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.
92-93 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 31.03.2003) 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 1.04.2002, 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 10000 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 01.04.2004
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 2005-06 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 days 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 months 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