As the saying goes “Good Things comes in small packages”, exemptions are those small packages which can make your life less taxing barring the fact that you know about those exemptions. Income Tax under section 10, provides a long list of exemptions especially for the salaried employees to reduce the burden of taxing such as House Rent allowances, Children Education Allowance, Hostel Allowance, Gratuity, Leave Travel Allowances and goes on…
There are certain types of incomes which are fully exempt from Income tax as per section 10.
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:
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.
Any sum received under a life insurance policy is fully exempt in the following cases:
Any payment received on statutory provident fund related to employer’s contribution, interest, amount received on termination will be exempted.
Interest incomes which are exempt under section 10(15) could be explained with the help of the following table:
|10(15)(i)||Interest, premium on redemption, or other payment on notified securities, bonds, certificates, and deposits, etc. (subject to notified conditions and limits)||All assesses|
|10(15)(iib)||Interest on notified Capital Investment Bonds notified prior to 1-6-2002||Individual/HUF|
|10(15)(iic)||Interest on notified Relief Bonds||Individual/HUF|
|10(15)(iid)||Interest on notified bonds (notified prior to 1-6-2002) purchased in foreign exchange (subject to certain conditions)||Individual – NRI/ nominee or survivor of NRI / individual to whom bonds have been gifted by NRI|
|10(15)(iii)||Interest on securities||Issue Department of Central Bank of Ceylon|
|10(15)(iiia)||Interest on deposits made with scheduled bank with approval of RBI||Bank incorporated
|10(15)(iiib)||Interest payable to Nordic Investment Bank||Nordic Investment Bank|
|10(15)(iiic)||10(15)(iiic) Interest payable to the European Investment Bank on loan granted by it in pursuance of framework agreement dated 25-11-1993 for financial corporation between Central Government and that bank||European Investment bank|
|10(15)(iv)(a)||Interest received from Government or from local authority on moneys lent to it before 1-6-2001 or debts owed by it before 1-6-2001, from sources outside India||All assessees who have lent money, etc., from sources outside India|
|10(15)(iv)(b)||Interest received from industrial undertaking in India on moneys lent to it under a loan agreement entered into before 1-6-2001||Approved foreign financial institution|
|10(15)(iv)(c)||Interest at approved rate received from Indian industrial undertaking on moneys lent or debt incurred before 1-6-2001 in a foreign country in respect of purchase outside India of raw materials, components or capital plant and machinery, subject to certain limits and conditions||All assessees who have lent such money, or in favour of whom such debt has been incurred|
|10(15)(iv)(d)||Interest received at approved rate from specified financial institutions in India on moneys lent from sources outside India before 1-6-2001||All assessees who have lent such moneys|
|10(15)(iv)(e)||Interest received at approved rate from other Indian financial institutions or banks on moneys lent for specified purposes from sources outside India before 1-6-2001 under approved loan agreement||All assessees who have lent such moneys|
|10(15)(iv)(f)||Interest received at approved rate from Indian industrial undertaking on moneys lent in foreign currency from sources outside India under loan agreement approved before 1-6-2001||All assessees who have lent such moneys|
|10(15)(iv)(fa)||Interest payable by scheduled bank, on deposits in foreign currency when acceptance of such deposits by bank is approved by RBI||Non-resident or individual/HUF who is not ordinarily resident in India|
|10(15)( iv)(g)||Interest received at approved rate, from Indian public companies eligible for deduction under section 36(1)(viii) and formed with main object of providing long-term housing finance, on moneys lent in foreign currency from sources outside India under loan agreement approved before 1-6-2003||All assessees who have lent such moneys|
|10(15)( iv)(h)||Interest received from any public sector company in respect of notified bonds or debentures and subject to certain conditions||All assesses|
|10(15)( iv)(i)||Interest received from Government on deposits in notified scheme out of moneys due on account of retirement||Individual –Employee of Central Government/ State Government/Public sector company|
|10(15)(v)||Interest on securities held in Reserve Bank’s SGL A/c No. 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||Welfare Commissioner, Bhopal Gas Victims, Bhopal|
|10(15)(vi)||Interest on Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015||All assesses|
|10(15)(vii)||10(15)(vii) Interest on notified bonds issued by a local authority/State Pooled Finance Entity||All assesses|
|10(15)(viii)||Interest on deposit made on or after 1-4-2005 in an Offshore Banking Unit referred to in section 2(u) of the Special Economic Zones Act, 2005||Non-resident or person who is not ordinarily resident|
Individual who has received any of the gallantry awards stated below will have to pay no taxes on their pension:
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).
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.
The following income of a local authority is exempt from tax:
Any income of Khadi and Village Industries Boards is exempt from tax under section 10(23BB).
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.
Any income of SAARC fund for Regional Projects is exempt from tax under section 10(23BBC).
Any income of Secretariat of Asian Organisation of Supreme Audit Institutions is exempt from tax for the assessment years 2001-02 to 2010-11.
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.
No exemption is available under section 10(23BBF) from the assessment year 2010-11.
Income of Central Electricity Regulatory Commission is exempt from tax from the assessment year 2008-09.
Any income of the Prasar Bharati (Broadcasting Corporation of India) established under section 3(1) of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 is exempt from tax.
[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)
Income of the Swachh Bharat Kosh, set up by the Central Government is exempt under section 10(23C)(iiiaa).
Income of the Clear Ganga Fund, set up by the Central Government is exempt under section 10(23C)(iiiaaa).
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.
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).
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.
Any income arising on buyback of shares by the company as referred to in section 115QA will be exempt from tax.
All the below following are exempt:
Any income of following mutual funds (subject to provisions of sections 115R to 115T) is exempt from tax:
Any person who is an investor of securitization trust receives any income from such a trust, by way of distributed income shall be exempt.
