A) Agricultural Income [Section 10(1)]
As per section 10(1), agricultural income earned by the taxpayer in India is exempt from tax. Agricultural income is defined under section 2(1A) of the Income-tax Act. As per section 2(1A), agricultural income generally means:
- Any rent or revenue derived from land which is situated in India and is used for agricultural purposes.
- Any income derived from such land by agriculture operations including processing of agricultural produce so as to render it fit for the market or sale of such produce.
- Any income attributable to a farm house subject to satisfaction of certain conditions specified in this regard in section 2(1A).
Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
B) Amount received by a member of the HUF from the income of the HUF, or in case of impartible estate out of income of family estate [Section 10(2)]
As per section 10(2), amount received out of family income, or in case of impartible estate, amount received out of income of family estate by any member of such HUF is exempt from tax.
C) Share of profit received by a partner from the firm [Section 10(2A)]
As per section 10(2A), share of profit received by a partner from a firm is exempt from tax in the hands of the partner. Further, share of profit received by a partner of LLP from the LLP will be exempt from tax in the hands of such partner. This exemption is limited only to share of profit and does not apply to interest on capital and remuneration received by the partner from the firm/LLP
D) Certain interest to non-residents [Section 10(4)]
As per section 10(4)(i), in the case of a non-resident any income by way of interest on certain notified securities or bonds (including income by way of premium on the redemption of such bonds) is exempt from tax.
As per section 10(4)(ii), in the case of an individual, any income by way of interest on money standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999, and the rules made thereunder is exempt from tax.
Exemption under section 10(4)(ii) is available only if such individual is a person resident outside India as defined in clause (w) of section 2 of the Foreign Exchange Management Act, 1999 or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account.
E) Interest on notified savings certificates [Section 10(4B)]
As per section 10(4B), in the case of an individual, being a citizen of India or a person of Indian origin, who is a non-resident, any income by way of interest on notified savings certificates (subscribed in convertible foreign exchange) issued before the 1st day of June, 2002 by the Central Government is exempt from tax.
F) Leave travel concession [Section 10(5)]
An employee can claim exemption under section 10(5) in respect of Leave Travel Concession. Exemption under section 10(5) is available to all employees (i.e. Indian as well as foreign citizens).
Exemption is available in respect of value of any travel concession or assistance received or due to the employee from his employer (including former employer) for himself and his family members in connection with his proceeding on leave to any place in India. Other provisions to be kept in mind in this regard are as follows:
Where journey is performed by air: Amount of exemption will be lower of amount of economy class air fare of the National Carrier by the shortest route or actual amount spent.
Where journey is performed by rail: Amount of exemption will be lower of amount of airconditioned first class rail fare by the shortest route or actual amount spent. The same rule will apply where journey is performed by any other mode and the place of origin of journey and destination are connected by rail.
Where the place of origin and destination are not connected by rail and journey is performed by any mode of transport other than by air:
The exemption will be as follows:
- If recognised public transport exists: Exemption will be lower of first class or deluxe class fare by the shortest route or actual amount spent.
- If no recognised public transport exists: Exemption will be lower of amount of airconditioned first class rail fare by the shortest route (considering as if journey is performed by rail) or actual amount spent.
Block: Exemption is available for 2 journeys in a block of 4 years. The block applicable for current period is calendar year 2014-17. The previous block was of calendar year 2010-2013.
Carry over: If an employee has not availed of travel concession or assistance in respect of one or two permitted journeys in a particular block of 4 years, then he is entitled to carry over one journey to the next block. In this situation, exemption will be available for 3 journeys in the next block. However, to avail of this benefit, exemption in respect of journey should be utilised in the first calendar year of the next block. In other words, in case of carry over, exemption is available in respect of 3 journeys in a block, provided exemption in respect of at least 1 journey is claimed in the first year of the next block.
Exemption is in respect of actual expenditure on fare, hence, if no journey is performed, then no exemption is available.
Family: Family will include spouse and children of the individual, whether dependent or not and parents, brothers, sisters of the individual or any of them who are wholly or mainly dependent on him .
