Section 10 of the Income Tax Act

Section 10 of the Income Tax Act provides valuable tax exemptions, including those for children's tuition fees, travel and rent allowances, gratuity, and various other benefits, all aimed at easing taxpayers' financial burden and encouraging savings.
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Exemption under Section 10
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3 min
19-November-2024

Section 10 of the Income Tax Act offers tax rebates and exemptions to salaried professionals. Some common exemptions provided under this section are tuition fees for children's education, travel allowance, rent allowance, and gratuity.

These exemptions help reduce your overall tax burden as you can exclude them while calculating your total income. One should be aware that Section 10 is divided into various sub-parts, such as Section 10(5), 10(13A), and 10(26). Each section offers distinct exemptions, which can be claimed after satisfying the specified conditions.

Let’s understand Section 10 of the Income Tax Act in detail, check out its various sub-parts, and learn how you can claim Section 10 exemptions on your taxes.

What is Section 10 of the Income Tax Act?

Section 10 of the Income Tax Act outlines various categories of income that are exempt from taxation, offering significant relief to salaried professionals. These exemptions help individuals lower their taxable income, ultimately reducing their overall tax liability. Some commonly claimed exemptions include House Rent Allowance (HRA), Leave Travel Allowance (LTA), and children's education. These provisions are designed to encourage spending on necessary personal and professional expenses while providing financial benefits to employees.

Additionally, Section 10 covers other forms of income such as agricultural income and certain retirement benefits, including gratuity, which further lessen the tax burden. By offering these exemptions, the Act aims to promote savings, investments, and responsible financial planning. For salaried professionals, these tax relief measures can result in a higher take-home salary, improving their financial well-being and allowing for better management of expenses. In this way, Section 10 serves as a tool to balance both personal and economic growth.

Also read about: What is a Hindu Undivided Family

Features of Section 10 of the IT Act, 1961

  • Total income calculation: The primary method for determining the total income of a salaried professional involves a comprehensive analysis of their tax liabilities.
  • Benefits for: Salaried professionals are eligible for tax deductions under Section 10(10D) of the Income Tax Act.
  • Tax exemptions allowed for: The purpose of Section 10 is to alleviate the tax burden on salaried professionals by providing exemptions for various allowances and benefits, including rent allowances, child education tuition fees, travel allowances, gratuities, and others.

Individuals receiving allowances exemption

Individuals receiving allowances exemption under the Income Tax Act are typically salaried employees who benefit from specific tax-free allowances. These exemptions are designed to reduce taxable income by excluding certain types of allowances, such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), and allowances for children's education. These exemptions apply when the allowances are utilised for their intended purposes, such as rent payments or travel expenses. By claiming these exemptions, individuals can lower their tax liability, increase their take-home pay, and enjoy greater financial flexibility while complying with tax regulations.

Also read about: What is direct tax code

Who can claim tax exemptions under Section 10?

The following table outlines the maximum tax exemption limits under Section 10 of the Income Tax Act, 1961, based on the age of the individual:,

Age group

Maximum tax exemption

Below 60 years

Rs. 2.5 lakhs per fiscal year

60 - 80 years

Rs. 3 lakhs per fiscal year

Above 80 years

Rs. 5 lakhs per fiscal year


Note: The higher tax exemptions of Rs. 3 lakhs and Rs. 5 lakhs are applicable to Indian residents only.

What are exemptions under Section 10?

Section 10 of the Income Tax Act has been divided into various sub-sections, with each offering distinct exemptions to salaried professionals. Let’s study these sub-sections in detail:

Section 10(13A) of the Income Tax Act

This sub-section deals with House Rent Allowance (HRA). It provides an exemption on the part of your salary that you receive to cover house rent and accommodation expenses.

The exemption allowed is the least of the following amounts:

  • Actual HRA received
  • 50% of [basic salary + dearness allowance (DA)] for those living in metro cities (Delhi, Mumbai, Chennai, Kolkata), or 40% for those living in other cities
  • Actual rent paid minus 10% of [basic salary + DA]

Under Section 10(13A), the following expenses related to rental accommodation are covered for HRA exemption:

  • Rent paid for the residential accommodation.
  • Brokerage or commission paid to a real estate agent.
  • Maintenance charges for the rented accommodation, such as society fees.
  • Lease agreement costs for preparing and registering the lease agreement.

