exempted income under income tax act

EXEMPTED INCOME UNDER INCOME TAX ACT

MATHIOLI. R

ACCOUNTS EXECUTIVE

ESCROWTECH INDIA PRIVATE LIMITED

INTRODUCTION

“Uruporulum, ulkuporulum than onaar,

Theruporulum vaendhan porul"

The above Kural specifies the three sources of income, that would legitimately accrue to the king. 'Uruporul' would

refer to the just dues that the king’s subjects pay, whether the tax-rate be one-tenth, one-sixth, or otherwise.

'Ulkuporul' means the customs collection (ulkam, sulkam or sungam) However, because of his emphasis on the Army,

and its exploits (i.e.) mentioning 'Teru porul' it would be wrong, completely to equate the views of Valluvar with either

of Plato or Aristotle on the one hand, or kautilya and Machiavelli on the other. These authorities were, to different

degrees, concerned with political advantage and expedience, in preference to principles of good government and

ethical standards of ideal administration, as propounded by Thiruvalluvar.

EXEMPTIONS & EXCLUSIONS U/S.10

Agricultural Income [Section 10(1)]

As per section 10(1), agricultural income earned by the taxpayer in India is exempt from tax.

Amount received by a member of the Hindu Undivided Family (HUF) [Section 10(2)]

Amount received by a member of the HUF from the income of the HUF, or in case of impartible estate outof income of family estate.

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 ofthe partner. Further, share of profit received by a partner of LLP from the LLP will be exempt from tax inthe hands of such partner. This exemption is limited only to share of profit and does not apply to intereston capital and remuneration received by the partner from the firm/LLP.

EXEMPTIONS & EXCLUSIONS U/S.10 (CONTD.)

Leave Travel Concession in India [Section 10(5)]

An employee can claim exemption under section 10(5) in respect of Leave Travel Concession. Exemptionunder section 10(5) is available to all employees (i.e. Indian as well as foreign citizens). Exemption isavailable in respect of value of any travel concession or assistance received or due to the employee fromhis employer (including former employer) for himself and his family members in connection with hisproceeding on leave to any place in India.

Pension [Section 10(10A)]:

As per section 10(10A), any commuted pension, i.e., accumulated pension in lieu of monthly pensionreceived by a Government employee is fully exempt from tax. Exemption is available only in respect ofcommuted pension and not in respect of un-commuted, i.e., monthly pension. Exemption in respect ofcommuted pension in case of a non-Government employee.


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:

1. Period of earned leave standing to the credit in the employee’s account at the time of

retirement × Average monthly salary.

2. Average monthly salary × 10 (i.e., 10 months’ average salary).

3. Maximum amount as specified by the Government, i.e., Rs. 3,00,000.

4. Leave encashment actually received at the time of retirement.


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 ofservice is exempt from tax, if certain conditions are satisfied.

• Compensation is received at the time of voluntary retirement or termination

• Compensation is received by an employee of an undertakings.

• Compensation is received in accordance with the scheme of voluntary retirement/separation

• Where exemption is allowed to an employee under section 10(10C) for any assessment year, no exemptionunder 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 anyrelief has been allowed to an assessee under section 89


House Rent Allowance (HRA) - Section 10(13A)

As per section 10(13A), read with rule 2A, the exemption in respect of HRA will be lower of the followingamounts:

(1) 50% of salary, when residential house is situated at metropolitans and 40% of salary whereresidential house is situated at any other place.

(2) HRA actually received by the employee in respect of the period during which rental accommodation isoccupied by the employee during the previous year.

(3) Rent paid in excess of 10% of salary.

Special Allowance

Section 10(14) Transport Allowance, Conveyance Allowance, Daily Allowance, Uniform Allowance, Helper Allowance, Research Allowance, Children Education Allowance, Children’s Hostel Expenditure Allowance.