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.
Any income chargeable under the head “Capital Gain” arising from the transfer of agriculture land shall be exempt.
When the transfer of securities are not chargeable to tax to any individual then long-term capital arises, following conditions should be satisfied:
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;
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;
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.
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.
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.
Any income received by any person for, or on behalf of the New Pension System Trust established on 27th February, 2008 shall be exempted.
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.
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.
Any income of the National Financial Holdings Company, being a company set up by the Central Government, shall be exempt.
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:
An allowance granted to a person by his employer to meet expenditure incurred on payment of rent in respect of residential accommodation occupied by him is exempt from tax to the extent of least of the following :
Note: If the rent is more then 100,000/- individual need to compulsory submit PAN of the landlord under Circular No. 08 /2013 dated 10th October 2013.
*Salary – Basic + DA (if part of retirement benefit) + Turnover based Commission
This allowance is first included in gross salary under allowances and then deduction is allowed .In the case of government employees ,least of the following is exempt:
For a government employee, leave encashment upon retirement or leaving the job is tax free under Section 10. For a non-government employee, it is exempt up to least of the following:
A pension fund created by company for his employee’s benefit paid after retirement or withdrawal with approval of commissioner of income tax.
Exempted up to 1, 50,000 and entire accumulated interest is also exempt.
As per section 10(14), read with rule 2BB following allowances granted to an employee are exempt from tax subject to certain limit:
|Allowance Name||Exemption limit|
|Children Education Allowance||Up to Rs. 100 per month per child up to a maximum of 2 children is exempt|
|Children Hostel Allowance||Up to Rs. 300 per month per child up to a maximum of 2 children is exempt|
|Transport Allowance granted to an employee or (who is a blind and handicap) meet expenditure on commuting between place of residence and place of duty||Rs. 1600/- p.m.
Rs. 3200/- p.m. (for handicapped)
|Any Allowance granted to an employee working in any transport system to meet his personal expenditure||Rs. 10,000/- p.m.
70% of allowance
(whichever is lower)
|Tribal area allowance in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa||Rs. 200/- p.m.|
|Underground Allowance||Rs. 800/- p.m.|
|Compensatory Field Area Allowance||Rs. 2,600/- p.m.|
|Compensatory Modified Field Area Allowance||Rs. 1,000/- p.m.|
|Counter-insurgency allowance to members of armed forces||Rs. 4200 /-p.m.|
|Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office||Exempt to the extent of expenditure incurred for official purposes|
|Travelling Allowance to meet the cost of travel on tour or on transfer||Exempt to the extent of expenditure incurred for official purposes|
|Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty||Exempt to the extent of expenditure incurred for official purposes|
|Helper/Assistant Allowance||Exempt to the extent of expenditure incurred for official purposes|
|Research Allowance granted for encouraging the academic research and other professional pursuits||Exempt to the extent of expenditure incurred for official purposes|
|Uniform allowance||Exempt to the extent of expenditure incurred for official purposes|
|Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations)||Amount exempt from tax varies from Rs. 300 to Rs. 7,000 per month.|
|Border area, Remote Locality or Disturbed Area or Difficult Area Allowance (Subject to certain conditions and locations)||Amount exempt from tax varies from Rs. 200 to Rs. 1,300 per month.|
|High Altitude Allowance granted to armed forces operating in high altitude areas||a) Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet)
b) Up to Rs. 1,600 per month (for altitude above 15,000 feet)
|Island Duty Allowance granted to members of armed forces in Andaman and Nicobar and Lakshadweep group of Island||Up to Rs. 3,250 per month|
Any amount received against recognized provident fund by way of:
The amount received by Government employee (i.e., Central Government or State Government or local authority) for Death-cum-retirement is fully exempt.
Gratuity income received by employees who are covered under Payment of Gratuity Act, 1972 is exempt from Income tax.
Least of the below is exempt:
Excess of amount received over the least of the above shall be taxable.
As per section 10(10B), compensation received at the time of retrenchment is exempt from tax to the extent of lower of the following:
Allowances generally mean any sum of money given to a person to meet his/her needs or expenses. These allowances are given to employees to meet some of the particular requirements like house rent, expenses on uniform conveyance, here is a list of some fully taxable allowance:
These are given to compensate for the high cost of living in a particularly big city of India or any other capital city. These are also fully taxable.
Medical expenses paid to the employees irrespective of whether they submit the bills to substantiate the expenditure or not are fully taxable
Any amount received for lunch or dinner refreshment is fully taxable.
servant provided at employee’s resident would be fully taxable
Any allowance provided by employer to employees to meet project expenses are taxable.
Employee working beyond working hours and receives the amount for the same will be taxable.
Cash given for telephone allowance, holiday allowance, it is fully taxable.
1. If the employer reimburses all household expenses and children’s education. Would these be considered as income?
Answer: Yes, entire reimbursement will consider as income as perquisite.
2. Is arrears of salary taxable?
Answer: Yes, it is taxable but the benefit is spread over the years and relief u/s 89 is also available.
3. Is mobile allowance taxable?
Answer: Yes, it is fully taxable.
4. If extra allowance is given for the duty /overtime, is it taxable?
Answer: Yes, extra income or overtime duty will be taxable.
5. If there are two children and the second child is twin child whether Children education allowance will be eligible for all three children?
Answer: Yes, as they are twin children born at the same time all the three would be eligible.
6. Are coupons received on Tiffin, Lunch, Dinner taxable?
Answer: No, coupons are received for the same is not taxable up to certain limit.
As rightly said, ‘don’t let the grass grow under your feet’, the faster you understand all the exemptions the earlier you can claim without wasting your time. So learn about all the exemptions available to you today and file your taxes making life less taxing with the help of your personal tax experts at H&R Block India.