INCOME TAXES

TOPIC Exemptions Group Members

1. 2. 3. 4.

Apurva Goyal Akash Bhagat Manohar Sandeep

Sec 10
It is that Section in the Income tax act that renders the income earned by an assesse completely exempt for the computation of tax. The exemption are of the following nature : Exemption based upon the nature of the income Exemption based upon the status of the assessee and Exemption based upon the source from which the income is derived .

What is exemption ? It is the deduction or relief provided to an individual assesse under the section of the IT act such that it does not form a part of the taxable income. In other words income which is not considered for the purpose of computation of tax is termed as exempted income .

1. AGRICULTURAL INCOME:

Sec 2(1A) of the IT act defines agricultural income as 1. Any rent or revenue derived from land situated in india and is used for agricultural purposes . 2. Any income derived from such land by 1. Agriculture 2. Receipt of rent in kind in exchange for produce raised as fit for the market . 3. Sale made by the cultivator of the produce raised or received by him . 3. Income derived from any building owned and occupied by the receiver of rent in kind or the cultivator of the produce mentioned in the above clauses.

 Such agricultural income is exempt from income tax in case of all assesses . This exemption has been granted on the account of constitutional provisions relating to the power of the state and central government for levying tax on such income .
This is because agriculture is the backbone of the Indian economy and the constitution makes conscious efforts to harness the growth in such sector. Also income from agriculture contributed a massive chunk to the GDP of the nation .

2. Income from dividends

Dividend may be understood as a distribution of a portion of a companys earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms the Rupee amount each share receives. It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.

Any income by way of dividends referred to in Sec 115o shall be exempt from income tax. As per sec 115o the company which is domestic in nature, paying or declaring any dividends have to pay tax at 15% plus surcharge at 5% and educational cess at 3% on such dividends. Therefore such dividends shall be exempt from tax in the hands of the shareholders.

3. House rent allowance Section 10(13A) allows grants to an employee by his employer to meet the expenditure actually incurred and payment of rent in respect to residential accommodation occupied by the assesse . The exemption is to the extent of least of the following : 1. Actual amount of such allowance in respect of the relevant period 2. Rent paid over 10% of salary (rent paid -10%of salary)

3. An amount equal to : 1. Where the accommodation is in Mumbai, Kolkata, Delhi or Chennai 2. Where the accommodation is situated at any other place, 2/5th of the amount is due.

It is based on the premise that an employee shall be allowed the grant to meet his accommodation requirements .

4. Income received by a member of the HUF:

According to section 10(2) any sum received by an individual in the capacity as a member of HUF is wholly exempt from income tax where such sum has been paid out of income of the family or out of the estate belonging to the family .
This is because it has already been taxed

5. Income from transfer of Equity shares According to section 10(36) any income arising from the transfer of a long term capital asset, being an eligible equity share in a company purchased on or after 1st mar 2003 and held for a period more than 12 months shall be exempt from tax.

6. Payment received under a life insurance Policy According to section 10(10D) any sum received on life insurance policy (including bonus) is not chargeable to tax. Exemption is, however, not available in respect of

the amount received on the following policies a. any sum received under section 80DD (3) or 80DDA (3); b. any sum received under a Keyman insurance policy;

c. any sum received under an insurance policy (issued after March 31, 2003) in respect of which the

The above scheme does not include policies under sec 80DD and Sec 80DDA as it is concerned with maintenance and treatment of a dependent with disability. And for the purpose of the act keyman insurance policy is a policy taken a person on the life on another person who is or was connected in what so ever manner to the business of the first person. Thus both the above do not directly compensate the assesse for his events occurred.

7. Capital Gain on compulsory Acquisition of urban agricultural land As per section 10(37), in the case of an individual/Hindu undivided family, capital gain arising on transfer by way of compulsory acquisition of urban agricultural land is not chargeable to tax from the assessment year 2005-06 if such compensation is received after March 31, 2004 and the agricultural land was used by the assesse (or by any of his parents) for agricultural purposes during 2 years immediately prior to transfer.

8.Income of a Minor Child

Where the income of a individual includes any income of his minor child, then such individual shall be entitled for exemption upto Rs1500 per minor child.