As per section 10(14), read with rule 2BB following allowances granted to an employee are exempt fromtax subject to certain limit:

Allowances Exemption Limit

Children Education Allowance Up to Rs. 100 per month per child up to a maximum of 2 children is exempt

Hostel Expenditure Allowance Up to Rs. 300 per month per child up to a maximum of 2 children is exempt

Transport Allowance granted to an employee to meet expenditure on commuting between place of residence and place of duty

Up to Rs. 1,600 per month (Rs. 3,200 per month for blind and handicapped employees) is exempt

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

Uniform Allowance Exempt to the extent of expenditure incurred for official purposes


Interest on Securities - Section 10(15)

Interest incomes which are exempt under section 10(15) could be explained with the help of the following table – [10(15)(i) to 10(15)(viii) ]

Section Income Exemption to

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 assessees

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)( iv)(h) Interest received from any public sector company in respect of notified bonds or debentures and subject to

All assessees

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 assessees


Income of a fund established for welfare of employees [Section 10(23AAA)]

Any income received by any person on behalf of a fund established, for such purposeas may be notified by the Board in Official Gazette, for the welfare of employees ortheir dependents and of which fund such employees are members, is exempt fromtax, if such fund applies or accumulates its income for exclusive application towardsits objects, invests its funds in the modes specified in section 11(5) and such fund isapproved by the Principal Commissioner or Commissioner in accordance with rulemade in this behalf (see rule 16C and Form No. 9).


Income of the Employees’ State Insurance Fund [Section 10(25A)]

Any income of the Employees’ State Insurance Fund of the Employees’ State Insurance Corporation set-upunder the provisions of the Employees’ State Insurance Act, 1948 is exempt from tax under section10(25A).

Income of a minor child - Section 10(32) –including basic provisions of sec 64(1A)

Under section 64(1A) income of a minor child is clubbed along with the income of his/her parent, subjectto certain conditions.. If the income of an individual includes any income of his/her minor child, then suchindividual can claim exemption (in respect of each minor child) of lower of following amount: (a) Rs. 1,500per minor child; or (b) Amount of income of each minor child (which is clubbed).

EXEMPTIONS FOR SALARIED EMPLOYEES• HRA EXEMPTION

Many employers give House Rent Allowance (HRA) to their employees for them to reside at a good place. Aportion of the HRA given by employer to an employee is exempted from the levy of the IT and IT is only leviedon the remaining part.

• INCOME TAX EXEMPTION ON LEAVE TRAVEL ALLOWANCE

Many employers also give allowances to their employees to go on a vacation with their respective families. Theamount given by the employer to an employee to go on a vacation is exempted from the levy of tax to a certainextent provided that the amount given was for a vacation in India only.

• EXEMPTIONS ON ENCASHMENT OF LEAVES

Most employers give all their employees a certain no. of days which can be claimed as leaves. However, in casea person does not claim these leaves, many employers also give their employees the option for en-cashingthese leaves i.e. the employers pays extra to the employees for the leaves which were allowed to be taken butwere not taken.

EXEMPTIONS FOR SALARIED EMPLOYEES (CONTD.)

• TAX EXEMPTION FROM PENSION INCOME

On retirement of an employee, many employers pay a pension to their employees. Sometimes, the employerpays pension from his own pocket and in some cases, the employer purchases an annuity and then thepension is being paid by organization from whom the annuity had been purchased.

The pension can be two types i.e. commuted and uncommuted. In commuted pension, the whole amountof pension is received in lump-sum whereas in uncommuted Pension, the amount is paid in instalments atregular intervals.

• INCOME TAX EXEMPTION ON GRATUITY

Gratuity is a gift made by the employer to his employee in appreciation of the past services rendered by theemployee. Gratuity can either be received by:

-The employee himself at the time of his retirement

-The legal heir at the time of the death of the employee

EXEMPTIONS FOR SALARIED EMPLOYEES (CONTD.)

• INCOME TAX EXEMPTION ON VRS RECEIVED

Many employees opt for Voluntary Retirement before the actual age of retirement (i.e. 60 years). In such cases ,the employer sometimes gives some money to the employee on his voluntary retirement.

• INCOME TAX EXEMPTION FOR PERQUISITES

Some employers also give their employees various perquisites/facilities like car, mobile phones, Rent freeaccommodation.

Such perquisites are not fully tax free. A specific value of such facilities is allowed as an exemption and value ofthe balance facilities allowed is allowed as an exemption.

• EXEMPTION OF VARIOUS ALLOWANCES

Various other allowance like transport allowance, children education allowance are also allowed as income taxexemptions to salaried employees but only up to a certain limit.

CONCLUSION

exempted income under income tax act

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