EXEMPTIONS UNDER INCOME TAX ACT, 1961 – SOME IMPORTANT EXEMPTIONS

Section Exemption
10(1) Agricultural income:
Any income derived by a person by cultivation of land situated in India is exempt. If
agricultural income is derived from land situated outside India it will be fully taxable
under either “Business Income” or Income from Other Sources”
10 (2) Sum received by a member from HUF:
Any sum received by an individual, as a member of a Hindu Undivided Family, shall be
exempt in the hands of the member.
10(2A) Share of profit of a partner from a firm:
In case of a person being a partner of a firm (which includes limited liability
partnerships) his share in the total income of the firm shall be exempt.
10(5) Leave Travel Concession or Assistance received by an individual from his employer:
Any reimbursement by the employer of travel tickets (either by train or air) to an
employee for proceeding on leave to any place in India twice in a block of two years
for himself, wife and two dependent children will be exempt. If the travel is by air
then, the cost of air tickets by the economy class of a national carrier shall be the
maximum amount which will be exempt.
10(7) Allowances or perquisites outside India:
Any allowances or perquisites paid or allowed, as such, outside India by the
Government to a citizen of India, for rendering services outside India, are exempt
10(10) Death-cum-retirement gratuity received by an employee:
Refer to separate Notes on Gratuity.
10(10A) Payment in commutation of pension received by the employees:
Refer to separate Notes on Commuted Pension.
10(10AA) Leave Encashment:
Refer to separate Notes on Leave Encashment.
10(10B) Compensation on retrenchment:
Refer to separate Notes on Retrenchment Compensation
10(10C) Amount received on Voluntary Retirement:
Refer to separate Notes on Voluntary Retirement.
10(10CC) Tax on non-monetary perquisites paid by the employer:
The income-tax actually paid by the employer himself on a non-monetary perquisite
provided to the employee shall be exempt in the hands of the employee.
10(10D) Amount received under a Life Insurance Policy:
Any sum received under a life insurance policy, including the sum allocated by way of
bonus on such policy, is wholly exempt from tax. However, any sum received under a
keyman insurance policy or on a policy on which the annual premium payable was in
excess of the prescribed limits will not be exempt.
10(11) Public Provident Fund:
Any payment from a public provident fund including the accumulated interest shall be
exempt.
10(11A) Interest and withdrawals from Sukanya Samriddhi Account:
Any payment from an account opened inaccordance with the Sukanya Samridhi Account Rules,
2014 made under the Government Saving Bank Act, 1873 shall not be included in the total
income of the assessee. As a result, the interest accruing on deposits in, and withdrawals from
any account under the scheme would be exempt.
10(12) Payments from Recognised Provident Fund:
The accumulated balance due and becoming payable to an employee for participating in a
Recognised Provident Fund to the extent provided in Rule 8 of Part Aof the Fourth Schedule of
Income Tax Act, 1961, shall be exempt.
10(12A) 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:
Any payment from the National Pension System Trust to an assessee on
account of closure or his opting out of the pension scheme referred to in
section 80CCD, to the extent it does not exceed 60% of the total amount
payable to him at the time of closure or his opting out of the scheme, shall be
exempt from tax.
However, the whole amount received by the nominee, on death of the
assessee shall be exempt from tax.
10(12B) Tax –exemption to partial withdrawal from National Pension System (NPS) by
an employee:
Any payment from the National pension System Trust to a employee under the
pension scheme referred to in section 80CCD, on partial withdrawal to the
extent it does not exceed 25% of the amount of contribution made by him shall
be exempt from tax.
10(13) Any payment from an approved Superannuation Fund:
Any payment from an approved superannuation fund shall be exempt provided
it is made on the death of a beneficiary or to any 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.
10(13A) House Rent Allowance:
Exemption as per Notes.
10(14)(i) Special allowances which are exempt to the extent of actual amount received or the
amount spent for the performance of the duties of an office or employment of profit,
whichever is less:
a) Travelling allowance: Any allowance granted to meet the cost of travel on tour
or on transfer of duty. (including packing and transportation expenses of
personal effects on such transfer)
b) Daily allowance: Any allowance, whether granted on tour or for the period of
journey in connection with transfer, to meet the ordinary daily charges
incurred by an employee on account of absence from his normal place of duty.
c) Conveyance allowance: Any allowance granted to meet the expenditure
incurred on conveyance in performance of his duties of an office or
employment of profit, provided that free conveyance is not provided by the
employer. Expenditure incurred on conveyance from residence to office and
back to residence shall not be treated as expenditure incurred in performance
of official duties.
d) Helper allowance: Any allowance, by whatever name called, granted to meet
the expenditure incurred on a helper where such helper is engaged for the
performance of official duties.
e) Academic allowance: Any allowance, by whatever name called, granted for
encouraging academic research and training pursuits in educational and
research institutions.
f) Uniform allowance: Any allowance, by whatever name called, granted to meet
the expenditure incurred on the purchase and maintenance of uniform for
wear during the performance of official duties.
The above allowances shall be exempt to the extent of the minimum of the following:
(1) Actual allowance received
(2) Actual amount spent for official duties
10 (14)(ii) Allowance which are exempt to the extent of amount received or the limit specified,
whichever is less:
a) Children education allowance: Exempt up to actual amount received per child
or Rs.100 p.m. per child up to a maximum of 2 children.
b) Hostel Expenditure Allowance: Exempt up to actual amount received per child
