Hello everyone!
Today, let’s delve into Section 10 of the Income Tax Act, which provides various exemptions to help minimize your income tax burden.
What is Section 10 of the Income Tax Act?
Section 10 of the Income Tax Act, 1961 lists specific sources of income that are exempt from taxation. This section includes several exemptions, reducing your taxable income and ultimately your tax liability. If you need assistance, our ITR filing services can guide you through the process.
Exemptions Under Section 10:
Section 10(13A) – House Rent Allowance (HRA): HRA is provided to employees to cover house rent expenses. The exemption applies to the least of the following:
- Actual HRA received.
- 50% of the [basic salary + DA] for those in metro cities (Delhi, Mumbai, Chennai, Kolkata), or 40% for others.
- Actual rent paid minus 10% of [basic salary + DA]. Eligible expenses for HRA exemption include rent paid, brokerage, maintenance charges, and lease-related costs.
Section 10(5) – Leave Travel Allowance (LTA): LTA covers domestic travel expenses like airfare or train fare. It does not include transportation at the destination, sightseeing, or food. The exemption is limited to the actual LTA provided by the employer. Example: If your LTA is ₹30,000 but travel expenses are ₹20,000, only ₹20,000 is exempt.
Section 10(14)(i) – Business Expenses: This exemption applies to expenses incurred by the employer for business purposes, such as travel, conveyance, and research allowances, provided they are used for the intended purpose.
Section 10(11) – Provident Fund Interest: Interest earned from a provident fund upon retirement or resignation is exempt. However, interest on contributions exceeding ₹2,50,000 in any year is taxable as of April 1, 2021.
Section 10(34) – Dividend Income: Dividends from Indian companies are exempt up to ₹10,000. Any amount exceeding this is taxable. This exemption applies only to dividends received until March 31, 2020.
Section 10(26) – Scheduled Tribe Members: Members of Scheduled Tribes in specific Northeastern states (Nagaland, Tripura, Mizoram, Arunachal Pradesh, and Manipur) are exempt from tax on income earned in these regions, as well as dividends and interest on securities.
Section 10(26AAA) – Sikkimese Individuals: Sikkimese individuals are exempt from tax on income earned within Sikkim, as well as dividends and interest on securities.
Section 10(38) – Long-Term Capital Gains: Exemption applies to long-term capital gains from the sale of equity shares or mutual funds, provided Securities Transaction Tax (STT) is paid. This exemption is applicable only for gains earned until March 31, 2018.
Section 10(23C) – Educational and Medical Institutions: Educational or medical institutions with annual receipts not exceeding ₹5 crore are eligible for tax exemption.
Section 10(37) – Compulsory Acquisition of Urban Agricultural Land: Capital gains from the compulsory acquisition of urban agricultural land are exempt if the land was used for agricultural purposes for at least two years before the sale.
Section 10(10A) – Government Employee Pensions: Pensions received by government employees are exempt from tax.
Section 10(10D) – Life Insurance Income: Income from life insurance policies is exempt, except for policies on specially-abled dependents, key man insurance, or policies with premiums exceeding 10% of the sum assured.
Section 10(35) – Mutual Fund Units: Income from the sale of specific mutual fund units is exempt, but only for income earned until March 31, 2020.
Section 10(10) – Gratuity: Gratuity received by government employees is tax-exempt. For private sector employees, exemption depends on coverage under the Payment of Gratuity Act.
Internet Allowance: Internet allowance provided by the employer is exempt under Section 10(14).
Food Allowance: Under Section 10(14), food allowance up to ₹26,400 per year is exempt, assuming two meals a day and 22 working days per month.
How to Claim Section 10 Exemptions:
To claim these exemptions, file your income tax return and disclose the income and applicable exemptions.
Leave Encashment:
Leave encashment during employment is taxable. However, government employees are exempt from tax on leave encashment upon resignation or retirement, while private sector employees can avail exemptions under Section 10(10AA).
By understanding and utilizing these exemptions, you can significantly reduce your tax liability. For personalized assistance, it’s always a good idea to consult a tax expert before filing your claims.
Feel free to reach out for further guidance!
