the tax treatment of HRA.

Under Section 10(13A) of the Income Tax Act, 1961, the HRA received by an employee is partially exempt from tax. The amount of exemption is determined based on certain factors such as the actual HRA received, the rent paid, and the location of the rented accommodation.

Calculation of HRA Exemption

The HRA exemption is calculated as the minimum of the following three amounts:

• The actual HRA received from the employer.
• 50% of the basic salary plus dearness allowance (DA) for employees living in metro cities (Delhi, Mumbai, Kolkata, and Chennai), and 40% of the basic salary plus DA for employees living in other cities.
• Actual rent paid minus 10% of the basic salary plus DA.

To claim the HRA exemption, the employee must submit Form 12BB to their employer. The employer will then deduct the HRA exemption from the employee's taxable salary.

Here is an example of how to calculate the HRA exemption:

• Employee's basic salary: Rs. 50,000
• Employee's DA: Rs. 10,000
• HRA received from employer: Rs. 30,000
• Actual rent paid: Rs. 40,000

Calculation of HRA exemption:

• 50% of basic salary plus DA: Rs. 30,000 (50% of 50000 + 10000)
• Actual rent paid minus 10% of basic salary plus DA: Rs. 30,000 (40000 - 10% of 50000 + 10000)

Lowest of the three amounts: Rs. 30,000

Therefore, the employee can claim an HRA exemption of Rs. 30,000.

Important points:

• HRA exemption can only be claimed for rented houses. If the employee is living in their own house, they cannot claim HRA exemption.
• HRA exemption is only available to salaried employees. Self-employed individuals cannot claim HRA exemption.
• HRA exemption is calculated on a monthly basis. The employee must submit rent receipts to their employer every month to claim HRA exemption.
• If the employee does not submit rent receipts to their employer, the employer will deduct tax on the full amount of HRA.
• The HRA exemption is deducted from the employee's gross salary before calculating the income tax. This means that the employee will pay less income tax if they can claim a higher HRA exemption.

26. Notified special allowance [Section 10(14)]

Notified special allowance is an allowance that has been notified by the Central Government under Section 10(14) of the Income Tax Act, 1961. It is exempt from tax to the extent that it is actually incurred by the employee for the performance of their official duties.

To be eligible for exemption, the following conditions must be met:

• The allowance must be notified by the Central Government under Section 10(14) of the Income Tax Act.
• The allowance must be actually incurred by the employee for the performance of their official duties.
• The allowance must be granted to an employee.

The employee must maintain documentary evidence to support their claim for exemption. This evidence may include bills, receipts, and vouchers.

Some examples of notified special allowances that are exempt from tax under Section 10(14) include:

• Daily allowance
• Conveyance allowance
• Medical allowance
• Children education allowance
• Tribal area allowance
• Compensatory field area allowance
• Compensatory modified field area allowance
• Special Allowance to Defense Personnel
• Special Allowance to Judges

It is important to note that the exemption under Section 10(14) is only available for notified special allowances. If an allowance is not notified by the Central Government, it will not be exempt from tax, even if it is actually incurred by the employee for the performance of their official duties.

Here are some additional points about the tax treatment of notified special allowances:

• The exemption under Section 10(14) is available only for allowances that have been notified by the Central Government.
• The allowance must be granted to meet expenses incurred in the performance of the employee's duties.
• The employee must actually incur the expenses for which the allowance is granted.
• The amount of exemption that an employee can claim is limited to the actual expenses incurred.
• The exemption is available to both government and private sector employees.
• The exemption is available for allowances granted on a regular basis as well as for allowances granted on a one-time basis.
• The exemption is not available for allowances that are granted in lieu of salary or other perquisites.

27. Interest, premium or bonus on specified investments [Section 10(15)]

The tax treatment of interest, premium, or bonus on specified investments is governed by Section 10(15) of the Income Tax Act, 1961. This section provides exemption from income tax for interest, premium, or bonus received on certain types of investments, including:

• Interest on notified bonds, debentures, and securities.
• Interest on notified savings certificates.
• Interest on deposits made with notified public sector companies.
• Interest on deposits made with notified housing finance companies.
• Interest on deposits made with notified banks and cooperatives.
• Bonus received on notified units of mutual funds.
• Premium received on redemption of notified bonds, debentures, and securities.

The exemption under Section 10(15) is available to all taxpayers, including individuals, Hindu undivided families (HUFs), companies, and partnerships.

To be eligible for the exemption, the investment must be made in a specified investment scheme that has been notified by the Central Government. The Central Government has notified a number of investment schemes under Section 10(15), including:

• National Savings Certificate (NSC)
• Kisan Vikas Patra (KVP)
• Post Office Savings Account (POSA)
• Public Provident Fund (PPF)
• Senior Citizen Savings Scheme (SCSS)
• Sukanya Samriddhi Yojana (SSY)
• Pradhan Mantri Vaya Vandana Yojana (PMVVY)
• Atal Pension Yojana (APY)
• National Pension System (NPS)
• Rajiv Gandhi Equity Savings Scheme (RGESS)
• Tax Saving Fixed Deposit (FD)

Important points:

• The exemption under Section 10(15) is available only for interest, premium, or bonus on specified investments. Interest income from other sources, such as bank deposits and savings accounts, is taxable.
• The exemption under Section 10(15) is available to all taxpayers, including individuals, HUFs, companies, and partnerships.
• The Central Government notifies new schemes under Section 10(15) from time to time. Taxpayers should check the Central Government's website for the latest list of notified schemes.

28. Scholarships granted to meet the cost of education [Section 10(16)]

Section 10(16) of the Income Tax Act, 1961 provides exemption from income tax for scholarships granted to meet the cost of education. This exemption is available to all taxpayers, including individuals, Hindu Undivided Families (HUFs), companies, and partnerships.

