Income exempt from Tax

Agricultural Income section 10(1):

Agricultural Income is totally exempt, provided it falls within the definition of Agricultural Income given u/s 2(1a).

Sum received by a member from HUF [section 10(2)]

• Subject to the provisions of section 64(2), any Sum received by an individual, as a member of a HUF, shall be exempt in the hands of the member provided the following conditions are satisfied:

• Such sum has been received out of the income of the family, or

• In case of any impartible estate, such sum has been paid out of the income of the estate belonging to the family.

Who can claim exemption:

Following persons can only claim exemption under this section

1. Members of HUF who on partition would be entitled to demand a share; or

2. Members who are entitled to maintenance under Hindu law

Ex. A widow who is a member of a HUF & who receives the maintenance allowance out of the joint income of family shall get exemption but maintenance allowance, if not paid out of the income of the family, is not exempt u/s 10(2)

Share of profit of a partner from a firm

[section10(2A)]

In case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm shall be exempt from tax.

Interest on securities or bonds held by a non-resident / interest on nonresident account [ section 10(4)]

In the case of any assessee who is nonresident in India the following incomes shall not form part of his total income:1. Income by way of interest on such securities or bonds as the central govt.

may, by notification, specify in this behalf.2. Income by way of premium on the redemption of bonds mentioned in clause

(I) above. Further, in the case of an individual assessee any income by way of interest on money standing to his credit in a nonresident (external) account in any bank in India shall also be exempt if the following conditions are satisfied:

Money has been deposited in the nonresident (external) account in accordance with the foreign Exchange Regulation Act, 1973 & the rules made thereunder.

Such individual is a person resident outside India as defined in section 2(q) of the said act or he has been permitted by the reserve bank of India to maintain the aforesaid account.

Tax paid on behalf of foreign companies in respect of certain income [ sec. 10(6A)]

Condition 1. The taxpayer is a foreign company.

Condition 2. It has income by way of royalty or fees for technical services.

Condition 3. Such royalty is received from the central govt. or state govt. or an Indian concern under an agreement made after march 31, 1976 but before June 1, 2002.

Condition 4. the above agreement is in accordance with the industrial policy of the Indian government or it is approved by the central government.

Condition 5. The payer of Income tax liability of the foreign company in respect of the above income.

If all the aforesaid conditions are satisfied , the tax liability of the foreign company borne by the payer is not taxable in the hands of the foreign company

Provident fund [section 10 (11)]

Any payment from a provident fund to which the provident fund act, 1925 applies or from any other provident fund set up by the central government shall be exempt.

Educational scholarship [sec.10(16)]

Scholarship granted to meet the cost of educational is exempt from tax. In order to avail the exemption it is not necessary that scholarship should be financed by the government

the term “cost of education” takes within its ambit not only tuition fee but all other incidental expenses incurred for acquiring education

Once it is proved that the amount received is “scholarship”, it will be fully exempt from tax irrespective of its terms of award. The position remains so even if the scholarship is received for pursuing a course of education not leading to a degree.

The exemption in the hand of recipient depends on what it is meant for the person paying or disbursing the scholarships. If it is paid only for meeting the cost of education , it is exempt from tax even if the recipient does not spend the whole amount towards education or that he is able to save something out of it.

1 An amount equal to 50 % of salary, where residential house is situated at Bombay, Calcutta, Delhi or Madras & an amount equal to 40 % of salary where residential house is situated at any other place

2 Allowance actually received

3 The excess of rent paid over 10 % of salary

House rent allowance

sec.10(13A) & rule 2A

Amount exempt from tax- the least of the above three is exempt from tax

Salary= Basic salary+ Dearness allowances + commission

Where the employee has not actually incurred expenditure on payment of rent or stays in his own accommodation, no exemption of HRA is available.

Daily allowances of members of parliament [sec.10(17)] :

Clause (17) of sec. 10 provides exemption to members of parliament & state legislature in respect of the following allowances:

cases Nature of allowance How much is exempt

Case 1 Daily allowance Entire amount is exempt

Case 2 Any other allowance received by a member of parliament under the members of parliament (constituency allowance) rules, 1986

Entire amount is exempt

Case 3 constituency allowance received by any person by reason of his membership of any state legislature

Entire constituency allowance is exempt

Pension and family pension of gallantry award winners [section 10(18)]

Income by way of pension / family pension received by an individual or any member of his family shall be exempt if such individual has been in the service of central or state government and has been awarded param vir chakra or Maha vir chakra or such other gallantry award as may be notified

Income of a local authority [section 10(20)]

The following Income of a local authority shall be exempt:

1 Income which is chargeable under the head, ‘Income from house property’.

2 Income from ‘capital Gains’, or3 ‘Income from other sources’, or4 Income from a trade or business carried on by it which accrues or arises

from the supply of : a) water or electricity within or outside its own jurisdictional area, or b) any other commodity or service within its own jurisdictional area