or Rs.300 p.m. per child up to a maximum of 2 children.
c) Tribal area, Scheduled Area / Agency Area Allowance: Exempt up to actual
amount received or Rs.200 per month, whichever is less.
d) Special compensatory hilly area allowance or high altitude allowance, etc.
Exemption varies from Rs.300 p.m. to Rs.7,000 p.m.
e) Border area, remote area allowance, disturbed area allowance, etc: Exemption
varies from Rs.200 p.m. to Rs.1,300 p.m.
f) Compensatory field area allowance: Exempt to the extent of Rs.2,600 p.m.
g) Compensatory modified field area allowance: Exempt up to the extent of
Rs.1,000 p.m.
h) Counter insurgency allowance granted to members of the armed forces:
Exempt up to the extent of Rs.3,900 p.m.
i) Transport allowance: Any transport allowance granted to an employee who is
blind or deaf and dumb or orthopaedically handicapped with disability of
lower extremities, is exempt to the extent of Rs.3,200 p.m.
j) Underground allowance: Any underground allowance granted to an employee
who is working in uncongenial, unnatural climate in underground mines shall
be exempt to the extent of Rs.800 p.m.
k) High altitude (uncongenial climate) allowance: Given to the members of the
armed forces for altitude of 9,000 ft. To 15,000 ft Rs.1,060 p.m. and for
altitude above 15,000 ft. Rs.1,600 p.m.
l) Special compensatory highly active field area allowance granted to members
of the armed forces: Exempt to the extent of Rs.4,200 p.m.
m) Island (duty) allowance: Given to the member of the armed forces in the
Andaman & Nicobar and Lakshwadeep Group of islands exempt to the
extent of Rs.3,250 p.m.
n) Allowance allowed to transport employees working in any transport system: If
any fixed allowance is given by the employer to the employee who is working
in any transport system, to meet his personal expenditure during his duty
performed in the course of running of such transport from one place to
another, the amount of exemption shall be 70% of such allowance or
Rs.10,000 p.m. whichever is less. The transport employee should not be in
receipt of any daily allowance.
10(16) Scholarships granted to meet the cost of education:
Scholarships granted to meet the cost of education are exempt irrespective of the
amount spent by the recipient.
10(17) Daily and Constituency Allowance, etc., received by MPs and MLAs:
Any daily allowance received by an MP or MLA or any constituency allowance received
by an MP or MLA is fully exempt.
10(17A) Award or Reward:
Any payment made, whether in cash or kind, shall be exempt from tax provided it is
made in pursuance of any award instituted in the public interest by the Central
Government or any State Government or instituted by any other body approved by the
Central Government in this behalf.
10(18) Pension received by certain awardees/any member of their family:
Any 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 awarded Param Vir
Chakra or Maha Vir Chakra or Vir Chakra or such other gallantry awards as may be
notified.
10(19) Exemption of the family pension received by the family members of armed forces
(including para military forces) personnel killed in action in certain circumstances:
Where the death of a member of the armed forces has occurred in the course of
operational duties, in such circumstances and subject to such conditions as may be
prescribed, the family pension received by the widow or children or nominated heirs,
as the case may be, shall be exempt from tax.
10(26AAA) Income of an individual being a Sikkimese:
The following income, which accrues or arises to a Sikkimese individual shall be
exempt from income tax –
a) Income from any source in the State of Sikkim; or
b) Income by way of dividend or interest on securities
However, this exemption will not be available to a Sikkimese woman who, on or after
1.4.2008, marries a non-Sikkimese individual.
10(32) Income of minor child clubbed in the hands of a parent:
U/s 64(A) the income of a minor child is includible in the total income of the parent
under the circumstances therein; section 10(32) provides that such parent in whose
income the minor’s income is included shall be entitled to exemption to the extent
such income does not exceed Rs.1,500 in respect of each minor child, whose income is
so includible. In other words, thee xemption shall be allowed to the extent of the
income of each minor child included or Rs.1,500 per child, whichever is less.
10(34) Dividend from a domestic company in the hands of the shareholder:
Any dividend declared, paid or distributed by a domestic company is liable to dividend
distribution tax payable by the company. Hence, such dividend received by the
shareholder shall be exempt in his hands to the extent of Rs.10 lakhs received in
aggregate during the previous year. Any dividend in excess of Rs.10 lakh shall be
taxable at a flat rate of 10% as per section 115BBDA.
10(34A) Income arising to a shareholder on account of any buy back of shares:
Any income arising to an assessee, being a shareholder, on account of buy back of
shares (not being listed on a recognised stock exchange) by the company referred to in
section 115QA shall be exempt.
10(37) Exemption of capital gains on compensation received on compulsory acquisition of
urban agricultural land:
Any capital gain (whether short term or long term) arising to an individual or a HUF
from transfer of urban agricultural land by way of compulsory acquisition shall be
exempt provided the compensation or enhanced compensation is received on or after
1.4.2004. The exemption is available only when such land has been used for
agricultural purposes during the period of two years immediately preceding the date
of compulsory acquisition by such individual or a parent of his or by such HUF.
10(43) Exemption of amount received by an individual as loan under reverse mortgage
scheme:
Any amount received by an individual as a loan, either in lump sum or in instalment, in
a transaction of reverse mortgage referred to in section 47(xvi) shall be exempt.
Section 10(34) has been deleted with effect from 1-4-2020 by the Finance Act 2020. Hence, from
PY.2020-21 i.e. AY 2021-22 dividends from a domestic company is fully taxable in the hands of the
recipient shareholder under ‘Income from Other Sources’ and this will be taxed at normal /slab
rates.
Special Provisions in respect of newly established units in Special Economic Zones – Section 10AA