To be eligible for exemption under Section 10(16), the scholarship must be granted by a recognized educational institution or by a charitable or religious trust. The scholarship must also be used to meet the cost of education, such as tuition fees, hostel fees, and examination fees.

The amount of exemption that a taxpayer can claim under Section 10(16) is limited to the actual amount of the scholarship received.

To be eligible for exemption under Section 10(16), the following conditions must be met:

• The scholarship must be granted to meet the cost of education.
• The scholarship must be granted by an approved institution.
• The scholarship must be utilized for the purpose for which it is granted.

Examples of eligible scholarships:

• Merit scholarships
• Need-based scholarships
• Sports scholarships
• Cultural scholarships
• Scholarships for students with disabilities
• Scholarships granted by government agencies
• Scholarships granted by private organizations

Important points:

• The exemption under Section 10(16) is available only for scholarships granted to meet the cost of education. Income from other sources, such as salaries, wages, and business profits, is taxable.
• The exemption under Section 10(16) is available to all taxpayers, including individuals, HUFs, companies, and partnerships.
• The scholarship must be granted by an approved institution. An approved institution is an institution that is recognized by the government or by a university or other educational institution.
• The scholarship must be utilized for the purpose for which it is granted, such as tuition fees, hostel fees, and examination fees. If the taxpayer does not utilize the scholarship for the purpose for which it is granted, the exemption may be withdrawn.

29. Daily and constituency allowance, etc. received by MPs and MLAs [Section 10(17)]

Section 10(17) of the Income Tax Act, 1961 provides exemption from income tax for the daily and constituency allowance received by Members of Parliament (MPs) and Members of Legislative Assembly (MLAs).

This exemption is available to all MPs and MLAs, regardless of their party affiliation or the state in which they are elected.

The exemption under Section 10(17) is available for both the daily allowance and the constituency allowance. The daily allowance is paid to MPs and MLAs to cover their expenses while they are attending Parliament or the state legislature. The constituency allowance is paid to MPs and MLAs to cover their expenses while they are carrying out their duties in their constituencies.

The exemption under Section 10(17) is available for the following types of allowances:

• Daily allowance
• Constituency allowance
• Office allowance
• Secretarial allowance
• Travel allowance
• Medical allowance
• Hostel allowance

The exemption under Section 10(17) is available for the full amount of the allowances received by MPs and MLAs.

Important points:

• The exemption under Section 10(17) is available only for daily and constituency allowance received by MPs and MLAs. Other types of allowances, such as salary and pension, are taxable.
• The exemption under Section 10(17) is available to all MPs and MLAs, irrespective of their political party affiliation.
• The exemption under Section 10(17) is available for the full amount of the allowances received by MPs and MLAs.

30. Award or Reward [Section 10(17A)]

Section 10(17A) of the Income Tax Act, 1961 provides exemption from income tax for any award or reward received by an individual in recognition of any achievement or contribution in any field, including :

• Sports
• Arts
• Science
• Literature
• Public service
• Philanthropy
• Business

The exemption under Section 10(17A) is available to all taxpayers, including individuals, Hindu Undivided Families (HUFs), companies, and partnerships.

Important points:

• The exemption under Section 10(17A) is available only for awards or rewards that are granted by the Central Government, a State Government, or a local authority, or approved by the Central Government.
• The exemption is available for awards or rewards received in recognition of any achievement in any field, including sports, arts, science, literature, public service, philanthropy, and business.

31. Pension received by certain awardees/any member of their family [Section 10(18)]

Section 10(18) of the Income Tax Act, 1961 provides exemption from income tax for pension received by certain awardees/any member of their family.

To be eligible for exemption under Section 10(18), the following conditions must be met:

• The individual must be a recipient of the Param Vir Chakra, Maha Vir Chakra, or Vir Chakra.
• The pension must be received by the individual or any member of their family.
• The exemption under Section 10(18) is available for the full amount of the pension received.

Important points:

• The exemption under Section 10(18) is available only for pension received by awardees of the Param Vir Chakra, Maha Vir Chakra, or Vir Chakra.
• The exemption under Section 10(18) is available to the individual or any member of their family.
• There is no limit on the amount of pension that can be claimed for exemption under Section 10(18).

32. Exemption of the family pension received by the family members of armed forces (including para-military forces) personnel killed in action in certain circumstances [Section 10(19)]

Section 10(19) of the Income Tax Act, 1961 provides exemption from income tax for the family pension received by the family members of armed forces (including para-military forces) personnel killed in action in the following circumstances:

• Killed in action in a war or armed conflict.
• Killed in an accident while on duty.
• Killed due to violence or sabotage while on duty.
• Killed due to a disease contracted while on duty.

To be eligible for exemption under Section 10(19), the following conditions must be met:

• The deceased armed forces (including para-military forces) personnel must have been killed in action in one of the circumstances mentioned above.
• The family pension must be received by a member of the family of the deceased armed forces (including para-military forces) personnel.
• The family pension must be received from the Central Government or a State Government.

The exemption under Section 10(19) is available for the full amount of the family pension received.

Examples of family pension that are exempt from income tax under Section 10(19) include:

• Family pension received by the widow of an armed forces (including para-military forces) personnel killed in action.
• Family pension received by the minor children of an armed forces (including para-military forces) personnel killed in action.
• Family pension received by the dependent parents of an armed forces (including para-military forces) personnel killed in action.

33. Annual value of one palace of the ex-ruler [Section 10(19A)]

Section 10(19A) of the Income Tax Act, 1961 provides exemption from income tax for the annual value of one palace of an ex-ruler.

