Section-10Section-10INCOME EXEMPT FROM TAXINCOME EXEMPT FROM TAX

By C.A. Jaydeep MehtaBy C.A. Jaydeep Mehta

IntroductionIntroduction

Chapter III of the Income-tax Act, 1961 Chapter III of the Income-tax Act, 1961 deals with the Incomes which do not form deals with the Incomes which do not form part of total income. part of total income.

This Chapter covers sections 10 to 13A This Chapter covers sections 10 to 13A

IntroductionIntroductionSection 10 contains numerous clauses Section 10 contains numerous clauses

subject to amendments, exempting subject to amendments, exempting various kinds of income from inclusion for various kinds of income from inclusion for purposes of tax. These exemptions stem purposes of tax. These exemptions stem from social, economic, political, from social, economic, political, international and other considerations and international and other considerations and the contents and scope of the exemptions the contents and scope of the exemptions change from time to time. change from time to time.

IntroductionIntroduction Section 10 : Any income of any persons Section 10 : Any income of any persons

falling within any of the clauses of falling within any of the clauses of section 10 shall not be included in the section 10 shall not be included in the total income. total income.

Broadly, Section 10 provides exemptions Broadly, Section 10 provides exemptions to various categories of persons and to to various categories of persons and to various types of income such as :various types of income such as :

IntroductionIntroductiona)a) certain incomes of non-residents and non-certain incomes of non-residents and non-

citizens (Remuneration or fees, interest on citizens (Remuneration or fees, interest on notified securities)notified securities)

b)b) certain incomes of salaried employees certain incomes of salaried employees (pension, gratuity, HRA, LTC, VRS etc.)(pension, gratuity, HRA, LTC, VRS etc.)

c)c) income from certain specific securities, bonds, income from certain specific securities, bonds, certificates etc. (such as Govt. Relief Bonds, certificates etc. (such as Govt. Relief Bonds, PPF Interest)PPF Interest)

d)d) Income of certain type of notified bodies, Income of certain type of notified bodies, funds and institution funds and institution

IntroductionIntroduction

e)e) Subsidies to promote business Subsidies to promote business

f)f) Certain income for social, political reasons Certain income for social, political reasons (such as agricultural income)(such as agricultural income)

g)g) Avoidence of Double Taxation (Share of Avoidence of Double Taxation (Share of profit from partnership firm & amt. received profit from partnership firm & amt. received from HUF)from HUF)

Section-10(1)Section-10(1)

Agricultural Income is exempt from Agricultural Income is exempt from tax if it comes within the definition of tax if it comes within the definition of “agricultural income” as given in “agricultural income” as given in Section 2(1A)Section 2(1A)

Section 10(2)Section 10(2) Any Sum Received from HUFAny Sum Received from HUF

Subject to the provisions of 64(2), any Subject to the provisions of 64(2), any sum received by an individual as a sum received by an individual as a member of a HUF, where such sum has member of a HUF, where such sum has been paid out of the income of the been paid out of the income of the family, or, in the case of any impartible family, or, in the case of any impartible estate, where such sum has been paid estate, where such sum has been paid out of the income of the estate belonging out of the income of the estate belonging to the family.to the family.

Section 10(2A) Section 10(2A) Share of Profit from the Partnership FirmShare of Profit from the Partnership Firm

In the case of a person being a In the case of a person being a partner of a firm which is separately partner of a firm which is separately assessed as such, his share in the assessed as such, his share in the total income of the firm. (upto A.Y. total income of the firm. (upto A.Y. 92-93 it is taxable)92-93 it is taxable)

Section 10(10D) Section 10(10D) Amount paid on Life Insurance PoliciesAmount paid on Life Insurance Policies Any sum received on life insurance policies (including Any sum received on life insurance policies (including

bonus) is exempt.bonus) is exempt. Exclusions :Exclusions :

a.a. any sum received u/s. 80DD(3) any sum received u/s. 80DD(3) b.b. any sum received under a Keyman Insurance any sum received under a Keyman Insurance

PolicyPolicyc.c. any sum received under an insurance policy any sum received under an insurance policy

