Section 10 of Income Tax Act: Exemptions under Income Tax

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Updated On 10-June-2025

Section 10 of Income Tax Act: Exemptions under Income Tax

Section 10 of the Income Tax Act, 1961 provides a comprehensive list of incomes that do not form part of the total income while computing the tax liability of an individual, Hindu Undivided Family (HUF), or any other assessee. These are exempt incomes, and understanding them helps in effective tax planning and reducing your overall taxable income.

This section plays a vital role in providing relief to taxpayers by excluding certain types of incomes from taxation, subject to specified conditions.

What is Section 10?

Section 10 of the Income Tax Act deals with incomes that are exempt from tax. These are earnings that are not included in the total taxable income. Even though these incomes are received, they are either partially or fully exempt depending on the provision.

Key Exemptions under Section 10

Here are some of the most commonly used and relevant subsections under Section 10:

1. Section 10(1): Agricultural Income

Nature: Income from agricultural land situated in India.

Exemption: Fully exempt from tax.

Note: While agricultural income is exempt, it may be considered for rate purposes if it exceeds ₹5,000 and total income (excluding agricultural income) exceeds the basic exemption limit.

2. Section 10(2): Income of a HUF

Nature: Income received by a member of a Hindu Undivided Family from the HUF.

Exemption: Fully exempt, provided the income has already been taxed in the hands of HUF.

3. Section 10(2A): Share in Partnership Firm’s Profit

Nature: Share of profit received by a partner from a partnership firm (which is separately assessed).

Exemption: Fully exempt from tax in the hands of the partner.

Note: Other payments like remuneration or interest are taxable.

4. Section 10(5): Leave Travel Allowance (LTA)

Nature: Amount received for travel expenses by employee on leave.

Exemption: Exempt for two journeys in a block of four calendar years.

Conditions:

  • Only domestic travel is covered.
  • Travel by shortest route.
  • Only actual travel fare is exempt, not hotel or food.

5. Section 10(6): Income of Foreign Nationals

Nature: Exemptions to foreign diplomats, consular staff, and representatives of foreign governments.

Exemption: Subject to specific conditions and bilateral agreements.

6. Section 10(7): Allowances/Perquisites to Government Employees Serving Abroad

Nature: Perks and allowances received by Indian government employees posted abroad.

Exemption: Fully exempt.

7. Section 10(10): Gratuity

Nature: Lump-sum payment received by employee on retirement or death.

Exemption:

Government employees: Fully exempt.

Private sector employees covered under the Payment of Gratuity Act: Least of the following:

  • ₹20,00,000
  • Actual gratuity received
  • 15 days’ salary for every completed year of service

Other employees: Exemption limits differ.

8. Section 10(10A): Pension - Commuted and Uncommuted

Uncommuted pension (monthly): Fully taxable.

Commuted pension:

  • Fully exempt for government employees.
  • For others, partially exempt.

9. Section 10(10B): Retrenchment Compensation

Exemption: Least of the following is exempt:

  • ₹5,00,000
  • Actual amount received
  • Amount as per Industrial Disputes Act

10. Section 10(10C): Voluntary Retirement Scheme (VRS)

Exemption: Up to ₹5,00,000.

Note: Exemption can be availed only once in a lifetime.

11. Section 10(13A): House Rent Allowance (HRA)

Exemption: Least of the following:

  • Actual HRA received
  • 50% of salary (metro cities) / 40% (non-metro)
  • Rent paid minus 10% of salary

12. Section 10(14): Special Allowances

Nature: Allowances granted to meet certain expenses or perform duties.

Examples: Travelling allowance, uniform allowance.

Exemption: Amount actually spent or received (whichever is less), as per rules.

13. Section 10(15): Income from Specified Investments

Nature: Interest from notified bonds, savings certificates (e.g., PPF, Sukanya Samriddhi Yojana).

Exemption: Fully exempt as per notification.

14. Section 10(16): Scholarship

Nature: Scholarships granted to meet educational costs.

Exemption: Fully exempt.

15. Section 10(17): Daily Allowance to MPs/MLAs

Nature: Daily and constituency allowances.

Exemption: Fully exempt.

16. Section 10(17): Daily Allowance to MPs/MLAs

Nature: Daily and constituency allowances.

Exemption: Fully exempt.

17. Section 10(24): Income of Trade Unions

Nature: Income from house property and interest.

Exemption: Fully exempt if income is solely for mutual benefit of members.

18. Section 10(25): Provident Fund

Nature: Interest and accumulated balance of statutory and recognized provident funds.

Exemption: Subject to contribution limits.

How Section 10 Helps in Tax Planning

By understanding the exemptions under Section 10:

  • Taxpayers can structure their salary to include exempt components like HRA, LTA, etc.
  • Investments can be planned to make use of exemptions under PPF, Sukanya Samriddhi, etc.
  • Retirement planning can benefit from exempt gratuity, pension, and VRS payments.
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