To be eligible for exemption under Section 10(19A), the following conditions must be met:

• The palace must be owned by an ex-ruler.
• The palace must be in the occupation of the ex-ruler.
• The palace must be declared by the Central Government as the ex-ruler's ancestral property.

The exemption under Section 10(19A) is available for only one palace of an ex-ruler. If an ex-ruler owns more than one palace, he/she can claim exemption for the annual value of only one palace.

The annual value of a palace is determined by the Income Tax Department. The Income Tax Department considers various factors when determining the annual value of a palace, such as the size of the palace, the location of the palace, and the amenities available in the palace.

34. Income of a Local Authority [Section 10(20)]

Section 10(20) of the Income Tax Act, 1961 provides exemption from income tax for the income of a local authority.

A local authority is defined as any person or body of persons constituted by or under any law enacted by Parliament or by a State Legislature for the purpose of local government, or for the purpose of performing any of the functions of a municipality or district board or cantonment board.

The exemption under Section 10(20) is available for all types of income earned by a local authority, including:

• Income from house property
• Income from capital gains
• Income from other sources, such as interest, rent, and royalties

Important points:

• The exemption under Section 10(20) is available only for the income of a local authority. The income of other types of organizations, such as companies, trusts, and societies, is not exempt from income tax.
• There is no limit on the amount of income that can be claimed for exemption under Section 10(20).

Examples of local authorities that are eligible for exemption under Section 10(20) include:

• Municipal corporations
• Nagar palikas
• Gram panchayats
• District boards
• Cantonment boards
• Development authorities
• Port trusts

Examples of income that is exempt from income tax under Section 10(20) include:

• Rent income from properties owned by the local authority
• Interest income on deposits made by the local authority
• Royalty income from the exploitation of natural resources
• Income from the sale of goods and services by the local authority
• Income from property taxes
• Income from water and sewerage charges
• Income from license fees
• Income from fines and penalties
• Income from grants and subsidies received from the Central Government or State Government

Important points:

• The exemption under Section 10(20) is available only to local authorities as defined in Section 10 of the Income Tax Act, 1961.
• The exemption is available for all types of income earned by a local authority, including income from house property, capital gains, and other sources.
• There is no limit on the amount of income that can be claimed for exemption under Section 10(20).

35. Income of an Approved Research Association [Section 10(21)]

Section 10(21) of the Income Tax Act, 1961 provides exemption from income tax for the income of an approved research association.

To be eligible for exemption under Section 10(21), the following conditions must be met:

• The research association must be approved by the Director General of the Council of Scientific and Industrial Research (CSIR).
• The research association must be established for the purpose of carrying out scientific research.
• The income of the research association must be applied solely for the purposes for which it is established.

The exemption under Section 10(21) is available for all types of income earned by an approved research association, including:

• Income from house property
• Income from capital gains
• Income from other sources

Examples of income that is exempt from income tax under Section 10(21) include:

• Grants and donations received from the Central Government, State Government, or other institutions for the purpose of carrying out scientific research.
• Income from fees received for providing research services.
• Income from investments made by the research association.

Important points:

• The exemption under Section 10(21) is available only to approved research associations.
• The research association must be established for the purpose of carrying out scientific research.
• The income of the research association must be applied solely for the purposes for which it is established.
• There is no limit on the amount of income that can be claimed for exemption under Section 10(21).

36. Income of Specified News Agency [Section 10(22B)]

Section 10(22B) provides an exemption to specified news agencies from paying income tax on their income. However, it is important to understand the conditions and limitations of this exemption.

In order to avail the exemption under Section 10(22B), a specified news agency must fulfill certain conditions. These conditions include:

• The agency must be registered as a company under the Companies Act, 1956.
• The main object of the agency must be the collection and distribution of news.
• The agency must not be engaged in any other business.
• The agency must apply its income and profits solely for the purpose of collection and distribution of news.
• The agency must not distribute any income or profits to its members, shareholders, or contributors.

Examples of income that is exempt from income tax under Section 10(22B) include:

• Subscription fees received from newspapers, magazines, and other media outlets for the news agency's services.
• Advertising revenue received for displaying advertisements on the news agency's website or other platforms.
• Income from investments made by the news agency.
• Income from grants and donations received from the Central Government, State Government, or other institutions for the purpose of collection and distribution of news.

Specified news agencies are required to comply with certain reporting and compliance requirements in order to avail the exemption under Section 10(22B). These requirements include maintaining proper books of accounts, getting the accounts audited by a chartered accountant, and filing the income tax return within the specified due date.

37. Income of certain Funds of National Importance [Section 10(23C)]

Any income received by any person on behalf of the following is exempt from tax:

(i)         The Prime Minister’s National Relief Fund or the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund); or

(ii)        The Prime Minister’s Fund (Promotion of Folk Art); or

(iii)       The Prime Minister’s Aid to Students Fund; or

(iv)       The National Foundation for Communal Harmony; or

(v)        The Swachh Bharat Kosh, set up by the Central Government; or

(vi)       The Clean Ganga Fund, set up by the Central Government; or

(vii)      The Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund in respect of any State or Union territory; or

(viii)     Any university or other educational institution existing solely for educational purposes and not for purpose of profit; or

(ix)       Any hospital or other institution for the reception and treatment of persons

(i) suffering from illness or

(ii)        mental defectiveness or

(iii)       during convalescence or

(iv)       requiring medical attention or rehabilitation, existing solely for philanthropic purpose and not for purpose of profit.

The exemption under clause (vii) and (viii) shall be available only to following type of universities/ hospitals/institutions (hereinafter called institutions).

(A)       Institutions which are wholly or substantially financed by the Government, [Section 10(23C) (iiiab) and (iiiac)], or

(B)        Institutions whose aggregate annual receipts do not exceed l crore [Section 10(23C) (iiiad) and (iiiae)], or

(C)        Institutions, other than covered under (A) and (B) above, which may be approved by the prescribed authority. [Section 10(23C) (vi) and (via)].