Exemption is restricted to only 2 surviving children born after October 1, 1998 (multiple births after first single child will be considered as one child only), however, such restriction is not applicable to children born before October 1, 1998.
G) Remuneration received by specified diplomats and their staff [Section 10(6)(ii)]
As per section 10(6)(ii), in case of an individual who is not a citizen of India, remuneration received by him as an official (by whatever name called) of an embassy, high Commission, legation, Commission, consulate or trade representative of a foreign State, or member of the staff of any of that official is exempt from tax, if corresponding Indian official in that foreign country enjoys a similar exemption.
H) Salary of a foreign employee and non-resident member of crew [Section 10(6)(vi), (viii)]
As per section 10(6)(vi), the remuneration received by a foreign national as an employee of a foreign enterprise for services rendered by him during his stay in India is exempt from tax, provided the following conditions are fulfilled—
- the foreign enterprise is not engaged in any trade or business in India ;
- his stay in India does not exceed in the aggregate a period of 90 days in such year ; and
- such remuneration is not liable to be deducted from the income of the employer
As per section 10(6)(viii), any salaries received by or due to a non-resident foreign national for services rendered in connection with his employment on a foreign ship where his total stay in India does not exceed in the aggregate a period of 90 days in the year is exempt from tax.
I) Remuneration of a foreign trainee [Section 10(6)(xi)]
As per section 10(6)(xi), the remuneration received by a foreign trainee as an employee of foreign Government during his stay in India in connection with his training in any establishment or office of, or in any undertaking owned by,—
i. the Government ; or
ii. any company owned by the Central Government, or any State Government
iii. any company which is a subsidiary of a company referred to in item (ii) ; or
iv. any corporation established by or under a Central, State or Provincial Act ; or
v. any co-operative society wholly financed by the Central Government, or any State Government
J) Tax paid on behalf of foreign company deriving income by way of royalty or fees for technical services [Section 10(6A)]
Tax paid by Central Government, State Government or an Indian concern on behalf of a foreign company deriving income by way of royalty or fees for technical services in pursuance of an agreement made after March 31, 1976 but before June 1, 2002 will be exempt from tax in the hands of such foreign company provided such agreement is in accordance with the industrial policy of the Indian Government or it is approved by the Central Government.
K) Tax paid on behalf of foreign company or non-resident in respect of other income [Section 10(6B)]
Tax paid by Central Government, State Government or an Indian concern on behalf of a foreign company or non-resident in respect of any income (not being salary, royalty or fees for technical services) will be exempt from tax in the hands of such foreign company or non-resident if such income is received in pursuance of an agreement entered into before June 1, 2002 by the Central Government with the Government of a foreign State or international organisation or any other related agreement approved by the Central Government.
L) Tax paid on behalf of foreign Government or foreign enterprise deriving income by way of lease of aircraft or aircraft engine [Section 10(6BB)]
Tax paid by an Indian company, engaged in the business of operation of aircraft, on behalf of foreign Government or foreign enterprise deriving income by way of lease of aircraft or aircraft engine will be exempt from tax in the hands of such foreign Government or foreign enterprise if such lease rental is received under an agreement which is approved by Central Government and entered during the period between 31-3-1997 to 1-4-1999, or after 31-3-2007.
M) Technical fees received by a notified foreign company [Section 10(6C)]
Section 10(6C) grants exemption from tax in respect of income arising to notified foreign company by way of royalty or fees for technical services received in pursuance of an agreement entered into with that Government for providing services in or outside India in projects connected with security of India.
N) Royalty/Fees received by non-resident from National Technical Research Organisation [Section 10(6D)]
As per section 10(6D), income arising to non-resident by way of royalty or fees for technical services from services rendered to National Technical Research Organization (‘NTRO’) will be exempt from tax in India
O) Allowance/perquisites to Government employee outside India [Section 10(7)]
As per section 10(7), any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering service outside India is exempt from tax.
