Exempted income introduction, Exempted income U/S 10

There are some incomes which do not form part of total income and thus, are also called as income exempt from tax. Such exempted incomes are given under section 10 of the Income-tax Act, 1961.

Some of those incomes are explained below:

Agricultural income [Sec. 10(1)]:

Agricultural income in India is totally exempt from tax. However, such income is to be aggregated in case of certain assessees for the purpose of determining rate of tax on non-agricultural income.

Receipts by a member from a HUF [Sec. 10(2)]:

Any sum received by an individual as a member of a Hindu Undivided Family either out of income of the family or out of income of estate belonging to the family is exempt from tax.

Share of profit received by a partner from a firm [Sec. 10(2A)]:

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

Interest on Non-resident (External) Account [Sec. 10(4)]:

In the case of an individual who is not resident in India, any income by way of interest on money standing to his credit in a Non-resident (External) account in any bank in India shall be exempt from tax if certain conditions are satisfied.

Remuneration to persons who are not citizens of India [Sec. 10(6)]:

In case of an individual who is not a citizen of India, the following income shall be exempt from tax:

• Remuneration received by diplomats, etc.
• Remuneration received by a foreign national as an employee of a foreign enterprise.
• Non-resident employed on a foreign ship.
• Remuneration of employee of foreign Government during his training in India.

Allowance or perquisites outside India [Sec. 10(7)]:

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.

Payments under Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 [Sec. 10(10BB)]:

Any payments made, under the above Act or any scheme made thereunder, shall be exempt from tax in the hands of the recipient.

Exemption for compensation received or receivable on account of any disaster [Sec. 10(10BC)]:

Any amount received or receivable from the Central Government or a State Government or a local authority by an individual or his legal heir by way of compensation on account of any disaster shall be exempt from tax.

However, the exemption is not allowable in respect of amount received or receivable to the extent such individual or his legal heir has been allowed a deduction under the Income-tax Act on account of any loss or damage caused by such disaster.

Tax on non-monetary perquisites paid by employer [Sec. 10(10CC)]:

The tax actually paid by the employer on a perquisite provided to the employee [other than the perquisite provided by way of monetary payment within the meaning of section 17(2)] shall be exempt from tax in the hands of the employee.

Provident Fund [Sec. 10(11)]:

Any payment from a provident fund to which the Provident Fund Act, 1925 applies or from Public Provident Fund set up by the Central Government shall be exempt from tax.  

Educational scholarships [Sec. 10(16)]:

Scholarships granted to meet the cost of education are exempt from tax. In order to avail the exemption, it is not necessary that scholarship should be financed by the Government.

Daily allowances of Members of Parliament [Sec. 10(17)]:

The following incomes shall be exempt from tax in the hands of the persons specified:

• Daily allowance received by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof;
• Any allowance received by any person by reason of his membership of Parliament under the Members of Parliament (Constituency Allowance) Rules, 1986;
• Any constituency allowance received by any person by reason of his membership of any State Legislature under any Act or Rules made by that State Legislature.

Pension received by certain awardees/ any member of their family [Sec. 10(18)]:

Any income by way of pension/ family pension received by an individual or any member of his family shall be exempt from tax if such individual has been in the service of Central/ State Government and has been awarded Param Vir Chakra or Maha Vir Chakra or Vir Chakra or such other gallantry award as may be notified.

Exemption of the family pension received by the family members of armed forces (including para-military forces) personnel killed in action in certain circumstances [Sec. 10(19)]:

Where the death of a member of the armed forces (including para-military forces) of the Union 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.

Annual value of one palace of the ex-ruler [Sec. 10(19A)]:

The ‘annual value’ in respect of any one palace which is in occupation of an ex-ruler is exempt from tax, provided such annual value was exempt before 28.12.1971 by virtue of any law or order then prevailing.

Income of minor clubbed in the hands of a parent [Sec. 10(32)]:

Under section 64(1A), the income of a minor child is includible in the total income of the parent under the circumstances mentioned 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 of ` 1,500 in respect of each minor child, whose income is so includible. In other words, the exemption shall be allowed to the extent of the income of each minor child included or ` 1,500 per child, whichever is less.

Capital gain on transfer of units of US-64 exempt if transfer takes place on or after 1-4-2002 [Sec. 10(33)]:

Any income arising from the transfer of a capital asset, being a unit of the Unit Scheme, 1964 where the transfer of such asset takes place on or after 1-4-2002, shall be exempt from tax.

Dividend to be exempt in the hands of the shareholders [Sec. 10(34)]:

Any dividend declared, paid or distributed by a domestic company shall be liable to dividend distribution tax @ 15% plus surcharge @ 10% plus education cess @ 2% plus secondary and higher education cess @ 1% of the amount so declared, distributed or paid. Hence, such dividend received by the shareholders shall be exempt from tax in their hands.

Income from units to be exempt in the hands of the unit-holders [Sec. 10(35)]:

Like dividends, income received on units of UTI (now known as specified undertaking and specified company) and Mutual Funds covered under section 10(23D) shall be exempt from tax in the hands of the unit-holders.

Exemption of long-term capital gain arising from sale of shares and units [Sec. 10(38)]:

Any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund shall be exempt from tax provided:

• Such equity shares are sold through recognized stock exchange, whereas units of an equity oriented fund may either be sold through the recognized stock exchange or may be sold to the mutual fund.
• Such transaction is chargeable to securities transaction tax.

Exemption of amount received by an individual as loan under reverse mortgage scheme [Sec. 10(43)]:

Any amount received by an individual as a loan, either in lump sum or in installment, in a transaction of reverse mortgage referred to in section 47(xvi) shall be exempt from tax.