To understand this section better, let’s study a hypothetical example:

Say an employee is living in Mumbai (a metro city) and:

  • Earns a basic salary of Rs. 50,000 per month
  • Receives HRA of Rs. 25,000 per month
  • Pays rent of Rs. 20,000 per month

Now, let’s calculate the various limits:

  • Actual HRA received
    • Rs. 25,000 per month x 12 months
    • Rs. 3,00,000 per year
  • 50% of basic salary + DA
    • 50% of (50,000 x 12)
    • Rs. 3,00,000 per year
  • Actual rent paid minus 10% of basic salary:
    • Rent paid:
      • Rs. 20,000 per month = Rs. 2,40,000 per year
    • 10% of basic salary + DA:
      • 10% of (50,000 x 12) = Rs. 60,000
    • Actual rent paid minus 10% of basic salary + DA:
      • Rs. 2,40,000 - Rs. 60,000 = Rs. 1,80,000 per year

The exempt amount of HRA is the least of the three conditions:

  1. Rs. 3,00,000 (Actual HRA received)
  2. Rs. 3,00,000 (50% of basic salary + DA)
  3. Rs. 1,80,000 (Actual rent paid minus 10% of basic salary + DA)

So, the exempt amount of HRA is Rs. 1,80,000. This means out of Rs. 3,00,000 (total HRA received):

  • Rs. 1,80,000 will be exempt under section 10(13A)
    and
  • Rs. 1,20,000 will be charged as tax

Section 10(5) of the Income Tax Act

This section offers the leave travel allowance (LTA) exemption, which applies to individual taxpayers. This exemption is specifically for the expenses incurred on domestic travel, such as:

  • Airfare
  • Train fare, or
  • Bus fare

Some key points of Section 10(5):

  • The LTA exemption only applies to travel expenses within India.
  • The following expenses are not covered by the exemption:
    • Local transportation at the destination
    • Sightseeing
    • Hotel stays
    • Food
  • The exemption is limited to the LTA amount provided by your employer in your Cost to Company (CTC).

For more clarity, let's look at an example to understand how the LTA exemption works.

  • Say your employer provided you with an LTA of Rs. 30,000.
  • On the other hand, you spend only Rs. 20,000 on airfare, train, or bus fare.
  • Now, only the actual amount spent on travel (Rs. 20,000) will be exempt from tax.
  • The remaining Rs. 10,000 (LTA provided Rs. 30,000 - Actual travel expenses Rs. 20,000) will be included in your taxable income.

Also read about: What is dearness allowance

Section 10(26) of the Income Tax Act

Section 10(26) of the Income Tax Act provides tax exemptions for members of Scheduled Tribes (ST) residing in:

  • Tripura
  • Nagaland
  • Mizoram
  • Manipur
  • Arunachal Pradesh

The exemption applies to income earned from “any source” within these states. It also includes income earned through dividends or interest on securities.

Section 10(14)(i) of the Income Tax Act

This section provides tax exemptions for certain allowances given by an employer to cover expenses incurred in the course of performing your job. These allowances are exempt from tax as long as they are actually spent for the specified purposes.

Some common types of such as allowances are:

  • Travelling allowance: For expenses incurred on official travel
  • Conveyance allowance: For expenses incurred on daily commuting for official work.
  • Research allowance: For expenses related to research activities.

Section 10(11) of the Income Tax Act

This section offers tax exemptions on the interest earned from a provident fund. Therefore, any interest accumulated in your provident fund upon retirement or resignation is not subject to taxation.

However, starting from 1st April 2021, if your contributions to the provident fund exceed Rs. 2,50,000 in any previous year, the interest earned on the excess amount will not be exempt from tax.

Also read about: What is an inheritance tax

Section 10(34) of the Income Tax Act

This section provides an exemption for dividends you receive from investments in Indian companies. The exemption is limited to Rs. 10,000. If you receive dividends exceeding this amount, the excess will be subject to tax.

However, it must be noted that this exemption applies only to dividends received until 31st March 2020.