(x)        The provision also empowers the prescribed authority, on an application, to grant exemption from income-tax by giving approval in respect of

(a)        any other fund or institution established for charitable purposes, having regard to its objects and importance throughout India or throughout any one or more States [Section 10(23C) (iv)]; and

(b)        any trust or institution, which is either wholly for public religious purposes or wholly for public religious and charitable purposes. and which is administered and supervised in a manner so as to ensure that its income is properly applied for its purposes. [Section 10(23C) (v)]

Examples of income that is exempt from income tax under Section 10(23C) include:

• Donations received from the public
• Grants received from the Central Government or State Government
• Income from investments made by the fund

Important points:

• The exemption under Section 10(23C) is available only to notified funds of national importance.
• The fund must be constituted in India.
• The fund must be established for charitable or public purposes.
• The income of the fund must be applied solely for the purposes for which it is established.
• The fund must not distribute its income in any manner to its members.

38. Income of Notified Mutual Funds [Section 10(23D)]

Notified Mutual Funds, as per Section 10(23D) of the Income Tax Act, enjoy certain tax benefits in India. This provision aims to encourage investment in mutual funds and promote the growth of the Indian capital market. In this blog post, we will discuss the income tax treatment of Notified Mutual Funds and the benefits they offer to investors.

What are Notified Mutual Funds?

Notified Mutual Funds are mutual funds registered with the Securities and Exchange Board of India (SEBI) and notified by the Central Government under Section 10(23D) of the Income Tax Act. These funds are eligible for certain tax exemptions and benefits.

Income Tax Treatment

Under Section 10(23D), the income of Notified Mutual Funds is exempt from income tax. This means that the mutual fund itself is not liable to pay tax on its income. However, the income distributed to the unit holders is taxable in their hands as per their respective income tax slabs.

It is important to note that the exemption applies only to the income of the mutual fund and not to the capital gains made by the unit holders upon redemption or transfer of units.

Examples of Notified Mutual Funds

Some examples of notified mutual funds that are eligible for exemption under Section 10(23D) include:

• Equity mutual funds
• Debt mutual funds
• Hybrid mutual funds
• Index mutual funds
• Exchange-traded funds (ETFs)

Incomes earned by Notified Mutual Fund

The exemption under Section 10(23D) is available for all types of income earned by a notified mutual fund, including:

• Income from interest
• Income from dividends
• Income from capital gains
• Income from other sources

Examples of income that is exempt from income tax under Section 10(23D) include:

• Interest income from investments in bonds and debentures
• Dividend income from investments in shares of companies
• Capital gains from the sale of investments
• Income from fees and commissions received from investors

Important points to be Note:

• The exemption under Section 10(23D) is available only to notified mutual funds.
• The mutual fund must be constituted in India.
• The mutual fund must be registered with the Securities and Exchange Board of India (SEBI).
• The income of the mutual fund must be applied solely for the benefit of its investors.
• The mutual fund must not distribute its income in any manner to its promoters or sponsors.

39. Distributed income received by a unit holder from the business trust [Section 10(23FD)]

Distributed income received by a unit holder from a business trust is exempt from tax under Section 10(23FD) of the Income Tax Act, 1961, except for the following:

Interest income

Rental income earned directly by a real estate investment trust (REIT)

However, there are certain conditions that need to be fulfilled for the exemption to apply. The business trust must be registered under the Securities and Exchange Board of India (SEBI) regulations, and it must distribute at least 90% of its income to the unit holders. The distributed income should also be in the nature of interest, dividend, or capital gains.

It is important to note that the exemption under Section 10(23FD) applies only to the distributed income and not to the income of the business trust itself. The business trust is still liable to pay tax on its income.

40. Exemption in respect of certain income of wholly owned subsidiary of Abu Dhabi Investment Authority and of Sovereign Wealth Fund [Section 10(23FE)]

Section 10(23FE) of the Income Tax Act, 1961, provides exemption from income tax in respect of certain income of a wholly owned subsidiary of Abu Dhabi Investment Authority (ADIA) or a sovereign wealth fund or a pension fund.

To be eligible for this exemption, the following conditions must be fulfilled:

• The specified person (i.e., the wholly owned subsidiary of ADIA, sovereign wealth fund, or pension fund) must invest in India in the form of debt or share capital or unit.
• The investment must be held for at least 3 years.
• The income must be in the nature of dividend, interest, or long-term capital gains.
• The income must be attributable to the investment in India.
• This exemption is available for investments made in India during the period beginning with April 1, 2020 and ending on March 31, 2024.

The aim of this exemption is to attract foreign investment in India, particularly in the infrastructure sector.

Here are some examples of income that would be eligible for exemption under Section 10(23FE):

• Dividend income received by a wholly owned subsidiary of ADIA from its Indian subsidiary.
• Interest income received by a sovereign wealth fund from its investment in Indian government bonds.
• Long-term capital gains realized by a pension fund from the sale of its shares in an Indian company.

41. Income of Trade Union [Section 10(24)]

Section 10(24) of the Income Tax Act, 1961, provides exemption from income tax for the following income of a registered trade union:

• Income from house property
• Income from other sources

This exemption is available only if the trade union is formed primarily for the purpose of regulating the relationship between workmen and employers or between workmen and workmen. Any surplus funds generated by the union should be reinvested in activities that benefit the members.

Trade unions are required to maintain proper books of accounts and undergo annual audits to ensure transparency and accountability. This helps in building trust among the members and the public.

The exemption is also available to an association of registered trade unions.

