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, lowering your overall tax burden. One of the most important provisions under the Income Tax Act, 1961, is Section 10, which provides several exemptions on specific income sources.
In this guide, you'll learn what Section 10 is, its key exemptions, eligibility criteria, and how to claim these benefits. Understanding these provisions can help you optimise your tax planning effectively.
Section 10 of the Income Tax Act, 1961, lists specific incomes that are completely exempt from taxation. In simple words, it explains which types of income are exempt from income tax. These exemptions may apply fully or partially, depending on the specific clause. Section 10 applies to both individuals and other entities like Hindu Undivided Families (HUFs), partnerships, and companies.
Section 10 is divided into many sub-sections, each dealing with specific types of income exempt from tax. Below are some of the most important and commonly claimed exemptions for salaried people:
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) |
Includes allowances like children's education, hostel expenditure, transport for disabled employees, etc., provided they are used for the intended purpose. |
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 amounts from Provident Fund (subject to contribution limits) and Sukanya Samriddhi Yojana accounts are tax-free. |
Life Insurance Maturity Amount |
10(10D) |
Maturity proceeds from life insurance policies are exempt, provided the premium does not exceed 10% of the sum assured (for policies issued after 1st April 2012). However, for policies issued after 1st April 2023, the exemption is not available if the total premium exceeds ₹5 Lakhs in a year (excluding ULIPs) |
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?
If the individual is younger than 60 years of age, then they can be exempted for up to Rs.2.50 lakhs and for senior citizens, the tax exemption limit is Rs.3 lakhs.
What is Section 10 (14) (ii)?
Under this section, employees are granted an allowance for working under certain conditions while on duty. The amount that is exempted is the money received as an allowance or the limit that is mentioned, whichever is lower.
Can the special allowance be more than the basic pay?
Yes, but only in certain circumstances. The norm is that the basic pay is usually higher than the special allowance.
What is the Income Tax Act's Section 10?
Section 10 of the IT Act has a list of exemptions available to taxpayers, both non-salaried and salaried individuals.
What are the exemptions under Section 10?
Section 10 exempts LTA, voluntary retirement scheme, gratuity, Pension, encashment of leave, and HRA.
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