Completely exempt income :-

In the Income Tax Act, there are certain allowance which are fully exempt from tax. They are :-

Section 10(1) – Agriculture Income

 As per section 10(1) exempt agricultural income from income tax. Agriculture income
means :-
- Any rent or revenue derived from land used for agricultural purposes or agricultural
produce to sell in the market.
- Any income from farm house subject to certain satisfactory conditions specified in section
2(1A) would be exempt.

Section 10(2) – Payment received from family income by a member of HUF

 As per section 10(2), amount received out of family income, or in case of impartible
estate, amount received out of income of family estate by any member of such HUF is
exempt from tax.
 Example-1. HUF earned 5, 00,000 during the previous year and paid tax on its income.
Mr A, a co-partner is an employee and earns a salary of ` 20,000 p.m. During the previous
year Mr A also received ` 1, 00,000 from HUF. Mr A will pay tax on his salary income but
any sum of money received from his HUF is not chargeable to tax in Mr A’s hands.
 Example-2. HUF earned ` 90,000 during the previous year 2016-17 and it is not
chargeable to tax. Mr A, a co-partner is earning individual income of Rs 20,000 p.m.
Besides his individual income, Mr A receives ` 30,000 from his HUF
 Mr A will pay tax on his individual income but any sum of money received by him from
his HUF is not chargeable to tax in the hands of co-parcener whether the HUF has paid tax
or not on that income.

Section 10(2a) – Share of profit from Partnership Firm

 As per section 10(2A), share of profit received by a partner from a firm is exempt from
tax in the hands of the partner.
 Further, share of profit received by a partner of LLP from the LLP will be exempt from
tax in the hands of such partner.
 This exemption is limited only to share of profit and does not apply to interest on capital
and remuneration received by the partner from the firm/LLP.

Section 10(4) of Income Tax Act – Certain Interest to Non-Residents

Any income earned by way of interest on certain notified securities or bonds (income by way of
premium on the redemption of such bonds) or NRE account in the hands of individual taxpayer,
is exempt from tax.
Section 10(4)(ii) – Interest to Non-Resident on Non-Resident (External) Account

 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 in case of an individual;
 Who is a person resident outside India or is a person who has been permitted by the RBI
to maintain the aforesaid account.
 The person residing outside India shall have the same meaning as defined under Foreign
Exchange Regulation Act, 1973, FEMA, 1999.
 This exemption shall not be available on any income by way of interest paid or credited
on or after 1-4-2005.

Section 10(6) – Remuneration received by an individual who is not a citizen of India

 Such individuals include ambassadors or other officials of the Embassy, High
Commission or Legation of a foreign State in India, Consulate Officer of a foreign State in
India and trade commissioner or other official representatives in India of a foreign State
 The remuneration received an employee of a foreign enterprise for services rendered in
India, provided:
(a) The foreign enterprise is not engaged in any trade or business in India;
(b) His stay in India does not exceed in the aggregate a period of 90 days in such previous
year; and
(c) Such remuneration is not liable to be deducted from the income of the employer
chargeable under this Act

Section 10(7) – Perquisites and Allowances paid by Government to its Employees serving
outside India

 All the perquisites and allowances paid by the Government to its employees for services
rendered outside India are exempt from tax.
 This exemption is allowed only to such employees of the Government who are citizens of
India.

Section 10(10CC)- Tax on Perquisites paid by employer

 Sometimes for non-monetary perquisites employer pay tax on behalf of employee in that
case the tax so paid by the employer is treated as exempt in the hands of the employee.

Section 10(10d) – LIC Tax Exemption

Any sum received under a life insurance policy is fully exempt in the following cases:
 If any sum received from insurance company on insurance of a dependent handicapped
member [under subsection (3) of section 80DD].
 If any sum received from insurance company when a dependent, or a member of family is
suffering from a notified disease [under subsection (3) of section 80DDA].
 Any sum received under a key man insurance policy.
 Any other policy (not being the case when sum received on the death of a person).
 Policy issued before April 1st, 2003 –Exemption available, nothing is chargeable to tax.
 Policy issued on or after April 1st, 2003 but before April 1st, 2012 – Exemption available
only when annual premium payable exceeds 20% of sum assured.
 Policy issued on or after 1st April 2012 – Exemption available only when annual
premium payable exceeds 10% of sum assured.
 Policy issued on or after April 1st, 2013 for a disabled person referred to in section 80U
or a person with disease or ailment specified in section 80DDB – Exemption available only
when annual premium payable exceeds 15% of sum assured.
 Any other policy (sum received on the death of a person) – exemption available, nothing
is chargeable to tax.

Section 10(11) of Income Tax Act – Payment from Statutory Provident Fund

Any payment received on statutory provident fund related to employer’s contribution, interest,
amount received on termination will be exempted.

