Section 10 of Income Tax Act outlines various incomes that are exempt from tax. These exemptions include agricultural income, specific allowances, and certain investments, aiming to provide relief and incentives for taxpayers. This section is crucial for understanding the types of income that do not contribute to a taxpayer’s taxable income.
Key Exemptions Under Section 10 of Income Tax Act
Exemptions under Section 10 There are indeed some exceptions under Part IA of section 10 of the Canadian Income Tax Act as specified below
1. Agricultural Income (Section 10(1))
Thus, the income from agriculture is exempt from tax under section 10(1) of the Income Tax Code. This includes any rent or revenue except for agricultural income obtained from land situated in India, used for agricultural purposes, and income from such land by agriculture, or turning agricultural produce into saleable form.
2. Provident Fund (10(11) & 10(12))
Funds shall be received by the assesses along with the interest from the fund accumulated during the previous year.
The Act provides for the exclusion of the balance standing to the credit of an employee from the accumulated balance received from a recognized provident fund or a statutory provident fund. It also excludes from the definition of ‘payment’ any payment to the National Pension System (NPS) about an employee’s services in the course of or in connection with an employment relationship as referred to under specified circumstances.
3. Gratuity (Section 10(10))
The amount received under this section by employees is tax-free and the limit is also provided herein below which can be received by the employee or his heirs in case of his death. For government employees, the entire amount is tax-free for them while for others; it is another story, it has been taxed with certain conditions and limitations.
4. Leave Encashment (Section 10(10AA))
Monetary value paid to an employee in the form of leave encashment at the time of retirement does not lead to computation of tax. In regard to employees under the government, the full amount is not taxed while for other employees it undergoes some form of limitations.
5. Scholarships (Section 10(16))
There are many provisions that are present for a long and one such ultimate provision now provides relief to students – Any scholarship granted to meet the cost of education of the student is otherwise wholly exempted from tax.
6. As mentioned in section 10(17A)
There is a clear distinction between awards and rewards The two terms refer to two different types of compensation that are given to employees or provided by employers.
Literary, scientific, or artistic work or for eminence in any branch of literature, science, or art, which the government has recognized by instituting an award or the government has approved, is specifically allowed exemption from tax.
7. This exclusion is also valid under section 10(32)
The Indian Income Tax Act allows minor children’s income to be governed by their assessment.
It is allowable under Section 64(1A) where the income of the minor child is amalgamated with the income of the parent, the first ₹ 1500 towards the maintenance of each child every year is tax exempted.
8. Certain Allowances (Section 10(14))
Pre-allowances or additional conveniences accorded to help cater for certain costs incurred in the Line of Duty are excluded. Some of them are allowable expenses like the travel allowance, the allowance for the purchase of uniforms as well as the academic research allowance.
9. Dividends from Domestic Companies (Section 10(34))
Dividends received from domestic companies are tax-free up to a certain amount. This exemption is beneficial for domestic companies as it promotes investment in them.
10. Income from Mutual Funds (Section 10(35))
Dividend income in respect of units of mutual funds is tax-free, encouraging investment in mutual funds.
Conditions and Limits
However, Section 10 provides many exemptions, and most of them are limited by certain conditions and restrictions. For instance, the exemption on gratuity for non-government employees is allowed up to ₹20 lakhs only. Likewise, the exemption for leave encashment for non-government employees is allowed up to ₹3 lakhs only.
Conclusion
Section 10 of the Income Tax Act, 1961 is a detailed section that lists out various incomes that are exempt from tax and thus offers a great relief to the taxpayers. It includes agricultural income and provident fund withdrawals, specific allowances, and scholarships, among others. These are some of the exemptions that taxpayers need to know about and the conditions that come with them to manage their taxes well and reduce their tax burden. Knowledge of these exemptions can help save a lot of money in taxes and improve the overall financial situation.
Section 10 of Income Tax Act (FAQ)
Section 10 of the Income Tax Act, of 1961, specifies various types of income that are exempt from taxation in India. These exemptions help reduce the taxable income and, consequently, the tax liability of the taxpayer.
Yes, scholarships granted to meet the cost of education are fully exempt from tax under Section 10(16).
Gratuity received by employees on retirement or by their heirs is exempt under Section 10(10). For government employees, the entire amount is exempt, while for non-government employees, the exemption is subject to a maximum limit of ₹20 lakhs.
Yes, the accumulated balance received from a recognized provident fund or a statutory provident fund is exempt from tax under Sections 10(11) and 10(12). Additionally, certain payments from the National Pension System (NPS) are also exempt.
Incomes of a minor child that are clubbed with the income of the parent under Section 64(1A) are exempt up to ₹1,500 per child per year under Section 10(32).
