Section-10 INCOME EXEMPT FROM TAX By C.A. Jaydeep Mehta

Introduction  Chapter III of the Income-tax Act, 1961 deals with the Incomes which do not form part of total income.  This Chapter covers sections 10 to 13A

Introduction  Section 10 contains numerous clauses subject to amendments, exempting various kinds of income from inclusion for purposes of tax. These exemptions stem from social, economic, political, international and other considerations and the contents and scope of the exemptions change from time to time.

Introduction  Section 10 : Any income of any persons falling within any of the clauses of section 10 shall not be included in the total income.  Broadly, Section 10 provides exemptions to various categories of persons and to various types of income such as :

Introduction a)certain incomes of non-residents and non- citizens (Remuneration or fees, interest on notified securities) b)certain incomes of salaried employees (pension, gratuity, HRA, LTC, VRS etc.) c)income from certain specific securities, bonds, certificates etc. (such as Govt. Relief Bonds, PPF Interest) d)Income of certain type of notified bodies, funds and institution

Introduction e)Subsidies to promote business f)Certain income for social, political reasons (such as agricultural income) g)Avoidence of Double Taxation (Share of profit from partnership firm & amt. received from HUF)

Section-10(1)  Agricultural Income is exempt from tax if it comes within the definition of “agricultural income” as given in Section 2(1A)

Section 10(2) Any Sum Received from HUF  Subject to the provisions of 64(2), any sum received by an individual as a member of a HUF, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family.

Section 10(2A) Share of Profit from the Partnership Firm  In the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. (upto A.Y it is taxable)

Section 10(10D) Amount paid on Life Insurance Policies  Any sum received on life insurance policies (including bonus) is exempt.  Exclusions : a.any sum received u/s. 80DD(3) b.any sum received under a Keyman Insurance Policy c.any sum received under an insurance policy (issued after ) in respect of which the premium paid in any year during the term of policy, exceeds 20% of the actual sum assured However, sum received under such policy on the death of a person shall continue to be exempt Actual sum assured does not include any premiums agreed to be returned or any benefits by way of bonus

Section 10(32) Income of Minor  In case the income of an individual includes the income of his minor child in terms of section 64(1A), such an individual shall be entitled to exemption of Rs. 1,500/- in respect of each minor child if the income of such minor is includible under section 64(1A) exceeds that amount.

Section 10(33) Capital Gain on Transfer of US 64  Any income arising from the transfer of a capital asset being a unit of US 64and where the transfer of such assets takes place on or after , shall be exempt from tax. This exemption is applicable whether US 64 Unit is long term capital asset or short term capital asset.

Section 10(34) Income from Dividends referred in Sec. 115-O  Any income by way of dividends received from Domestic Company. As per Section 2(22A), Domestic Company means an Indian Company, or any other company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income.

Section 10(35) Income from Units a)Income received in respect of units of Mutual Fund specified under clause (23D); or b)Income received in respect of units from the Administrator of the specified undertaking; or c)Income received in respect of units from the specified company It may please be noted that Transfer of the abovementioned Unites are not exempt under this provision.

Section 10(37) Income from transfer of Agricultural Land  Income from transfer of Agricultural Land is exempt if following conditions are fulfilled : a.such land is situate in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of Section 2 (land within Municipality, cantonment board having more than population, within 8 kms from local limits or municipality are not covered)

Section 10(37) : Contd….  such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such HUF or individual or a parent of his.  such transfer is by way of compulsory acquisition under any low or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India.  Such income has arisen form the compensation or consideration for such transfer received by such assessee on or after the

Section 10(38) LTCG on transfer of equity shares/units chargeable to STT  Long Term Capital Gains arising on transfer of equity shares or units of equity oriented mutual fund is not chargeable to tax from the assessment year if such transaction is covered by securities transaction tax. Mutual Fund as defined u/s. 10(23D) i.e. Mutual fund registered under the SEBI Act, 1992, Mutual fund set up by Public Sector Bank, Public Financial Institution or Authorised by the RBI and subject to such conditions as the Central Govt. may by notification in the Official Gazette, specify in this behalf

Section 10(10) Gratuity Gratuity exempt u/s. 10(10) are as under for different class of employee : (a)Government Employee – Fully exempt (b)Non Govt. Employee covered by the Payment of Gratuity Act, 1970 : (i) 15 day’s salary based on salary last drawn for each year of service (ii) Rs. 3,50,000 (iii) Gratuity actually received Least of the above three is exempt.

Section 10(10) : Contd… (c) Non-Govt. employee and not covered by the payment of Gratuity Act, 1970 (i) Rs. 3,50,000 (ii) Half month’s average salary for each completed year of service (iii) Gratuity actually received Least of the above three is exempt.

Section 10(10C) Amount received at the time of VRS Amount received (Compensation) at the time of voluntary retirement or separation is exempt from tax if the following conditions are satisfied : (a)Compensation is received at the time retirement or termination. (b)Compensation is received by an employee of the specified undertakings. (c)Compensation is received in accordance with the scheme of voluntary retirement/separation which is framed in accordance with prescribed guidelines. (d)Maximum amount of exemption is Rs. 5,00,000/-.

Section 10(13A) House Rent Allowance The least of the following three is exempt from tax : (a)An amount equal to 50% of salary where residential house is situated in Metro Cities and an amount equal to 40% of salary where residential house is situated at any other places. (b)HRA received by the employee in respect of the period during which rental accommodation is occupied by the employee during the previous year. (c)The excess of rent paid over 10% of salary