P) Income of foreign Government employee under co-operative technical assistance programme [Section 10(8)]
As per section 10(8), remuneration received directly or indirectly by an individual, from the foreign Government in connection with a co-operative technical assistance programme and projects in accordance with an agreement entered into by the Central Government and such foreign Government, is exempt from tax. Further, exemption is available in respect of any other income of such an individual which accrues or arises outside India and is not deemed to accrue or arise in India, provided such individual is required to pay income-tax/ social security tax to the foreign Government.
Q) Remuneration or fees received by a non-resident consultant/its foreign employees [Section 10(8A), (8B)]
Under section 10(8A), (a) remuneration or fees received by a consultant* directly or indirectly out of the funds made available to an international organisation, under a technical assistance agreement between such organisation and the Government of a foreign State and (b) any other income which accrues or arises to him outside India and is not deemed to accrue or arise in India, in respect of which such consultant is required to pay income-tax/social security tax to the foreign Government of the country of his origin, is exempt from tax.
*Consultant means any individual who is either not a citizen of India, or being a citizen of India, is not ordinarily resident in India or any other person who is a non-resident and is engaged by the international organization for rendering technical services in India in accordance with an agreement entered into by the Central Government and the said international organization and the agreement relating to engagement of consultant is approved by the prescribed authority
Section 10(8B) grants similar exemption to the employee of the above discussed consultant, if such employee is either not a citizen of India or being a citizen of India, is not ordinarily resident in India and the contract of his service is approved by prescribed authority before the commencement of his service .
R) Income of a family member of an employee serving under co-operative technical assistance programme [Section 10(9)]
As per section 10(9), the income of any member of the family of any such individual as is referred to in section 10(8)/(8A)/(8B) accompanying him to India, which accrues or arises outside India and is not deemed to accrue or arise in India, in respect of which such member is required to pay any income or social security tax to the Government of that foreign State or country of origin of such member, as the case may be, is exempt from tax.
S) Death-cum-retirement gratuity received by Government servants [Section 10(10)(i)]
Section 10(10)(i) grants exemption to gratuity received by Government employee (i.e., Central Government or State Government or local authority)
T) Gratuity received by a non-Government employee covered by Payment of Gratuity Act, 1972 [Section 10(10)(ii)]
As per section 10(10)(ii), exemption in respect of gratuity in case of employees covered by the Payment of Gratuity Act, 1972 will be lower of following :
- 15 days’ salary × years of service.
- Maximum amount specified, i.e., Rs. 20,00,000*.
- Gratuity actually received.
*Limit increased from Rs. 10 lakhs to Rs. 20 lakhs vide Notification No. 1420(E), dated 29-3- 2018.
Note :
1) Instead of 15 days’ salary, only 7 days salary will be taken into consideration in case of employees of seasonal establishment.
2) 15 days’ salary = Salary last drawn × 15/26
3) Salary for this purpose will include basic salary and dearness allowance only. Items other than basic salary and dearness allowance are not to be considered.
4) In case of piece rated employee, 15 days’ salary will be computed on the basis of average of total wages (excluding overtime wages) received for a period of three months immediately preceding the termination of his service.
5) Part of the year, in excess of 6 months, shall be taken as one full year.
U) Gratuity received by a non-Government employee not covered by Payment of Gratuity Act, 1972 [Section 10(10)(iii)]
As per section 10(10)(iii), exemption in respect of gratuity in case of employees not covered by the Payment of Gratuity Act, 1972 will be lower of following :
- Half month’s salary for each completed year of service, i.e., [Average monthly salary × ½] × Completed years of service.
- Rs. 10,00,000.
- Gratuity actually received
Note :
1) Average monthly salary is to be computed on the basis of average of salary for 10 months immediately preceding the month of retirement.
2) Salary for this purpose will include basic salary, dearness allowance, if the terms of service so provide and commission based on fixed percentage of turnover achieved by the employee.
3) While computing years of service, any fraction of a year is to be ignored.
V) Pension [Section 10(10A)]:
As per section 10(10A), any commuted pension, i.e., accumulated pension in lieu of monthly pension received by a Government employee is fully exempt from tax. Exemption is available only in respect of commuted pension and not in respect of un-commuted, i.e., monthly pension. Exemption in respect of commuted pension in case of a non-Government employee will be as follows:
- If the employee receives gratuity, one third of full value of commuted pension will be exempt from tax under section 10(10A).