Section 10(14) – Special allowances granted to an employee

In the Income tax Act, there are cetain allowances which are characterised as special allowances
and they are fully exempt from tax. Such allowances are listed below:
 Allowances granted to High Court Judges
 Allowance given to a UNO employee
 Sumptuary allowance received by Supreme Court and High Court judge
 Allowances granted to government employees who are Indian citizens, working abroad

 Section 10(15) – Interest income exempt from tax

Interest incomes which are exempt under section 10(15) could be explained with the help of the
following table:

Section Income Exemption to

10(15)(i) Interest, premium on All assesses

 redemption, or other payment
on notified securities, bonds,
certificates, and deposits, etc.
(subject to notified conditions
and limits)

Interest on notified Capital

10(15)(iib) Investment Bonds notified prior Individual/HUF
to 1-6-2002

Interest on notified Relief

10(15)(iic) Individual/HUF
Bonds

Interest on notified bonds Individual – NRI/ nominee or

(notified prior to 1-6-2002) survivor of NRI / individual to
10(15)(iid)
purchased in foreign exchange whom bonds have been gifted
(subject to certain conditions) by NRI

Issue Department of Central

10(15)(iii) Interest on securities
Bank of Ceylon

Interest on deposits made with Bank incorporated

10(15)(iiia) scheduled bank with approval
of RBI Abroad

Interest payable to Nordic

10(15)(iiib) Nordic Investment Bank
Investment Bank

10(15)(iiic) Interest payable to

the European Investment Bank
on loan granted by it in
pursuance of framework
10(15)(iiic) European Investment bank
agreement dated 25-11-1993
for financial corporation
between Central Government
and that bank

10(15)(iv)(a) Interest received from All assessees who have lent

 Government or from local
authority on moneys lent to it
money, etc., from sources
before 1-6-2001 or debts owed
outside India
by it before 1-6-2001, from
sources outside India

Interest received from

industrial undertaking in India
Approved foreign financial
10(15)(iv)(b) on moneys lent to it under a
institution
loan agreement entered into
before 1-6-2001

Interest at approved rate

received from Indian industrial
undertaking on moneys lent or
debt incurred before 1-6-2001
All assessees who have lent such
in a foreign country in respect
10(15)(iv)(c) money, or in favour of whom
of purchase outside India of
such debt has been incurred
raw materials, components or
capital plant and machinery,
subject to certain limits and
conditions

Interest received at approved

rate from specified financial
All assessees who have lent such
10(15)(iv)(d) institutions in India on moneys
moneys
lent from sources outside India
before 1-6-2001

Interest received at approved

rate from other Indian financial
institutions or banks on moneys
All assessees who have lent such
10(15)(iv)(e) lent for specified purposes from
moneys
sources outside India before 1-
6-2001 under approved loan
agreement

10(15)(iv)(f) Interest received at approved All assessees who have lent such
rate from Indian industrial moneys
undertaking on moneys lent in
 foreign currency from sources
outside India under loan
agreement approved before 1-
6-2001

Interest payable by scheduled

bank, on deposits in foreign Non-resident or individual/HUF
10(15)(iv)(fa) currency when acceptance of who is not ordinarily resident in
such deposits by bank is India
approved by RBI

Interest received at approved

rate, from Indian public
companies eligible for
deduction under section 36(1)
(viii) and formed with main
All assessees who have lent such
10(15)( iv)(g) object of providing long-term
moneys
housing finance, on moneys
lent in foreign currency from
sources outside India under
loan agreement approved
before 1-6-2003

Interest received from any

public sector company in
10(15)( iv)(h) respect of notified bonds or All assesses
debentures and subject to
certain conditions

Interest received from Individual –Employee of Central

Government on deposits in Government/ State
10(15)( iv)(i)
notified scheme out of moneys Government/Public sector
due on account of retirement company

10(15)(v) Interest on securities held in Welfare Commissioner, Bhopal

Reserve Bank’s SGL A/c No. Gas Victims, Bhopal
SL/DH-048 and Deposits made
after 31-3-1994 for benefit of
victims of Bhopal Gas Leak
Disaster held in such account
 with RBI or with notified
public sector bank

Interest on Gold Deposit Bonds

issued under the Gold Deposit
Scheme, 1999 or deposit
10(15)(vi) All assesses
certificates issued under the
Gold Monetisation Scheme,
2015

10(15)(vii) Interest on notified

bonds issued by a local
10(15)(vii) All assesses
authority/State Pooled Finance
Entity

Interest on deposit made on or

after 1-4-2005 in an Offshore
Non-resident or person who is
10(15)(viii) Banking Unit referred to in
not ordinarily resident
section 2(u) of the Special
Economic Zones Act, 2005

Section 10(16) – Stipend Scholarship

 Scholarship is free education to students. It covers the cost of education like tuition fees
and other related expenses.
 The scholarship may have been given by Govt., University, Board, Trust, etc. is exempt
to the fullest amount.