Examples of income that would be eligible for exemption under Section 10(24):

• Rent income from a building owned by the trade union and used for its own purposes.
• Interest income from investments made by the trade union.
• Membership fees received by the trade union.
• Donations received by the trade union.

42. Income of a member of Scheduled Tribe residing in certain Specified Areas [Section 10(26)]

Section 10(26) of the Income Tax Act, 1961, provides for exemption from income tax in respect of the income of a member of a Scheduled Tribe residing in any area specified in the said section.

The specified areas are as follows:

• The states of Arunachal Pradesh, Assam, Meghalaya, Mizoram, Nagaland, Tripura, and Sikkim.
• The Union Territories of Andaman and Nicobar Islands, Dadra and Nagar Haveli and Daman and Diu, and Lakshadweep.
• The Scheduled Areas under the Fifth Schedule to the Constitution of India.

To be eligible for the exemption, the following conditions must be fulfilled:

• The taxpayer must be a member of a Scheduled Tribe.
• The taxpayer must be residing in any of the specified areas.
• The income must be earned from any source located in any of the specified areas.
• The exemption is available for all types of income, including income from salary, business, house property, and capital gains.

However, the exemption is not available for income from the following sources:

• Interest income on securities.
• Dividend income.
• Rental income from immovable property located outside the specified areas.
• Income from any business activity carried on outside the specified areas.

To claim the exemption, the taxpayer must file a return of income with the Income Tax Department and submit proof of their tribal status and residence in any of the specified areas.

43. Income of an individual being a Sikkimese [Section 10(26AAA)]

Section 10(26AAA) of the Income Tax Act, 1961, provides exemption from income tax in respect of the income of an individual being a Sikkimese.

To be eligible for the exemption, the following conditions must be fulfilled:

• The taxpayer must be an individual.
• The taxpayer must be a Sikkimese.
• The income must be earned from any source in the State of Sikkim or by way of dividend or interest on securities.

The exemption is available for all types of income, including income from salary, business, house property, and capital gains.

It is important to note that this exemption applies only to individuals who are considered Sikkimese as per the Sikkim Subject Regulation, 1961. Sikkimese individuals who have migrated to other states or union territories are not eligible for this exemption.

However, the exemption is not available for income from the following sources:

• Interest income on securities other than those issued by the Government of India or the Government of Sikkim.
• Dividend income from companies other than those incorporated in Sikkim.
• Rental income from immovable property located outside Sikkim.
• Income from any business activity carried on outside Sikkim.

To claim the exemption, the taxpayer must file a return of income with the Income Tax Department and submit proof of their Sikkimese status.

44. Income of Minor Clubbed in the hands of a Parent [Section 10(32)]

Under Section 10(32) of the Income Tax Act, any income earned by a minor child is clubbed with the income of the parent. This provision ensures that the income of the minor child is not taxed separately but added to the parent's total income for taxation purposes.

The following types of income of a minor child are clubbed with the income of the parent:

• Income from salary, business, profession, or vocation.
• Income from house property.
• Income from other sources, such as interest, dividend, and capital gains.

However, the following types of income of a minor child are not clubbed with the income of the parent:

• Income from agricultural land.
• Income from scholarships.
• Income from a minor child's own personal savings.
• Income from a minor child's own skill or talent, such as income from acting, singing, or playing a sport.

Exemption under Section 10(32):

There is an exemption of Rs. 1,500 per minor child for the income that is clubbed with the income of the parent under Section 10(32). This means that the first Rs. 1,500 of the minor child's income is not clubbed with the income of the parent.

How to claim the exemption:

To claim the exemption under Section 10(32), the parent must file a return of income on behalf of the minor child. The return of income must be filed with the Income Tax Department along with the parent's own return of income.

Example:

Suppose a minor child has an income of Rs. 2,000 from interest on a savings account. The minor child's father has an income of Rs. 50,000 from salary.

The minor child's income of Rs. 2,000 will be clubbed with the father's income of Rs. 50,000 for the purpose of calculating tax. However, the father will be entitled to an exemption of Rs. 1,500 under Section 10(32).

Therefore, the father's total income for the purpose of calculating tax will be Rs. 51,500.

45. Income arising to a shareholder on account of Buy Back of Shares [Section 10(34A)]

Income arising to a shareholder on account of buy back of shares is exempt from income tax under Section 10(34A) of the Income Tax Act, 1961. This exemption is available to both resident and non-resident shareholders.

However, the buyback of shares must be carried out in accordance with the provisions of the Companies Act, 2013.

To be eligible for the exemption, the following conditions must be fulfilled:

• The buyback must be carried out in accordance with the provisions of the Companies Act, 2013.
• The buyback price must be determined in accordance with the regulations prescribed by the Securities and Exchange Board of India (SEBI).
• The buyback must be approved by the shareholders of the company by a special resolution.

Example:

Suppose a shareholder holds 100 shares of a company, each with a face value of Rs. 10. The company announces a buyback of shares at a price of Rs. 20 per share.

The shareholder sells his 100 shares to the company at the buyback price of Rs. 20 per share. Therefore, the shareholder receives a total of Rs. 2,000 from the buyback of shares.

The shareholder's income of Rs. 2,000 from the buyback of shares is exempt from income tax under Section 10(34A).

46. Income received from Securitisation Trust [Section 10(35A)]

Under Section 10(35A) of the Act, any income received by an investor from a securitisation trust is exempt from tax. This provision was introduced to encourage investments in securitisation trusts and to provide a boost to the securitisation market in India.

A securitisation trust is a Special Purpose Vehicle (SPV) that acquires and holds financial assets such as loans, receivables, or other debt instruments. The income generated from these assets is then distributed to the investors in the trust. This income can take the form of interest, principal repayments, or any other income arising from the assets held by the trust.

