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Sunday, November 6, 2016
[Sec. 10] : Exempted Incomes
Income can be classified into Three categories as per provisions of this Act. These categories are :
I. Income Forming part of Total Income and subject to Tax :
--These incomes are treated u/s 14 to 80 of the Act and have been explained in detail in Part II of this book.
II Incomes forming part of Total Income but entitled to Rebate or Relief :
-- These incomes are given u/s 86.
III Income Exempted from Tax
-- These incomes do not form part of total income either fully or partially.
Section 10 of Income Tax Act has given a long list of incomes which are totally exempt from tax and so these incomes are not included in the gross total income of the assessee. In other words, such incomes are totally Tax-Free.
While calculating Total Income in any previous year of any person, any income coming under the following clauses shall be exempted.
Agricultural Income– fully exempted.
Any sum received from Hindu Undivided Family (HUF)
Share of Income from a Partnership Firm
Interest on Government Securities for non-resident.
10(4) & 4(B)
Leave Travel Concession provided by an employer to his Indian Citizen employee
Exemptions for Foreigners.
(i) Passage Money
(ii) Remuneration of officials of Foreign embassies, High Commissions, Legations, Commissions, Consultants or Trade Representatives.
(vi) Remuneration of Employees of certain Foreign Enterprises.
(via) Remuneration of Employees of Foreign Philanthropic Institutions
(viia) Salaries of Technician on scientific research of the Government , local Authorities or Special Corporations.
(viii) Salaries to non-residents employed on a foreign ship
(ix) Salaries to non-resident teachers
(x) Income of individual engaged in research work in certain cases.
(xi) Remuneration to certain trainee foreigners.
Foreign Companies receiving approved royalty or Fees for Technical Services.
Income Tax paid by Government or companies on behalf of certain non-residents.
Income Tax paid by an Indian Company engaged in the business of operation of aircraft on behalf of Government of foreign State or a foreign enterprises.
Income of all notified foreign company providing services within or outside India in any project connected with the security of India.
Foreign Allowance granted by the Government of India to its employees posted abroad.
Employees of Foreign Countries working in India under Cooperative Technical Assistance Programme including income of any member of the family of employees.
10(8) & (9)
Remuneration / Fees received by non-resident consultants and their foreign employees
10(8A), (8B) & (9)
Death cum Retirement Gratuity :
Gratuity is a retirement benefit. It is generally payable at the time of cessation o0f employment and on the basis of duration of service. Tax treatment of Gratuity is given below :
Status if employee
Whether Gratuity is taxable
It is fully exempt from tax u/s10(10)(i)
Non-Government employee covered by the Payment of Gratuity Act, 1972.
It is fully or partially exempt from tan u/s10(10)(ii)
Non-Government employee not covered by the Payment of Gratuity Act, 1972
It is fully or partially exempt from tan u/s10(10)(iii)
For other employees :
Exempt up to least of the following :
15 days’ salary ( 7 days’ salary in the case of employees of a seasonal establishment ) based on salary last drawn for each year of service (i.e. 15 days’ salary X Length of service).
Actual Gratuity received.
Commuted value of Pension received :
The full amount is Exempted if it is received from the Government , a Local Authority or a Statutory corporation
It does not exceed the following limit if any payment in commutation of person receive under any scheme from any other employer:
in case where the employee receives any Gratuity, then commuted value of 1/3 rd of Pension he receive ; and
in any other case the commuted value of ½ such pension.
Amount received as leave encashment or retirement :
Central & State Government Employee – any payment received as leave salary in respect of the earned leave at his credit at the time of his retirement shall be fully exempt
Other employees – any payment received as the cash equivalent of the leave salary at his credit at the time of superannuation shall be exempt up to least of the following four amounts :
Actual amount received.
Amount calculated at average salary of 10 months
Cash equivalent to Leave Salary due at the time of retirement.
Notified Limit – Rs.3,00,000
Excess of amount received over the least of the above shall be taxable.
Retrenchment compensation paid to workmen : Compensation received by a workman at the time of retrenchment is exempt from tax to the extent of the lower of the following :
Amount calculated in accordance with the provisions of Sec 25F(b) of the Industrial Dispute Act, 1947 ; or
Such amount as notified by the Government ( i.e. Rs.5,00,000 ) ; or
The amount received.
Payment on Voluntary Retirement of employees of public sector company, any other company, Authorities of Gove. , Local Authority or Co-operative Society, specific university, IIT, notified institution of management.
Any sum received under Life Insurance Policy , including the sum allocated by way of Bonus on such policy.
Payment from Statutory Provident Fund : Any amount withdrawn from the Statutory Provident Fund is exempt from tax. This provision is applicable on Public Provident Fund also.
Payment from Recognized Fund : the accumulated balance due and payable to an employee in case of a recognized provident fund.
Payment from an approved superannuation fund made -
(i) to the legal heirs on the death of a beneficiary; or
(ii)to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement; or
(iii)by way of refund of contributions on the death of a beneficiary; or
(iv)by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon;]
House Rent Allowance :
(a) Persons living in Rented House –Any amount of House Rent Allowance (HRA) received by the employee form his employer is exempt up to the least of the following limits :
(i) excess of actual Rent paid over 10% of Salary.
(ii) an amount equal to 50% of Salary where such accommodation is situated in any one of the following places, namely, Bombay, Calcutta, Delhi, Chennai and 40% of Salary in other towns ; or
(iii) actual amount of House Rent Allowance received.
