Exempt Income under Income Tax – Section 10
The various items of income referred to in the different clauses of section 10 are excluded from the total income of an assessee. These incomes are known as exempted incomes. Consequently, such income shall not enter into the computation of taxable income.
Some of Income not taxable under Income Tax Act
Agricultural income – Section 10(1)
Agricultural income is exempt under section 10(1).
However, agricultural income has to be aggregated with non agricultural income for determining the rate at which non-agricultural income would be subject to tax, in case of individuals, HUF, AOP & BOIs etc., where the –
• agricultural income exceeds ` 5,000 p.a. and
• non-agricultural income exceeds basic exemption limit.
The following are the steps to be followed in computation of tax –
Step 1: Tax on non-agricultural income plus agricultural income
Step 2: Tax on agricultural income plus basic exemption limit
Step 3: Tax payable by the assessee = Step 1 – Step 2
Step 4: Add Surcharge/Deduct Rebate u/s 87A, if applicable.
Step 5: Add Health and Education Cess@4%.
Income of members of HUF – Section 10(2)
Since the HUF is taxed in respect of its income, the share income is exempt from tax in the hands of the member.
Partners Share – Section 10(2A)
The partner’s share in the total income of the firm or LLP is exempt from tax.
Income in NRE A/c – Section 10(4)
Income by way of interest on moneys standing to his credit in a Non-resident (External) Account (NRE A/c), is exempt in the hands of an individual, being a person resident outside India as per the FEMA, 1999 or in the hands of an individual who has been permitted by the RBI to maintain such account.
Income of official of an embassy, high commission, etc. – Section 10(6)
Remuneration received by an individual, who is not a citizen of India, as an official of an embassy, high commission, legation, consulate or the trade representation of a foreign State or as a member of the staff of any of these officials would be exempt, subject to satisfaction of certain conditions:
- such members of staff are subjects of the country represented and not engaged in any business or profession or employment in India otherwise than as members of such staff.
- remuneration of corresponding officials of the Government resident for similar purposes enjoy similar exemption in the other Country.
Income arising to non-corporate non-resident and foreign companies, by way of royalty from or fees from technical services rendered in or outside India to, the National Technical Research Organisation (NTRO) is exempt.
Payment to Bhopal Gas Victims is exempt.
Income received on account of any disaster – Section 10(10BC)
Compensation received or receivable from the Central Government, State Government or local authority by an individual or his legal heir on account of any disaster is exempt except to the extent of loss or damage allowed as deduction under the Act.
Sukanya Samriddhi Account – Section 10(11A)
Any payment from Sukanya Samriddhi Account
Scholarship – Section 10(16)
The value of scholarship granted to meet the cost of education would be exempt from tax in the hands of the recipient irrespective of the amount or source of scholarship.
Daily allowance – Section 10(17)
Daily allowance received by any Member of Parliament or of State Legislatures or any Committee thereof are exempt.
Awards – Section 10(17A)
Awards for literary, scientific and artistic works and other awards by the Government are exempt.
Pension – Section 10(18)
Pension received by individual who has been in service of Central or State Government and has awarded “ParamVir Chakra” or “MahaVir Chakra” or “Vir Chakra” such other gallantry award as the Central Government notifies is exempt from tax.
Income from any source in the specified areas or States in which member of a Scheduled Tribe is residing or income by way of dividend or interest on securities is exempt in the hands of member of the Scheduled Tribe.
Sikkim – Section 10(26AAA)
Income from any source in the state of Sikkim, dividend income and interest on securities is exempt in the hands of a Sikkimese individual. This exemption is not available to a Sikkimese woman who, on or after 1st April, 2008, marries a non-Sikkimese individual.
Subsidy for tea – Section 10(30)
The amount of any subsidy received by any assessee engaged in the of growing and manufacturing tea in India through or from the Tea Board will be wholly exempt from tax.
Subsidy for rubber, coffee and cardamom – Section 10(31)
The amount of any subsidy received by an assessee engaged in the business of growing and manufacturing rubber, coffee, cardamom or other specified commodity in India from or through the Rubber Board, Coffee Board, Spices Board or any other will be exempt.
Any income received in respect of units from the Administrator of the specified undertaking/ specified company/ Mutual Fund shall be exempt. However, income arising from transfer of such units would not be exempt.
Special Economic Zones (SEZs) – Section 10AA
Tax holiday for unit established in Special Economic Zones (SEZs), which has begun or begins to manufacture or produce articles or things or provide any service on or after 1.4.2005 in any SEZ for 15 consecutive assessment years in respect of its profits derived from exports of such articles or things or export of services (including computer software).
Amount of exemption = Profits of Unit in SEZ x Export turnover of Unit SEZ/Total turnover of Unit SEZ
100% of such profits would be exempt in the first five years, 50% in the next five years and in the last five years, 50% subject to transfer to SEZ Re-investment Reserve Account.