- If the employee does not receive gratuity, one half of full value of commuted pension will be exempt from tax under section 10(10A).
W) Leave salary [Section 10(10AA)]
As per section 10(10AA), leave encashment by a Government employee at the time of retirement (whether on superannuation or otherwise) is exempt from tax. In the hands of non-Government employee exemption will be least of the following
- Period of earned leave standing to the credit in the employee’s account at the time of retirement (*) × Average monthly salary ($).
- Average monthly salary ($) × 10 (i.e., 10 months’ average salary).
- Maximum amount as specified by the Government, i.e., Rs. 3,00,000. 4. Leave encashment actually received at the time of retirement.
(*)Leave credit to the account of the employee at the time of retirement should be restricted to 30 days per year of service if leave entitlement as per service rules exceeds 30 days per year of actual service.
($) Salary for the above purpose means average salary drawn in the past ten months immediately preceding the retirement (i.e., preceding the day of retirement) and will include basic salary, dearness allowance (if considered for computing all the retirement benefits) and commission based on fixed percentage of turnover achieved by the employee.
Apart from the above items, salary for this purpose does not include any other allowances or perquisites.
X) Retrenchment compensation [Section 10(10B)]
As per section 10(10B), compensation received at the time of retrenchment is exempt from tax to the extent of lower of the following:
- An amount calculated in accordance with the provisions of section 25F(b) of the Industrial Dispute Act, 1947; or
- Maximum amount specified by the Central Government (Rs. 5,00,000);
- Actual amount received.
Under the Industrial Dispute Act, a workman is entitled to retrenchment compensation, equal to 15 days’ average pay for each completed year of continuous service or any part in excess of six months.
Compensation in excess of aforesaid limits is taxable as salary. However, the aforesaid limit is not applicable in cases where compensation is paid under any scheme approved by the Central Government.
Y) Compensation for Bhopal Gas Leak Disaster [Section 10(10BB)]
Compensation [in accordance with Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985] received by victims of Bhopal gas leak disaster is exempt from tax. However, compensation received for any expenditure which is allowed as deduction from taxable income is not exempt.
Z) Compensation on account of any disaster [Section 10(10BC)]
Any amount received from the Central Government or State Government or a Local Authority by an individual or his legal heirs as compensation on account of any disaster is exempt from tax. However, no deduction is available in respect of the amount received or receivable to the extent such individual or his legal heirs has been allowed a deduction under the Act on account of loss or damage caused due to such disaster. Disaster here means any disaster due to any natural or man-made causes or by accident/negligence which results in substantial loss of human life or damage to property or environment and the magnitude of such disaster is beyond coping capacity of community of the affected area.
AB) Payment at the time of voluntary retirement [Section 10(10C)]
As per section 10(10C), any compensation received at the time of voluntary retirement or termination of service is exempt from tax, if the following conditions are satisfied:
- Compensation is received at the time of voluntary retirement or termination (or in the case of an employee of public sector Company, at the time of voluntary separation).
- Compensation is received by an employee of following undertakings
- public sector company ; or
- any other company ; or
- an authority established under a Central, State or Provincial Act ; or
- a local authority ; or
- a co-operative society ; or
- a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956) ; or
- an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 (59 of 1961) ; or
- any State Government; or
- the Central Government; or
- Notified institutes having importance throughout India or in any State or States,
- Notified institute of management
- Compensation is received in accordance with the scheme of voluntary retirement/separation, which is framed in accordance with guidelines prescribed under Rule 2BA of Income-tax Rules, 1962*.
- Maximum amount of exemption is Rs. 5,00,000.
- Where exemption is allowed to an employee under section 10(10C) for any assessment year, no exemption under this section shall be allowed to him for any other assessment year.
- With effect from assessment year 2010-11, section 10(10C) has been amended to provide that where any relief has been allowed to an assessee under section 89 for any assessment year in respect of any amount received or receivable on his voluntary retirement or termination of service or voluntary separation, no exemption under section 10(10C) shall be allowed to him in relation to such or any other assessment year.