Section 10(18) of Income Tax Act – Pension received by certain winners of gallantry
awards

Individual who has received any of the gallantry awards stated below will have to pay no taxes
on their pension:
 service to Central or State Government
 awarded ‘ParamVir Chakra’ or ‘Mahavir Chakra’ or ‘Vir Chakra’ or such other notified
gallantry awards
Also, any amount received as a family pension by any member of the family of such an
individual will also qualify for exemption u/s 10(18).

Section 10(19) of Income Tax Act – Family pension received by family members of armed
forces including paramilitary forces

Family pension received by the widow or children or nominated heirs of a member of the armed
forces (including paramilitary forces) where the death of such member has occurred in the course
of operational duty is fully exempt. W.E.F 01/04/2005.

Section 10(19A) – Income from one palace of a former ruler

 Annual value of any one palace or a portion of a palace in the occupation of a former
ruler shall be exempted.
 But in case such palace or a portion of a palace is let out , its income shall not be
exempted.

Section 10(20) – Income of a local authority

The following income of a local authority is exempt from tax:

 Income which is chargeable under the head “Income from house property”, “Capital
gains” or “Income from other sources” or
 Income from a trade or business carried on by it which accrues or arises from the supply
of a commodity or service (not being water or electricity) within its own jurisdictional area
or
 Income from business of supply of water or electricity within or outside its own
jurisdictional area.

Section 10(23BB) – Income of Khadi and Village Industries Boards

Any income of Khadi and Village Industries Boards is exempt from tax under section 10(23BB).
Section 10(23BBB) – Income of European Economic Community

Any income of European Economic Community derived in India by way of interest, dividends or
capital gains, from investments made out of its funds under a notified scheme is exempt from
tax.

Section 10(23BBC) – Income of SAARC fund

Any income of SAARC fund for Regional Projects is exempt from tax under section 10(23BBC).

Section 10(23BBD) – Income of Secretariat of Asian Organisation of Supreme Audit

Institutions

Any income of Secretariat of Asian Organisation of Supreme Audit Institutions is exempt from
tax for the assessment years 2001-02 to 2010-11.

Section 10(23BBE) – Income of Insurance Regulatory and Development Authority

Any income of the Insurance Regulatory and Development Authority established under section
3(1) of the Insurance Regulatory and Development Authority Act, 1999 is exempt from tax.

Section 10(23BBF) – Income of North-Eastern Development Financial Corporation

Limited

No exemption is available under section 10(23BBF) from the assessment year 2010-11.

Section 10(23BBG) – Income of Central Electricity Regulatory Commission

Income of Central Electricity Regulatory Commission is exempt from tax from the assessment
year 2008-09.
Section 10(23BBH) – Income of the PrasarBharati

Any income of the PrasarBharati (Broadcasting Corporation of India) established under section
3(1) of the PrasarBharati (Broadcasting Corporation of India) Act, 1990 is exempt from tax.

Section 10(23C)(iiia) – Income of National Foundation for Communal Harmony

[As amended by Finance Act, 2018] Any income received by any person on behalf of the Prime
Minister’s National Relief Fund, the Prime Minister’s Fund (Promotion of Folk Art) or the Prime
Minister’s Aid to Students Fund is exempt from tax under clause (i), (ii) and (iii) of section
10(23C) respectively.

Any income of National Foundation for Communal Harmony is exempt from tax under section
10(23C)(iiia)

Section 10(23C)(iiiaa) – Income of Swachh Bharat Kosh

Income of the Swachh Bharat Kosh, set up by the Central Government is exempt under section
10(23C)(iiiaa).

Section 10(23C)(iiiaaa) – Income of Clear Ganga Fund

Income of the Clear Ganga Fund, set up by the Central Government is exempt under section
10(23C)(iiiaaa).

Section 10(23C)(iiiaaaa) – Income of Chief Minister’s Relief Fund or Lieutenant

Governor’s Relief Fund

As per section 10(23C)(iiiaaaa) (as inserted by the Finance Act, 2017 with retrospective effect
from the assessment year 1998-99),income  of the Chief Minister’s Relief Fund or the Lieutenant
Governor’s Relief Fund in respect of any state or union territory is exempt from tax.
Section 10(23C)(iiiab)/(iiiad)/(vi) – Income of Educational Institutions

Section 10(23C)(iiiab)

Income of any university or other educational institution existing solely for educational purposes
and not for purposes of profit, and which is wholly or substantially financed by the Government
would be exempt under section 10(23C)(iiiab).
Section 10(23C)(iiiad)

Income of any university or other educational institution existing only for educational purposes
and not for purposes of profit would be exempt under section 10(23C)(iiiad) if the aggregate
annual receipts of such university or educational institution do not exceed Rs. 1 Core.