Section 10(26AAA) of the Income Tax Act

Section 10(26AAA) of the Income Tax Act provides tax exemptions for Sikkimese individuals. This exemption applies to:

  • Income earned from any source within the state of Sikkim.
  • Income earned through dividends.
  • Interest earned on securities.

Section 10(38) of the Income Tax Act

Section 10(38) of the Income Tax Act exempts long-term capital gains (LTCG) arising from the sale of:

However, this exemption is available only when the sale transaction includes payment of the Securities Transaction Tax (STT). Also, please note that this exemption applies only to long-term capital gains earned up to 31st March 2018.

Section 10(23C) of the Income Tax Act

Under this section, educational or medical institutions with total annual receipts not exceeding Rs. 5 crore are exempt from income tax. This exemption applies only if they meet the specified income threshold, which allows them to avoid paying taxes on their earnings.

Section 10(37) of the Income Tax Act

Under this section, you gain exemptions on capital gains resulting from the compulsory acquisition of urban agricultural land. However, to claim the exemptions, the following conditions must be met:

  • The land must be urban agricultural land, meaning
  • The land is used for agricultural purposes
    and
  • Located in an urban area
  • The land should have been used for agricultural purposes for at least two years before its sale date.
  • The acquisition of the land must be under a scheme approved by the Central Government or the Reserve Bank of India (RBI).

Now, if these conditions are met, any capital gains arising from the compulsory acquisition of such urban agricultural land are exempt from income tax.

Section 10(10A) of the Income Tax Act

Section 10(10A) of the Income Tax Act provides exemptions to government employees. It states that any amount received by way of accumulated pensions by a government employee is exempt from income tax.

Section 10(10D) of the Income Tax Act

Section 10(10D) of the Income Tax Act exempts any income received from a life insurance policy, such as:

  • Maturity proceeds
    or
  • Bonuses

However, this exemption will not be available if:

  • Life insurance policy is taken for a specially-abled dependent family member
  • It is a Keyman Insurance policy
  • The premium paid in any year exceeds 10% of the sum assured

Section 10(35) of the Income Tax Act

Section 10(35) of the Income Tax Act provides exemptions for income earned from the sale of specified mutual fund units. However, it must be noted that this exemption applied only to income earned until 31st March 2020.

Section 10(10) of the Income Tax Act

Section 10(10) of the Income Tax Act deals with the taxation of gratuity received by employees. For government employees, the entire gratuity is exempt from tax. However, the exemption is allowed for private sector employees subject to certain conditions.

Internet allowance exemption under Section 10

Under Section 10(14) of the Income Tax Act, the Internet allowance provided by your employer is exempt from tax.

Food allowance exemption under Section 10

Section 10(14) provides a tax exemption of up to Rs. 26,400 per year for food allowances provided by your employer. This exemption assumes two meals a day provided by the employer and considers 22 working days in a month.

How do I claim Section 10 exemptions on my taxes?

To claim exemptions under Section 10 of the Income Tax Act when filing your taxes, the first step is to understand which specific exemptions apply to your income based on your sources and circumstances. Section 10 includes a variety of exemptions, such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), and other allowances, which are available to reduce taxable income. It is essential to identify these exemptions before filing your Income Tax Return (ITR).

When filling out your ITR, ensure that you disclose all sources of income, including those eligible for exemptions under Section 10. Clearly mention the income sources that qualify for exemptions and the corresponding amount applicable to each. Additionally, it’s vital to maintain proper documentation to support your exemption claims. These documents may include salary slips, expense vouchers, investment proofs, Form 16, and certificates from your employer, which validate the allowances and deductions claimed.

Next, calculate your taxable income after deducting the exempted amounts under Section 10. Choose the correct ITR form according to your income sources and the exemptions claimed, and ensure all details are filled out accurately. Finally, submit your ITR within the deadline set by the Income Tax Department to avoid penalties and ensure compliance with tax laws.

Also read about: Difference Between Income Tax Act and Direct Tax Code

Is leave encashment exempted from income tax?

For those unaware, leave encashment refers to the compensation received by employees for their accumulated unused leaves at the time of resignation or retirement. Now, coming to income tax laws, as per Section 10(10AA), this amount is not taxable when received for government employees (State or Central).