(issued after 31.03.2003) in respect of which the (issued after 31.03.2003) in respect of which the premium paid in any year during the term of premium paid in any year during the term of policy, exceeds 20% of the actual sum assuredpolicy, exceeds 20% of the actual sum assuredHowever, sum received under such policy on However, sum received under such policy on

the the death of a person shall continue to be exemptdeath of a person shall continue to be exemptActual sum assured does not include any Actual sum assured does not include any

premiums agreed to be returned or any premiums agreed to be returned or any benefits by benefits by way of bonus way of bonus

Section 10(32) Section 10(32) Income of MinorIncome of Minor

In case the income of an individual In case the income of an individual includes the income of his minor child in includes the income of his minor child in terms of section 64(1A), such an terms of section 64(1A), such an individual shall be entitled to exemption individual shall be entitled to exemption of Rs. 1,500/- in respect of each minor of Rs. 1,500/- in respect of each minor child if the income of such minor is child if the income of such minor is includible under section 64(1A) exceeds includible under section 64(1A) exceeds that amount.that amount.

Section 10(33) Section 10(33) Capital Gain on Transfer of US 64Capital Gain on Transfer of US 64

Any income arising from the transfer of a Any income arising from the transfer of a capital asset being a unit of US 64and capital asset being a unit of US 64and where the transfer of such assets takes where the transfer of such assets takes place on or after 1.04.2002, shall be place on or after 1.04.2002, shall be exempt from tax. This exemption is exempt from tax. This exemption is applicable whether US 64 Unit is long applicable whether US 64 Unit is long term capital asset or short term capital term capital asset or short term capital asset.asset.

Section 10(34) Section 10(34) Income from Dividends referred in Sec. 115-Income from Dividends referred in Sec. 115-OO

Any income by way of dividends received Any income by way of dividends received from Domestic Company. from Domestic Company. As per Section 2(22A), Domestic Company As per Section 2(22A), Domestic Company means an means an Indian CompanyIndian Company, or any other , or any other company which, in respect of its income company which, in respect of its income liable to tax under this Act, has made the liable to tax under this Act, has made the prescribed arrangements for the prescribed arrangements for the declaration and payment, within India, of declaration and payment, within India, of the dividends (including dividends on the dividends (including dividends on preference shares) payable out of such preference shares) payable out of such income. income.

Section 10(35) Section 10(35) Income from UnitsIncome from Units

a)a) Income received in respect of units of Mutual Income received in respect of units of Mutual Fund specified under clause (23D); orFund specified under clause (23D); or

b)b) Income received in respect of units from the Income received in respect of units from the Administrator of the specified undertaking; orAdministrator of the specified undertaking; or

c)c) Income received in respect of units from the Income received in respect of units from the specified companyspecified company

It may please be noted that Transfer of the It may please be noted that Transfer of the abovementioned Unites are not exempt under abovementioned Unites are not exempt under this provision.this provision.

Section 10(37) Section 10(37) Income from transfer of Agricultural LandIncome from transfer of Agricultural Land

Income from transfer of Agricultural Land is Income from transfer of Agricultural Land is exempt if following conditions are fulfilled :exempt if following conditions are fulfilled :

a.a. such land is situate in any area referred to in such land is situate in any area referred to in item (a) or item (b) of sub-clause (iii) of clause item (a) or item (b) of sub-clause (iii) of clause (14) of Section 2 (14) of Section 2

(land within Municipality, cantonment board (land within Municipality, cantonment board having having more than 10000 population, within 8 more than 10000 population, within 8 kms from local kms from local limits or municipality are not limits or municipality are not covered)covered)

Section 10(37) : Contd….Section 10(37) : Contd…. such land, during the period of two years such land, during the period of two years

immediately preceding the date of transfer, was immediately preceding the date of transfer, was being used for agricultural purposes by such HUF being used for agricultural purposes by such HUF or individual or a parent of his.or individual or a parent of his.

such transfer is by way of compulsory acquisition such transfer is by way of compulsory acquisition under any low or a transfer the consideration for under any low or a transfer the consideration for which is determined or approved by the Central which is determined or approved by the Central Government or the Reserve Bank of IndiaGovernment or the Reserve Bank of India..