However, the securitisation trust must be registered with the Securities and Exchange Board of India (SEBI) and must meet the following conditions:

• The securitisation trust must be constituted for the purpose of securitising assets.
• The assets securitised must be financial assets.
• The securitisation trust must issue pass-through certificates to investors.
• The income distributed by the securitisation trust to investors must be from the assets securitised.

To claim the exemption, the investor must file a return of income with the Income Tax Department and disclose the income received from the securitisation trust.

Example:

Suppose an investor invests Rs. 100,000 in a securitisation trust. The securitisation trust invests the money in a pool of assets, such as auto loans and credit card loans.

The securitisation trust earns an income of Rs. 10,000 from the pool of assets and distributes the income to the investor. The investor's income of Rs. 10,000 from the securitisation trust is exempt from income tax under Section 10(35A).

47. Exemption of Capital Gains on Compensation received on Compulsory Acquisition of Agricultural Land situated within Specified Urban Limits [Section 10(37)]

Section 10(37) of the Income Tax Act, 1961 provides for the exemption of capital gains on compensation received on compulsory acquisition of agricultural land situated within specified urban limits. This exemption is available to both resident and non-resident individuals and Hindu Undivided Families (HUFs).

To be eligible for the exemption, the following conditions must be fulfilled:

• The land must be agricultural land situated within specified urban limits.
• The land must be compulsorily acquired by the government or a local authority.
• The compensation must be received on or after April 1, 2004.
• The land must have been used for agricultural purposes by the taxpayer (or by his parents in the case of an individual) for a period of 2 years immediately preceding the date of its acquisition.

If all of the above conditions are fulfilled, the entire capital gain arising on the compulsory acquisition of the agricultural land will be exempt from income tax.

The specified urban limits are as follows:

• All municipal corporations and municipal councils.
• All areas within 10 km from the local limits of any municipal corporation or municipal council.
• All areas notified by the Central Government as specified urban limits.

To claim the exemption, the taxpayer must file a return of income with the Income Tax Department and disclose the compensation received on the compulsory acquisition of the agricultural land.

48. Exemption of Specified Income from International Sporting Event held in India [Section 10(39)]

Section 10(39) of the Income Tax Act, 1961, provides for exemption from income tax in respect of specified income from an international sporting event held in India.

To be eligible for the exemption, the following conditions must be fulfilled:

• The sporting event must be an international sporting event.
• The sporting event must be approved by the international body regulating the international sport relating to such event.
• The sporting event must have participation by more than two countries.
• The income must be earned from the following sources:
• Sale of tickets to the sporting event.
• Sponsorship income from the sporting event.
• Broadcasting rights for the sporting event.
• Advertisement revenue from the sporting event.
• The income must be notified by the Central Government.

The exemption is available to both resident and non-resident persons.

To claim the exemption, the taxpayer must file a return of income with the Income Tax Department and disclose the specified income from the international sporting event.

49. Exemption of amount received by an individual as Loan under Reverse Mortgage Scheme [Section 10(43)]

Under the Reverse Mortgage Scheme, individuals can avail loans against their residential properties. This scheme is particularly beneficial for senior citizens who may be facing financial difficulties in their retirement years.

The amount received as a loan under this scheme is exempt from tax under Section 10(43) of the Income Tax Act.

The exemption applies to the entire amount received as a loan under the Reverse Mortgage Scheme. This means that individuals do not have to pay any tax on the loan amount. The exemption is applicable to both the principal amount and the interest component of the loan.

Conditions for exemption

The exemption under Section 10(43) is subject to the following conditions:

• The loan must be received under a reverse mortgage scheme.
• The loan must be received by an individual.
• The loan must be used for personal purposes.

How to claim the exemption

If you have received a loan under a reverse mortgage scheme, you can claim the exemption under Section 10(43) of the Income Tax Act, 1961 by filing an income tax return and claiming the exemption in the return. You will also need to submit the necessary documentation to support your claim.

50 Exemption of income of New Pension Scheme Trust [Section 10(44)]

Section 10(44) of the Income Tax Act, 1961 provides for exemption from income tax in India in respect of any income received by or on behalf of the New Pension System Trust, established on 27 February 2008.

The New Pension System Trust is a public trust established by the Government of India to manage the New Pension System (NPS), a retirement savings scheme for government employees. The NPS is also open to private sector employees and self-employed individuals.

The exemption under Section 10(44) is intended to promote the NPS and to encourage people to save for retirement. It is also intended to help the New Pension System Trust to achieve its objectives.

The exemption under Section 10(44) is available to all income of the NPST, including:

• Income from contributions made by subscribers to the NPS.
• Income from the investment of the NPS corpus.
• Income from any other source.

51. Specified income arising to a notified body/authority/board/trust! commission [Section 10(46)]

Any specified income arising to a body or authority or Board or Trust or Commission (by whatever name called) or a class thereof which—

(a)        has been established or constituted by or under a Central. State or Provincial AcL or constituted by the Central Government or a State Government, with the object of regulating or administering any activity for the benefit of the general public;

(b)        is not engaged in any commercial activity; and

(c)        is notified by the Central Government in the Official Gazette for the purposes of this clause shall be exempt from income-tax.

52. Exemption in respect of Income received by certain Foreign Companies [Section 10(48)]

Section 10(48) of the Income Tax Act provides an exemption in respect of income received by certain foreign companies. This provision aims to promote foreign investment and encourage the establishment of business operations in India.

