Section 10 of the Income Tax Act allows the computation of specific incomes as tax-free.
As per the Income Tax Act, 1961, every Indian citizen who earns above a certain threshold of income is liable to pay taxes. Hence, with the drawdown of each financial year, taxpayers seek out ways to minimize their tax liabilities.
To ease the burden off the taxpayer, while encouraging them to save, invest and pay taxes, the law has listed certain incomes as exempted.
Exemptions under Section 10 of Income Tax Act
|Section and Sub-section||Category||Exemption|
|10(1)||Self-employed agricultural income||No tax|
|10(2)||Income of a member of Hindu –undivided Family||No tax|
|10(10C)||Voluntary retirement compensation||Exempt up to Rs. 5 lakh|
|10(10D)||Life insurance benefit including bonus||No tax|
|10(11)(12)||Amount withdrawn from provident fund||No tax|
|10(10BC)||Government compensation for damage due to disaster||No tax|
|10 (13A)||House Rent Allowance (HRA)||Least of the below is exempted: Actual HRA40% of salary or 50% of salary if living in metro cities Rent paid excluding 10% of salary|
|10(15)||Earnings of tax-free securities||No tax|
Other Exemptions under Section 10
Salaried employees are given several benefits apart from their regular incomes. Most of these benefits are considered a part of the total income, where some of them are allowed exemption under Section 10.
- Special allowance under section 10(14):
Certain allowances are classified as special exemptions under Section 10 and not levied any tax. The exception is dependent on the amount authorized or the actual money utilized for the specific purpose, whichever is lower.
Grants under sub-section (14) of Section 10 of the Income Tax Act include:
- Daily allowance: This includes daily compensation given to cover expenses incurred while on an official tour or during shifting/transferring to a new job location.
- Travel allowance: This is granted to employees to cover their travel expenses while on an official tour or during the transfer of a job. It includes expenses incurred in transferring of personal belongings, etc.
- Helper Allowance: This exemption is provided for the fee of the helper who has been hired to assist in performing official duties.
- Uniform Allowance: In cases where an office requires wearing a uniform while on duty, the allowance is offered to cover expenses of purchase and maintenance of uniform.
- Conveyance Allowance: This grant is provided to cover expenses incurred on official travelling. This does not provide reimbursement for the cost incurred for travelling from home to work.
- Research or Academic Allowance: This exemption is given by education and research institutions for encouraging research or academic training, education, etc.
- Special allowance under Section 10(14)(ii):
Exempted allowances under sub-section (14)(ii) of Section 10 of the Income Tax Act
- Climatic allowance: This includes compensation for working in high altitude or hilly areas.
- Up to ₹800 for hills of Himachal Pradesh, Uttar Pradesh, Jammu & Kashmir and the North East.
- Deductions Up to ₹7,000/month for Siachen.
- Deductions Up to ₹300 for other high-altitude places.
- Tribal area allowance: Grant of ₹200 for those working in pre-classified Tribal, Schedule or Agency areas such as Karnataka, West Bengal, Madhya Pradesh, Assam, Orissa, Tamil Nadu, Bihar, Uttar Pradesh, and Tripura.
- Border area allowance: Under Rule 2BB of Section 10 (14)(ii), Armed Forces personnel serving in the border area, remote places or in any disturbed areas are given allowance ranging from ₹200 to ₹1,300/month.
- Compensatory field allowance: A grant of ₹2,600/month is permissible under Section 10 (14)(ii), provided it is given to an individual for delivering duties in unusual fields such as Nagaland, Jammu & Kashmir, Himachal Pradesh, Uttar Pradesh, Sikkim, Andhra Pradesh and Manipur.
- Children education fund: This Section 10 (14)(ii) exemption is given to an allowance of ₹100/child maximum up to 2 children. A hostel allowance can also be claimed for ₹300/month/child up to 2 children.
- Counterinsurgency allowance: This grant of ₹3,900/month in Section 10 (14)(ii) is directed to those employed in Armed Forces for counterinsurgency.
- Island duty allowance: An exemption under Section 10 (14)(ii) of ₹3,250/month is for members of the Armed Forces serving in the Andaman and Nicobar Islands or Lakshadweep Group of Islands.
- Other allowances under sub-section (14)(ii) of Section 10 of the Income Tax Act include:
- ₹800/month for underground mine workers.
- ₹4,200/month for employees in highly active areas.
- ₹1,000/month for workers in specified modified field areas.
- ₹1,600/month as transport allowance to physically disabled employees.
- ₹1,600/month as transport allowance for employees to commute between homes to the office.