(b) Person living in their own houses or not paying any rent but getting HRA : Full HRA received is taxable. NO exemption under this provision.
Any allowance given for meeting Business Expenditure :
any such special allowance or benefit, not being in the nature of a perquisite, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose;
Scholarships granted to meet the cost of education;
Allowance of M.P. / M.L.A. / or M.L.C.
any income by way of-
(i) daily allowance received by any Membership of Parliament (MP) or of any State Legislature or of any Committee thereof;
(ii) any allowance received by any person by reason of his membership of Parliament under the Members of Parliament (Constituency Allowance) Rules, 1986;
(iii) any constituency allowance received by any person by reason of his membership of any state Legislature under any act or rules made by the state legislature
Award instituted by Government :
any payment made, whether in cash or in kind,-
(i) under any award instituted in the public interest by the Central Government or any State Government or instituted by any other body and approved by the Central Government in this behalf shall be fully exempted; or
(ii)any other reward given by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the public interest shall also be fully exempted.;]
Payment received by the winners of Vir Chakra etc.
any income by way of-
(i)pension received by an individual who has been in the service of the Central or State Government and has been awarded "Param Vir Chakra" or "Maha Vir Chakra" or "Vir Chakra" or such other gallantry award as the Central Government may approved ;
Family Pension received by family members of Armed Force :
Family pension received by the widow or children or nominated heirs, as the case may be, of a member of the armed forces (including para-military forces) of the Union, where the death of such member has occurred in the course of operational duties, in such circumstances and subject to such conditions, as may be prescribed;
Income of a local authority : The following types of incomes in the hands of a local authority are exempt from tax---
“Income from house property”,
“Capital gains” or
“Income from other sources” or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service
Any income of an approved Scientific Research Association :
Income of News Agency :
any income of such news agency set up in India solely for collection and distribution of news as the Central Government may, by notification in the Official Gazette, specify in this behalf:
Income of some Professional Institutions :
any income of an association or institution established in India having as its object the control, supervision, regulation or encouragement of the profession of law, medicine, accountancy, engineering or architecture or such other profession as the Central Government may specify in this behalf, from time to time, by notification in the Official Gazette
Income of a Fund set-up for the welfare of employees or their dependents :
any income received by any person on behalf of a fund established, for such purposes as may be notified by the Board in the Official Gazette, for the welfare of employees or their dependants and of which fund such employees are also members
Income of a Pension Fund set up by LIC or other Insurer :
any income of a fund set up by the Life Insurance Corporation of India (LIC) on or after the 1st day of August, 1996 175[or any other insurance under a pension scheme],-
(i)to which contribution is made by any person for the purpose of receiving pension from such fund;
(ii)which is approved by the Insurance Regulatory and Development Authority Act, 1999.
Income of Institutions established for development of Khadi and Village Industries :
any income of an institution constituted as a public charitable trust or registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India, and existing solely for the development of khadi or village industries or both, and not for the purposes of profit, to the extent such income is attributable to the business of production, sale, or marketing, of khadi or products of village industries:
Income of State Level Kahdi Village Industries Board :
any income of an authority (whether known as the Khadi and Village Industries Board or by any other name) established in a State by or under a State or Provincial Act for the development of Khadi or Village Industries in the State.
Income of certain Authorities set up to manage Religious and Charitable Institutions (including maths, temples, gurdwaras, wakfs, churches, synagogues, agiaries )
Income of Insurance Regulatory and Development Authority :
any income of the Insurance regulatory and Development Authority established under of the Insurance Regulatory and Development Authority Act, 1999]
Any Income received by a person on behalf of following Funds:
any income received by any person on behalf of-
(i) the Prime Minister's National Relief Fund; or
(ii)the Prime Minister's Fund (Promotion of Folk Art); or
(iii)the Prime Minister's Aid to Students Fund; [or]
(iiia) the National Foundation for Communal Harmony; or
(iiiab) any university or other educational institution which is wholly or substantially financed by the Government; or
(iiiac)any hospital or other institution which is wholly or substantially financed by the Government; or
(iv) any other fund or institution established for charitable purposes which may be notied by the Central Government in the Official Gazette
Income of Mutual Fund :
any income of…
(i) a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 or regulations made there under;
(ii) such other Mutual Fund set up by a public sector bank or a public financial institution or authorised by the Reserve Bank of India and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf]
Income of investor protection fund
Income of Credit Guarantee Funds Trust for Small Industries
Income of Investor Protection Fund by way of contributions from commodity exchange and the members thereof.
Income by way of Dividend or Long-Term Capital Gain of venture Capital Fund / undertaking.
Income of Registered Trade Unions :
any income chargeable under the heads
(i) "Income from house property" and
(ii) "Income from other sources" of-
The Trade Union must be a registered union within the meaning of the Trade Unions Act, 1926 formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen;
Income of Provident and Superannuation Fund :
Any income received by a person on behalf of approved Gratuity Fund, Statutory Provident Fund, approved coal-mines provident funds, Recognized Provided Fund and Approved Superannuation Fund.
Income of Schedule Tribe Members :
Certain type of incomes of the members of Schedule Tribes living in tribal areas are exempted from tax of those incomes which accrue or arise to him :
from any source in the areas
by way of dividend or interest on securities
Income of Child clubbed u/s 64(1A) :
In case income of a minor child is clubbed with the income of his parent, the parent can claim exemption upto actual income of child clubbed or Rs.5,000 whichever is less in respect of each minor child whose income is included.