Deduction allowed to newly established Units in Special Economic Zones [SEZ]

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.
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 manufacture 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 re-
establishment, reconstruction or revival by the assessee of the business of the
undertaking as is referred to and satisfying the conditions in section 3B.
(iii) It shall 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
assessee 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 u/s 10AA will be available if the total value of the second hand
machinery or plant transferred to the new undertaking does not exceed 20% 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 the deduction is available:
The deduction under this section shall be allowed as under for a total period of 15 relevant
assessment years:

1. For the first 5 consecutive 100% of the profits and gains derived from the
assessment years beginning with export of such articles or things or from
the assessment year relevant to services.
the previous year in which the unit
begins to manufacture such articles
 or things or provide services.
2. Next 5 consecutive assessment 50% of such profits or gains
years
3. Next 5 consecutive assessment So much of the amount not exceeding 50% of
years the profits as is debited to profit and loss
account of the previous year in respect of
which the deduction is to be allowed and
credited to Special Economic Zone
Reinvestment Reserve Account to be created
and utilised for the purpose of acquiring new
machinery or plant which should be put to use
before the expiry of a period of 3 years next
following the previous year in which the
reserve was created.

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

Deduction under this section shall be calculated as under:

Profits from business of the undertaking being the unit x ET of the undertaking of such articles/things or services
Total turnover of the business carried on by the undertaking

ET = Export Turnover
 INCOME OF POLITICAL PARTIES

INCOMES WHICH ARE EXEMPT – SECTION 13A

The following incomes derived by a political party are not included in computing its total income:

(i) Income which is chargeable under the head ‘Income from house property’; or
(ii) Income chargeable under the head ‘Income from other Sources’.
(iii) Any income by way of voluntary contribution from any person.
(iv) Any income by way of capital gains.

Requisite conditions:

(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 electoral bond.
(v) The treasurer of such political party or any person authorised by the political party in
this behalf must submit a report u/s 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 u/s 29A of the
Representation of People Act, 1951.

INCOME OF AN ELECTORAL TRUST

INCOME OF AN ELECTORAL TRUST SHALL BE EXEMPT [SECTION 13B]

Any voluntary contribution received by an electoral trust shall be treated as income of the electoral
trust. However, such income shall be exempt if the following conditions are satisfied:

(a) The electoral trust distributes to any political party, registered u/s 29A of the Representation
of People Act, 1951, during previous year 95% of the aggregate donations received by it
during the said previous year along with the surplus, if any, brought forward from any earlier
previous year, and
(b) Such electoral trust functions in accordance with the rules made in this regard by the Central
Government.