Such income has arisen form the Such income has arisen form the compensation or consideration for such compensation or consideration for such transfer received by such assessee on or after transfer received by such assessee on or after the 01.04.2004the 01.04.2004

Section 10(38) Section 10(38) LTCG on transfer of equity LTCG on transfer of equity shares/units chargeable to STTshares/units chargeable to STT Long Term Capital Gains arising on transfer of Long Term Capital Gains arising on transfer of

equity shares or units of equity oriented equity shares or units of equity oriented mutual fund is not chargeable to tax from the mutual fund is not chargeable to tax from the assessment year 2005-06 if such transaction assessment year 2005-06 if such transaction is covered by securities transaction tax.is covered by securities transaction tax.

Mutual Fund as defined u/s. 10(23D) i.e. Mutual Fund as defined u/s. 10(23D) i.e. Mutual fund registered under the SEBI Act, Mutual fund registered under the SEBI Act, 1992, Mutual fund set up by Public Sector 1992, Mutual fund set up by Public Sector Bank, Public Financial Institution or Authorised Bank, Public Financial Institution or Authorised by the RBI and subject to such conditions as by the RBI and subject to such conditions as the Central Govt. may by notification in the the Central Govt. may by notification in the Official Gazette, specify in this behalfOfficial Gazette, specify in this behalf

Section 10(10)Section 10(10)GratuityGratuity

Gratuity exempt u/s. 10(10) are as under for Gratuity exempt u/s. 10(10) are as under for different class of employee :different class of employee :

(a)(a) Government Employee – Fully exemptGovernment Employee – Fully exempt(b)(b) Non Govt. Employee covered by the Payment Non Govt. Employee covered by the Payment

of Gratuity Act, 1970 :of Gratuity Act, 1970 :(i) 15 day’s salary based on salary last drawn (i) 15 day’s salary based on salary last drawn for each year of servicefor each year of service(ii) Rs. 3,50,000(ii) Rs. 3,50,000(iii) Gratuity actually received(iii) Gratuity actually receivedLeast of the above three is exempt.Least of the above three is exempt.

Section 10(10) : Contd…Section 10(10) : Contd…

(c) Non-Govt. employee and not covered (c) Non-Govt. employee and not covered by the payment of Gratuity Act, 1970by the payment of Gratuity Act, 1970

(i) Rs. 3,50,000(i) Rs. 3,50,000

(ii) Half month’s average salary for (ii) Half month’s average salary for each completed year of serviceeach completed year of service

(iii) Gratuity actually received(iii) Gratuity actually received

Least of the above three is exempt.Least of the above three is exempt.

Section 10(10C)Section 10(10C)Amount received at the time of Amount received at the time of VRSVRS

Amount received (Compensation) at the time of Amount received (Compensation) at the time of voluntary retirement or separation is exempt from tax voluntary retirement or separation is exempt from tax if the following conditions are satisfied :if the following conditions are satisfied :

(a)(a) Compensation is received at the time retirement or Compensation is received at the time retirement or termination.termination.

(b)(b) Compensation is received by an employee of the Compensation is received by an employee of the specified undertakings.specified undertakings.

(c)(c) Compensation is received in accordance with the Compensation is received in accordance with the scheme of voluntary retirement/separation which is scheme of voluntary retirement/separation which is framed in accordance with prescribed guidelines.framed in accordance with prescribed guidelines.

(d)(d) Maximum amount of exemption is Rs. 5,00,000/-.Maximum amount of exemption is Rs. 5,00,000/-.

Section 10(13A)Section 10(13A)House Rent AllowanceHouse Rent Allowance

The least of the following three is exempt from tax :The least of the following three is exempt from tax :

(a)(a) An amount equal to 50% of salary where An amount equal to 50% of salary where residential house is situated in Metro Cities and residential house is situated in Metro Cities and an amount equal to 40% of salary where an amount equal to 40% of salary where residential house is situated at any other places.residential house is situated at any other places.

(b)(b) HRA received by the employee in respect of the HRA received by the employee in respect of the period during which rental accommodation is period during which rental accommodation is occupied by the employee during the previous occupied by the employee during the previous year.year.

(c)(c) The excess of rent paid over 10% of salaryThe excess of rent paid over 10% of salary