Under this provision, any income received by a foreign company from the following activities is exempt from tax:

• Rendering of services or facilities in connection with the prospecting for, extraction or production of mineral oil or natural gas in India
• Providing services or facilities in connection with the activities relating to the exploration or exploitation of mineral oil or natural gas in India
• Rendering of services or facilities in connection with the construction, erection, operation, or maintenance of a pipeline or other conduit for the transportation of mineral oil or natural gas in India

Important Points to be Note :

• The foreign company must not have any permanent establishment in India.
• The agreement must be approved by the Central Government and notified in the Official Gazette.
• The income must be received in Indian currency.
• The foreign company must not carry on any activity in India other than the receipt of income from the sale of crude oil.

53. Exemption in respect of income of a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom [Section 10(48A) & 10(48B)]

Any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India shall be exempt:

Provided that –

(i)         the storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government; and

(ii)        having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf.

Further, as per section 10(48B), any income accruing or arising to a foreign company on account of sale of leftover stock of crude oil, if any, from a facility in India after the expiry of an agreement or an arrangement referred to in section 10(48A) or on termination of the said agreement or the arrangement, in accordance with the terms mentioned therein, as the’ case may be, shall also be exempt subject to such conditions as may he notified by the Central Government in this behalf.

54. Exemption in respect of certain income of Indian Strategic Petroleum Reserves Limited [Section 10(48C)]

Section 10(48C) of the Income Tax Act, 1961 provides for exemption from income tax in India in respect of certain income of Indian Strategic Petroleum Reserves Limited (ISPRL).

Income eligible for Exemption :

The following income of ISPRL is eligible for exemption under Section 10(48C):

• Income from the storage and sale of crude oil in India.
• Income from the investment of funds in securities of the Government of India or a State Government.
• Income from any other source, as may be notified by the Central Government in the Official Gazette.

Conditions for Exemption :

• The exemption is subject to the following conditions:
• The income must be derived from the activities of ISPRL as a strategic petroleum reserve company.
• The income must be used for the purpose of meeting the strategic petroleum reserve requirements of India.
• The income must not be used for any other purpose, other than the purpose of meeting the strategic petroleum reserve requirements of India.

55. Income of a Notified Institution established for Financing Infrastructure and Development to be Exempt [Section 10(48D)]

income of a notified institution established for financing infrastructure and development is exempt from income tax under Section 10(48D) of the Income Tax Act, 1961.

Conditions for exemption

The exemption is subject to the following conditions:

• The institution must be notified by the Central Government in the Official Gazette.
• The institution must be established under an Act of Parliament.
• The income must be used for the purpose of financing infrastructure and development.

Benefits of the exemption

The exemption under Section 10(48D) is intended to attract investment in the infrastructure and development sector in India. It is also intended to promote the growth of the Indian economy.

Examples of notified institutions

Some examples of notified institutions that are eligible for exemption under Section 10(48D) include:

• National Bank for Financing Infrastructure and Development (NBFID)
• Indian Renewable Energy Development Agency (IREDA)
• Rural Electrification Corporation (REC)
• Housing and Urban Development Corporation (HUDCO)
• National Housing Bank (NHB)

How to claim the exemption

If you are a notified institution that is eligible for exemption under Section 10(48D), you need to file an income tax return and claim the exemption in the return. You will also need to submit the necessary documentation to support your claim.

56. Income of a Developmental Financing Institution to be exempt [Section 10(48E)]

income of a developmental financing institution (DFI) licensed by the Reserve Bank of India (RBI) is exempt from income tax in India for the first 5 consecutive years of its operation under Section 10(48E) of the Income Tax Act, 1961.

Conditions for exemption

The exemption is subject to the following conditions:

• The DFI must be licensed by the RBI.
• The income must be earned during the first 5 consecutive years of the DFI's operation.
• The income must be used for the purpose of carrying on the business of a DFI.

Benefits of the exemption

The exemption under Section 10(48E) is intended to promote the development of the DFI sector in India. It is also intended to encourage DFIs to invest in and finance infrastructure and development projects.

Examples of DFIs

Some examples of DFIs that are eligible for exemption under Section 10(48E) include:

• Infrastructure Finance Company Limited (IFCL)
• Small Industries Development Bank of India (SIDBI)
• National Bank for Agriculture and Rural Development (NABARD)
• Export-Import Bank of India (EXIM Bank)
• National Housing Bank (NHB)

How to claim the exemption

If you are a DFI that is eligible for exemption under Section 10(48E), you need to file an income tax return and claim the exemption in the return. You will also need to submit the necessary documentation to support your claim.

57. Exemption in respect of income chargeable to Equalization Levy [Section 10(50)]

Section 10(50) of the Income Tax Act, 1961 provides for exemption from income tax in India in respect of income chargeable to equalization levy.

Income eligible for exemption

The following income is eligible for exemption under Section 10(50):

• Income chargeable to equalization levy under Section 163 of the Income Tax Act, 1961, in respect of specified services.
• Income chargeable to equalization levy under Section 163A of the Income Tax Act, 1961, in respect of e-commerce supply or services.

Conditions for exemption

The exemption is subject to the following conditions:

• The income must be chargeable to equalization levy.
• The income must be received or receivable by a non-resident.
• The non-resident must not have a permanent establishment in India.

Benefits of the exemption

The exemption under Section 10(50) is intended to avoid double taxation of income that is chargeable to both income tax and equalization levy.

Examples of income eligible for exemption

Here are some examples of income that is eligible for exemption under Section 10(50):

• Income received by a foreign company from the provision of online advertising services to an Indian resident.
• Income received by a foreign company from the sale of digital advertising space to an Indian resident.
• Income received by a foreign company from the provision of e-commerce services to an Indian resident.

How to claim the exemption

If you are a non-resident who has received or received income that is chargeable to equalization levy, you need to file an income tax return and claim the exemption under Section 10(50) in the return. You will also need to submit the necessary documentation to support your claim.

