income tax exemption

7/29/2019 INCOME TAX EXEMPTION

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INCOME EXEMPT FROM TAX


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Section 10 contains numerous clauses subject toamendments, exempting various kinds ofincome from inclusion for purposes of tax.These exemptions stem from social, economic,

political, international and other considerationsand the contents and scope of the exemptionschange from time to time.


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Section 10 : Any income of any persons fallingwithin any of the clauses of section 10 shall notbe included in the total income.

Broadly, Section 10 provides exemptions tovarious categories of persons and to varioustypes of income such as :


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a) certain incomes of non-residents and non-

citizens (Remuneration or fees, interest onnotified securities)

b) certain incomes of salaried employees(pension, gratuity, HRA, LTC, VRS etc.)

c) income from certain specific securities, bonds,certificates etc. (such as Govt. Relief Bonds,PPF Interest)

d) Income of certain type of notified bodies,funds and institution


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e) Subsidies to promote businessf) Certain income for social, political reasons

(such as agricultural income)

g) Avoidence of Double Taxation (Share ofprofit from partnership firm & amt.received from HUF)


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Agricultural Income is exempt fromtax if it comes within the definitionof agriculturalincome as given inSection 2(1A)


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Subject to the provisions of 64(2), any sumreceived by an individual as a member of a

HUF, where such sum has been paid out ofthe income of the family, or, in the case of anyimpartible estate, where such sum has beenpaid out of the income of the estate belonging

to the family.


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In the case of a person being apartner of a firm which is separatelyassessed as such, his share in thetotal income of the firm. (upto A.Y.92-93 it is taxable)


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Any sum received on life insurance policies (includingbonus) is exempt.

Exclusions :a. any sum received u/s. 80DD(3)

b. any sum received under a Keyman Insurance Policyc. any sum received under an insurance policy (issuedafter 31.03.2003) in respect of which the premiumpaid in any year during the term of policy, exceeds20% of the actual sum assured

However, sum received under such policy on thedeath of a person shall continue to be exemptActual sum assured does not include anypremiums agreed to be returned or any benefits byway of bonus


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In case the income of an individual includesthe income of his minor child in terms of

section 64(1A), such an individual shall beentitled to exemption of Rs. 1,500/- in respectof each minor child if the income of suchminor is includible under section 64(1A)

exceeds that amount.


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Any income arising from the transfer of acapital asset being a unit of US 64and where

the transfer of such assets takes place on orafter 1.04.2002, shall be exempt from tax. Thisexemption is applicable whether US 64 Unit islong term capital asset or short term capital

asset.


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Any income by way of dividends receivedfrom Domestic Company.

As per Section 2(22A), Domestic Companymeans an Indian Company, or any othercompany which, in respect of its incomeliable to tax under this Act, has made the

prescribed arrangements for thedeclaration and payment, within India, ofthe dividends (including dividends onpreference shares) payable out of such

income.


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a) Income received in respect of units of MutualFund specified under clause (23D); or

b) Income received in respect of units from theAdministrator of the specified undertaking; or

c) Income received in respect of units from thespecified company

It may please be noted that Transfer of theabovementioned Unites are not exempt under

this provision.


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Income from transfer of Agricultural Land isexempt if following conditions are fulfilled :

a. such land is situate in any area referred to initem (a) or item (b) of sub-clause (iii) of clause(14) of Section 2

(land within Municipality, cantonment boardhaving more than 10000 population, within 8 kmsfrom local limits or municipality are not covered)


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Section 10(37) : Contd.

such land, during the period of two yearsimmediately preceding the date of transfer, wasbeing used for agricultural purposes by such HUFor individual or a parent of his.

such transfer is by way of compulsory acquisitionunder any low or a transfer the consideration forwhich is determined or approved by the Central

Government or the Reserve Bank of India.

Such income has arisen form thecompensation or consideration for suchtransfer received by such assessee on or after

the 01.04.2004


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Long Term Capital Gains arising on transfer ofequity shares or units of equity orientedmutual fund is not chargeable to tax from theassessment year 2005-06 if such transaction iscovered by securities transaction tax.

Mutual Fund as defined u/s. 10(23D) i.e.Mutual fund registered under the SEBI Act,1992, Mutual fund set up by Public SectorBank, Public Financial Institution orAuthorised by the RBI and subject to suchconditions as the Central Govt. may bynotification in the Official Gazette, specify inthis behalf


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Gratuity exempt u/s. 10(10) are as under fordifferent class of employee :

(a) Government Employee Fully exempt

(b) Non Govt. Employee covered by the Paymentof Gratuity Act, 1970 :

(i) 15 days salary based on salary last drawnfor each year of service

(ii) Rs. 3,50,000(iii) Gratuity actually received

Least of the above three is exempt.


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Section 10(10) : Contd

(c) Non-Govt. employee and not covered bythe payment of Gratuity Act, 1970

(i) Rs. 3,50,000

(ii) Half months average salary foreach completed year of service

(iii) Gratuity actually received

Least of the above three is exempt.


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Amount received (Compensation) at the time ofvoluntary retirement or separation is exempt from taxif the following conditions are satisfied :

(a) Compensation is received at the time retirement or

termination.(b) Compensation is received by an employee of the

specified undertakings.

(c) Compensation is received in accordance with thescheme of voluntary retirement/separation which isframed in accordance with prescribed guidelines.

(d) Maximum amount of exemption is Rs. 5,00,000/-.


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The least of the following three is exempt from tax :

(a) An amount equal to 50% of salary whereresidential house is situated in Metro Cities and an

amount equal to 40% of salary where residentialhouse is situated at any other places.

(b) HRA received by the employee in respect of theperiod during which rental accommodation is

occupied by the employee during the previousyear.

(c) The excess of rent paid over 10% of salary

income tax exemption

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