 Exempted Income

under Income Tax Act

( Chapter III )
What is the difference between
“Exemptions” and “Deductions” ?
 The Incomes which are not included in the
Total Income while calculating tax liability is
called Exempted Income.
 On the other hand, when certain amount is
deducted by any provision of I.T. Act from the
Gross Total Income or respective gross
income under any of five heads of income, It
is called Deduction.
SECTION 10(1)
AGRICULTURAL INCOME [ Sec 2(1A)]
IS EXEMPTED FROM BEING TAXED
…..THE REASON BEING THAT
CONSTITUTION GIVES EXCLUSIVE
POWER TO THE STATE
LEGISLATURE TO MAKE LAWS WITH
RESPECT TO TAXES ON THE
AGRICULTURAL INCOME
SECTION 2(1A) SUGGESTS THAT
“ AGRICULTURAL INCOME” MEANS

(a) RENT OR REVENUE DERIVED

FROM LAND WHICH IS SITUATED IN
INDIA AND IS USED FOR
AGRICULTURAL PURPOSES
[ Sec 2(1A)(a)]
SECTION 2(1A) SUGGESTS THAT
“ AGRICULTURAL INCOME” MEANS
(b) ANY INCOME DERIVED FROM
SUCH LAND BY AGRICULTURAL
OPERATIONS INCLUDING
PROCESSING OF THE
AGRICULTURAL PRODUCE , RAISED
OR RECEIVED AS RENT –IN-KIND SO
AS TO RENDER IT FIT FOR THE
MARKET, OR SALE OF SUCH
PRODUCE [SEC 2(1A)(b)
SECTION 2(1A) SUGGESTS THAT
“ AGRICULTURAL INCOME” MEANS

(C) INCOME ATTRIBUTABLE TO A FIRM

HOUSE WHICH IS USED AS A DWELLING
HOUSE, STORE HOUSE OR OTHER OUT
BUILDING AND SITUATED ON OR IN THE
IMMEDIATE VICINITY OF THE LAND
WHICH IS ASSESSED TO LAND REVENUE
OR A LOCAL RATE , OR SITUATED IN A
RURAL AREA
[ SEC 2(1A)(C) ]
 RURAL AREA - DEFINED

2 Km from the local limits of If population is more than

the municipality or 10000 and less than 100000
cantonment board
6 Km from the local limits of the If population is more than
municipality or cantonment 100000 and less than 1000000
board

8 Km from the local limits of the If population is more than

municipality or cantonment 1000000
board

Distance to be measured aerially

Population means that according to the last census

 INCOME BY PARTS
RULE 7, 7A, 7B & 8
PRODUCTS NON- AGRI
AGRICULTUR CULTURAL
AL INCOME INCOME
RUBBER 35% 65%
TEA 40% 60%
COFFEE 25% 75%
(UNPROCESSED)
COFFEE (PROCESSED) 40% 60%

ANY OTHER REST MARKET

PRODUCT VALUE OF
RAW
 SCHEME FOR TREATMENT OF
AGRICULTURAL INCOME
TYPE OF INCOME HEAD OF INCOME
CONSIDERED

RENT OR REVENUE OTHER SOURCES

DERIVED FROM LAND

OTHER AGRICULTURAL BUSINESS AND

OPERATIONS PROFESSION

FIRM HOUSE HOUSE PROPERTY

 AGRICULTURAL INCOME IS CONSIDERED
FOR RATE PURPOSE -

EX : FOR THE A.Y. 2023-24 , THE NET

AGRICULTURAL INCOME OF AN ASSESSEE IS
Rs 786000 AND THE NON-AGRICULTURAL
INCOME IS Rs 490000. FIND THE TAX IF THE
TAX PAYER IS (a) INDIVIDUAL (46)
A) INCOME TAX ON Rs 1276000# = 195300
B)INCOME TAX ON Rs 1036000* =
123300
C) (A) – (B) =
72000
NET TAX =
72000
LESS : REBATE =
12500
BALANCE =
59500
CESS = 2380
TAX PAYABLE =
 FIND OUT THE TAX OF Mr. X FOR A.Y.
2023-24 IF -
1.HIS AGRICULTURAL INCOME IS Rs
800000 AND NON-AGRICULTURAL
INCOME IS Rs 400000.
2.HIS AGRICULTURAL INCOME IS Rs
400000 AND NON-AGRICULTURAL
INCOME IS Rs 800000.

WHAT WOULD HAVE BEEN THE TAX

HAD THE AGRICULTURAL INCOME NOT
BEEN CONSIDERED FOR RATE PURPOSE
THIS SCHEME OF PARTIAL
INTEGRATION IS APPLICABLE WHEN
THE ASSESSEE IS
(i)INDIVIDUAL, HUF, AOP, BOI OR
AJP
(ii)AGRICULTURAL INCOME IS MORE
THAN Rs 5000
(iii)NON-AGRICULTURAL INCOME IS
MORE THAN BASIC EXEMPTION
LIMIT
 SECTION 10(2) :

Any sum received by the member of a

HUF out of income of the family, is
exempt from tax since such income is
taxed in the hands of HUF.
SECTION 10(2A) – SHARE OF PROFIT

It is exempt in the hands of the partners

as it is already taxed in the hand of the
Firm
INCOME OF NON-RESIDENTS FROM
INTEREST [SECTION 10(4)] :

The incomes of non-residents by way of

interest of notified Govt. securities or
bonds is exempted.

The incomes of an individual residing

outside India [according to FEMA] by
way of interest in a Non-resident
(External) Account in any bank in India
under FERA, 1973 is exempted.
SECTION 10 (5) : L.T.C. FROM
CURRENT OR FORMER EMPLOYER.
The Leave Travel Concession is
exempted income conditionally. The
conditions are as follows -
Maximum of 2 children

2 journeys in 4 yr block

Shortest route
SECTION 10 (5) : L.T.C. FROM
CURRENT OR FORMER EMPLOYER.

Least of actual exp & allowable limit

 Family : Spouse , dependent

Children , parents , brothers , sisters
 SECTION 10(10)
GRATUITY
Employees can be classified into 3 catagories
i) GOVT. EMPLOYEE
ii) Non- Govt. Employees covered under
payment of gratuity act 1972
iii) non-Govt. employees not covered under
payment of gratuity act 1972
TAX TREATMENT
Sec 10(10)(i) : Entire Amount is Exempt
 SECTION 10(10)(ii)
GRATUITY
Employee Covered by Payment of Gratuity Act 1972
Least of the following :-
a) 15 days salary # for each completed
year of service or part thereof in excess
of 6 months
b) Rs. 20,00,000 [ wef 28.03.2018 ]
c) Gratuity Received
( salary last drawn /26 x15 )
Salary = Basic + DA
 SECTION 10(10)(iii)
GRATUITY
OTHER EMPLOYEE
Least of the following :-
a) Half months avg. salary # for each
completed year of service
b) Rs.20,00,000 [ wef 28.03.2018 ]
c) Gratuity Received
Avg. salary means the average salary of 10
months immediately preceeding the month of
Retirement.
 SECTION 10(10A)
COMMUTATION OF PENSION
Govt. Employee – fully exempt

Gratuity beneficiary – 1/3 rd of

pension - exempt

Non beneficiary of gratuity - ½ of the

pension – exempt.
 SEC 10(10AA) :
Leave salary at the time of retirement

i) Govt. Employees – Any amt. is exempt.

ii) Non- Govt. Employees – The Least of : -
a) E.L. ( in ‘months’)* at credit X Avg. Salary
b) 10 x Avg. Salary
c) Rs 3,00,000*
d) Receivable Amount
* ‘month’ quantum not exceeding the ‘year of service’
quantum*
Avg. salary means the average salary of 10 months
immediately preceeding the date of Retirement.
Salary = Basic + DA [if foming part of salary] + Commission
at fixed %
SECTION 10(10B) :
COMPENSATION FOR
RETRENCHMENT
 LEAST OF THE FOLLOWING IS EXEMPT :

 a) AMOUNT CALCULATED UNDER

INDUSTRIAL DISPUTE ACT, 1947.
 b) 5,00,000
 c) AMOUNT RECEIVED
SECTION 10(10C) : COMPENASATION AT
THE TIME OF VOLUNTARY
RETIREMENT
 AN EXEMPTION UPTO Rs
5,00,000 IS AVAILABLE
FULFILLING CERTAIN
CONDITIONS
Tax on non-monetary perquisites paid by
employer
[Section 10(10CC)] :
 The tax paid by the employer
on behalf of employee on non
monetary perquisites is
exempted. Such tax paid by
the employer shall not be
treated as an allowable
expenditure in the hands of
the employer u/s 40.
SECTION 10(10D) : Amount received from
LIC
 Any sum received from LIC on Insurance
Policy (including bonus) is exempt under
this section except :
 i) Any sum received u/s 80DD
 ii) Any sum received under Keyman
Insurance Policy
 iii) Any sum recd. where premium paid in
any year exceeds 20%(10% for policies after
1.4.12) of sum assured. (Not applicable if
amount recd. on death)
 SECTION 10(11) : Receipts from
Statutory Provident fund and Public
Provident
 Interest on contribution fund
up to 2.5 L is exempted if there
is any contribution of the employer
 Interest on contribution up to 5 L is exempted if there is no
contribution from the employer
 SECTION 10(11A) : Receipts from
Sukanya Samriddhi Account
 Entire amount is exempt
 SECTION 10(12) : Receipts from
Recognized Provident fund
 Interest on contribution up to 2.5 L is exempted if there
is any contribution of the employer
 Interest on contribution up to 5 L is exempted if there is no
contribution from the employer
SECTION 10(12A) : Receipts from NPS
 any payment from the National
Pension System Trust to an assessee
on closure of his account or on his
opting out of the pension scheme
referred to in section 80CCD, to the
extent it does not exceed sixty per cent
of the total amount payable to him at
the time of such closure or his opting
out of the scheme
SECTION 10(12B) : Receipts from NPS
 An amount equal to 25% of the partial
withdrawal as per PFRDA guideline
 S.P.F. ( GPF & P.P.F R.P.F U.P.F
CPF)
EMPLOYEE’S NOT AN NOT AN NOT AN INCOME NOT AN
CONTRIBUTION INCOME INCOME INCOME

EMPLOYER’S NOT TREATED NOT EXCESS OF 12 % OF NOT TREATED

CONTRIBUTION AS INCOME RELEVANT SALARY* IS INCOME AS INCOME
THAT YEAR* *PAY+GP+DA*+COM* THAT YEAR

INTEREST AS AS EXCESS OF NOTIFIED NOT TREATED

CREDITED DISCUSSED IN DISCUSSED RATE IS AS INCOME
SECTION IN SECTION SALARY( NOW 9.5%) / THAT YEAR
10(11) 10(11) ALONG WITH
SECTION10(12)
LUMP SUM EXEMPT EXEMPT CONDITIONALLY OWN CONT –
PAYMENT AT EXEMPT EXEMPT
RETIREMENT INT ON
EMPLOYEE’S
CONT – OTHER
SOURCE
REST - SALARY
 PLEASE SAY TRUE OR FALSE :

1. TO HAVE BEEN CONSIDERED AS

AGRICULTURAL INCOME THE LAND MUST BE
IN RURAL AREA
FALSE

2. LAND MUST BE WITHIN INDIA TO GET THE

EXEMPTION U/S SEC 10(1)
TRUE
 PLEASE SAY TRUE OR FALSE :

3. SELLING FLOWER RAISED IN THE PERSONAL

GARDEN MAY BE AGRICULTURAL INCOME
TRUE*

4. AGRICULTURAL INCOME IS ONE HEAD OF

INCOME
FALSE
PLEASE SAY TRUE OR FALSE :

1. UNCOMMUTED PENSION IS WHOLELY

TAXABLE
TRUE

2. LEAVE ENCASHMENT AFTER RETIREMENT IS

EXEMPT FOR A NON GOVT. EMPLOYEE UPTO
THE MAX OF Rs 300000*
TRUE
PLEASE SAY TRUE OR FALSE :

3. EXEMPTION U/S 10(5) CAN BE CLAIMED FOR A

MAXIMUM OF 2 CHILDREN
TRUE*

4. LUMPSUM PAYMENT FROM PF IS TAXABLE

ONLY IF IT IS DERIVED FROM AN RPF
FALSE
 H.R.A.

Exemption u/s 10(13A)

Least of the following ---

i)HRA actually received

ii)50% (for Del , Kol , Mum & Chen)

OR

40% (for others) of Salary*

iii) Rent actually paid – 10% of Salary*

Salary* = Basic + DA (forming part of Salary) + Commission at fixed %

 SECTION 10(14) : SPECIAL
ALLOWANCE
 i) AMOUNT RECEIVED OR
ACTUAL EXP. WHICHEVER IS
LOWER :
 TRAVELLING ALL., DAILY ALL.,
CONVEYANCE ALL., ACADEMIC
ALL.,HELPER ALL., UNIFORM
ALLOWANCE
 ii) WITH LIMIT : CHILDREN
EDUCATION ALL. 100/- PER
CHILD UPTO 2, HOSTEL-300,
SECTION 10(16) : Scholarship Granted
to meet the cost of education
 The entire amount is exempt from tax

SECTION 10(17) : Daily Allowance &

Constituency allowance of MP / MLA

 The entire amount is exempt from tax

SECTION 10(17A) :
AWARD/REWARD
 Any amount received as reward from Govt.
or any other body approved by Govt. for
literary, scientific or artistic works or works
towards alleviating the distress of the poor,
the weak and the ailing or proficiency in
games and sports Or any gallantry award is
exempt.
 Pension to gallantry award winners
[Section 10(18)]:
 If pensioner is an employee of Central or
State Government & has been awarded
Param Vir Chakra or Maha Vir Chakra or
Vir Chakra or any other notified gallantry
award then that pension is exempted from
tax. Such family pension is also exempted.
 Family Pension to armed personnel
died during operation [Sec.10(19)]
 Family pension received by the
widow or children or nominated heirs,
as the case may be, of a member of the
armed forces (including paramilitary
forces) of the Union, where the death
of such member has occurred in the
course of operational duties,, is exempt
from Income Tax.
 SECTION 10(19A) : Notional property
income from any one palace occupied by
a former ruler

 The entire amount is exempt from tax

Income of Local Authority Sec
10(20)
 Following Income of Local Authority is
exempt :
 1. Income from H.P.
 2. Income from Capital Gain
 3. Income from other source
 4. Income from trade or business arises from
supply of
 i) water/electricity within or outside it’s
jurisdiction
 ii) any other service within it’s own
jurisdiction
SECTION 10(20A) : Income of Housing
Boards constituted in India for planning,
development or improvement of cities
towns and villages
 The entire amount is exempt from tax

SECTION 10(21) : Income of an

approved research association
 The entire amount is exempt from tax
 SECTION 10(23AAA) : Income of
funds established for the welfare of
employees
 The entire amount is exempt from tax

SECTION 10(23AAB) : Income of

Pension funds set up by LIC or any other
insurer approved by Controller of
Insurance or IRDA
 The entire amount is exempt from tax
 SECTION 10(23C) : Income of
Charitable Hospitals, Educational and
other institutions along with specified
National funds
 The entire amount is exempt from tax

SECTION 10(23D) : Income of a mutual

fund set up by SEBI act 1992, public
sector bank or public financial
institutions
 The entire amount is exempt from tax
 SECTION 10(24) : Income of Trade Unions
under the Head “income from House
Property” and “ Income from Other-Sources”
SECTION 10(26) : If the taxpayer is an ST and
resides in any area in Nagaland, Manipur,
Tripura, Mizoram and Arunachal Pradesh or
districts of North Cachar Hills, Mikir hills, Khasi,
Jayantia and Garo hills, Ladakh region of J & K,
then
1.Any income accruing there
2.Dividend or Interest on securities from
anywhere – is exempt
 Income of a Sikkimese : Sec
10(26AAA)
 If the taxpayer is a Sikkimese Individual
and his income accrues from any source in
the state of Sikkim and dividend / interest
income in any place (may be outside the
state also) is totally exempt from tax under
this section.
 However if a Sikkimese woman marries a
non – Sikkimese, the exemption will not be
available.
SECTION 10(32) : INCOME OF MINOR
 An amount of Rs 1500 per head is to be
exempted.
 SECTION 10(39) : Income of any
approved international sporting event
notified for the purpose

 The entire amount is exempt from tax

Section 13A : Political Parties
 Following income of a political party is
exempt fulfilling requisite conditions :
 A) Income from H.P
 B) Income from other source
 C) Income by way of voluntary contribution
 D) Income from Capital Gain
Section 13A : Political Parties
 Conditions :
 Books of A/Cs to be maintained
 Record of each contribution should be kept if
> Rs 20,000
 No donation over Rs 2000 through A/c payee
cheque or draft
 Audit by C.A., report to E.C. for the F.Y.
 Must file return of income