58. [Section-10AA]: Special Provisions in respect of Newly-established Units in Special Economic Zones

(1). Assessees who are eligible for Deduction:

Deduction under this section is available to all categories of assessees being entrepreneurs viz., individuals, firms, companies, etc. who derive any profits or gains from an undertaking being a unit engaged in the export of articles or things or providing any service.

Notes. -

1.         If an individual or HUF opts to be taxed under section 115BAC, he/it shall not be entitled to any deduction under section 10AA.

2.         If a company opts to be taxed under section 115BAA or 115BAA or 115BAB as the case may be. it shall not be entitled to any deduction under section 10AA.

3.         If a co-operative society opts to be taxed under section 115BAD, it shall not be entitled to any deduction under section 10AA.

(2). Essential conditions to claim Deduction:

The deduction shall apply to an undertaking which fulfils the following conditions:

(i)         It has begun or begins to nanotecture or produce articles or things or provide any service during the previous year 2005-06 or thereafter but before 1.4.2020 in any Special Economic Zone.

(ii)        It should not be formed by the splitting up or reconstruction of a business already in existence. However, deduction is provided if the unit is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of the undertaking as is referred to and satisfying the conditions in section 33B.

(iii)       It should also not be formed by the transfer of machinery or plant, previously used for any purpose, to a new business. However, the following are the two exceptions to this condition:

(1)        Machinery or plant which was used outside India by any person other than the assesses shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled:

(a)        The machinery or plant should not be previously used in India.

(b)        The machinery or plant should be imported into India from a foreign country.

(c)        No deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act to any person previously.

(2)        Deduction under section 10AA. will be available if the total value of the second-hand machinery or plant transferred to the new undertaking does not exceed 20 per cent of the total value of the machinery or plant used in the industrial unit.

(iv)       The assessee should furnish in the prescribed form [Form No. 56F], along with the return of income, the report of a chartered accountant certifying that the deduction has been correctly claimed in accordance with the provisions of this section.

(v)        If there is any inter unit transfer of goods or services, it should be done at the market value.

(3). Period for which deduction is available

The deduction under this section shall he allowed as under for a total period of 15 relevant assessment years:

Example:

An undertaking is set up in a Special Economic Zone and begins manufacturing on 15.10.2019. The deduction under section 10AA shall be allowed as under:

(a)        100% of profits of such undertaking from exports from assessment year 2020-21 to assessment year 2024-25.

(b)        50% of profits of such undertaking from exports from assessment year 2025-26 to assessment year 2029-30.

(c)        50% of profits of such undertaking from exports from assessment year 2030-31 to assessment year 2034-35 provided the conditions mentioned in section 10AA (2) given below are satisfied.

(4). How to compute deduction for such undertakings [Section 10AA (7)]:

Deduction under this section shall be calculated as under:

59. [Section-13A]: Incomes of Political Parties

Section 13A of the Income Tax Act, 1961 provides for exemption from income tax in India in respect of the following income of political parties:

(i)         Income which is chargeable under the head ‘Income from house property’; or

(ii)        Income chargeable under the head ‘Income from other sources’ such as donations from foreign companies or individuals..

(iii)       Any income by way of voluntary contribution from any person.

(iv)       Any income by way of capital gains.

Requisite conditions:

The exemption of the above income shall be available only when the following conditions are satisfied:

(i)         the political party keeps and maintains such books of accounts and other documents as will enable the Assessing Officer to properly deduce its income therefrom;

(ii)        where the voluntary contributions other than contribution by way of electoral bond from a person exceeds Rs. 20,000, it keeps and maintains a record of such contribution and the name and address of the person who has made such contribution:

In other words, the political parties shall not be required to furnish the name and address of the donors who contribute by way of electoral bond.

(iii)       the accounts of the political party are audited by a Chartered Accountant.

(iv)       no donation exceeding Rs. 2,000 is received by such political party otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed or through electoral bond.

(v)        the treasurer of such political party or any person authorised by the political party in this behalf must submit a report under section 29C (3) of the Representation of People Act. 1951 for the relevant financial year.

Political party for the purpose of this section means a political party registered under section 29A of the Representation of the People Act. 1951.

How to claim the exemption

To claim the exemption under Section 13A, political parties need to file an income tax return every year and declare their income from all sources. They also need to maintain proper records of their income and expenditure.

Here are some examples of income that is exempt from income tax under Section 13A:

• Donations made to political parties by Indian citizens and companies.
• Membership fees paid to political parties by their members.
• Income from the sale of coupons, badges, etc. by political parties.
• Interest earned on deposits made by political parties with banks and other financial institutions.
• Rent earned on property owned by political parties.
• Donations received by political parties from foreign companies or individuals, subject to certain conditions.

60. Income of an Electoral Trust shall be Exempt [Section 13B]

An Electoral Trust is a unique entity that plays a crucial role in the political funding of political parties in India. It is a non-profit organization that collects funds from individuals, corporates, and other entities and then distributes them to various political parties. The main objective of an Electoral Trust is to bring transparency and accountability to the process of political funding.

Under Section 13B of the Income Tax Act, the income of an Electoral Trust is exempt from tax. This provision was introduced to encourage transparent and legal funding of political parties. The exemption applies to all the income received by the Electoral Trust, including the contributions made by individuals and corporates.

This exemption is subject to certain conditions.

• The electoral trust must be registered with the Election Commission of India.
• The electoral trust must distribute 95% of its aggregate donations received during the year to political parties registered under Section 29A of the Representation of the People Act, 1951.
• The electoral trust must function in accordance with the rules made by the Central Government.

Here are some examples of income that is exempt from income tax under Section 13B:

• Voluntary contributions received by an electoral trust from Indian citizens and companies.
• Income from the investment of funds by an electoral trust in securities of the Government of India or a State Government.
• Income from any other source, subject to certain conditions.