However, for private sector employees, leave encashment is considered part of their 'Income from Salary' and is, therefore, taxable. However, a few exemptions are available in Section 10(10AA) to provide some relief. The exempted amount is deducted from the total leave encashment received, and only the remaining amount is subject to income tax based on the employee's applicable income tax slabs.

Common exemptions under Section 10 of the Income Tax Act

1. House Rent Allowance (HRA): Section 10(13A) provides a tax exemption for HRA received by salaried individuals. The exempted amount is calculated as the least of:

  • Actual HRA received.
  • 50% of [Basic Salary + Dearness Allowance] for metro cities, or 40% for non-metro cities.
  • Rent paid minus 10% of [Basic Salary + Dearness Allowance].

Example: An employee in Mumbai earns a basic salary of Rs. 40,000 per month, receives HRA of Rs. 20,000, and pays rent of Rs. 15,000. The exempted HRA would be Rs. 1,32,000.

2. Leave Travel Allowance (LTA): Section 10(5) offers an exemption for LTA used for domestic travel. The exemption is subject to certain limits and requires proof of travel.

3. Gratuity: Section 10(10) provides an exemption for gratuity received upon retirement or resignation. The exempt amount is the least of:

  • Actual gratuity received.
  • 15 days' salary for each completed year of service.
  • Rs. 20 lakhs for government employees, or Rs. 10 lakhs for non-government employees.

4. Provident fund interest: Section 10(11) exempts interest earned on provident fund contributions up to Rs. 2,50,000 annually. Excess interest is taxable.

5. Agricultural income: Section 10(1) exempts agricultural income derived from land situated in India.

6. Pension income: Section 10(10A) exempts commuted pension income, subject to certain limits.

Special individuals receiving allowances exempt

Special individuals receiving allowances exemption under the Income Tax Act refer to specific categories of employees or professionals who benefit from tax-free allowances due to their unique circumstances. These individuals often include government employees, teachers, and those working in remote or challenging locations, where additional allowances are provided to support their living conditions or work requirements.

For instance, government employees may receive allowances such as Hardship Allowance, which compensates for the difficulties associated with working in remote areas. Similarly, teachers may be eligible for allowances like Uniform Allowance or Education Allowance for their children, which are exempt from taxation. These exemptions are aimed at providing financial relief and encouraging individuals to maintain a standard of living despite the challenges they face in their professions.

Additionally, certain professions that require significant travel or relocation may receive exemptions on allowances such as Leave Travel Allowance (LTA) or reimbursement of travel expenses. By providing these tax exemptions, the government acknowledges the additional financial burden faced by these individuals and aims to improve their overall financial well-being. Ultimately, these allowances not only reduce taxable income but also support the workforce in managing their expenses more effectively, thereby fostering a more productive and motivated workforce.

Eligibility criteria for exemptions and allowances

These exemptions and allowances are primarily applicable to salaried employees. However, certain professionals and business owners may also qualify under specific conditions.

Documents required

To claim exemptions, individuals typically need:

  • Salary slips.
  • Proof of expenses (e.g., bills, receipts).
  • Form 16.
  • Supporting documents as required.

Important points to remember

  • Limits and caps: Each exemption has specific limits or conditions.
  • Common mistakes: Avoid incomplete documentation, incorrect claims, and missing deadlines.

By understanding these exemptions and adhering to the guidelines, individuals can effectively reduce their taxable income.

Is it Section 10 exemptions applicable to all Indian taxpayers?

No, Section 10 exemptions do not apply to all Indian taxpayers. Although Section 10 provides several exemptions from income tax, these are applicable only to specific types of income or under certain conditions. For example, exemptions may apply to house rent allowance, leave travel allowance, agricultural income, or certain retirement benefits. The eligibility for these exemptions depends on factors like the nature of the income, the taxpayer's employment status, and other individual circumstances.

Conclusion

Section 10 of the Income Tax Act offers various exemptions to salaried professionals that reduce their taxable income and, consequently, their tax burden. These exemptions commonly include House Rent Allowance (HRA), Leave Travel Allowance (LTA), children's education expenses, interest on provident fund contributions, dividends, and more.