Section 10(23D) – Tax free mutual funds

Any income of following mutual funds (subject to provisions of sections 115R to 115T) is
exempt from tax:
 A mutual fund registered under the Securities and Exchange Board of India Act or
regulation made thereunder.
 A mutual fund set-up by a public sector bank, or a public financial institution or
authorised by RBI (subject to conditions notified by the Central Government).

Section 10(23DA) – Exemption of income from securitization trust

Any person who is an investor of securitization trust receives any income from such a trust, by
way of distributed income shall be exempt.

Section 10 (34A) – Exemption of income to a shareholder on buyback of shares of unlisted

company

Any income arising on buyback of shares by the company as referred to in section 115QA will
be exempt from tax.
Section 10(35) – Income from units of UTI and other mutual funds

All the below following are exempt:

 Dividend income covered by section -115-O
 Income in respect of units of a mutual fund
 Income received by unit holder of UTI
 Income earned units of a specified company
Note:
1. Under section 115-O and section 115R, the person paying the dividends on share or
income on units will have to pay distribution tax on dividend/income distributed.
2. It should be noted that under this clause, Income on the transfer of units is not exempt.

Section 10(36) – Income from sale of shares in certain cases

The transfer of a long-term capital asset for arising any income, when a company purchases
eligible equity shares held for a period of 12 months or more shall be exempt.

Section 10(37) – Capital Gain on compulsory acquisition of urban Agricultural Land

Any income chargeable under the head “Capital Gain” arising from the transfer of agriculture
land shall be exempt.

Section 10(38) of income tax act – Long Term Capital Gain on transfer of shares and
securities covered under Security Transaction Tax (STT)

When the transfer of securities are not chargeable to tax to any individual then long-term capital
arises, following conditions should be satisfied:
 At the time of transfer, transactions must be liable to securities transactions tax.
 At the time of transfer of assets, it should be equity shares or a unit of a business trust or
units of an equity oriented mutual fund.
 Assets must be a long-term capital asset.
 Transfer must be taken place on or after October 1, 2004.
Section 10(39) – Income from international sporting event

Any specified income (which is from such international event and which is notified by the
Central Govt.) of specified persons from any international event held in India shall be fully
exempted if;
 Such event is approved by the international body regulating the international sport
relating to such event.
 It has participation by more than two countries; and
 is notified by the Central Govt. in this regard.

Section 10(40) – Income received as grant by a subsidiary company

Income of any subsidiary company by way of grant or otherwise received from its Indian holding
company which is engaged in the business of generation/ transmission/distribution of power is
exempt, only if;
 Such receipt is for settlement of dues in connection with reconstruction
 Or revival of an existing business of power generation.
The exemption is available if the reconstruction or revival is by way of transfer of business to the
Indian company notified under section 80 IA(4)(v)(a).

Under section 10(41), any capital gain arising in the above case is not chargeable to tax, if the
transfer has taken place before April 1, 2006.

Section 10(41) – Income from transfer of asset of an undertaking engaged in the business of
generation, transmission or distribution of power

Income from transfer of capital asset of an undertaking engaged in the business of generation,
transmission or distribution of power where such transfer takes place on or before 31.3.2006 and
transfer is made to the Indian company as notified u/s 801A.
Section 10(43) – Reverse mortgage

Any amount received by an individual as a loan, either in lump-sum or in instalment in a

transaction of reverse mortgage referred in clause (xvi) of Section 47 shall be exempted.

Section 10(44) – New Pension System Trust

Any income received by any person for, or on behalf of the New Pension System Trust
established on 27th February, 2008 shall be exempted.

Section 10 (45) – Exemption of Allowance or perquisite to chairman/member of UPSC

Any allowance or perquisite, as may be notified by the Central Government in the Official
Gazette, in this behalf, paid to the chairman or a retired chairman or any other member or retired
member of the Union Public Service Commission, shall be exempt.

Section 10(47) –  Exemption of Income of notified ‘Infrastructure debt fund’

It shall be exempt from income tax, when the fund is set up as per prescribed guidelines and the
notifications are issued by the government in this regard.

Section 10(49) – Exemption of income of National Financial Holdings Company

Any income of the National Financial Holdings Company, being a company set up by the
Central Government, shall be exempt.
Partially Exempt Incomes

This category includes allowances which are exempt up to certain limit specified in Income Tax
Rules. For certain allowances, exemption depends on amount of allowance spent for the purpose
for which it was received and for other allowances, there is a fixed limit of exemption. They are
as follows: