Understand the key exemptions available under Section 10 of the Income Tax Act. Know the key benefits for salaried individuals, and how they help reduce taxable income.
Tax exemptions can significantly reduce your taxable income, thereby lowering your overall tax burden. One of the essential provisions under the Income Tax Act, 1961, is Section 10, offering various exemptions applicable to specific income types. Understanding these benefits, including income tax exemption under section 10, helps optimise your tax planning efficiently.
Learn what income tax section 10 covers, its key exemptions, eligibility criteria, and how to claim these benefits. Accurate knowledge of these provisions empowers taxpayers to leverage the advantages effectively.
Section 10 of the Income Tax Act, 1961, explicitly lists income sources eligible for exemption under section 10, either fully or partially, depending on the clause's specific conditions. These exemptions significantly reduce taxable income, helping taxpayers lower their tax obligations legally. Section 10 provisions apply broadly, including individuals, Hindu Undivided Families (HUFs), partnerships, and companies, addressing diverse financial situations comprehensively.
Section 10 is divided into many sub-sections, each dealing with specific types of income exempt from tax. Below is a clear section 10 exemption list for salaried employees, highlighting the most common exemptions:
Exemption |
Section |
Description |
House Rent Allowance (HRA) |
10(13A) |
Exemption for rent paid, subject to conditions. |
Leave Travel Allowance (LTA) |
10(5) |
Exemption for travel expenses within India, limited to two journeys in a block of four years. |
Special Allowances |
10(14) |
Covers allowances like children's education, hostel expenditure, transport allowance for disabled employees, and uniform allowance exemption under section 10, when utilised for the intended purposes. |
Gratuity |
10(10) |
Exemption on gratuity received upon retirement, subject to specified limits. |
Commuted Pension |
10(10A) |
Exemption on lump-sum pension received, with conditions varying for government and non-government employees. |
Leave Encashment |
10(10AA) |
Exemption on leave encashment received at the time of retirement, subject to specified limits. |
Voluntary Retirement Compensation |
10(10C) |
Exemption up to ₹5 Lakhs for compensation received under a voluntary retirement scheme, provided certain conditions are met. |
Investment-related Exemptions
Exemption |
Section |
Description |
Provident Fund Interest & Sukanya Samriddhi Account |
10(11) |
Interest and maturity proceeds from Provident Funds, including PPF interest exempt under section 10 11, and interest on Sukanya Samriddhi Yojana exempt under section 10 11a, are tax-free, provided contribution limits are respected.. |
Life Insurance Maturity Amount |
10(10D) |
Life insurance maturity proceeds are tax-free, provided premiums don't exceed 10% of the sum assured (for policies issued after April 1, 2012). Note: Policies issued after April 1, 2023, lose exemption if annual premium payments exceed ₹5 Lakhs (excluding ULIPs). Additionally, Provident Fund withdrawals after 5 continuous years of service are exempt under section 10 12 of income tax act. |
To claim exemptions under Section 10, follow these steps:
1.Maintain Proper Records
Collect all supporting documents such as Form 16, rent receipts, travel tickets, investment proofs, etc.
2.Choose the Correct Tax Regime
Note that many of these exemptions are available only under the old tax regime. Under the new regime (Section 115 BAC), most exemptions are not allowed.
3.Disclose Correctly in the ITR
While filing your Income Tax Return (ITR), report these details under ‘Exempt Income’ in the relevant section.
4.Submit Proofs if Required
Submit proofs for LTA, HRA, and allowances to your employer to get the benefit in TDS calculations.
5.Keep a Copy of All Documents
You may need them in case of scrutiny or assessment by the tax department.
Frequently Asked Questions (FAQs)
What is the maximum that can be claimed under Section 10?
Individuals below 60 years can claim exemptions up to ₹2.50 Lakhs annually, while senior citizens (aged 60 and above) have an exemption threshold of ₹3 Lakhs.
What is Section 10 (14) (ii)?
Sec 10 14 ii of Income Tax Act allows exemptions for allowances provided to employees performing duties under specific conditions. The exemption is limited to either the actual allowance received or the prescribed limit, whichever is lower.
Can the special allowance exceed basic pay?
Yes, though typically basic pay is higher than special allowances. Exceptions exist under certain circumstances.
What is the Income Tax Act's Section 10?
Section 10 of the Income Tax Act specifies various exemptions available to taxpayers, covering both salaried and non-salaried individuals.
What are the exemptions under Section 10?
The section 10 exemption list includes Leave Travel Allowance (LTA), voluntary retirement compensation, gratuity, pension, leave encashment, and House Rent Allowance (HRA).
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