Each exemption is governed by specific sub-sections, such as 10(13A) for HRA, 10(5) for LTA, and 10(11) for provident fund interest. By understanding these exemptions and how to claim them, you can significantly improve your financial well-being by increasing your take-home pay.

Also, maintain proper documentation to support your claims and accurately disclose all relevant information when filing your income tax return. This will help you effectively take advantage of the tax benefits provided under Section 10 and ensure compliance with tax laws.

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Frequently asked questions

What is section 10 of income tax?

Offers tax exemptions such as tuition fees for children's education, travel allowance, rent allowance, gratuity, and more to reduce the tax burden. The total amount of tax liability for salaried professionals is analysed to calculate total income.

What are the exemptions or deductions under Section 10 in the new tax regime?

The following deductions are available under the new tax regime:

  • Leave Encashment u/s 10(10AA)
  • Gratuity u/s 10(10)
  • Transport allowances to people with disabilities
  • Exemptions for Voluntary Retirement Scheme u/s 10(10C)
How to calculate exemption under section 10?

Section 10(13A) provides exemptions related to HRA. The eligible amount available as the exemption is the least of the following limits:

  • Actual HRA received
  • 40% (non-metro city) or 50% (metro city) of the salary
  • Actual rent paid is less than 10% of salary
What are the tax exemptions under Section 10?
Tax exemptions under Section 10 cover a range of allowances and benefits such as leave travel concession, gratuity, and pension income. These exemptions reduce the taxable portion of an individual's income, ultimately lowering the final tax burden.
How to calculate section 10?
To calculate eligible amounts under Section 10, you need to apply specific formulas or percentages defined for each exemption type. For example, the maximum HRA can be determined by percentages of basic salary and other specified conditions.
How does House Rent Allowance (HRA) exemption work under Section 10?

Section 10 provides a tax exemption for salaried individuals residing in rented accommodations. The exempt amount is determined by the least of the following:

  • Actual HRA received
  • Rent paid minus 10% of salary
  • 50% of salary in metro cities (40% in non-metro cities)

Provided the employee is paying rent, this exemption can be claimed.

What is Leave Travel Allowance (LTA) exemption?

LTA allows salaried employees to claim a tax exemption on travel expenses incurred for journeys within India. The exemption is applicable to airfare, rail fare, or bus fare for two journeys in a four-year block. However, expenses on accommodation and food are not covered under this exemption.

Can agricultural income be exempt from tax under Section 10?

Yes, agricultural income is exempt from tax under Section 10(1). However, if non-agricultural income exceeds Rs. 2.5 lakhs, agricultural income is considered for rate purposes in calculating the tax on the non-agricultural income.

What is the exemption limit for gratuity under Section 10?

Gratuity is exempt from tax up to Rs. 20 lakhs for government employees and Rs. 10 lakhs for non-government employees. The exempt amount is the least of the actual gratuity received, 15 days’ salary for each completed year, or the specified exemption limit.

What specific allowances are exempt under Section 10(14)?

Section 10(14) provides exemptions for allowances such as travel, conveyance, uniform, and helper allowances. These allowances are granted to employees for specific work-related purposes and are exempt to the extent of actual expenditure.

How can I claim exemptions under Section 10?

To claim exemptions under Section 10, employees must provide supporting documentation, such as rent receipts for HRA or travel tickets for LTA, to their employer. The exemptions are reflected in Form 16, which should be reviewed before filing tax returns.

Are children's education and hostel allowances exempt under Section 10?

Yes, children's education and hostel allowances are exempt under Section 10(14). Education allowance is exempt up to Rs. 100 per month per child for two children, and hostel allowance is exempt up to Rs. 300 per month per child for two children.

Who is eligible for exemptions under Section 10?

Exemptions under Section 10 generally apply to salaried employees. Specific allowances like HRA, LTA, and gratuity are targeted toward salaried individuals, while professionals and business owners may also benefit from certain exemptions like research allowances.

What are the conditions to claim exemptions for pension income?

Under Section 10(10A), pension income is partially exempt from tax. Government employees' commuted pension is fully exempt. For non-government employees, one-third of the commuted pension is exempt if gratuity is received, or half if not

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